First Foundation Inc. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Strategic Initiatives: Focused on improving loan-to-deposit ratio, increasing loan yield, and reducing balance sheet sensitivity to interest rates. Despite progress, continued work remains to solidify earnings and further reduce loan-to-deposit ratio.
• Financial Results: Net interest margin was 1.66% for the quarter, up from 1.51% prior. Core deposits totaled $8.1 billion. Loan-to-deposit ratio improved to 95.1%.
• Operational Efficiencies: Implemented workforce reductions and project terminations to control costs. Digital banking upgraded with MANTL, improving account opening pull-through rates.
• Wealth Management: Despite market volatility, Wealth Management had strong performance, with First Foundation Advisors recognized by CNBC and Barron's as top wealth advisers.

Segment Performance

• Banking: Net income attributable to common shareholders was $2.2 million or $0.04 per share for basic and diluted shares. Total revenues were $63.8 million, an increase of 4.4% from the prior quarter. Net interest income increased to $52.1 million (6.3% increase). Loan-to-deposit ratio decreased to 95.1% from 97.9% in the prior quarter. Loan balances were $10.3 billion, a reduction of $302 million from the prior quarter.
• Wealth Management and Trust: First Foundation Advisors had $5 billion in assets under management as of September 30, 2023, down from $5.3 billion in the prior quarter due to market volatility. Trust assets under advisement ended the quarter at $1.2 billion.

Guidance

• Management believes the third quarter is a trough for pretax provision net revenue (PPNR), expecting continued improvements in balance sheet and core earnings.
• Anticipate continued improvement in loan-to-deposit ratio, loan yield, and balance sheet sensitivity.
• Deposit pipeline remains robust, with focus on growing core deposits and reducing reliance on broker deposits.

Risks

• Uncertainty surrounding the Federal Reserve's fight against inflation and geopolitical events.
• Market volatility impacting Wealth Management assets under management (AUM).
• Interest rate changes affecting balance sheet sensitivity and loan yield.

Question and Answer

Q: Elaborate on funding dynamics and deposit outlook, including branch deposit initiatives.

A: Jamie and Chris discussed deposit mix changes, seasonal deposit inflows/outflows, and focus on growing core deposits through retail branches and digital initiatives.

Q: Discuss loan yield, payoffs, and expected tailwinds.

A: Discussion on C&I loan yields, payoffs in the quarter, and expectations of tailwinds from repositioning lower-yielding loans in coming quarters.

Q: Talk about expense cuts and customer service costs.

A: Jamie stated they'll continue seeking efficiency opportunities, with no plans for further workforce reductions, and discussed customer service cost seasonality and its impact on expenses.