First Foundation Inc. Q4 FY2023 earnings call

• Scott Kavanaugh highlighted the team's efforts to strengthen the company despite industry headwinds, optimism for 2024 in improving loan-to-deposit ratio, loan yield, and balance sheet sensitivity to rates. Mentioned multi-family as strong. AUM increased by $200 million. Net income, tangible book value, pre-tax pre-provision net revenue, non-interest expense decrease, efficiency ratio improvement, adjusted return on average assets. - James Britton discussed net interest margin, balance sheet components, interest income/expense, income statement items like tax provision, and capital/liquidity. - Chris Naghibi provided loan portfolio breakdown, deposit operations details, credit quality metrics, underwriting standards, and deposit composition.

Banking Segment: Net income attributable to common shareholders was $2.5 million, or $0.045 per share. Interest income totaled $146.6 million for the quarter. Net interest margin was 1.36%. Loans to deposit ratio was 95.2% as of December 31, 2023. Deposits were $10.7 billion in the fourth quarter. Wealth Management and Trust Segment: First Foundation Advisors had $5.2 billion AUM as of December 30, 2023, up $200 million from Q3. Trust assets under advisement increased to $1.3 billion from $1.2 billion in Q3.

• Optimistic about 2024, expecting improvement in loan-to-deposit ratio, loan yield, and balance sheet repositioning. - Believes multi-family remains strong. - Anticipates benefit from liability-sensitive balance sheet if Fed cuts rates, with potential for substantial savings on liabilities. - Expects capital ratio improvement, estimating total risk-based capital ratio to be 12.27%.

• Customer deposit run-off, including a significant client withdrawal impacting customer service deposits. - Dependence on certain types of deposits (e.g., MSR portfolio) which can affect funding costs. - Market competition impacting deposit costs and client migration. - Economic uncertainties potentially affecting loan quality and asset yields.

Q: David Feaster asked about margin trajectory assuming Fed pause/cuts, impact on financials and loan growth.

A: Scott Kavanaugh noted liability-sensitivity would fuel earnings if rates cut, $3B of liabilities could reprice immediately; loan balances expected to stabilize, with multifamily loans having short duration. Chris Naghibi added on multifamily refinancing motivations.

Q: Gary Tenner inquired about borrowing decision, customer service deposit decline, and expense line.

A: Scott Kavanaugh discussed borrowing rate (~4.81%) to replace funding; James Britton mentioned a large client withdrawal impacted customer service deposits but balances starting to rebound; Chris Naghibi talked about expense line excluding customer service costs and measured approach to compensation/benefits increase tied to profitability