First Foundation Inc. Q4 FY2024 earnings call

Key Points - Thomas Shafer noted no damage to branches from California fires, added director Allen Parker, sold $489M multifamily loans, and mentioned ACL reserves increased. - Jamie Britton discussed balance sheet progress with multifamily loan securitization, funding costs improvement, provision for credit losses related to charge-offs, and capital changes including preferred shares conversion. - Focus on diversifying loan portfolio, reducing commercial real estate concentration, improving risk profile, and developing operating framework for sustainability. - Wealth and trust business remained stable with fee income.

In the fourth quarter, First Foundation sold $489 million of multifamily loans held for sale. The net interest margin improved to 1.58% from 1.5% in the third quarter. Provision for credit losses was significantly higher with $17.1 million in net charge-offs. Wealth and trust related fees were $9.3 million, consistent with the prior quarter. The multifamily loans held for sale remained at approximately $1.4 billion, and the ACL balance increased to 41 basis points from 36 basis points in the prior quarter. Revenue contribution from different segments included interest income from securities, but total interest income declined, while net interest income increased due to lower interest expense.

Forward-Looking - Expect continued margin improvement in 2025. - Plan to continue selling the $1.4 billion multifamily loans held for sale portfolio. - Focus on reducing dependence on high cost and wholesale funding. - Develop an operating framework to support sustainability regardless of interest rate environment.

Risks - Interest rate fluctuations could impact margin and earnings. - Credit risk from loan portfolios, including potential for increased charge-offs. - Dependence on high cost broker deposits and other funding sources, which could affect financial performance. - Economic conditions could impact loan performance and credit quality.

Q: About commercial charge offs, what's the background?

A: Thomas Shafer said there were credits monitored closely, with a change in performance making it appropriate to charge them off, not just a fourth quarter event.

Q: On customer service related deposits, how to moderate that line item?

A: Jamie Britton said they'll monitor progress, balance maturities in broker CD portfolio with other high cost deposits, and consider loan-to-deposit ratio, focusing on month-by-month as the balance shifts.

Q: Given the spike in comp line, what about first quarter resets?

A: Jamie Britton said first quarter comp likely lower, with resets and lower accruals for non-executive teammates, and it'll depend on revenue growth and strategic initiatives.

Q: On balance sheet strategy, what's the focus?

A: Thomas Shafer said he's learning about operations and setting standards appropriate for a $13 billion bank, focusing on repositioning the balance sheet and remixing credit portfolios.

Q: On multifamily demand and the small loss, what's the commentary?

A: Jamie Britton said demand for multifamily loans held for sale is strong with many parties interested, and the small loss was a one-off in the multifamily portfolio.

Q: On NIM timing and loan yield of remaining loan held-for-sale portfolio?

A: Jamie Britton discussed the timing of the loan sale and mentioned the loan yield on the remaining portfolio is around certain levels.

Q: On customer deposit costs going into 1Q, what's the outlook?

A: Jamie Britton said first quarter likely benefits from full rate cut benefits and some seasonal runoff, expecting a reduction in customer service costs.

Q: On reserve commentary, where is comfort level?

A: Thomas Shafer said the reserve may trend up with a higher rate environment, as part of CECL analysis.