First Foundation (FFWM) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Highlights Key Financial Data and Highlights First Foundation Inc. reported a net loss of $7.7 million for Q2 2025, driven by a strategic sale of $858 million in Commercial Real Estate (CRE) loans, while improving Net Interest Margin to 1.68% and strengthening capital to 14.70% Q2 2025 Key Financial Metrics | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net (Loss) Income | ($7.7M) | $6.9M | $3.1M | | (Loss) Earnings Per Share | ($0.09) | $0.08 | $0.05 | | Net Interest Margin (%) | 1.68 | 1.67 | 1.36 | | Total Loans | $8.03B | $9.00B | $10.09B | | Total Deposits | $8.59B | $9.56B | $10.76B | | Total Risk-Based Capital Ratio (%) | 14.70 | 14.04 | 12.60 | - The company executed a significant strategic move by selling approximately $858 million in CRE loans held for sale at an average price of 94.0%, resulting in a pre-tax revenue impact of ($12.1) million and an after-tax net income impact of ($8.7) million[2][7] - Proceeds from the loan sales were used to reduce high-cost deposits by approximately $865 million, leading to a 9 basis point sequential decrease in the cost of deposits to 2.95%[4][7] - Maintained strong liquidity with $3.5 billion in total liquidity and a ratio of liquidity to uninsured/uncollateralized deposits of 2.70x[2][5] Executive Commentary Management emphasized significant progress in its strategic plan during Q2 2025, highlighting material reductions in CRE concentration and high-cost deposits, with projected NIM expansion to 1.80-1.90% by Q4 2025 - CEO Thomas C. Shafer stated the company is on track to completely exit its held-for-sale CRE portfolio by the end of 2025 and has materially improved its CRE concentration from a high of over 600%[3] - CFO Jamie Britton conveyed that the full benefit of the quarter's actions on Net Interest Margin (NIM) has not yet been realized and expressed confidence that NIM will improve to a range of 1.80-1.90% by Q4 2025[3] Detailed Financial Analysis Loans Total loan balances decreased to $8.0 billion due to the sale of $858 million in multifamily CRE loans, while new loan fundings increased to $256 million at an average yield of 7.18% Loan Portfolio Composition (in billions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Total Loans | $8.0 | $9.0 | $10.1 | | Loans Held for Investment | $7.5 | $7.7 | - | | Loans Held for Sale | $0.5 | $1.3 | - | - Sold $858 million of multifamily loans with a weighted average interest rate of 3.92%, resulting in a $10.4 million loss on sale, as part of a larger strategy to sell $1.9 billion in CRE loans reclassified in August 2024[17] - Loan fundings for the quarter totaled $256 million at an average yield of 7.18%, an increase from $180 million at 7.09% in the prior quarter, with C&I loans accounting for 80% of total fundings[16][18] Investment Securities The investment securities portfolio stood at $2.1 billion, with combined unrealized and unrecognized losses decreasing to $53.9 million, and the average yield improving to 4.34% - Investment securities totaled $2.1 billion as of June 30, 2025, with the balance decreasing due to $75 million in principal paydowns and no new purchases or sales during the quarter[19] - Combined tax-effected unrealized/unrecognized losses on the AFS and HTM portfolios improved to $53.9 million (2.52% of the portfolio) from $57.5 million in the prior quarter, mainly due to lower treasury rates[20][21] - The average yield on the investment securities portfolio increased to 4.34% in Q2 2025, up from 4.30% in Q1 2025 and 4.00% in Q2 2024[21] Deposits and Borrowings Total deposits decreased by nearly $1 billion to $8.6 billion due to a strategic reduction of higher-cost deposits, leading to a lower cost of deposits at 2.95%, while borrowings remained stable at $1.7 billion Deposit Balances (in billions) | Date | Total Deposits | | :--- | :--- | | June 30, 2025 | $8.6 | | March 31, 2025 | $9.6 | | June 30, 2024 | $10.8 | - The decrease in deposits was primarily due to a $975 million reduction in higher-cost deposits, including a $784 million decline in specialty deposits and a $191 million decrease in brokered deposits[22] - Cost of deposits declined to 2.95% for the quarter, compared to 3.04% in Q1 2025 and 3.49% in Q2 2024[24] - Borrowings remained stable at $1.7 billion, and the company maintained total unused borrowing capacity of $2.1 billion from various sources[25][27] Private Wealth Management and Trust Assets Assets Under Management (AUM) increased to $5.3 billion, driven by performance gains and new accounts, while Trust Assets Under Advisement (AUA) remained stable at $1.2 billion AUM and AUA Balances (in billions) | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Assets Under Management (AUM) | $5.3 | $5.1 | $5.5 | | Assets Under Advisement (AUA) | $1.2 | $1.2 | $1.1 | - The quarterly change in AUM consisted of $83 million in new accounts, $184 million in net withdrawals, and $335 million in performance gains[28] Net Interest Income and Net Interest Margin Net interest income (NII) slightly decreased to $50.1 million due to lower average interest-earning assets, but Net Interest Margin (NIM) expanded to 1.68% for the sixth consecutive quarter NII and NIM Performance | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net Interest Income | $50.1M | $51.8M | $43.8M | | Net Interest Margin (NIM) | 1.68% | 1.67% | 1.36% | - The decrease in NII was caused by a drop in average interest-earning assets to $11.9 billion from $12.3 billion in the prior quarter[29] - NIM expansion was driven by a 9 basis point decrease in the average rate paid on interest-bearing liabilities, which outpaced the 2 basis point decrease in the yield earned on interest-earning assets[30][31] Noninterest Income Noninterest income fell sharply to $1.3 million, primarily due to a $10.4 million loss on the sale of $858 million in multifamily loans, despite stable asset management fees Noninterest Income Breakdown (in millions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Total Noninterest Income | $1.3 | $19.6 | $13.7 | | Loss on sale of loans | ($10.4) | - | $0.4 | | Asset management & other fees | $8.6 | $8.9 | $9.2 | | Capital market activities | ($0.3) | $2.8 | $0.8 | - The primary driver for the decrease in noninterest income was the $10.4 million loss recorded from the sale of multifamily loans held for sale[32] Noninterest Expense Noninterest expense decreased to $59.9 million, mainly due to lower customer service costs reflecting the exit of high-cost deposits, though the efficiency ratio rose to 116% due to reduced revenue Noninterest Expense Breakdown (in millions) | Category | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Total Noninterest Expense | $59.9 | $61.7 | $55.6 | | Compensation and benefits | $22.9 | $25.1 | $19.1 | | Customer service costs | $13.0 | $15.1 | $16.1 | | Professional services & marketing | $7.2 | $5.9 | $3.7 | - Customer service costs decreased due to lower average balances and rates paid on depository accounts, linked to the reduction in high-cost specialty deposits[38] - The efficiency ratio increased to 116.0% from 86.0% in the prior quarter, heavily impacted by the $12.1 million reduction in total revenue from the loan sale transactions[39][2] Income Tax Expense The company recorded an income tax benefit of $3.2 million in Q2 2025, with an effective tax rate of 29.3%, primarily driven by the pre-tax loss and tax benefits from investments Income Tax (Benefit) | Period | Income Tax (Benefit) | Effective Tax Rate | | :--- | :--- | :--- | | 2Q25 | ($3.2M) | 29.3% | | 1Q25 | ($0.6M) | (10.1%) | | 2Q24 | ($0.4M) | (15.8%) | - The effective tax rate and benefit were predominantly driven by the pretax loss and benefits from low-income housing tax credits and tax-exempt income[41] Asset Quality Asset quality remained strong and improved slightly, with nonperforming assets to total assets decreasing to 0.35% and the allowance for credit losses increasing to 0.50% of total loans held for investment Key Asset Quality Ratios | Metric | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.35% | 0.36% | 0.18% | | Allowance for credit losses to total loans HFI | 0.50% | 0.46% | 0.29% | | Net charge-offs to average loans (annualized) | 0.003% | 0.01% | 0.01% | - Total nonperforming assets decreased to $40.8 million from $44.9 million at the end of the prior quarter[42] Capital The company's capital ratios strengthened, with the Total risk-based capital ratio increasing to 14.70%, while tangible book value per common share saw a slight decrease to $11.65 due to the net loss First Foundation Inc. Regulatory Capital Ratios | Ratio | 2Q25 (preliminary) | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Common equity tier 1 | 11.08% | 10.63% | 10.30% | | Tier 1 leverage | 8.29% | 8.12% | 7.08% | | Total risk-based capital | 14.70% | 14.04% | 12.60% | - Shareholders' equity totaled $1.05 billion, a decrease from $1.06 billion in the prior quarter, primarily due to the $7.7 million net loss[46] - Tangible book value per common share (non-GAAP) was $11.65 as of June 30, 2025, compared to $11.77 as of March 31, 2025[46] Consolidated Financial Statements Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $11.6 billion, driven by reductions in loans held for sale and total deposits, while total liabilities also decreased and shareholders' equity slightly declined Selected Balance Sheet Items (in billions) | Item | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $11.59 | $12.59 | $13.71 | | Cash and cash equivalents | $1.06 | $1.01 | $1.42 | | Total loans, net | $7.99 | $8.96 | $10.06 | | Total Liabilities | $10.54 | $11.53 | $12.78 | | Deposits | $8.59 | $9.56 | $10.76 | | Total Shareholders' Equity | $1.05 | $1.06 | $0.93 | Consolidated Statements of Operations For Q2 2025, the company reported a net loss of $7.7 million, a significant shift from the prior quarter, primarily due to a sharp drop in noninterest income from a $10.4 million loss on loan sales Quarterly Statement of Operations (in millions) | Item | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Net interest income | $50.1 | $51.8 | $43.8 | | Provision for credit losses | $2.4 | $3.4 | ($0.8) | | Noninterest income | $1.3 | $19.6 | $13.7 | | Noninterest expense | $59.9 | $61.7 | $55.6 | | Net (Loss) Income | ($7.7) | $6.9 | $3.1 | Supplemental Information Segment Reporting The Banking segment reported a net loss of $5.4 million for Q2 2025, heavily impacted by loan sales, while the Wealth Management segment generated a net income of $0.3 million Net (Loss) Income by Segment (in millions) | Segment | 2Q25 | 1Q25 | 2Q24 | | :--- | :--- | :--- | :--- | | Banking | ($5.4) | $7.7 | $3.5 | | Wealth Management | $0.3 | $0.1 | $1.5 | | Other and Eliminations | ($2.5) | ($0.9) | ($2.0) | Non-GAAP Financial Measures Reconciliation The report provides reconciliations for non-GAAP measures, highlighting an adjusted net loss of $7.5 million, an efficiency ratio of 116.0%, and tangible book value per common share of $11.65 Key Non-GAAP Reconciliations for Q2 2025 | Metric | GAAP Value | Non-GAAP Value | | :--- | :--- | :--- | | Net (Loss) Income | ($7.7M) | ($7.5M) (Adjusted) | | Return on Average Assets | (0.25)% | (0.24)% (Adjusted) | | Book Value Per Share | $12.75 | $11.65 (Tangible) | | Efficiency Ratio | N/A | 116.0% | - Adjusted net income (loss) is calculated by adding back non-cash expenses like the amortization of intangible assets and their associated tax effects[67] - Tangible common equity and tangible book value per share are calculated by excluding intangible assets and preferred stock from shareholders' equity, which management believes provides a better measure of the company's capital adequacy[71]