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First Foundation Inc. (FFWM)·Q1 2020 Earnings Summary

Executive Summary

  • Q1 2020 delivered resilient performance amid COVID-19: total revenues $56.0M (+12% YoY), diluted EPS $0.29 (+17% YoY), NIM 2.92% (+4 bps QoQ/YoY), and efficiency ratio 59.2%; however EPS declined vs Q4 2019 ($0.34) as CECL-driven provisioning and an IO-strip impairment weighed on results .
  • Asset quality remained strong: NPAs/Assets fell to 0.14% (from 0.20% in Q4), with loan originations of $663M and deposits up $140M; tangible book per share rose to $11.80 .
  • COVID-19 response: >200 PPP loans funded ($110M) with ~3% average fee and ~85% expected forgiveness paydowns in Q3; additional 200 PPP loans ($50M) in pipeline .
  • Notable items: CECL adoption added ~$2M to provision; $1.8M impairment of a 2016 interest-only strip; hedging on loans held for sale recognized an $8.2M liability offset by mark-up to LHFS .
  • Catalysts forward: management reiterated NIM expansion with deposit repricing and FHLB advance rollover; target to exceed 3% NIM by year-end; planned multifamily securitization (~$0.5B) in September with ~1% gain-on-sale proxy .

What Went Well and What Went Wrong

What Went Well

  • Strong topline and earnings growth YoY: revenues $56.0M (+12% YoY), net income $13.2M (+17% YoY), diluted EPS $0.29 (vs $0.25) .
  • Asset quality and capital: NPAs/Assets down to 0.14%; tangible book value per share up to $11.80; ROTCE 10.1% (annualized) .
  • Management execution and digital readiness: “transitioned over 65% of our employees to a work from home environment…able to safely keep all of our branches open,” and digital engagement surged (online savings applications 3x in March; website traffic +200%; mobile users +15%) .

What Went Wrong

  • Earnings down QoQ: EPS fell to $0.29 from $0.34 in Q4; income before taxes decreased QoQ ($18.6M vs $21.7M) as CECL provisioning and an IO-strip impairment increased expenses .
  • Noninterest expense pressure: total noninterest expense rose to $34.7M (vs $31.7M in Q4), including $1.8M IO-strip impairment; occupancy/depreciation and compensation increased with seasonal factors .
  • Wealth management headwinds: AUM declined $540M due to market losses, reducing fee revenues momentum despite a YoY increase; AUM ended Q1 at $3.9B .

Financial Results

MetricQ3 2019Q4 2019Q1 2020
Total Revenues ($USD Millions)$57.1 $54.0 $56.0
Net Interest Income ($USD Millions)$43.132 $43.888 $44.868
Diluted EPS ($)$0.39 $0.34 $0.29
Net Interest Margin (%)2.89% 2.88% 2.92%
Efficiency Ratio (%)59.5% 58.6% 59.2%
NPAs / Total Assets (%)0.33% 0.20% 0.14%
Provision for Credit Losses ($USD Millions)$0.172 $0.694 $2.279

Segment performance (income statement components):

Segment Metric ($USD Millions)Q4 2019Q1 2020
Banking: Net Interest Income$43.976 $44.898
Banking: Noninterest Income$4.206 $4.659
Banking: Noninterest Expense$25.582 $28.029
Banking: Income Before Taxes$21.906 $19.249
Wealth Mgmt: Noninterest Income$6.262 $6.488
Wealth Mgmt: Noninterest Expense$5.423 $6.165
Wealth Mgmt: Income Before Taxes$0.839 $0.323

Key KPIs:

KPIQ4 2019Q1 2020
Loan Originations ($USD Millions)$553.2 $663.2
Deposit Change (Seq. $USD Millions)+$358.0 (FY 2019) +$140.0 (Q1)
Tangible Book Value/Share ($)$11.57 $11.80
ROTCE (Annualized, %)11.9% 10.1%
ROA (Annualized, %)0.96% 0.83%
AUM (End of Period, $USD Millions)$4,438.3 $3,897.9
Dividend per Share ($)$0.05 (Q4) $0.07 (Q1)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin2020 trajectory“Aspirational…close to 3%” (range 2.85–2.95%; aim near 3%) “We believe we can get back above 3%…continued improvement in Q2–Q4 as funding reprices” Maintained/strengthened tone
PPP Loan Forgiveness ImpactQ3 2020Not applicable~85% of PPP balances expected to pay down post-forgiveness in Q3; avg fee ~3% recognized per GAAP over life New (COVID-driven)
Multifamily SecuritizationSept 2020“Planning…third quarter, ~$500–$600M” Target September; size ~$0.5B; gain-on-sale proxy ~1%; hedged; spreads normalized Maintained (timing reiterated)
Funding Costs (Deposits/CDs/FHLB)2020Deposit costs declining; CD repricing within ≤1yr maturities Customer service costs down; CDs and wholesale rolling to lower rates; $0.5B FHLB 1.77% matures in Q4 → lower rate Maintained with COVID acceleration
DividendOngoing$0.05 in Q4 2019 $0.07 in Q1 2020; “anticipate continuation” Raised (executed), continuation expected

Note: Management provided qualitative guidance rather than formal ranges; items reflect directional expectations shared on calls.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2019 and Q4 2019)Current Period (Q1 2020)Trend
NIM trajectoryNIM 2.89% (Q3); aim toward ~3% in 2020 with deposit repricing and securities remix NIM 2.92%; management expects >3% by YE; improvement Q2–Q4 as funding reprices Improving
Securitization strategyCompleted $551M sale; plan similar in Q3 2020 (~$500–$600M) Proceeding for September; size ~$0.5B; hedged; ~1% gain proxy Consistent execution
Funding costsCosts easing (Q3/Q4); CDs ≤1yr to reprice lower; FHLB 1.77% advance locked in Continued decline in deposit/service costs; FHLB advance matures Q4 to lower rates Tailwind intensifying
Credit qualityNPAs 0.33% (Q3), 0.20% (Q4); strong collateral and DSCR NPAs 0.14%; ~85% portfolio secured by RE; LTV <60%; limited exposure to high-risk industries Strong/defensive
CECL/reservesCECL impact expected $1–$3M in Q1 ~+$2M provision from CECL; conservative scenarios; potential incremental reserving next quarter Conservative build
Digital/operational readinessDeposit growth via digital channels; infrastructure scaled Rapid WFH transition; digital engagement up; branches open Execution standout
PPP responseNot applicable>200 PPP loans funded ($110M); 200 more ($50M) in pipeline; modeled 2-year life; forgiveness in Q3 New program scale

Management Commentary

  • “Our earnings for the first quarter were $13 million or $0.29 a share…Total revenues were $56 million…tangible book value…$11.80…declared and paid…$0.07 per share” — Scott Kavanaugh .
  • “We implemented…CECL…our provisioning…was approximately $2 million higher…Our net interest margin…2.92%…efficiency ratio…59.2%…return on tangible equity…10.1%” — John Michel .
  • “We have participated in the…PPP…over 200 loans…in excess of $110 million…expect funding of over 200 additional loans…in excess of $50 million” — David DePillo .
  • “Approximately 85% of our portfolio is secured by real estate…LTV…below 60%…low exposure to…hospitality, restaurants and construction…no exposure to oil, airlines or the cruise industry” — David DePillo .

Q&A Highlights

  • Deferrals and exposures: equipment finance deferrals ~$30M; commercial deferrals a “little over” $4M principal; hotel exposure < $50M; restaurants ~$25M; Moody’s “high-risk” bucket ~$140M spread across categories .
  • PPP accounting: avg fee ~3%; GAAP assumes 2-year life; ~85% forgiveness/paydown in Q3; considering Fed/HLB liquidity facilities .
  • NIM path: deposit costs falling; expect sequential improvement through year; potential to exceed 3% by YE; PPP’s 1% yield may mute Q2 NIM .
  • Securities/IO strips: $1.8M impairment on 2016 IO strip due to accelerated prepays; remaining IOs ~$25M, cash flows strong, protected by prepayment penalties .
  • Securitization: target September; size ~$0.5B; hedged; gain-on-sale proxy ~1%; likely minimal retention given liquidity ratio ~15% .

Guidance Changes

See “Guidance Changes” table above for detailed items and status .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q1 2020 EPS and revenue was unavailable due to an API daily request limit; as a result, comparisons to consensus cannot be provided at this time [GetEstimates error: Daily Request Limit Exceeded].
  • Investors should revisit estimates once accessible; given PPP fee timing (Q3 forgiveness) and deposit cost repricing, consensus models may need to adjust intra-year revenue/Net Interest Income timing .

Key Takeaways for Investors

  • Near-term: Expect NIM improvement to accelerate in H2 as deposit costs and the $0.5B FHLB advance reset lower; Q2 NIM may be muted by PPP’s 1% coupon, but PPP fees should benefit Q3 when forgiveness occurs .
  • Credit: Portfolio defensiveness (85% RE-backed, LTV <60%) and limited exposure to most-affected sectors underpin low NPAs (0.14%); CECL provisioning (~$2M) reflects conservative scenario weighting .
  • Capital/returns: TBV/share increased to $11.80; ROTCE 10.1% amid stress; continued dividend ($0.07) and modest buybacks ($2.8M) indicate confidence .
  • Fee/LO&S: Securitization in September (~$0.5B) with ~1% gain-on-sale proxy and hedges in place provides noninterest income visibility; lower CPRs support balance sheet growth despite moderated originations in Q2/Q3 .
  • Operating leverage: Efficiency ratio at 59.2% with digital adoption and WFH execution suggests durable cost discipline; customer service costs declined materially and should remain favorable .
  • Trading lens: Narrative catalysts include confirmation of NIM expansion trajectories, PPP fee recognition timing, and securitization execution; watch for reserve additions next quarter (management flagged possible incremental but “not materially significant”) .
  • Medium-term thesis: Liability sensitivity, deposit repricing, and securitization optionality support earnings resilience; Wealth Management AUM recovery post-market stress would re-accelerate fee revenues .