Earnings call transcript: First Foundation Q1 2025 beats expectations, stock rises

First Foundation Inc. (FFWM) delivered a strong financial performance in Q1 2025, surpassing analysts' expectations with an earnings per share (EPS) of $0.09 compared to the forecasted $0.015. The company reported revenue of $71.3 million, exceeding the anticipated $63.85 million. Following the earnings announcement, First Foundation's stock saw an increase of 3.22%, closing at $5.13, reflecting investor optimism. According to InvestingPro suggests potential upside, with price targets ranging from $5.50 to $9.00. For deeper insights into FFWM's valuation and growth prospects, including 12+ additional ProTips and comprehensive financial analysis, investors can access the full Pro Research Report available on InvestingPro.

Outlook & Guidance

Looking ahead, First Foundation anticipates a net interest margin exit run rate of 1.8-1.9% by Q4 2025, with further improvement to 2.1-2.2% by the end of 2026. The company expects modest asset reduction and assumes two Federal Reserve rate cuts in 2025, which could influence future financial performance.

Executive Commentary

CEO Thomas C. Schafer emphasized the company's strong capital position and liquidity, stating, "We are well capitalized, have plenty of liquidity and strong credit quality." CFO Jamie Britton added, "We expect to see positive growth trends in our core fee income," highlighting the company's focus on enhancing its revenue streams.

Risks and Challenges

• Economic uncertainty may impact capital expenditures and client behavior.
• Potential challenges in commercial and industrial (C&I) loan utilization.
• Market conditions could affect the company's strategic loan sales and securitizations.
• Interest rate fluctuations remain a critical factor for net interest margin projections.

Q&A

During the earnings call, analysts inquired about the company's strategies for C&I loan utilization and expense normalization. Executives also addressed questions on credit portfolio performance and detailed their margin expansion strategies, providing insights into the company's future plans and market positioning.

Full transcript - First Foundation Inc (FFWM) Q1 2025:

Conference Operator: Greetings, and welcome to First Foundation's First Quarter twenty twenty five Earnings Conference Call. Today's call is being recorded. Speaking today will be Thomas C. Schafer, First Foundation's Chief Executive Officer and Jamie Britton, First Foundation's Chief Financial Officer. Before I hand the call over to Mr.

Schafer, please note that management will make certain predictive statements during today's call that reflect their current views and expectations about the company's performance and financial results. These forward looking statements are made subject to the safe harbor statement included in today's earnings release. In addition, some of the discussion may include non GAAP financial measures. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements and reconciliations of non GAAP financial measures, please see the company's filings with the Securities and Exchange Commission. And now I would like to turn the call over to CEO, Thomas C.

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Schafer.

Thomas C. Schafer, Chief Executive Officer, First Foundation: Thank you. Welcome and thank you for joining First Foundation's first quarter earnings call. On today's call, we'll provide updates about our financial and operating performance for the first quarter in addition to discussing the strides we are taking towards our strategic initiatives. The first quarter was my first full quarter as CEO and I continue to be pleased with our productivity as we made continued progress on several capabilities in the various internal review processes that we began discussing last quarter. Starting with our financial results, net income of $6,900,000 or $08 per share are First Foundations returned to profitability after posting a net loss of $14,100,000 in the fourth quarter and a loss in the third quarter driven by our having moved $1,900,000,000 of multifamily loans to held for sale.

Improved results were driven by another nine basis points of net interest margin expansion to 1.67%, a significant linked quarter reduction in our provision expense, favorable net valuation marks on our held for sale loan portfolio and a $5,000,000 reduction in our non interest expense compared to the fourth quarter. We funded $180,000,000 of new loan balances in the quarter priced at an average yield of 7.09%, of which approximately 78% were C and I loans. Loans held for investment decreased in the first quarter primarily due to $354,000,000 of payoffs, while loans held for sale were essentially unchanged at $1,300,000,000 with no loan sales taking place during the quarter. Our strategic focus on reducing our commercial real estate concentration and selectively exiting lower yielding multifamily loans remains unchanged. In the fourth quarter, we completed a $489,000,000 sale of multifamily loans at competitive pricing and we are confident we will make additional progress during the second quarter.

Our pipeline for loan sales and securitizations remains active and we plan to continue reducing our loans held for sale over the balance of 2025. We have recaptured a portion of the original mark taken in the third quarter of twenty twenty four, and we remain focused on securing favorable execution going forward, which should benefit capital and profitability while the dispositioning of the loans will allow us to continue reducing our reliance on wholesale funding. On credit, our ACL position increased another five basis points during the first quarter to 46 basis points or $2,900,000 to $35,200,000 Net charge offs moderated compared to the linked quarter and were only one basis point. Most of the quarterly ACL build was the result of higher reserves for the equipment finance lease portfolio, increased model calculated loss factors in the commercial loan portfolio and an increase in the level of criticized assets due to continued stress testing for higher interest rates and higher expenses potentially impacting CRE cash flows. Despite the building ACL, we are optimistic about the credit portfolio's performance.

Asset migration trends during the quarter were positive with past due and non accrual loans falling 22 to 54,800,000.0 On our call in January, I mentioned our team was already reviewing our seasonal methodology to ensure we have standards in place to match our size and complexity. And I feel we are already making good progress in this initiative. We will adjust our methodology where we believe it is appropriate to do so. But all else being equal, as we have discussed before, we expect our efforts to reduce multifamily loans and replace them with higher yielding C and I loans to result in an increasing ACL balance over time. While the first three points of our five point strategic plan focusing on largely on remixing our loan portfolio, improving our interest rate risk management and reviewing our seasonal methodology, we also continue to work hard at growing our non interest income not only through First Foundation Advisors and private banking, but also by taking a more holistic approach to how we service our commercial and consumer customers.

Assets under management ended the quarter at $5,100,000,000 compared to $5,400,000,000 at the end of the year and trust assets under advisement closed at 1,200,000,000 compared to $1,100,000,000 in the prior quarter. As we think about First Foundation's future and our value proposition to our clients, we believe our reenergized focus on private banking and our demographically attractive markets will build significant long term value for our firm, our shareholders and bring added support to our wealth management clients. Our efforts to further invest in client relationships also showed tangible progress during the first quarter with regard to our deposit mix. While overall deposits declined modestly to $9,600,000,000 this was largely due to a $400,000,000 decrease in high cost brokered deposits so these deposits matured without replacement, partly offset by $71,000,000 increase in combined retail, specialty and digital banking deposit balances. Our total cost of deposits declined to 3.04% compared to 3.19 in the prior quarter, while our loan to deposit ratio continues to be steady at approximately 94%.

Lastly, I also wanted to highlight that we remain strongly capitalized following the common equity raise completed in July of last year, even after some of the moving parts on our balance sheet over the past few quarters, with our common equity Tier one ratio at 10.6% and our Tier one leverage ratio at 8.1%. I'll now turn it over to Jamie for a more thorough review of our financial performance and to discuss our intermediate term financial outlook.

Jamie Britton, Chief Financial Officer, First Foundation: Jamie? Thank you, Tom, and good morning. My remarks today will be broken primarily into two parts. First, I'll go into further detail on the first quarter's financials. And then second, I'll provide updated commentary about our forward outlook and how some of our implied strategic initiatives can benefit our financial performance.

We remain steadfast in our goal to significantly improve our sustainable profitability over the intermediate term. Starting on slide four of our investor presentation, our first quarter pre provision net revenue of $9,700,000 or $0.11 per share increased relative to a pre provision net revenue loss of $2,300,000 in the fourth quarter, which was impacted in part by the unusual items, that we discussed in January. Our PPNR return on average assets increased to 31 basis points. And as Tom mentioned, we returned profitability in the first quarter even after adjusting for the benefit of $4,700,000 in securities gains. Reported net interest margin for the first quarter of 167 basis points represented a nine basis point increase relative to the linked quarter and was largely driven by a 15 basis point improvement in our total cost of deposits, which decreased to three point o 4%.

Yield on total earning assets decreased five basis points to four sixty three, driven mainly by a 17 basis point reduction in the yield on securities available for sale and a two basis point reduction in total loan yields, which were relatively stable quarter over quarter. As noted on slide five, we continue to see steady quarter over quarter improvement in our balance sheet contribution or net interest income excluding customer service costs. This continues to be an important metric for us as we transition the balance sheet. On slide seven of our investor presentation, we once again provided visibility to the repricing opportunity in our held for investment multifamily loan portfolio, and we have supplemented it this quarter with information on recent borrower behavior. As noted on the bottom of the slide, based on our portfolio's weighted average spread, where the portfolio to reprice the floating rates today, yields would improve by over 290 basis points.

We have 456,000,000 in multifamily loans with a weighted average yield of 3.45% that will reprice to floating, refinance with us or pay off at par in 2026, and another 906,000,000 of multifamily loans with a weighted average yield of 4.18% facing the same decision in 2027. Loan repricing volumes are lower in 2025, but looking ahead to the volume of repricing we see on the horizon, when coupled with CD maturities set to occur, we are optimistic about the opportunity and flexibility this provides. On slide eight, we noted the maturity schedule and rates for our remaining brokered CDs, which when coupled with reductions in both the held for sale and held for investment multifamily portfolios will reduce drag on the margin. To the extent any balances are needed for a short period to support the balance sheet transition, the deposit repricing alone would also benefit the margin. However, as we proceed through the year and make progress on exiting the loans held for sale portfolio, we do expect to be able to allow the brokered CD portfolio to mature without replacement.

Total non interest income during the quarter was 19,600,000.0, including a $4,700,000 gain on the sale securities revolt resulting from repositioning the available for sale portfolio and a $2,800,000 net gain on a favorable change in the held for sale portfolios valuation allowance and the swap we executed earlier in the quarter to hedge the valuation allowance's sensitivity to market rates. Adjusting for these two items, non interest non interest income stable compared to the fourth quarter. Wealth and trust related fees were 8,900,000.0 compared to 9,300,000.0. Performance losses and terminations impacted the quarter, but we remain optimistic about our wealth and trust pipelines. And as Tom noted, we see the potential for improved in client engagement and greater earnings contribution in the future.

Moving to non interest expense, outside of customer service costs, remaining categories totaled $46,700,000 for the first quarter, a 5% reduction relative to the fourth quarter twenty twenty four's '40 '9 point '2 million dollars The largest contributor to the sequential decline was a reduction in occupancy and equipment cost of $2,000,000 driven largely by the fourth quarter's '1 point '1 million dollars software development cost write off. Compensation and benefits expense of $25,100,000 moderated slightly compared to the fourth quarter, but was up 29% compared to the year ago quarter. As we started 2025, we saw the normal impacts from seasonal items such as payroll taxes and annual salary adjustments, but I would also note the year over year change reflects investments we are making to bring in talent and retain the institutional knowledge needed to organize around our strategic initiatives and strengthen the company going forward. We are remaining diligent around expense growth, but we would expect compensation and benefits to reset to these levels near term as we continue investing and transitioning the organization to our new business mix. Customer service costs totaled $15,100,000 for the quarter compared to $17,800,000 in the prior quarter and $10,700,000 in the year ago quarter.

The decrease in customer service costs from the prior quarter was due to both a decrease in rates and a decrease in average balances. The decrease in rates reflects the full quarter benefit of the declines in the Fed funds target rate in the fourth quarter. And as we have noted, it is normal to see some modest seasonal outflow during the first quarter. Provision for credit losses was significantly lower this quarter, declining to $3,400,000 from the 20,600,000 we reported in the fourth. As Tom mentioned, our ACL increased five basis points to 46 basis points and we remain focused on reviewing our CECL methodology and prepared to make adjustments as necessary to maintain confidence in our processes and controls going forward.

Switching to First Foundation's financial condition, our balance sheet remains well capitalized with a 10.6% consolidated common equity tier one ratio and an 8.1% tier one leverage ratio. We also are operating with ample liquidity with nearly $3,700,000,000 of borrowing capacity and cash balances, which compares favorably to our uninsured and uncollateralized deposits of 1,700,000,000.0, a coverage ratio of over two x. Tangible book value as adjusted for the conversion of our remaining preferred shares to common grew to $9.42 per share from $9.36 per share in the prior quarter. Slide 17 provides more detail. Before handing the call back to Tom, I also wanted to provide some thoughts about First Foundation's intermediate financial outlook, particularly given all the strategic updates we've discussed the past two quarters.

Overall, we are optimistic about the financial future of First Foundation over the next twelve to thirty six months. From a balance sheet perspective, we expect to see a modest reduction in total assets over the intermediate term as we work to reduce our loans held for sale to zero from 1,300,000,000 today, bringing down our CRE concentration and reducing our broker deposit mix towards a more normalized level. We anticipate continued margin expansion, although we'd emphasize that the opportunities to reprice our loan portfolio will take time. More specifically, we expect an exit run rate for net interest margin in the fourth quarter of twenty twenty five between 1.81.9% with further improvement to 2.1% to 2.2% by the end of twenty twenty six. To the extent the Fed reduces rates more than we are anticipating, that could accelerate some of our expected margin improvement with deposits possibly repricing faster than we are currently modeling.

And lastly, we expect to see positive growth trends in our core fee income while also remaining focused on limiting incremental expense growth from here to focus investments directly benefiting our transition. And with that, I'll now turn it back over to Tom for his closing remarks. Thanks, Jamie. I'm pleased with

Thomas C. Schafer, Chief Executive Officer, First Foundation: the progress we made during the first quarter. As we look ahead, we continue to remain optimistic that our performance can significantly improve in a variety of economic scenarios. We are well capitalized, have plenty of liquidity and strong credit quality and have multiple levers to materially improve profitability over the next two to three years. We are laser focused on unlocking the embedded value in the First Foundation franchise by executing on our relationship focused initiatives in Florida and California. This concludes our prepared remarks.

Operator, would you please begin the question and answer session? Thank you.

Jamie Britton, Chief Financial Officer, First Foundation: Operator, could we begin to take questions, please?

Conference Operator: Yes. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.

If you are called upon to ask your question and are listening via loudspeaker on your device, And your first question comes from the line of David Feaster with Raymond James. Please go ahead.

Liam, Analyst, Raymond James: Hey, guys. Good morning. This is Liam on for David.

Jamie Britton, Chief Financial Officer, First Foundation: Hey, Liam. Good morning. Good morning.

Liam, Analyst, Raymond James: Just wanted to ask, you know, C and I loan fundings have really helped lead the way. How have utilization rates trended thus far in 2025? And have you seen any broader uncertainty having an impact on those utilization levels?

Thomas C. Schafer, Chief Executive Officer, First Foundation: Yeah. Think that, you know, the the conversation around utilization and and hesitancy is out there. The, you know, feedback from clients and and our commercial team is that there is there is some hesitancy. I'd say it's it's a good word with the economic backdrop that we have today for capital expenditures. We have seen actually some clients accelerate inventory purchases with the uncertainty of of the trade conversations.

So it's it's a mixed it's a little bit of a mixed story.

Liam, Analyst, Raymond James: I appreciate the color there. Then on the expense side, you talked about your efforts to build out the franchise and hire some new teams. I noticed FTEs increased by about 2% sequentially. Did you invest in any particular markets in 1Q? And what level of production do you anticipate from those individuals in 2025?

Thomas C. Schafer, Chief Executive Officer, First Foundation: Yes. So we've added a couple of people in the Florida market and we, you know, we're optimistic about that area in the economy, specifically in the commercial side. And, you know, it's yeah. I would say in 2025, you know, individual performance based upon, you know, joining the organization first year, but but, you know, additive. You know, most of the production will come out of California at this point, and we're focused obviously on Southern California and in the Florida markets on the commercial side.

Liam, Analyst, Raymond James: Thank you. I appreciate that. And then last one for me. You know that AUM declined in this quarter. Is that more due to fluctuations in customer account balances?

And how is new customer acquisition in the advisory business broadly?

Jamie Britton, Chief Financial Officer, First Foundation: We're very optimistic about the pipeline, Liam. We did have some, excuse me, some terminations, which is normal through through the quarter. We we had a little bit of turnover from some lower performing teammates, but we're we're very optimistic about the pipeline going forward. We we expect a little bit of volatility as we move forward from the market. But we you know, I think, like everyone, are holding path for now before jumping to to any conclusions about where that could go.

I'm very optimistic about the business though, but

Thomas C. Schafer, Chief Executive Officer, First Foundation: the market fluctuations had an impact on on that.

Liam, Analyst, Raymond James: Appreciate the color there. Thank you so much. I'll step back.

Jamie Britton, Chief Financial Officer, First Foundation: You bet.

Conference Operator: Your next question comes from Gary Tenner with D. A. Davidson. Please go ahead.

Gary Tenner, Analyst, D.A. Davidson: Thanks. Good morning. I wanted to ask a question regarding the NIM kind of outlook on Slide 10. I guess two questions. One, what rate environment does that assume in terms of the Fed?

It may just be the forward curve that you could tell us otherwise. And then other than the held for sale dispositions impacting the size of the balance sheet, just any other context you could put around the balance sheet size or mix relative to your outlook there?

Jamie Britton, Chief Financial Officer, First Foundation: Hey. Good morning, Gary. Thanks for the for the question. I think we are remaining fairly conservative on the the rate outlook you know, from what we've been monitoring over the last several several weeks. The the outlook bounces from three to four rate cuts in '25.

I think I even saw five at one point pop in there. We're, we're assuming only two rate cuts in '25, and I think we've got in there a total of six over the over the remaining horizon through the end of twenty twenty seven. As you know, that can, that that can change at a moment's notice. But, we're I'd say we're slightly conservative to in line with the with the curve, longer term, but bit more conservative short term. In terms of the the balance sheet mix, we do have the dispositions as you mentioned.

And as Tom mentioned on the in his prepared remarks, we expect to move through the the the process of getting those balances off the balance sheet this year in 2025. We'll we'll continue to support the the earning asset base as necessary to be able to fund investments that we need. And we think that that there there could be opportunities to to grow commercial, to grow consumer as we as we bring in, new teammates, for instance, in Florida. But primarily, in 2025, there's there's really just the organic trans transformation of the balance sheet with the with the dispositions driving the NIM improvement from here.

Gary Tenner, Analyst, D.A. Davidson: Okay. Great. Thank you. And then second question, in terms just in terms of expense oh, sorry.

Jamie Britton, Chief Financial Officer, First Foundation: We've No, sir.

Gary Tenner, Analyst, D.A. Davidson: Your comment.

Adam, Analyst, Piper Sandler: Go ahead. Okay. On

Gary Tenner, Analyst, D.A. Davidson: the expense side, in terms of the efforts to remediate some of the internal control issues that you've highlighted in the K, any expense impact this quarter or projected going forward?

Jamie Britton, Chief Financial Officer, First Foundation: I think you'll you'll see some professional service expenses from time to time. You know, nothing, I'd say, significant. But you you will see pockets of some professional service expenses as we as we bring in some expertise to help us accelerate through the transition. I I think we, you know, we made it clear that we see a lot of opportunity in the franchise. We want to try to get to the point where our internal controls are are and our processes and our capabilities are consistent with our size and complexity.

Complexity. We wanna do that as fast as possible so that we can really shift all efforts towards growing the business. So we will bring in some expertise as necessary to accelerate that. As I mentioned, we're also investing in some teammates that will help us drive that transition and and and better manage the bank going forward. But but in the in the expense line, you will see some some blip from professional services here and there just to help us work through that.

Gary Tenner, Analyst, D.A. Davidson: Got it. Thank you. You bet.

Conference Operator: Your next question comes from Andrew Terrell with Stephens Inc. Please go ahead.

Jackson Lauren, Analyst, Stephens Inc.: Hey, good morning. This is Jackson Lauren on for Andrew Terrell.

Jamie Britton, Chief Financial Officer, First Foundation: Good morning. Hey, Jackson.

Jackson Lauren, Analyst, Stephens Inc.: If I could just start off on expenses, you guys or I appreciate the color on the comp line item with the elevation over the last two quarters. And you touched about normalization going forward. And I was just wondering if you could kind of quantify the seasonal impact you guys saw in 1Q on that line item. And then would appreciate any additional color on how you expect that to trend throughout the year with you guys are making currently?

Jamie Britton, Chief Financial Officer, First Foundation: Oh, sure. Great great question. You know, I think some of the changes or some of the the actions that we took in the fourth quarter, for instance, you know, I think the important decision to to fund the the non executive annual bonus pool. Very important decision for us, but that did have some tail in the first quarter as there it led to additional payroll taxes, additional $4.00 1 k match expense, etcetera. I think all in from the seasonal items, it was about a million and a half.

I'd say it's a good a good number for that. And as you know, that that starts to trend down almost immediately as you proceed into the second and then through the rest of the year. You know, as the the other items, some of the things that we've invested in to bring in new teammates, to bring in expertise, and retain the institutional knowledge necessary to to the transition. You know, those are they're not one time events, meaning they only impact one quarter, but they are they are limited in in in their impact on the on the financials. They just take a little longer to chew through as we as we do work those down and those those normalize back to, really just sort of base numbers, we will, you know, at the same time be investing in growth and making sure that we're continuing to bring in new bankers in in our markets in California and Florida.

We're making sure that we bring in folks that can help us build out a private banking capability to partner with our wealth and trust businesses to drive more contribution there. So, you know, we are we are obviously focused on profitability. So we'll remain diligent with our expense growth. But at the same time, we do want to make sure that we're making the investments necessary to drive longer term value and and get the organization or unlock the potential that we that we know is here.

Jackson Lauren, Analyst, Stephens Inc.: Great. That's very helpful. Thank you. And then if I could just switch over to the margin and kind of the puts and takes of the one eighty to one ninety for q twenty five exit NIM. That deck on Slide 10 or that deck on Page 10 is very helpful.

And you guys obviously have the brokered CD benefit as well as the natural multifamily repricing that becomes more material in 2026? And kind of the last factor that you guys put down was the commercial growth. And it looks like new funding yields came down pretty hard quarter over quarter. So I was just wondering what you guys are seeing from a competition standpoint for new C and I loans and if you guys are seeing any pricing pressure from competitors right now.

Thomas C. Schafer, Chief Executive Officer, First Foundation: Yeah. I'd say that the you know, with you know, with the I'd say, not slowing, but, you know, people are being careful out there. So there is competition for transactions. We're seeing it in in all of our markets right now. But it it with a hundred and $80,000,000 of fundings, it's it's you know, we're building we're building our pipelines there and it's probably more deal centric than larger trends.

Jackson Lauren, Analyst, Stephens Inc.: Understood. Great. Thank you. And then just lastly on credit, very impressive credit quarter. Non accruals came down pretty nicely.

With what has happened over the last month and a half and the uncertainty in the market currently and just the conversations that you've been having with your borrowers, is there any credit bucket that you guys are keeping a closer eye on going forward?

Thomas C. Schafer, Chief Executive Officer, First Foundation: I think, you know, Jay, as as, you know, there's questions about the economy. I think you've gotta be very careful and thoughtful about the the credit portfolios. You know, in in noted my comments were, you know, the stress testing of of the kind of the fixed rate portfolio to make sure that we're being thoughtful about, you know, you know, repricing impact and what we're gonna keep on our balance sheet. The the CRE portfolio continues to perform extraordinarily well, but, you

Jamie Britton, Chief Financial Officer, First Foundation: know, we're being we're being

Thomas C. Schafer, Chief Executive Officer, First Foundation: thoughtful about stress testing in in the kind of the next environment for these for these assets. I think we all need to just keep an eye on the, you know, the the larger economy and and and and where that goes at this point. But I'd say the performance of our portfolios has been very strong and we continue to believe that we've got a strong credit portfolio.

Jackson Lauren, Analyst, Stephens Inc.: Understood. That's all I had. Thank you for taking the questions.

Conference Operator: The next question comes from Adam Butler with Piper Sandler. Please go ahead.

Adam, Analyst, Piper Sandler: Hey, everybody. This is Adam on for Matthew Clark. Thanks for taking the questions. Just first on the expense side of things, I I noticed in the segmented expenses that wealth management related expenses stepped up, I think, around 2 and a half million. I know that the FTE count also came up.

So I was just curious with rev with wealth management related revenue kind of stable, why that went up and if the FTE hires maybe was the reason behind that?

Jamie Britton, Chief Financial Officer, First Foundation: Some of that good morning, Ed. Some of that was the just the seasonal items. Some and then we did we did have some annual compensation expense related there as well. I would expect that that to part of it will continue for the next several quarters as as as that expense accrues over time. But a portion of it but a portion of it was one time.

Let's say a a meaningful portion of it was one time one time expense that should normalize going forward.

Adam, Analyst, Piper Sandler: Okay. That's helpful. And then, I guess, just overall, like, maybe, like, a run rate guide including customer service cost, how you're thinking about that overall run rate for expenses going forward and given probably the conservative outlook of two cuts that you have in the NIM guide?

Jamie Britton, Chief Financial Officer, First Foundation: Yeah. I if you don't mind, I'd like to to break those apart. I mean, in addition to the to the NIM guidance, we which does does not, by the way, include the customer service cost component. The customer service cost will come down along with market rates. So we've as I mentioned, assume two cuts, so we would expect that to come down.

Ending the quarter, we had, you know, call it billion 3. We've got that broken out on slide sorry, Adam. That's available on on slide slide eight. So we had a a little over a billion in MSR deposits, and there's, there's another, call it, 250, 3 hundred million or so in other customer service cost related deposits. But the the the Fed rate cuts will almost immediately reduce customer service costs with those clients.

I'd say in addition to that, as we continue to see as we continue to make progress on reducing our CRE concentration, for instance, selling or securitizing the held for sale portfolio in addition to focusing on broker deposits. We're also focused on reducing reliance on concentrated high cost deposits. And, you know, some of some of that will some of that focus and those efforts will lead will lead to reduce balances in the customer service cost portfolio more generally. So so customer service cost will come down because of both of those, levers. In the rest of the expense base, I you know, as I mentioned before, there there may be pockets of expense that we'll see on the professional service line as we work to transition some of the more complex processes and capabilities and get those up and running more quickly.

But overall, I would expect the expense level to remain outside of customer service cost to remain relatively stable to slightly declining over time. But there could be, you know, again, just pockets of of investment that we'll see in order to to accelerate and and and facilitate the transition.

Adam, Analyst, Piper Sandler: Okay. I appreciate the color there. Yeah. That that that commentary helps with regard to how you guys are thinking about customer service costs going forward and related balances. And then I guess just leaning back over to the NIM, I appreciate all the color that you guys provided on slide seven, eight, and 10 and Yep.

Your related forward rate outlook. But I was just curious to help with modeling. Do you guys have a spot rate on deposits at the end of the quarter and maybe the average NIM in March?

Jamie Britton, Chief Financial Officer, First Foundation: I do have the this the rate for for March monthly average on total deposit or total interest bearing deposits was at $3.81, which which was down from just over $3.90 monthly average in December. And I believe you're at, call it, $4.35 monthly average in August before before the the Fed loosening cycle began.

Adam, Analyst, Piper Sandler: Okay. Helpful. Helpful. And then just one more for me on on the loan balance side of things. I know that you guys are in the process of replacing lower yielding multifamily with higher yielding C and I production.

I I was just curious how you guys are thinking about overall loan balances going forward maybe through year. And I know it's hard to predict how C and I production will come in just given the uncertain macroeconomic conditions, but just just some help on how you're thinking about overall loan balances going forward?

Jamie Britton, Chief Financial Officer, First Foundation: Well, we certainly wanna drive the mix. Taking the the held for sale portfolio aside, I would expect us to to see a modest growth over time. We'll continue to we'll continue to focus on levers we can pull to reduce c r the CRE concentration. So the existing multifamily book even outside of held for sale, we would expect to see some contraction there over the the coming years. The the municipal portfolio, We're not in the in in the process of of seeking new opportunities there.

So I would expect some, albeit slow, some amortization on on that book, is, between 900 and and a billion dollars. I'd expect to see continued reduction in the equipment finance portfolio, which is just just over a hundred million dollars. That'll continue to come down over time since we've, for all intents and purposes, exited exited that business. And then as we as we invest in a new c and I bankers, as we as we start to organize around a new our private banking initiative. There'll be some opportunities there.

So I see I expect to see some growth in the other portfolios. But as you as you think about that transition, I think we're adding density to the to the loan portfolio over time and stronger stronger yielding stronger yielding portfolios. But because of the transition out of CRE and some of our legacy legacy assets, I think the the growth in the loan portfolio be relatively modest over the next two and a half years.

Adam, Analyst, Piper Sandler: Okay. Yeah. No. I I I appreciate the the various dynamics that are going on there, and thanks thanks for the help there. Those were all my questions.

Appreciate it. Okay. Thank you.

Conference Operator: There are no more questions. I will now turn the conference back over to Tom for closing remarks.

Thomas C. Schafer, Chief Executive Officer, First Foundation: Thanks for joining us today. Hopefully, has been helpful. We had a very positive shift in earnings during the first quarter. I think the investment in the initiatives that we're making are beginning to show light. And as we reposition the balance sheet, know, trending out of some of the historical portfolios that have have, you know, are not productive for us today, you know, continue to focus on improving our margin and focus on expense management and profitability.

So thanks for your time and questions today.

Conference Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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