FFWM - Earnings call transcript Q3 2020

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Operator

Greetings, and welcome to First Foundation's Third Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions, following the presentation. [Operator Instructions].

Speaking today will be Scott Kavanaugh, First Foundation's Chief Executive Officer; Kevin Thompson, Chief Financial Officer; David DePillo, President of First Foundation; and John Hakopian, President of First Foundation Advisors.

expectations call certain Scott, call predictive their views the management note that hand performance current make company's will statements and I over results. please to that reflect and Before financial the about during today's made These Safe Harbor earnings to statement forward-looking subject the in included statements today's are release.

the of discussion financial some include addition, non-GAAP measures. In may

reconciliations measures, materially For Scott cause actual could the a uncertainties from forward-looking with and and any that the more financial over like complete now, Exchange risks discussion turn of statements filings company's Commission. to and to the call see I of differ non-GAAP to the Securities Kavanaugh. results would And

Scott Kavanaugh

us. Hello conference XXXX to would earnings like of third and for welcome quarter thank call. joining We you you all to our

activities, providing for prepared we was will then regarding questions. our quarter another respond strong We comments will and to It Foundation. some First be

management Lending, trust Our each private of performed ways. wealth banking, and planning has wealth well. business providing services in investments, meaningful services very contributing model are deposits,

a our allows provider clients that meaningful of firm. continue work speaks service other the used has to due proposition shutdowns, the our with opportunity want many to to to services, reduced as really activities find which build This of single firms us team While relationships. as serve, and we we gain longstanding ground our an the markets to in it have to financial value

financial press release the in we another of highlighted morning, results. As delivered quarter this strong

Total XX.X for increase year-over-year. for per of or over an third $X.XX share, were of the a XX.X million XXXX. increase earnings third the million, quarter, XX% Our XX% quarter the were quarter revenues

value $XX.XX book per tangible share. to increased Our

XX% to the ratio efficiency third for Our XX% improved and quarter year-to-date.

so calls, we metric. our ratio year, reaching XX% on on mentioned previous for were that well our the important to full target we way is As efficiency

future quarters. pay the we'll of cash in and dividend anticipate and our continuation $X.XX the per declared share dividend quarterly also We of

last growth to the XXX loan our year-to-date. by nine and deposit for management Over experienced levels. deposits and million increased the grown were have have pre-pandemic originations quarter, strong this under and million XXX Loan months, overall we assets quarter

Federal We deposits such process remains advances sheet about part XXX have strong Loan securitization liability robust. pipeline repositioning year balance and which in markets in of Bank our and spoken we a to already year-to-date, XX% deal starting are of the be our also our side fifth a Loan of multifamily and credit is our past. successfully the by million have underwriting Home XX% of that wholesale successful decreased the to securitization. completed in demand date, of our continue the loans, we next We our for

new digital our services in allowing deliver continue Our products and clients us efficient platforms to ways. perform to to well, and

the have complement and to valuable has a in past, by As payback. This XXX% investments online strong This and over retail we our made important see offering. become highlighted our growth mentioned of this area year-to-date channel. to a in are savings our continuing is

increase online them. large in was under us whatever to the with or for savings is trust part engage our Now, in business. our most business thanks in our can for convenient The management wealth clients branch, private management assets

our uncertainty to want in also today these and testament routines First like worked here It during in hard much I great of that results is entrust Foundation. have very place clients which being own us and eclipsed differentiate recently at managers Our needs. the upended is a meaningful. trust firms. much grateful wealth hold, truly with closures, school with assets, all advisory other I'm their offering, have circumstances. our work We financial who to which X financial life know everyday who makes say put their the would employees lives reported in continues also to to against there on we billion to challenging I more thank tremendously we

CFO, to turn Kevin Thompson. me call our let Now, the over

Kevin Thompson

Scott. you, Thank

With to ratio common return in We execution of the X.XX% of our we diluted as model, a on the the per with our and achieving to loans share. of gain. with continued very momentum quarter healthy a experienced $XX.X of our in million strong do equity the multifamily securitization customer-centric of securitization $X.XX EPS of and assets a XXX is successful on XX%. completed million tangible practice return XX% quarter a profitability annually, decreased Efficiency of a

we of loan Loans the of basis balances to held the the Absent of loan in securitization to in servicing a for and the transferred transfer, preparation sale decreased decreased deposits investment points million. the rights last due XX mortgage the next from recognize XXX for million being the also transaction, basis for part year. As increased held of of points category slightly in X.X cost quarter. XX quarter. this in balances month the in quarter XX The was to quarter

XXX year-to-date. have Our to XX% decreased over million broker or deposits

investment of our seeing as are of reopen XX% X.XX% The deposits decreased part a metrics our portfolios activity liabilities. able improvement success Credit XX% deposit or from have also our interest have this as accounted strategy from the our economic deposits to already X deposits CECL of a rate our loans we most and we core net the were losses well of by to a at X.X strong we work the off of business. pay points for has pricing. Our of as and that continue to increasing of for Scott utilize to which to resulting credit We of largely a decrease of only margin XX for deposit our all Deposits for in base change had their PPP strategy allowance successful held slight X.XX%, an as expanded borrowers lowering loans. calculation. of in points core the in gained million, traction, quarter that loans scenario basis as was basis for result advances This allowance as remains XX.X the FHLB PPP year-over-year. increased is our result quarter in reposition mentioned, loan of the in XXX million to put money million

infrastructure, With change increased in flows X.X for the represents recognized current by strip the operational benefits credit in interest on rate losses we the strong the in and allowance leverage efficiencies. environment expense to and are these expected from we speeds securities. rights. we Also With the mortgage investments our securities, for related which we and investments cash servicing seeing X.X prepayment million, improving the valuation in have increase management have prepayment made our of speeds, allowance experienced million interest-only the we

turn also strategies. lending David have profile now to I steps our will credits, Foundation. and begun investments DePillo, call of in We tax over tax forward, going take housing to other improve President low municipal to the including income First

David DePillo

Thank you, Kevin.

reiterate all First, I efforts even to their great my to to we quarter in another employees. Thanks want with had our the uncertainty gratitude market. the

million of decreased which our opted mentioned, total strong million Related during being down from our borrowings track originations. the of use loans, as to of for keeps proceeds the year the our on and to of balances fund As yielding assets us we lower to of quarter, loan for XXX rather originated with associated to securities securitization another we XXX loans, multifamily new strong retain the pay but originations not time pipeline. sale Scott

levels. at at is our pipeline, the peak XXX pipeline exceeds Looking current million and

X% composition originations. have our We single The family year of record another XX%, loan are originations other. expect for to X% multifamily and in as follows; C&I XX%, loan

the in I quarter, want our rate loan about portfolio. on For average was to originations quality the also some loan reiterate third credit items interest weighted our X.X%.

and which NPA indicator low Again, commercial slight at quality, declined segments, credit are XX% is a portfolio. to with quarters. remain points loan Also from ratio occupied our estate. XX% to averaging loan in our estate of ratios delinquency the mentioned, large is typically As for leading multifamily is a real previous service have low non-owner basis secured approximately value smaller debt all portfolio XX for real due Across significantly average below coverage part increase and a our strong. rates, by

the low hit hospitalities, pandemic, to As specifically exposure hardest the industries in last have we quarter, we mentioned restaurants. by had

addition, to we gas, aviation have the oil exposure and no In or cruise industries.

as the And XX% are Forbearances in deposits, strategy only to are by so over three before, and since majority which success down the has million. and year-to-date grew multifamily, and Deposits XX% in to approve the contributed our quarter retail were portfolios, we of deferrals. represents the quarter. payment forbearances full land total forbearances and no X% the by XX There and We a little deposits last our both portfolio. consumer million, our saw or XX% months deposits the core construction of loan did in specialty core of online increase deposit deposits. activity growth to grew XXX stated of

like I'd to President John over Foundation First of the to turn Now Hakopian, call Advisors.

John Hakopian

David, you, Thank good and morning.

under quarter billion. at Our the X.X assets closed management

the we implementation accounting savings XX%. to beyond. system, new we quarter for for margin of profit and our increased as Our the And XXXX finalize expect portfolio cost additional

performed financial six new well performance indicator the economy a is was client in leading strategies broader months have year, the recessionary Good retention territory investment quite our remarkable going in ago. given uncertainty just forward. market, for still is in the there Although business U.S. is which for

pipeline and we expect year. attracting continue successful close new as servicing the to out strong We in we our to are a clients clients existing seeing be and

continues build relationships our client As relationships. relationships Scott touched on, our trust maintain in to be and more be ability clients. instrumental larger to with our These tend and to complex department

who First uptick We our also contact to often clients bankers and from the for referrals working of an first are with have point in seen Foundation. retail

to investment we technologies planning found had proven to this our it a provide the flexibility client clients very financial the valuable of time, with experienced with clients operate our for our ready situations. better our pandemic, have the efficient some At for very wealth already back created how clients. Through complex using continue year. This has take of hand navigate portion solutions during help ways been place has more to I operator. virtual aspects we to produce We team this us to and our approach in working and very for and remotely. various significant pleased with team has life. I be of still are we that their advice questions connect And and able content professionals am will to to team

Operator

Instructions]. [Operator you. Thank

comes question the of of Piper first Matthew Our from Clark line Sandler.

Matthew Clark

Hi. Good morning.

Scott Kavanaugh

morning. Good

Matthew Clark

just on a if how and margin again, I much previously higher quarter, gain the expected. think guess hedging related, sales related this that have was guess what might I we than the lot increase? starting drove on much sale Maybe I how any? been

Scott Kavanaugh

It year. about I think last Well, the XX.X in was cost slightly hedge remember was correctly. less than if I million

Kevin Thompson

about is XX. It

Scott Kavanaugh

slightly frankly, at modeled APT-X think XX modeling, XX, okay. like XX, I proved and Early very thought. our we on had they we XXX our each and initially that. be and little to spreads in margins of think have close of And came over we a two better XX, were [ph] than on XX one APT-X and I or to when

was So a margin the and was bit little than slightly less previously. little year was a cost bit the hedging

Kevin Thompson

the of forecasted. what significantly higher had pilot Also strip value the was we than

Matthew Clark

just estate on quarter, release. Okay. to for us the and reserve give I loans what in a C&I your And maybe is for bit you held reserve real sense down linked that? the can reasons isolate multifamily, the then little portfolio investment, just a on on But the non-commercial see

Scott Kavanaugh

can if Kevin, bring up? that you

Kevin Thompson

It's bet. X% into but and anywhere typically it's various between categories, you segregated Yes, X%.

Scott Kavanaugh

and portfolios. on about those Yes, X.X% it's

Matthew Clark

least any what largely that guess then at NIM. up Okay. NIM, continue on down? and And to do line accounting or the trajectory core PPP are margin fees this with kind also impact funding I in have in purchase reported of And the here? Can expectation, new the other prepayment and the with your of costs on quarter? from continue come thoughts X.XX, you accretion

Scott Kavanaugh

X the not basis What points the fees at over amortizing -- point. period. associated we a really this two-year say? with did It PPP factor We're a is

Kevin Thompson

about is basis This X points. quarter

Scott Kavanaugh

come So are funding you continuing costs, to down. as said,

save due we continue can But the margin. to we with we able increase previously continue as to X.XX, on higher think X.XX. stated that's a lot I think fact in think the well. above than assets significant as down. quarter on. large yields had than a should still we on more of – a average off. that we on, as confident the maybe obviously kind portion loan rolling increase loan I low But origination we have of I new yields a costs can should to that end there get at of case, for yield has and to be been up maintain I assets borrowings be we and number think X our X.XX high September that was funding point coming NIM would or as we pressure going new our We've been And had coming the felt of

the costs be easy you there. So can the should relatively do math margin X.XX. of on It low. to with kind Yes, funding relatively stay

Kevin Thompson

you And income. Yes. immaterial point asked not a had impacting. That's to about really accretion really

Scott Kavanaugh

in We have anything accretion don't much of income.

Kevin Thompson

something I X% it's to to said, That's around right. And our C&I to credit more just correct impact reserve.

Matthew Clark

resolution? that And just non-accruals, what then this plan for the uptick in drove the And Okay. quarter? what's

Scott Kavanaugh

the in assets. a more of really portfolio majority downtick loans. was overall loan of The It's the

Kevin Thompson

don't loss One sale are way by the that relationships you There's see month, properties. a on But X our had is at the will one mortgage [indiscernible] the horizon. loans residential sale related Outside that, not if or number, the and that the million loan completed. of it expectations there's portfolio would can ratio will just be builds we be with other. the expect or down. primarily owner look But So of pipeline, as going that for happen there is reinstated that ticked resolved come to any this was being may you to our days, delinquency much momentarily the over those. that XX handful residential it go from of our and properties was approximately that expectations

Operator

from Raymond James. comes Feaster line Your question of next the David of

David Feaster

morning, everybody. Hi. Good

Scott Kavanaugh

Hi, David.

David Feaster

originations I pipeline's the the up a improving the just kind pulse market. to get of wanted well. and to of holding are hear I'm really glad

sounds Just pricing curious is what out pretty there? you're tight. seeing like It

across seeing? and thoughts Just curious, you're commercial the and multifamily core the market on in board what your

Scott Kavanaugh

next experienced run think part in we've we've us that than we we we higher certainly the our that thought pipeline, the CPR rates levels the would first CPR exceeding which seen. we record in We And market earned that velocity that just the we've the quarter an but latter hit the will mentioned impact and snapback originated approaching it's our last of of Sure. from Multifamily, up when has saw strip we indication picked because levels think I it's at in higher what those good year. are the current even we reaching quickly, velocity capacity fees few to year market of higher going bit It did higher the it would are than is production of of end. experiencing with half experience. will lead to didn't quarter, we led environment through where fourth The prepayment to quarters. really the quarter, little – rate our this say what rates year into IO into first It lead over Kevin the thing. thought would a we think line last in a historical this had

is stay robust. in we're – is at – going has this foreseeable solidified multifamily future. about at their market expectations next I feel over about our pricing very the the good We are where think Competition point. So we're to

On side, really we've a up the areas. C&I picked couple in

are pipelines corporate really up public finance is well would well. And picking Equipment as call back business doing is back time. haven't seen core and that's and well finance some we we picked at -- as Our group. quite very has up banking our in our banking C&I as what group levels

everyone huge family, single experiencing experienced which on I we're one areas, industry smaller side in has So think the of interestingly that. the as is demand enough, that now

kind originations And you together, board. year. should when the that's all components the at this levels of – across of year been much see add next well excess pretty it's we So certainly in

David Feaster

kind color. that’s Okay, pulse this always guys of on landscape. good And this, have guys really always just you on broader macro stand topic, the a you good

some of implications XX get thoughts XX multifamily to like and your pending and just specifically in on Prop CRE legislations, wanted and I on So Prop the California.

Scott Kavanaugh

it of on most is multifamily doesn't it. would the Certainly in legacy but we an historically lend less low tax on have interesting have XX some impact, than a CRE would Yes. kind the base that of because one.

lot of an kind old Prop of industrial, So XX occupied companies we a have basis. not that do owner

for see it effect So pass a we don't tremendous did that. if even

control, The rents board that local doesn't want the state On way in that dramatically already increase level. that. – state to passed of the rent it's kind level. it’s of across see one And to some at ordinance or other. rent the of delegates there's There's control the a it are the fear because would order, community more because it obviously that

feel seen the impact, of San a we and for but way. units are the If it having boom we market had again, don't such put those impact. that Francisco, as don’t it of of we tech X,XXX. probably studio kind does where market. We on running in some have rent been pressure you've will again, now either lend and a have just more markets Those social efficiency properties. good lot really South on well anticipate more X,XXX they don't already where And pass, those it little rents material passing, deterioration, in So, below it see are that were areas a these

the get like But looks to much dramatic a it don't we areas, So in average the the rent see decrease. compared city and that surrounding we impact.

watching in is, much future. don't legislation. we really the impact foreseeable really of We kind line don't bottom we're the expect of -- So, any

David Feaster

just color. guys done job Okay, expenses. tremendous a good managing then And have such that's you

offset that keep hires XX of might million front, million new of kind got costs think on stable some any XX look and maybe side? upcoming level, pressures we As to anything on or of keeps thoughts to are any inflationary to or just this just expense kind there up put forward, pressure, you tech the investments do that in the you've opportunities these

Scott Kavanaugh

So, cost we is a little us some odd obviously, a probably of which projects, bit item technology of lot, don't cost always which for and an more. have XX evolving some some

Our technology less spend slightly year, than for is next this to expecting items, we're year. including capital be

really So a and the impact that lot last see the a five absorbed years in that of majority of frontloading huge think of we cost. our don't I

with few a There On side, around well. right XXX we've the as come employee holding been revenue is that opportunities opportunities employees. significant

don't again, the So see impact. we

go to go plan X% So marginally? up always somewhere is for up year-over-year our kind of marginally XX% We it could between and it range.

Kevin Thompson

But years that last being constant pretty we've I said, think two held XXX David, employees. at

So we're very to that cognizant manage equation. to we're and trying side and capital expenses of the of human really

David Feaster

That's helpful. Thanks, guys.

Scott Kavanaugh

Thanks, David.

Operator

question of next the Steve Moss comes Securities. from Riley B. Your line of

Steve Moss

morning, Good Hi. guys.

Scott Kavanaugh

Good morning, Steve.

Steve Moss

Just up mentioned I originations, you XXX think the to million. the pipeline David, tie

X.X about did so far X.X You billion, billion year-to-date.

origination So think billion year? the in for we range shaking can billion to out this this about $X.X $X.X

David DePillo

It to high as XXX out, I around but could delay. looking billion X.X wouldn't always, there be We're as fall say At X.X that. billion. is probably million,

of could next part So first year into that bleed anyways. the of some

an typically rate we that. about XX% to apply So

– prior through as probably timing year. that's some we year. it is So of going what that, and at But we're XX% looking our hit next just see, system. to if can probably But getting you're to we of X.X, be what's from up borrowers do expect you least, I'd say about it

Steve Moss

Yes, right.

kind XX of liability costs, relative were just quarter costs at then bps? on average where of to the interest-bearing And curious Okay. end

Kevin Thompson

settling down the quarter into mid-XXs at were end. They

Steve Moss

is of And buyback? regard with maybe here, capital profitability moved possible just nicely What higher to on a are thoughts kind capital here, last question for I’m your you stronger. curious,

Scott Kavanaugh

place. could be into Yes, it put

And below to value, we I and have will earnings book banks our reaction think stock value think would struggled continue start are we our the strong, recently. it say if either our chances I I book near and trading really the pretty or declines depends on buyback.

Steve Moss

Good right. very quarter. All much. Thank you

Scott Kavanaugh

Thank you, Steve.

Operator

[Operator Instructions].

comes Our question Tenner D.A. Davidson. of Gary from next

Gary Tenner

Good Thanks. morning.

Scott Kavanaugh

Good morning.

Gary Tenner

balance on management. question A sheet

of years of did securities. you the of over the you've you've like a out, done when couple bit It on put you securitization, retained you may pointed last little securities the third looks the additional This think not. as quarter. course have the year, I

just mix. curious about of you're So how sheet kind balance I'm thinking

Scott Kavanaugh

there we So, yes, the we yielding are million participate bought of some to of in own wanted own I think – that b, our XX mortgage a, in to marketplace. just the bought about these best securitization; we and frankly, backs show our securitization, out

just XX% liquidity, felt and We balance are bit a to little And starting balance I to we we get maintain on to sheet little to keep a think expected buy liquidity. about That bit – were on sheet low. some which than I we're cash, cash. think being that said, deposits in successful But is we'd to now We've selling liquidity, when balance so closer want. been we're right XX% stronger necessarily you on raising sheet need combine

Kevin Thompson

at terms yield yield about of was look X%. what X.XX. it year, we last in If was was It the –

the opportunities What because on was cost X%? margin the Less of greater much yield those higher time on securities that was pretty significantly than the at the was loan yield So on weren't and bonds high. of these?

David DePillo

X About onwards?

Kevin Thompson

Yes.

at – sense. strong X.X% X% to have that, lot putting book can loans do didn't we the make So a that replace more pipeline we a of may -- ability we if greater, as have quickly, on feel securities we and and assets a expect do we And kept as to or if doesn't we

Scott Kavanaugh

the we more and on say we more. loan the the security But may past side we think see Frankly, this I'll leaned securities I've I said have do Yes, portfolio it this reality the than at again. in side towards the moment. opportunities is

We securities We vanilla portfolio portfolio. portfolio. not be investment liquidity a and on have to stayed very plain that our an deem

of XX year, it portfolio. liquidity some bought as on debt a or municipal have we're bid other stuff. that couldn't And sub way this more. could or of any that find look things at bonds if we yield But you a you So March using

Gary Tenner

second the on recollection that Okay. bit trends Thank my quarter, June a had the gotten maybe part, trends, of origination quite the in stronger. And then the you. was back in

guess? But, over quarter anything b, that, production? third any a, of kind headwinds course any, on there of was the was am I I that drove miss-remembering the there So

Scott Kavanaugh

kind say you we of step come the when starting if So kind to quarter. were markets the the advantage down In lockdown, And really and were we people was the retracted. rates Interest around record back, time of had of of that. taking a it when first pandemic and to I what's third a back don't days, going the lived, say, step took pipeline relatively borrowers quarter lenders, when know to markets, build quarter. Well, also but you XX not the that during happen. that's was around but second really your for only short

probably what So of low million quarter. done couple a now It's demand we quarter. course in catching the of impacted would interesting. That up normal it pent but was is up business, hundred a the kind that fourth below in on we of in have us the the market thought third of of pandemic, because kind the

in now houses. So it lock of there's in and of just always themselves go but less well there's say, pandemic summertime, mostly people I away their the low majority related summertime anyways, related. was a the demand But and would the bit in pandemic little typically

Gary Tenner

Okay, it. Thanks, got guys.

Operator

you. was question. call our That Thank any to closing the for I turn now management will final comments.

Scott Kavanaugh

taking you today. appreciate the Thank We everyone for time it. certainly

and with Overall, on investor we presentation, remainder our resources you look with next quarter. you your additional Web a to speaking about great located on pleased we're our again have site. can portion Investor covered our Relations today's Thank call, of results is our of what view and day. corporate forward For which we you

Operator

earnings third call. First for you Foundation's quarter in XXXX conference participating Thank

lines have your a and disconnect now day. may You wonderful

First Foundation (FFWM) 27 Oct 202020 Q3 Earnings call transcript