FFWM - Earnings call 4 2023 | First Foundation Inc.

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Operator

Greetings, and welcome to the First Foundation's Fourth Quarter 2023 Earnings Conference Call. Today's call is being recorded.

Speaking today will be Scott Kavanaugh, First Foundation's President and Chief Executive Officer; Jamie Britton, First Foundation's Chief Financial Officer; and Chris Naghibi, Chief Operating Officer.

Before I hand the call over to Scott, 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.

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

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

Scott Kavanaugh

joining for earnings you for Thank today's XXXX welcome. and morning, quarter us call. fourth Good

Although I the stronger. company foundation together the our entire throughout banking work industry faced the first am Herculean substantial headwinds entire team XXXX, to make of put forth extremely proud and efforts

forth overall will increase to to loan-to-deposit look ratio, yield loan of the loan continue into As am I optimistic put forward improve the improve I rates. portfolio the XXXX, the and changing sensitivity that efforts the

trust a the also and and Our RIA were Balance remains with able teams both both in departments outlook strong divisions weather and strong to stock estate uncertain markets. pipelines. the both real at market very

third curve Most reposition a our was to the passing sheet. and with down appears fixed we to rate First is believe rates longer quarter ride of as to stay well short with for pivoted rates Fed's sheet. to fight with environment each believe the balance We rate against end. inflation balance higher duration interest loans The or interest our liability-sensitive short end Whether troughing continue are the decline, the we continue nearing quarter. start its have quarter positioned Foundation still

weakness. asset no an as class, and strong of showing particularly it signs remains is Multifamily

our diligence From dedicated to proud commitment and am entire and and management, delivering lending, stated of trust is I exhibited earlier, I results. exemplary team deposits banking exceptionally team. our As investment the by

industry increased First to low approximately As Advisors improve quarter, for are AUM quarter-over-quarter, at quarter upon capital PPNR Foundation and to ratios. continued report we the improvements last the delighted we our million NPA ratios of reflect $XXX

income $XX.XX net for net shares. XXXX. to the to of the the share $X.X million book We quarter an for or pretax $XXX.X to For the million the and measure, XX, diluted from value, at $X.XX totaled which shareholders the of totaled third the $X.X fourth million non-GAAP of September the $XXX,XXX increase attributable revenue Interest at $XX.XX, pre-provision common prior $X.XX negative income XXXX compared Tangible quarter. quarter million quarter. reported quarter, for fourth $XXX.X per is compared for a ended we basic

total interest as the for quarter. the a Net for to of income percentage the quarter prior revenue was XX% XX% compared

margin compared XXXX. was XX, for to the as of net X.XX% Our X.XX% September quarter interest as

of the Noninterest quarter, the decrease declines discussed which by expense at was decreased the million seasonal compared million in a However, million, to driven customer earnings prior in expected largely call. $XX.X to the $XX.X $X.X costs, last service

Our improved efficiency XXXX. XX.X% of to XX, XX.X% as compared to as September ratio

XX, a Our quarter up XXXX. the as measure from reported the return assets, September X.XX%, at average X.XX% again, of on adjusted non-GAAP ended

versus ratio at XXXX. of flat XXXX, XX, loan-to-deposit XX, Our September as remained and XX, from XX.X% relatively December December of XXX.X XX.X% XXXX as

lower-yielding continuing loan strategically a improve of ratio to relationship to combination to grow committed this deposits. remain We and through reducing core balances continuing

we Related as remains laser-focused pipeline balances. to our the efficiencies robust remained proactively shrinking Our on cost-saving into year. we have look loan initiatives quarter, deposit during the and operational new

opportunities managing our that to optimize capitalize workforce instrumental able costs to in in and earnings. our and projects impact reduce their were operations, you are slated controlling strategic extremely we expenses completion. and our the making By growth. been decisions resources aware, decisions managing we been As for difficult actions on were diligently These terminate have on that streamlining early deliberate and support sustainable and have

billion $XX.X versus XXXX. quarter accounted third at the were $XX.X of for as balance September of total from quarter billion non-brokered XXXX. deposits deposits of XX% the fourth increased December of $XX.X XX, and deposits XX, Our Core in billion as

Following the portfolio, of of in accounted seasonal deposit XX, as runoff noninterest-bearing the December deposits deposits total MSR XX% for XXXX.

Our deposit pipeline the of into remains first quarter robust heading XXXX.

invaluable Our platform serve, to to across deposit client to well branches product new forward our clients ongoing to demographically and country. we source strength to us success country. depository access relationships, markets as has allows of the both we as digital The this easy allowing the branch continued base, as key but digitally network remains channel. to in our geographically banking prospects the continue our see the and strategy, our in With limited serve expand also an across across the markets of

search existing We through more continue ways to for reach new to channel. and this clients

of remained XX% of December to liquidity collateralized a strong We as as XXXX. and at approximately billion deposits XX, September $X insured position XXXX. XX, at compared Our XX, XX% total of XXXX, as December maintained deposits of

to liquidity Xx. uncollateralized Our was uninsured ratio deposits and

in XX, $XXX billion and September Borrowings million today's XX, support which Fed's Most XXXX. expectations in December of $X.X the earnings. billion is to XXXX, to to as opposed December in needs new XXXX future XX, Fed liquidity environment the bank's of quarter were a as the compared from of with to accretive at for more and BTFP, line was program funds $X.X rates, prevailing established increase rates as

and at $X.X in equivalents securities the billion in sheet of billion remained cash liquidity balance On at cash end the and investment another $X.X strong year.

the opportunities forward. to going opportunities to We capitalize will strength market continue position look for on balance sheet and for

for Foundation. Credit continues differentiator as a to serve crucial to First loans. quality Turning

to June XXXX. or as continued as for million XX, X.XX% during of $XX.X X.XX% $XX.X of December the a XXXX reduction to decrease as billion for XX, September Our total X.XX% assets $XXX XX to as nonperforming and compared XX, September balances XXXX Loan to assets quarter XXXX. billion, to of compared

class, Chris will breakdown cracks during the sector. the activity further strong stated a the seeing previously, loan give multifamily and asset I any are of As as in an not quarter. remains we

secured performance benefited increased and client XXXX. further of the Looking Trust has the Management Wealth towards end slightly strong business throughout new at FFA our markets as The seen relationships and quarter. business,

had improvement as billion was in billion was XX, in the billion of billion XX, AUM $XXX due assets to increased as advisement the Advisors of largely in increase $X.X This XXXX. as million during $X.X AUM million September Foundation the the from to by approximately markets. noted XX, compared First The Trust $X.X up December $XXX $X XXXX. to under well as September XXXX. quarter

rates. prospects by and of Federal the trust services, high factors for I both I I for the trust advisory divisions has stock. there fee-based instrumental time Reserve's but recognized interest the challenging played reiterating their our dedication new to hard work that recognize are have entire including unwavering year the advisory for continued efforts First have both team. value the our and our heartfelt promising Margins head commitment remained and decisions as are of an will in in the and departments be we some that not value It my beyond be as influence, and success. close incredible Foundation been on XXXX. undoubtedly appreciation of seen We do role in our seem an continue surprised into client our to as

and the However, pressures will that we sentiment subside. changed continue has do to feel

has forefront, financial the clients time. by continue over Our thrive. clients' that the and to the needs and commitment probably their putting of to strengthened can successfully believe our success market navigate only our We at we challenges

over call detail. the turn to cover financials will I the in greater Now Jamie to Jamie?

Jamie Britton

sheet our balance Thank with net and you, Scott. start interest margin. the I'll

As improvement asset third during impacts X.XX% which $X.XX X.XX% in QX mentioned, our and was earning elsewhere. the XX yield, partially NIM increased in in XXX from slight Scott to fourth. QX offset from the basis a There contracted in points to quarter in the

third yield points basis to yield quarter, available-for-sale and declined and the points was unchanged, quarter, the yields Most loan of portfolio improved portfolios agency increased securities cash was portfolio basis points. treasuries XX on While yield modestly the the U.S. short-dated to full during the AFS quarter [indiscernible] basis maturity securities. held increase XX purchased benefit excess the on of the and mortgage-backed due in the X

quarter, last acquire liquidity extent opportunities advantage our are of safe the to we to open achieved. mentioned I As taking objectives to are

for the earnings look mitigate help profile us of short-term also risk assets will that our We achieve increases. and risk rate desired rate interest future long-term

the Moving right-hand note to the side in balance of portfolio. I'll expected seasonal sheet. noninterest-bearing deposit our first the decline

the on the liabilities, but last customer fourth the runoff service to interest-bearing secured margin. to weighed quarter's which down costs mix balances, net came discussed interest back As replace with quarter, we

interest-bearing The decrease liability quarter-over-quarter remainder points from noninterest-bearing to interest-bearing was this million result meaningfully which of a to increased shift in X.XX%. balances XX $XXX decline rose to NIM quarter of NIM. basis The in costs, our contributed

QX. balance rose the the CDs taken actions higher forward client such using the migration July the increase, to QX rate interest-bearing balances market by in a in basis in in Bank, X% quarter of to quarter-over-quarter rates products in continued combinations, pull rate costs for this short-term fourth third driving liability Factors some result to improved and Loan Offsetting advances increase from the benefit of X channel. ahead sensitivities X.XX% in costs decline a quarter as particularly included benefits a potential Home with Federal rate market of borrowing was in As net points. the quarter footable our competition deposit full of impact retail which

increases modest XX%. has all-in have retail portfolio's led to our the cost quarter, cycle cost While remained this relationships this below beta cumulative

be with pleased the We of an our remain performance driver and success. to it believe important continues portfolio's long-term

fourth in The average yield AFS the optimistic the exited portfolio quarter's HTM was XXX the environment, stabilizing combined yields. to December we we saw equal As $XXX, average on below was only million. loans slightly quarterly the trends securities both the and for average about and year, $XXX of more yield rate the asset

customer side liability slightly December's short as to right-hand the meet were rates deposits of averages deposits. higher used in sheet, quarterly high-cost were the interest-bearing declines than balance service On

we're portfolio costs progress balance interest-bearing capital. on rightsize, improving continue strengthening challenging we've deposit and to the we our customer our decline. achieved service with As balances loan concentrations on-hand the liquidity, rebuild, portfolio will a in sheet, After enhancing liability deposits our our year, continue pleased and

risk profile will before, and increases, a we I the to long-term for make forward we'll and rate earnings future mitigate in interest risk sustainable the noted continue XXXX. rate monitor pivot rate opportunities to short-term to the towards look environment progress of more I've As

though income statement income, the we and quarter. the to remained saw interest Moving earning assets average net for stable

service to drove XX in and by play offset out was $X.X the reverse income, approximately true point decrease dynamic deposit portion service million. The monthly net interest in higher as costs. to service customer as costs interest net opposite net customer expense December of in funding in $X.X was the quarterly first $X.X return of the decline income. noted $X XXXX. for million Unlike million would basis the A in interest a December, decline margin mentioned, rates decline in part the expect quarter's of average Scott the we was this balances customer begin to compared average as million the for

on and on securities to interest assets $X.X million While $XXX.X a in by in $XXX.X from QX million income $XX.X $X million. increased loans other million million to liquid combined declined QX,

the deposit trust-related balances of saw and AU increased increased The customer deposits $XXX as quarter. as at volumes a decline will seasonal point-to-point Again, declined expense average million fees begin interest higher but effect this their higher lower in from to AUM, interest-bearing with rebuild, together which million. approximately slightly for shift in Scott ending quarter and balances $X.X wholesale the service the noninterest-bearing than average expense costs. quarterly out quarter $XX.X million deposits $X.X service mentioned, decline and We higher September both in being Wealth XX. by higher customer interest-bearing higher QX million drove average liabilities, net cost rates

growing We are and excited these in for enter the an in momentum to such time with businesses XXXX industry. continue exciting

there. opportunity $XX.X for the Customer our service totaled the million in we for and million other forward significant line costs reported markets with us, aside, and to know, expense $XX.X categories Florida engaging prospects noninterest and quarter, clients As with a quarter look the Texas represent high-growth you ago.

XXXX. increase the we resets, slightly expense to part and to growth. compensation as from 'XX expect in recognize the continue on tax result benefits and benefiting difficult of decisions annual and very first of a the need remain but adjustments entering diligent We made

income. controlling growth several work mentioned interest improving focused Scott on discretionary and As imperative times, laser long-term steady as net our remain costs. to efficiency operating we leverage This is in reestablish and we operational

favorably to provision driver into normalizes, very nontaxable Florida net that peers, $XXX,XXX benefit service to to increasing decrease Our goodwill excluding rate, intend Continuing we assets is tax this down expense we QX additional income this but costs quarter. million around in relinquish the quarter, income our $X.X not noisy expanding income the for in a was a to to The again our state benefit statement, for blended customer ratio, compared a which benefit and do benefit a from XX%. expect of tax main was a rate and profitability made tax impairment the effective as Texas. a The an result advantage. XXXX,

capital to Moving liquidity. finally

type us improvement another positions for basis basis higher expect ratio, in improvement of higher XX.XX% or its will Foundation well environment QX noteworthy This be uncertainty which XX once points we risk-based Inc.'s economic XXXX the and XX growth First and total We is around capital than estimate level. significant QX points than subsides.

equity declined due which due this slightly ending risk ratio balance to additional X.X% primarily common to was quarter's tangible asset tangible liquidity. larger to to Our sheet,

noted however, position quarter, I is maturity favorable capital As stress. loss down million of levels tangible proved deposits, portfolio most unrealized only our and we of $XX.X from provides equity $XX.X strengthening low liquidity last million reminder which that tangible when continued times uncollateralized held which be are of during and last capital position and or a a those balance peers our or X.X% strong as of is to relatively versus relatively uninsured first, quarter; to the vulnerable position significant considering risk our after-tax equity, believe X.X% second,

at As stand noted, XX.X% of only our uninsured uncollateralized total deposits and deposits.

his level liquidity available Xx with deposits Scott's uncollateralized on we're on-balance risk and market position, year, I the mentioned confident total great in we're As echo and is the what did volatility comments more sufficient of forward. today the pleased to than should moving of work in our and share liquidity achieved holding we're before, mitigate I we've team stability last our that for positioned success for comfortable sheet and Foundation liquidity return. we're uninsured I First with conviction

Chris? our over With Chris that, deposit it I'll provide turn detail additional operations. quality, portfolio and to asset loan to now on

Christopher Naghibi

to tumultuous on focus Thank fixed Coming a interest and you Jamie. elaborating strategic you, morning. I portfolio's we Good our the rates rise. our started had our assets. talking lending out and will to of as direction of today deposits, our about be rate a XXXX, lending, our on position sharp strength remediating

reduce you've margin-based where conservatively As plus has heard that and that since index our lending time underwritten prioritized exposure goal, into focused on been to relationships. continue C&I pricing, to diversify we

As byproduct positioning as do our and the will strong supports the it. peers. class in the an increase be step CECL risk with in a anticipate can in this, which a believe We data, asset you of the line of reserves company profile we this historical

QX December portfolio. have teams our our which of together loan multifamily of as All commercial as XXXX. XX% approximately composed of strong compared of XX% estate and QX including real of loans, approximately the of from to loans, manage XXXX, worked owner-occupied finance XX, its XXXX, down strategic and XX% business diverse commercial to equipment as XX% direction of height remains of

a is bank's consumer and $XXX steadfast continue a loans, challenge nonowner-occupied of there note, a to there loan the shrinking review. in departments the the approach to data cracks lending an X% From portfolio, adapt to quality of XXXX, compared worthy proactively. focus not billion asset $XX.X asset operational we construction has billion even and want our continue the third cautious is and QX estate at quarter-over-quarter, strong to down loans. is in If are coming $XX.X yet clear but residence X% real of Obviously, now we spot the of we the million been them started deceleration proactive approximately growing which with to economy, when single-family to is land quality. in on our perspective, quarter. seeing year approximately heavy decline maintain of as and What in and commercial X% of after

to payoffs high-quality million the rate, of by quarter. the in of $XXX comprised continue loan and quarter. fourth offset for totaling $XXX Loan fundings C&I, million and mortgage lending, SBA primarily be adjustable paydowns

to between our As drive exposure continues to balance goal real a fixed previously and and down our estate rate be noted, greater lending. commercial have variable

over year As portion portfolio year-end rate a taking we of reminder, existing in approach a cautious with had held over loans grown end fiscal historical as loans a the smaller a in And XXXX. $XX of $X before billion year the of result XXXX, whole. loans multifamily fiscal in billion comprise over will fiscal the of near a By of at approximately we as by portfolio. term, end we XXXX. protectionary fixed the smaller to From are peaking percentage lending and our perspective, $X billion

asset Given activity. of a the will the our all overall long-term of the of diversified anticipate of more future and a we to relatively flow cash investors, repricing need short On be most be we focus basis, assets. on anticipated underlying duration benefit and class, multifamily

As a as portfolio I increase will reserves increasing bank's a indicated balanced earlier, CECL this will the reserve. have naturally gradually more

are business XX% other of more It diversified comprising reiterate exposed and portfolio real always no at X/X commercial year to and full X%, have of as and breakdown take to loans on business this that XXXX single-family follows: commercial us, moment than only reflect of estate. miscellaneous originated the XX%, we is the is of past the sector let's X%. portfolio to worthwhile the a throughout commercial X% loans loans that behind with year. With portfolio multifamily Percentages the

broadly certain remain workforce consecutive unique speak demand. has rent nationally. in of of have is to growth dramatic you face heard X value housing in Despite particularly confident affordability. housing, solid workforce the calls, of low asset star, housing teams and sector. the class, to resulting the On still market in our the pressures our quarters in we exposure housing XXXX. deceleration regional previous within [indiscernible] a challenges defined from a geographical multifamily of multifamily According rhetoric Supply record seen outpacing around the demand, recovery

Midwest market resilience Northeast while the are are declines Ironically, markets significant marginal be with rent growth, in to and the markets Sunbelt unstable experiencing most the showing which are appear that slowing. the

over approximately loans Midwest where the the region, multifamily California and XXX QX basis portfolio X.X% As X.X% signs markets, to of by a in does XXXX, our limited not located. of while of is legacy the underwriting the and a points existing exposure has in rates of The rates rising standards. reminder, from a to Sunbelt show national record is deterioration or state vacancy rent-controlled low rising XX% our and bank's over QX XXXX Northeast are of bank vacancy are

in This particularly due only typically which controlled regions the properties, housing, workforce market likely the built nature is found downside versus have high-end of units. in apartment the to luxury predominantly aforementioned and rent newly risk.

entire its quarter fourth ratio year-end prior portfolio, to of the basis both is for in credit basis strength XX the metrics its asset Looking of XX continued quarter evident to the points XX quality from points at from and NPAs low XXXX. points. and our compared basis

be and I as the not from Bank. M&A a activity credit, loans underlying have line acquisition factoring ticked business did NPAs specifically, One of Further, shut that that While to credit it were this not were profile completely is as and originated Financial acquired up fit the First part was down organically. by want and of part both of X as stems multifamily neither slightly, clear FFB

piece with The of anticipated second collateral properly margined loan risk of no loss. a is

for and substantially loans. LTVs largely XX% XX% loans for Our conservative unchanged weighted average multifamily and underwriting with single-family remains of

deposit to operations. on Moving

that, to combined clients, on believe proposition with distinguishes with continues when bank relationships the The which deeper our our marketplace. value in of service, focus we us

funding in efforts. While refocus have are term, the a growth we funding keeping on we eye close and begun still our liquidity the to core near

current contagion Continued of savings on noninterest-bearing is deposits The to of overdependence down period deposit, as home money bank our demand XX%; at us XX%, to funding XX%, deposits deposits attention any XX%. will deposits, breakdown loan allow improvement and certificates post and allocate follows: in demand market broker driving more Interest-bearing advances.

other Our Florida remaining California XX% for core of XX% deposits and total deposits, Hawaii states XX%. majority, XX% at are at diversified of Texas and Nevada, this Outside accounting the of the make geographically up with total.

the prepared and growth seamless with our The pleased account risk opening funding deployment initially our be we complexities time utilized already business and of branches. for and infrastructure high-touch technology. of into relationship. physical clients opening our instant branches of to continue detection the digital on fraud more online focus We the mitigation It with account be accounts needs to and real-time for free that so up consumer their banking will is

to core being our front and the continued As of resilience integral begun growth culture of and to we empower noted of franchise. granular our change grow success. line to our challenge because employees last quarter, have physical the to we They deposit have aggressively retail risen retail backbone of channel is institution the incentivize the our the our to branches and

We a see to to both we well. during technology remove and strategically deprioritizing and potential procedures Refreshed improve and we XXXX ahead on timing rate by at our a as increase for operations redundancy. based look stack can calendar perspective, the to and changing policies From service. continue have begun continue efficiency where instead year landscape marketing a relationships, rate community preparing of cut current highlighting

economy. the else for team very that we from of family at about a are learn for is Foundation it to changing we contributor resilient, way for do First is members the and every support XXXX, lot would are If A tumultuous thank commitment of we do. to a what to like single we grateful we nothing I year the their improving who challenge rose business, and and

hand for operator I the the will to now questions. call back

Operator

David from question first Raymond comes Your with James. the Instructions] Feaster of line [Operator

David Feaster

term clearly earnings about maybe thinking and about accelerated margin you while think I pause cuts, trajectory, just you to with The high Fed's a assuming earning to a and could that -- likelihood how a be be of help I how any cuts and assets Maybe Fed hoping sensitivity there's on and to us potential increased reprice that could pause of start but the level. at of least quickly was on near of seemingly you'll an and you know liability potential potential just impact on funding higher? the just costs forward, bringing thoughts talked continue cuts about the reprice your bit financials, able kind likely lower

Scott Kavanaugh

it fact given in earnings our that to Well, the obviously liability sensitive, we're stated terms would we've that rates. uncertain cut fuel no if the fab were

stated I if to say, I they to a make towards were would and not think to scenario, I've rates, if liabilities previously, Fed think If pace then does of the ignite I eccentric that upward happen reasons, reprice trend where there's would as frankly, for savings Fed it earnings and same billion it upwards were. cutting at once back higher towards be for a $X would probably longer be that that the will won't be don't the substantial obviously, immediately cut will which Does sense? were everything it start an improve. it's various seeing rates. But which

David Feaster

sure. for No, Yes.

opportunities the see of still actually a Okay. to has as to where slowed, That's maybe side. seeing multifamily are clearly demand that there's the how but the today? for especially Onto back you that pace growth the or of curious maybe starting even Obviously, loan be think market you side product. makes good declines or pulled in lot is I'm of about have multifamily, on balances you're helpful. maybe C&I? still do a bit And going the primarily And more broadly then well. opportunities trajectory lenders multifamily in deeper production maybe loan digging growth the

Scott Kavanaugh

And not from hope our about been all where look It that. you can do was tell I of terribly And To originations. But will seeing I we've preponderance of when off credit. XX% balances C&I. to won't grow tremendously say our be honest, when initially, C&I a you it Well, be that, think year, I XX%. grew again, the C&I. probably far we're last to continue was at

don't And First so market credit believe to the be. where is participate just a we're in we not should going that Foundation fully that

going we believe being be continue now there that the it's than relative would say to in much So that that sector. on there. but multifamily, we I balance yes, said, the grow, to C&I, C&I more rates are current to modest have can opportunities right

of was you people that Foundation WaFd. JPMorgan, Historically, a largest, Burbank, in California. big First have pulled had back. say you And that the who's Luther there's Obviously, lot to selling

got now just agreement. You've into that Home an entered has Street

So is still yes, -- a Rates X/X. in marketplace lot down. we're from X/X, is Xs. in high X to Xs what slowed is X seeing Chase of the up tend active. Chase players maybe have be the and very

think getting to back ourselves longer-term on from little dabble more not we I that than the extent ourselves JPMorgan path may And might more stop a a a to neutral priced basis. aggressively bit a be bit enough of stance little in that. large arena, but to a

David Feaster

helpful. near you loan see extremely maybe probably or the That's declines term? -- in expect Would Okay. to stabilize or maybe to continue balances

Scott Kavanaugh

the many But put was And put mean, fixed quarter imperative on stabilize. No, that loans. rate everybody in since seasoning too and product. billion just I first the me, the around repricing that that's we about, X.X think me years of stuff got $X.X was of being were on corner I to of a far repricing. years Guys, lot and day, so And I and think they're XXXX, That's second of It's that. I multifamily of knows that going it's to on talking third XXXX. talking We just we've full and about or really X other not loans -- away. a the we're talking think from Jamie in most second from excuse really away

short than So be really when I it's short we duration, thinking it Street that it's is. think you the tell seems to more guys, duration

important I don't note. It's to is think that's think something -- know. I So just I

Christopher Naghibi

may Keep and If they prepay more always also There's interest interest, their motivation they product. refinance they a But multifamily motivated IO doesn't the debt and have in times, to to are consider. a have impetus mind also back Yes. highly portion, traditionally periods. I market that other that add the color. fixed their loan for flow-focused lot an to investor principal from they very when only and refinance convert into that cash of

So expects activity the cash flow their because you'll see of lot I think than more a focus. market

David Feaster

That's last And X maybe for a me. point. good just really

You it like going just you look Could have the so there. had stand It far think on. bit, branch as deposit alluded from that's growth you've how but that touching forward? deposit success that we quantify And Chris, initiatives. deposit sounds you to just some working core where growth on we initiatives I'm curious -- been a maybe opportunities the other and about guys

Christopher Naghibi

Yes.

So we is as I focusing out were it all some it, to and of on customers experience. an of our what of attest coming spent we the time things and behaviors clients contagion our the one can we educational think period, during the that took

that institution we grow So the and knew wanted with in clients of believed the relationship our really to us.

in culture. but outbound quarter defensive more of an treasury and we're businesses. of and some Keep things certainly protecting of at here. don't on sales, we're everybody business as quarter deposits. I I management community was the a core taking want to year, certainly more mind, how and say on you their larger the diving wouldn't We're community So first smaller into the know answer the services detailed offensive. second culture, sector We're doing. looking in now the opposed banking driven the But in of the and

We're really ability hear built time those lot kind things. the we grow and out of more back me the down around go bank for to the We're is business. And and everyone. talking going -- the out a about be people you infrastructure of giving also tapering the can't to narrative in have doing

which have and have grow just to trying that focus our we're kind things who us So Foundation of has growth with are of community very First businesses, skilled and who with access very, on growing experienced obviously, the space, and a team, being organically. being clients we will to at Advisors within more scale out Relationship-based that partnering partnership that businesses small businesses who have lot combined at.

Operator

the from D.A. Tenner Gary comes of question next Davidson. line with Your

Gary Tenner

I you A I third of borrowing. that through quarter. of detail, at couple I the to BTFP things all mean, think, the on utilized missed the ask haven't some obviously, about.

about and So decision fixture picked maybe you the there that rate is talk of what the kind up? for

Jamie Britton

Appreciate currently XXX Gary. the I that at rate late which and we at in question, it. [ the was We're locked quarter. for fourth around relatively believe, the Thanks ], was

funds. So deposits the we And thinking to The we're through with quarter, lines, replace guess, year. to another encouraged we on to basically accelerate customer options our fourth to have that short as for been leave test looking last we would saw the service and that Fed. encouraged I cost-effective funding for that expect use

it? funding Does that And year so it ability We an maintain to use made is together, the But broker next obviously was when the due. and putting do option. keep the have it are most BTFP sense as general which say, answer I it that. other, become for guess of all to thinking. maturing that deposits that over

Gary Tenner

I helpful. that's No, appreciate Yes. it.

was prior of or decline terms MSR magnitude, mean, years quarter than at the certainly the In service like. kind of what if deposits, it deposits I deposit you look customer to line looks that seemed larger this the

it a was decline? Was there So within that. something unusual larger magnitude

Scott Kavanaugh

had part And clients quarter. first then, probably of more banks. in did I than a back we deposits we've X this to was was Since little so have It some grow other their started back of of X bit balances our equally plus with balances particular additional larger to seasonality, amongst redeploy bring the far also seen Yes. believe the they our client anticipated. depositors. multiple in take

think a that's probably equal to not runoff, maybe I see rebound but it. you'll close fully the to So

Gary Tenner

question as as the of the into well. expense goes that I of And about line kind part think Okay.

in being think to just addition amount the I to rate the reduce mentioned had dollar you're lower, I think paid. you able that

able in push wondering So the you're of environment? how through just no change the rate given that kind currently to

Jamie Britton

MSR Well, of portfolio, higher as cost overall the that's the the deposit customer portfolio.

blended those impact come the as leave, so And rate down. does

basis. client-by-client a on modifications of ton a made haven't We

-- higher overall rate deposits So rates back return. will will the come MSR as cost the the

Scott Kavanaugh

there's that all these of Fed driven. this many country relationships, Yes. Fed deposit banks Gary, have balances decision these be To clear, and types in -- it's

or reflect what down, rates on deposits will that it's Fed stays -- does. extent to the So or the Fed based those the goes increases flat

Gary Tenner

Okay. appreciate that. No, I

It mix earlier really the your comments. that. was have So I about may misunderstood more deposits of

Scott Kavanaugh

type deposits. to into balances interest-bearing shift these Yes, ECR from as we had

trying are blended itself lower cost -- I basis. think Jamie actually, what on was the convey is slightly -- to a our was

Jamie Britton

expenses the year, the exiting the And identical $X for because heading to -- year interest-bearing on quarter, Right. not just those lower million. were rate or -- know exiting was I monthly run December they're lower deposits. But balances through the

up as the the sort for of And so will the average whole. December as going you're about an costs think part quarter as while 'XX, from to of going return, rate cost the start deposits to opposed those back come a run into service fourth as is customer I thinking the at rate first

Gary Tenner

absent that kind second of a more little And probably Right. normalized quarter, level? of

Jamie Britton

for sure. Absolutely. Second quarter,

Gary Tenner

to some past in appreciate terms the I the heavy more, expense controlling do Where excluding know this that. that about the lot or a of kind ex reducing customer in the if least at better I of year run with looking I service then Is time, way line, Or costs. Okay. fourth service customer year line, rate? versus it X guess there's And costs, XXXX expenses this it? think maybe costs regard you just 'XX? again, anticipate to of versus obviously, quarter and a

Jamie Britton

Yes.

compensation the for into just As I adjustments going period. first of the and normal annual here a benefits reset adjustment salary mentioned, we tax in little going see teammates our the line you bit hit as are the and to

The run the on rate. other stable where were expense lines, quarter fourth I are from think, relatively they

Yes. see. Let's

keep thing decisions you the some X think mind, year, get conjunction more difficult made into that I of to we just in in with in XXXX. the as

for the recall was compensation X expense or a benefit may You our items incentive of and reduced line teammates whole. as

And so historic normalizes, I levels. to would to return as more profitability that expect

plan, normal historical more may tick But we sheet and we expense levels. approach that it's measured up that rise to rate just as And rightsizes growth back of a that, in. something balance we'll that not and take outside profitability is in remain that business the forward the that see our a so with in as with back slight will on bringing said, to activity into overall conjunction in going baking are, we're just you laser-focused note important revenue to

Gary Tenner

Okay.

the accruing words, that So quarter, the you're to jump revenue not see and for out first the in other you're in of improve. profitability going to wait

Jamie Britton

Right.

Scott Kavanaugh

Yes. Correct.

Operator

That conclude you joining. for call. is we all the thank have the question-and-answer session. We conference today's for This time will

now may disconnect your You lines.

First Foundation (FFWM) 25 Jan 242023 Q4 Earnings call transcript