First Foundation's Q2 2025: Navigating Contradictions in CRE Strategy, Cash Position, and Deposit Management

CRE and CRE loan disposition strategy, cash position strategy, deposit strategy amidst economic uncertainty, balance sheet strategy and funding, ECR deposit management are the key contradictions discussed in First Foundation Inc.'s latest 2025Q2 earnings call.



Balance Sheet Optimization and CRE Reduction:
- First Foundation successfully reduced its commercial real estate concentration to 365% of regulatory capital from a previous high of over 600%.
- This was achieved by executing two important transactions: selling $377 million and securitizing $481 million of held-for-sale CRE loans.
- The reduction in CRE concentration is part of the company's strategy to improve net interest margin and focus on high-yielding assets.

Net Interest Income and Margin Improvement:
- The bank reported a net loss of $7.7 million in Q2, but core financial performance was stronger than the headline indicates.
- The company is reiterating its NIM guidance of 1.8% to 1.9% by the end of 2025, driven by balance sheet actions and reducing CRE concentration.
- Despite challenges, the bank is working towards improving its net interest margin through strategic adjustments.

Deposit Cost Reduction and Client Engagement:
- First Foundation saw a modest increase in combined retail, specialty, and digital banking deposit balances, driven by cross-selling trends and referrals.
- Digital banking deposits surpassed $1 billion for the first time, representing 12% of total deposits.
- The bank exited $784 million of specialty deposits, including $540 million of MSR deposits, reducing customer service costs and improving deposit affordability.

Credit Quality and Loan Performance:
- Nonperforming loans remained stable at 35 basis points, and net charge-offs were low at $135,000.
- The ACL position increased by 4 basis points to 50 basis points, primarily due to new C&I loan originations and model-driven loss factors.
- The bank is focused on maintaining credit quality while growing its C&I loan portfolio and simplifying its balance sheet.

Capitalization and Strategic Hiring:
- Despite some strategic departures, the company remains strongly capitalized, with an 11.1% common equity Tier 1 ratio and an 8.3% Tier 1 leverage ratio.
- First Foundation is actively searching for new leaders for key roles, aiming to accelerate growth and strategic initiatives in Florida and California.
- The bank is confident in its ability to attract and retain top talent to drive its strategic plans forward.