First Foundation Inc.

Second-quarter net loss was $7.7 million after $6.9 million of net income in Q1. Reported net interest margin was 168 basis points, up 1 basis point sequentially; if adjusted for $1.2 million of foregone interest income from the April loan sale, NIM would have been about 172 basis points. Total deposit costs declined to 2.95% from 3.04% in the prior quarter. The company sold $377 million of held-for-sale CRE loans in April and securitized $481 million in June, reducing CRE held-for-sale loans by $858 million in the quarter and lowering CRE concentration to 365% of regulatory capital from over 400% in the prior quarter and over 600% at the peak. Core after-tax net income excluding one-time transaction impacts was $1 million, or $0.01 per share; adjusted pretax earnings were hit by $11.8 million from the April sale, and the June securitization produced a $227,000 gain. Net interest income should improve further in Q3 as the loan transactions and related high-cost deposit exits flow through. Management reiterated NIM guidance of 1.8% to 1.9% by the end of 2025 and said it expects 2.1% to 2.2% by Q4 2026. The company also said it expects to complete one additional securitization in the second half of 2025 and aims to be fully out of the CRE held-for-sale portfolio by year-end 2025.

Tom Shafer framed the quarter as a strategic step forward despite the loss, emphasizing that the company is executing its balance-sheet remix and reducing the volatility tied to held-for-sale CRE. He said the bank likes the asset class but had too much of it, and now wants to shift focus toward earning assets, funding costs, and relationship-driven growth in Florida and California. He also pointed to progress in private banking, wealth referrals, and digital banking deposits surpassing $1 billion for the first time. His tone was constructive and confident, repeatedly saying the company is on plan and well positioned for stronger earnings ahead.

Jamie Britton focused on the mechanics of the quarter and the earnings bridge from the loan transactions. He said the April $377 million loan sale caused about $10.6 million of noninterest income loss and $1.2 million of foregone interest income, while the June $481 million securitization produced a $227,000 gain; removing transaction impacts leaves $1 million of core net income, or $0.01 per share. He highlighted margin improvement from lower deposit costs, with customer service costs down to $12.9 million from $15.1 million in Q1, and said customer service costs should fall below $10 million in Q3. He also cited strong liquidity of nearly $3.5 billion in borrowing capacity and cash, CET1 of 11.1%, leverage of 8.3%, and tangible book value of $9.34 per share.

Analysts focused on whether the company is done with balance-sheet optimization and whether more asset sales or securitizations could be pulled forward. Management said the CRE portfolio remains the main focus, but they now expect to move into stabilizing the balance sheet and growing earning assets rather than accelerating more sales, and they pointed to one additional securitization in the second half, closer to Q4. Questions also centered on private banking, management turnover, ECR/MSR deposits, and liquidity; management said leadership changes reflect the shift to a new operating model, private banking is still early but already generating referrals and some new wealth clients, and they could see another couple hundred million dollars leave the MSR-related deposit portfolio by year-end.