image
Financial Services - Banks - Regional - NASDAQ - US
$ 5.29
0.755 %
$ 436 M
Market Cap
-3.99
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2020 - Q2
image
Operator

Greetings, and welcome to First Foundation's Second Quarter 2020 Earnings Conference Call. Today's call is being recorded. [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. .

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.

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, see the company's filings with the Securities and Exchange Commission. .

And now I would like to turn the call over to Scott Kavanaugh. .

Scott Kavanaugh

Hello, and thank you for joining us. We would like to welcome all of you to our second quarter 2020 earnings conference call. We will be providing some prepared comments regarding our activities, and then we will respond to questions. .

As highlighted in the press release this morning, we experienced another strong quarter across all key financial metrics of the firm. Our earnings for the second quarter were $17.9 million, a 44% increase over the second quarter of 2019 or $0.40 per share. .

Total revenues were $57.4 million for the quarter, an increase of 13% year-over-year. Our efficiency ratio for the second quarter was 53% at FFI and 47% at the bank, and our tangible book value per share ended the quarter at $12.16 per share.

We can also report that the company's Board of Directors has declared our quarterly cash dividend of $0.07 per share. And at this time, we anticipate the continuation of the dividend in future quarters. .

I am extremely grateful to all of our employees who have helped us produce such strong results this quarter. It's been remarkable to see our team perform amidst all that is currently going on. .

As I've said in prior calls, we have been focused on the health and safety of our employees and our clients. Providing excellent client service has been a core value of ours and we remain committed to offering support to those in need. .

We participated in the small Business Administration's Paycheck Protection Program, and Dave will touch on that more in detail. We have suspended any further participation in the PPP, and currently, do not intend to participate in the mainstream lending program. .

I am also so pleased that all of our branches have been able to safely remain open to support our clients throughout all of this. And as you are aware, we rolled out our digital platforms in October of last year, which proved to be good timing with the pandemic.

These digital platforms have performed well, both for our clients who need vital services, as well as our employees, who have relied on virtual technologies to conduct many of their day-to-day functions. This quarter's results are another testament to the strength of our business model.

We saw a strong loan and deposit growth, and despite volatile financial markets, our assets under management returned to near peak levels. I'm very grateful for all of our employees, and I want to thank all of our clients who entrust us with their financial needs. .

This time, let me introduce and turn the call over to our newest member of the executive team, our CFO, Kevin Thompson. .

Kevin Thompson

Thank you, Scott. It's great to be part of the team. .

In spite of a challenging economic environment, we experienced strong profitability in the quarter with a diluted EPS of $0.40 per share. As Scott mentioned, the efficiency ratio decreased to 53% at FFI and 47% at the bank, with a return on assets of 1.06% and a return on tangible common equity of 13%. .

Our track record during this quarter is a testament to our business model. We benefit from fairly consistent fee income from our financial advisory group, a strong loan portfolio especially focused on a conservative multifamily book, and the liability-sensitive balance sheet that is poised to benefit in this rate environment. .

And even as we grew deposits by 12%, we witnessed a decrease of interest expense by 30% in the quarter, which helped boost net interest income by 8% and the net interest margin to 2.96%. .

The ratio of allowance for credit losses to loans increased to 55 basis points this quarter. Even with strong credit metrics and trends, we used more severe economic scenario assumptions under the CECL framework to help buoy up our reserve levels. .

With strong expense management and continued operational leverage of the investments we have made in our business, pre-provision net revenue increased an impressive 17% in the quarter, this is despite the lower noninterest income as a result of lower transaction volumes and advisory fees in the quarter. .

At this time, we still believe our third quarter multifamily loan securitization should occur as planned. All in all, it was a strong quarter, and I want to thank everyone on the First Foundation team for the warm welcome. .

I will now turn the call over to David DePillo, President of First Foundation. .

David DePillo

Thank you, Kevin. First, I want to reiterate our gratitude to our team members. Thanks to their efforts, we have been able to maintain a consistent pace with our business plan projections and support our customers. .

During the second quarter, we originated $701 million of loans. As expected, loan demand has softened somewhat in many of our markets, but we will remain on track for a strong year, pending any additional unforeseen circumstances. .

The composition of our loan originations for the quarter is as follows

multifamily, 55%; commercial, including owner-occupied commercial real estate, 38%; single-family, 6%; and other, 1%. For the second quarter, the weighted average rate on our loan originations was 2.86%. Excluding PPP loans, originations were at 3.55%. .

I wanted to also reiterate some items about credit quality of our loan portfolio. As Kevin mentioned, our asset quality remains strong, with NPAs remaining at 22 basis points. Approximately 85% of our portfolio is secured by real estate. Across all segments, the loan-to-value is low, averaging below 60%.

Our debt service coverage ratios on our multifamily nonowner-occupied commercial real estate are strong. .

In our commercial business loan portfolio, we have low exposure to industries that have been hit hard by the pandemic. Specifically, hospitality and restaurants representing $51 million are less than 1% of our loan portfolio. In addition, we have no meaningful exposure to oil and gas, aviation or cruise industries. .

In our owner-occupied commercial real estate portfolio, we have low exposure to hotels and retail buildings, representing $26 million and $156 million, respectively, or a combined total of 3% of our total loan portfolio. .

As mentioned, we participated in the PPP program and funded 604 loans, for a total balance of $171 million. The forgiveness portal, the system we used to receive, evaluate, track and process PPP loan forgiveness request has not been forgone at this time as we are still awaiting further guidance from the FDA.

We anticipate the majority of these loans to be forgiven in the fourth quarter of 2020 and the first quarter of 2021. We have also handled requests for forbearance, which remain low, and we have not seen any significant need for forbearance in our multifamily portfolio at this time. .

During the quarter, deposits grew by $617 million, which is an increase of 12% compared to the second quarter of last year. We saw growth on both retail deposits and in our specialty deposits. And our online deposit activity has contributed an additional $370 million since we have launched that offering 9 months ago. .

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

John Hakopian President & Co-Chief Investment Officer of First Foundation Advisors

Thank you, David, and good morning. Our assets under management closed the quarter at $4.3 billion. We added $157 million of assets under management from new clients, which is at a pace that is ahead of last year. Also client terminations are trending much lower than last quarters.

This is a testament to our team who continues to perform even amidst this pandemic. .

Our investment philosophy, which relies on a value-based investment acumen to preserve capital and manage downside risk, has performed well for our clients. Our balanced portfolios have done well this year. .

Also, our trust department continues to be instrumental in our ability to build and maintain relationships with our clients. Our trust department allows us to work with clients that have financial needs beyond our traditional investment and wealth planning offering.

We have been able to eliminate some positions and do not feel the need to replace them at this time. .

With AUM at peak levels and with the recent reduction in staff, we anticipate margin improvement going forward. We are looking at ways to even further strengthen our efficiencies by making enhancements to our core technologies and improving the client experience.

This was a project that was already well underway, but has been validated by the pandemic, given the benefits we could realize in the near term. .

Whether we continue to operate virtually with clients for the foreseeable future or we returned to the in-person model soon, we are becoming better positioned to serve our clients in either scenario, however they may prefer.

We also have uncovered some new opportunities to efficiently capture assets from clients who are more inclined to leverage technology when working with a wealth manager. With these elements in place, we are seeing a strong pipeline and expect to continue to be successful in attracting new clients in the future. .

At this time, we are ready to take questions, and I will hand it back to the operator. .

Operator

[Operator Instructions] Your first question is from Matthew Clark of Piper Sandler. .

Matthew Clark

Can you give us the contribution to NII this quarter from PPP?.

David DePillo

The actual dollars? You want to go?.

Kevin Thompson

Yes, I don't have that with me, the actual contribution. But the -- it -- because of the low rates, as you know, Matthew, it did impact our net interest margin by about 4 basis points. It was a hit to our net interest margins. But I don't have the actual amount. But you could take -- the average loans were out there about $171 million.

By average, the rates 1%. The fees are amortized over 2 years if you kind of back into that. .

Matthew Clark

Okay. Yes. Okay. And then the reserve was up on a dollar basis, about $7.5 million. It doesn't look like it came through the provision.

Can you just give us some color on how that was reallocated?.

Kevin Thompson

Sure. Yes, there are a couple of things going on there. So as part of CECL, you take your purchased credit impaired loans, and what happens is those become automatically under the fees. There -- that's the former name for them. They automatically become purchase credit deteriorated loans under the CECL framework.

And there's a process you're supposed to go through called a gross up, where you look at those loans and decide what portion of the discount that you've had out there is related to credits and what is non-credit. And we went through analysis, and it's all credit-related, so we appropriately dispositioned those loans into the CECL reserves.

So that doesn't impact the income statement. You saw a number of our peers that have been acquisitive in the past do that same thing last quarter. .

So that's one item. Yes. And the other item is under CECL, there's this new thought that as you have, what would have traditionally been called the OTTI, the other than temporary impairments on securities when cash flows when you have some impairment going on, historically, that you would have had an evaluation allowance against that security. .

Under CECL guidance, actually, that runs through your credit provision now. And so what you do is you take the present value of your cash flows, compare that to your fair value or amortized cost.

And you saw that last quarter, we had an IO strip adjustment, that appropriately was run through our -- through CECL this time, and there was a small increase to that this quarter as well.

Does that make sense, Matthew?.

Matthew Clark

Yes, that's great color. And then just shifting gears back to the margin.

Do you happen to have the spot rate at the end of June on your interest-bearing deposits in the -- and maybe the interest-bearing liabilities as well, just given the dramatic drop in funding costs? Trying to get a sense for where they might be headed in 3Q?.

Kevin Thompson

Yes. The interest-bearing deposits, I have -- yes, deposits. Interest-bearing deposits were dipping into the low 1% by the end of the quarter. So we -- as you see, we're at 1.18% for the quarter. So it was dipping down quite -- we saw quite a bit of movement, and we're seeing more to come. There's a lot of movement we still anticipate. .

Scott Kavanaugh

Yes. We still think that there's going to be an adjustment in interest expense lower in the third quarter and slightly into the fourth quarter, and should be fully adjusted going into 2021. .

Remember, we also have described 0.5 billion of Home Loan Bank borrowings that will mature in September, I think it's mid-September, and that currently is at a rate of 1 77. And when that wears off, I'm not sure, given our loan-to-deposit ratio and the securitization, that we'll need to replace it.

But if we did, it would be in the teens in terms of what the rate adjustment would be..

So I think one of the things that we're also trying to do is between Home Loan Bank advances, we want to see a decline in that. We've been very strong in the deposit gathering mode. And then also brokered deposits, we're letting a lot of the wear off. And I think we can reduce that quite a bit, maybe as much as $400 million or $500 million. .

David DePillo

So if you look at it this way, Matthew, typically, this quarter is the one we kind of give you a margin with and without our wholesale leverage going into securitization.

This year, it's particularly prominent in the fact that, as Scott mentioned, that 1-year term borrowing that we're matching against the loans available for sale is at a rate that's significantly higher than borrowing cost today, equivalent borrowing costs today are probably 20 basis points. .

That effect on the margin will be immediately impacted at the end of the third quarter and then full benefit going forward in the fourth quarter. So the -- if you kind of do a margin buildup, it was 2.96%, and it was 3 basis points for PPP, in that effect. So call it, 3% there is kind of our rate today.

And then kind of including the effect of the wholesale leverage, about another 10 basis points. .

Kevin Thompson

Another 8. .

David DePillo

Another 8 basis points. So you can kind of back into where we're at excluding those items. .

Scott Kavanaugh

Hence, in the past, we've talked about having a higher than 3 margin. I think we'll be able to attain that next quarter. .

Matthew Clark

Yes. Okay. Great.

And did you buy back any stock in the quarter? And if so, how much and at what price?.

Scott Kavanaugh

No, we did not. I think for the foreseeable future, Matthew, no real intent. When our stock was trading below tangible book value or close to tangible book value, it made more sense.

I'm sure you can look at the capital levels and say it looks like it's close so I think for the time being, we're just going to accumulate capital, we'll pay our dividends. But I don't really -- unless the stock dips hard, I probably will not buy any stock back anytime in the next several quarters. .

Matthew Clark

Okay. Last one for me. Just on the multifamily portfolio, haven't seen much in the way of deferrals, whatsoever.

If the unemployment benefits get cut a bit, should we start to -- should that be more of a concern as it relates to the underlying rents and the need for some forbearance?.

Kevin Thompson

It's kind of interesting. There's a lot of elasticity in the cash flows of our multifamily borrowers. So even if they saw, say, a 10% collection variance, maybe as high as even 20%, most of them with cash flow positive towards debt because of the nature of our underwriting.

So could there be some impact potentially if this becomes severely protracted for a long period of time and there is no safety net. But at this point, we've done some pretty severe stress analysis through our CECL modeling.

And because of the richness, again, of the cash flows, it would take something beyond just a non-continuance of unemployment benefits to dramatically impact to the point of any need for forbearance or any form of default. .

Operator

Our next question is from Steve Moss of B. Riley FBR. .

Stephen Moss

Starting with the perhaps loan yields here. Just kind of wondering where they ended up at the quarter. I think I heard 3.55% for the quarter average.

Just wondering if spreads are tighter today than they were during the quarter here?.

David DePillo

So interesting, the loans that were funded out, obviously, the ones that are impacted the most outside of PPP, which had kind of an aberration to the net is typically multifamily.

Those came down from 3.71% in the first quarter to 3.55%, and that the majority of that pipeline was built up when the Fed dropped rates and there was kind of what we call pre-lockdown. So there was high demand and no risk-adjusted return. .

Our expectation is that's probably where we're going to probably normalize. Most people have figured out that multifamily is somewhat a safe harbor in the market, most lenders have returned. And so we -- from an internal modeling standpoint, Steve, look at that run rate as kind of consistent going forward.

We had a, I would say, a brief period of time of wider spreads in the market. But certainly, from what we see, all the way from the agencies through portfolio lenders, those spreads have more or less risk adjusted themselves back to where they were in the first quarter.

Does that kind of answer your question on that?.

Stephen Moss

Yes. And so in terms of the pipeline, just kind of curious here. I mean, you mentioned some moderation in the pipeline and slower loan growth. Any extra color kind of what you're thinking about for the back half of this year would be helpful. .

David DePillo

So we modeled kind of a slow July, then starting to pick up a little bit in August, and then September, and then fully ramped back up to our normal production levels in the fourth quarter. Summer is typically a slower season. It's kind of that plus COVID, and multifamily borrowers tend to be a little more conservative.

Some of them were sitting on the sidelines, less sensitive to rate, and more of just wanting to see what's going on. That's kind of subsided, and we're starting to see momentum and pickup back in the pipeline. So I would say we're ahead of expectations for July and August from where we had modeled internally. So that's good news.

And we expect to probably be back to fully ramped probably by the end of September going into the fourth quarter. .

So the market seems -- purchase activity is picking up. Our refinance activity is picking up. And then, obviously, on the consumer side and mostly in the residential mortgage market, that seems to be fairly robust. So multifamily is kind of catching back up to that kind of general pace, I would say. .

Stephen Moss

Okay. That's helpful. And then in terms of funding costs, perhaps going to customer service costs, you had pretty good growth here, I think, on an EOP basis.

Just kind of curious as to how to think about that line item for the back half of this year as well?.

David DePillo

one, lowering costs, but higher balances. So I would say that I would probably run it flat because we are seeing huge demand by a lot of our customers to park money, so to speak. And I think you've probably heard this from just about every bank. There's a demand for a home for deposits now that we haven't seen for quite some time.

So I don't think the relative absolute dollars will decline. The rates have kind of bottomed out. .

Scott Kavanaugh

A little bit, but... .

David DePillo

But balances are going to be up pretty significant. .

Scott Kavanaugh

Balances are high, but the costs themselves have come down substantially. .

David DePillo

The way I would look at it, Steve, is even with those higher costs, the banks already in the 40s in efficiency. That should continue to improve as our revenues continue to improve as well. .

So we're -- I would say, we wanted to be at about 50% efficiency by the end of this year. We're already kind of ahead of schedule, even including higher balances in the customer service area. .

Stephen Moss

Okay. That's helpful. And last one for me. In terms of the wealth management business, good rebound. Just with regard to the new clients coming on board, is there a further pipeline of new clients to add? And just kind of any kind of color there would be great. .

Kevin Thompson

Yes. No, great question. So what we're seeing is the quality of the new clients coming on board seems to be larger relationships, relationships that also include our trust company. And so we're -- the volume is probably a little less, but in terms of quality and size of relationship, it's probably a better and larger client relationship. .

Stephen Moss

Is that a shift in the -- I'm sorry, go ahead. .

Kevin Thompson

No. Go ahead, Steve. .

Stephen Moss

Okay.

In terms of just -- is that a -- in terms -- is that a result of hiring of new relationship managers? Or just kind of what's driving that shift in larger clients?.

Kevin Thompson

No. I think if you look back over the last several years, we've definitely been moving upstream, trying to go after larger relationships. And so as a result, we just got, I think, a $25 million relationship that came through here in the last few days.

And so both through the Schwab channel, the TD channel as well as our own channel, we've been -- we've definitely been bringing on larger relationships, and it's just something we focused on the last couple of years. And the platform was really built for larger relationships. And so we've worked closely with our trust company.

Our Nevada Trust offering has helped a lot in -- as well as just the California Trust powers also. .

Scott Kavanaugh

I think it's important to point out, we did have a reduction in staff. We really have not added relationship managers. We've actually pared back a few. And I would tell you that in quarters past, margin has not been where we would like to see it.

And I think on a go-forward basis, you're going to see margins start to improve and will continue to improve. We're kind of hunkered down. And most of our RMs are working off-site or remote. So to have that type of pickup in new assets is actually pretty good. .

But I think it's just equally as important to talk about the expense savings, which are at least a couple of million dollars so far. And as soon as we can bring our new operating system online, I think we can create more efficiencies on a go-forward basis, and not feel the need to increase our staffing. .

Kevin Thompson

Yes. And lastly, just I think when you get more volatility in the markets, people tend not to want to manage their assets on their own, and so they're out engaging a wealth manager like ourselves. And so we usually see a pickup in business when we see the volatility we've seen in the last couple of months. .

Operator

[Operator Instructions] Your next question is from David Feaster of Raymond James. .

David Feaster

I just want to start on deposit growth. Deposit growth was tremendous. But when I look at it -- look at end-of-period versus average, it seems like a lot of it happened late quarter.

Just curious how much of this deposit growth, you think, was from PPP or stimulus versus true organic growth from the digital brand or specialty deposits or anything? And then how deposits have trended early in the third quarter, and maybe just how expectations might be for how sticky some of the deposit growth will be?.

David DePillo

So it's interesting. The -- we did an analysis on PPP, and about 1/2 the dollars have already left, which is, I guess, good news. And it's probably 60 -- a little over 60%. So of the $170 million, there's maybe half of that left, so. .

Scott Kavanaugh

It was -- so we funded into -- there was $171 million funded PPP. About $160 million actually went into a First Foundation account as opposed to maybe a different bank. And then like Dave's saying, over half that has already left the bank. So really, when you look at it, it's not a significant impact versus the $600 million that we took on board.

And it really came across a broad stroke. I mean, we -- the branch network was very successful. The digital network was also very successful, was huge. And then our specialty deposits also picked up..

And like Dave was alluding to earlier, we've had a lot of clients call up and say, "Hey, we want to give you more dollars," and we've definitely been the beneficiary of that as well as new relationships. .

David DePillo

I mean if And I think if you look at our balance sheet at the end of the quarter, traditionally, this would be our highest loan-to-deposit ratio because of the wholesale leverage we typically carry by having those excess loans in our books.

And it's at a level we haven't seen basically 1:1 for that period of time, plus a lot of the balance sheet growth is sitting in cash right now as well. .

And traditionally, we haven't been sitting on a lot of cash. So deposit demand is significant, as Scott said, across all the lines.

Our expectations are as the digital channel continue to grow, the question is -- for everyone, is how sticky is that business?.

Well, when we started that program, our rates were significantly higher than they are today, and we keep ratcheting down, ratcheting down, ratcheting down, and it keeps growing and growing and growing. Our decay rate is very minimal.

As long as your close in the market, which we can afford to be, because we don't have 1,000 legacy branches sitting around that we have to support. So we're almost to the point of collapsing those on top of our branch rates, which would be the first time we've seen that in a long time. .

And again, as Scott stated, rent growth has been pretty significant too. And the specialty side for us is really where a lot of our expectation for growth will continue. .

So -- and just to let you know, the pipeline still is very robust on the deposit front. .

David Feaster

That's terrific. That's terrific. And then just on the multifamily portfolio, I'm just curious what you're hearing from clients. There's -- obviously, investors are a bit concerned about the market. We're seeing different data about rent collections. You're obviously well positioned in rent-controlled markets.

But just curious how rent collections are trending in June and early July and how vacancy rates are trending. .

David DePillo

So we haven't seen any significant deterioration in collections period-over-period, month-over-month. And July was typically -- it seems to be the same as what we've seen in June and in May. .

Talking to our clients, typically, they'll get the majority of the rents in the normal collection period, and then they'll have a few tenants that they'll work with through the end of the month. But outside of that, we haven't seen any major tenant defaults.

I think a lot of the municipalities have changed their tune in regards to, hey, don't pay your rent, don't worry about it, because they've been sued over that, and there's been cases in California also. So they're being a lot more mindful on telling people go pay your rent, that's an important thing. .

There's probably a couple of other factors. One, as they've come out with some rental assistance programs in some of our major cities in California, specifically L.A., that will help renters. And this whole anomaly of people working from home, as you know, we have high percentage of renters.

It's not like you want to sacrifice your ability to maintain your job from your dwelling, and a lot of those are apartments. So we see this kind of hyper importance of housing beyond what we've traditionally seen in the past where the mobility is certainly there, but the demand is certainly still high.

So talking to our apartment owners, which we talk to you every day and through the process of securitization, we're getting updated rent rolls. I would say that we don't really see any stress, any different from July to June from May. .

If a lockdown continues in perpetuity and another shoe drops, yes, that could change. But if it kind of stays where we're at, it feels kind of every day is groundhog day. .

Scott Kavanaugh

I told you anecdotally, I own units myself. And in the month of April, May, June and July, it's been 100% collections. .

David DePillo

And you would say those are more traditional workforce housing?.

Scott Kavanaugh

Yes. Workforce housing, which is exactly the type of stuff that we do. .

David Feaster

That's helpful. And then just kind of following up on your point, Dave, on the working from home, maybe more of a strategic question. And I suspect I know the answer to this as this market really basically just affirms your business model.

But I guess, as you guys step back and think about your positioning in the market and the business model, do you see any changes to the strategy in the midst of this environment given increased remote workers and more digital adoption and changing consumer behaviors? Just -- not only just on the expense savings side, maybe office space savings, but even opportunities for growth or places that you might want to invest to drive additional organic growth going forward?.

David DePillo

So we embarked on those, I would say, 4 years ago, and said, we are not going to be solely dependent on bricks and mortar. We want to invest in technology. We want to upgrade our systems. We want to have scale and efficiency that most institutions at the size we were 4 or 5 years ago wouldn't have made those investments.

And quite frankly, we got beat up for it for a while because our efficiency ratio was running a little bit higher. .

Those investments, we feel, are paying off in a few areas. One is the -- from the inception of the business, when Scott put the bank together, it was built in a time where distributed technology was a lot more efficient than most banks were built '20, 30 years ago.

So this bank has always been -- has the ability to have a distributed workforce from day 1. We haven't had the need to disseminate everyone else, but we've always had that ability. So that was a strategic advantage. .

On the core systems and our digital delivery, the commercial side from the -- from 5 years ago, we built out a robust commercial site because we knew the client base that we're going after requires significant technology to perform those tasks.

And then we made the strategic decision to really kind of push the consumer side on digital delivery platform. So we kind of feel we're what we call the cutting edge of digital delivery on the consumer side and not the bleeding edge.

So we let the big bank spend the hundreds of millions of dollars in figuring out how to deliver this, and then we take more off-the-shelf product that are cheap and efficient for us.

And if you just look at our digital branch growth, 3 -- from 0 to $380 million in less than, what, 9 months?.

Scott Kavanaugh

Yes. .

David DePillo

We grew the size of a community bank in that period, literally, with a few people at no cost, effectively, on the margin to us. Our strategic partnerships with our technology providers are some of the best in the industry right now. They're using us as kind of the poster child for other banks.

We've won several awards around our distributed delivery as well as our internal efficiency use of business intelligence. So we feel, going into this next leg, we were just lucky to make those investments when this pandemic hit because we sit around going with 15% of our staff on site and we're as efficient or more efficient than we've ever been. .

Scott Kavanaugh

I keep using the word serendipitous. I mean, it really was serendipitous. Look, looking forward, on a longer-term basis. And I think it's important to really talk about it. We have very little office exposure, if any. When you look at our CRE concentrations, it's multifamily. We're not the only bank.

I mean, I've been reading all the big banks are no hurry to bring their employees back. We were initially phasing some of our employees back, and we've halted that. And I think for the foreseeable future, we're evaluating what our needs are in terms of office space. And come time for the renewal.

I have a feeling we won't need near the office space that we currently have, which will be further cost savings for First Foundation. .

And I would bet that not just banks, but a lot of different companies out there are facing the same thing that we are and realizing that you can still get good productivity from people working remotely as well. .

David DePillo

Yes. Just the ability to reach different demographics than we've historically been able to do over half of our customer base through our digital delivery. New customer acquisition is 40 and below, which is very unique. This institution, typically, from an age and demographic perspective, was kind of 65 and above.

So we've kind of transformed the customer base of the bank to be a lot more broad and we want to continue to do that. That's where all our energy is really through expansion of our product offerings, digital delivery, and that goes all the way through our high-touch customer service side.

So at the end of the day, if you need a high-touch customer service and you want to do it digitally, we want to be the default option. .

Operator

We have a follow up from Matthew Clark of Piper Sandler. .

Matthew Clark

On the comp line, the drop there, I guess, how much of that was driven by the deferral of origination costs tied to PPP, if any?.

Kevin Thompson

It's not terribly impactful. You have a little bit of a decrease during this time, with lower commissions and lower transactions happening in branches and things like that. And of course, the first quarter is when you generally have the highest benefits and salary costs.

So we anticipate going forward, as things kind of normalize, that line coming up slightly. .

Scott Kavanaugh

Matthew, we've been very firm about hiring practices throughout kind of this area. Plus or minus 1 or 2 bodies, we're at 500 employees. And we feel that, that's sufficient for the workload that currently we can handle. So I think for the foreseeable future, you should expect to see the headcount remain very close to 500. .

David DePillo

On the deferral side, as you probably have heard us say, we've been historically, I would say, fairly conservative on the low end on deferrals. Yes, a lot of folks play that game of deferring a lot of expenses, but we don't want to have our basis of our loans to be 100 to 1.

So on all -- I would say on all business lines, including PPP, we've kept that number relatively low. .

Operator

This concludes our allotted time for today's question-and-answer session. I will turn the call back over to Mr. Scott Kavanaugh for closing remarks. .

Scott Kavanaugh

Thank you, everyone, for taking the time today. We certainly appreciate it. Overall, we are pleased with our results, and we look forward to speaking with you next quarter. .

This has been an extraordinary time, and our team has been up to the challenge. I am so proud of how everyone has responded. Thank you again, and have a great remainder of your day. .

Operator

Thank you. This does conclude today's conference call. You may now disconnect..

ALL TRANSCRIPTS
2025 Q-1
2024 Q-4 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1