First Foundation Inc. (Nasdaq: FFWM) made the quarter’s most surprising announcement when it said its holding company’s headquarters will move to the Dallas area.
“The Dallas metroplex is an area that is attracting a lot of businesses,” Chief Executive Scott Kavanaugh told the Business Journal. “When we looked at how we can geographically expand, we kept going back to Dallas where there are great growth opportunities.”
In Texas, First Foundation wants to expand its trust department and loan production, noting the multi-apartment space. Hence, it’s also aiming to make an acquisition as well, he said.
“When you look at the number of banks in Texas, it’s second only to Illinois,” he said. “Our stock price has appreciated in the past year. That might give us a little more leverage to offer a stock price that has a little more kick to it.”
Analysts applauded the expansion into Texas.
“Texas is a natural market expansion opportunity given Dallas is one of the largest markets for multifamily lending, providing significant organic growth potential for both loans and wealth management,” Raymond James analyst David Feaster Jr. wrote in a report to analysts.
Only One Moving
It’s not as bad as it sounds for Orange County. Kavanaugh is the only one leaving and isn’t requiring other employees to move to the Lone Star State.
“I’ll go out and get the office set up,” Kavanaugh said. “Anyone who wants to consider the move can do so. The bulk of our employees are still housed here.”
Since First Foundation’s main business is still in California, it will continue to pay California taxes. The benefits of Texas’s lower tax rates will increase as it grows its business there, said Kavanaugh, who added that he personally will “save a lot” in taxes.
Thirty-five years ago, Kavanaugh left Texas, where he also went to college, to move to Orange County.
“Back when I left, Dallas was much more focused on the oil industry. Today it’s so different, so diversified.”
Although the 60-year-old Kavanaugh’s been First Foundation’s CEO for 12 years, he doesn’t plan to retire.
“If I wasn’t having fun, it’d be on my radar,” he said. “We’re killing it in every aspect in our business.
“We’re having fun and making a lot of money doing it.”
Profit up 47%
The bank’s fourth-quarter net income rose to $22.4 million, a 47% jump from the same quarter a year ago when there wasn’t a pandemic.
The bank generated new loan generations of $715 million in the quarter, the highest in its history.
President David DePillo told analysts that the bank has “no significant exposure to the industries hardest hit by the pandemic.”
To top it off, First Foundation increased its dividend to 9 cents in the first quarter, up from 7 cents in the fourth quarter.
Its shares were mostly unchanged following the results. For the year, its shares outperformed the benchmark KBW Bank Index by more than 200%. First Foundation now has a $914 million market cap.
The biggest reason for the increase in fourth-quarter profit, Kavanaugh said, was a decline in funding costs caused by the Federal Reserve cutting interest rates to zero, which in effect reduced the bank’s deposit cost from 260 basis points to 47 basis points.
“It repriced a third of deposit base instantaneously,” Kavanaugh said.
Based on a Federal Reserve statement in late January, Kavanaugh said he expects interest rates will stay low “for a couple of years.”
“That bolds well for banks like First Foundation. We will see increased profitability,” he said.
The Orange County economy has splintered into “the haves”—like boats, RVs and homes—and “the have nots,” such as commercial office space.
“I think overall, the Orange County market has been resilient given the lockdown that everyone has experienced,” he said. “I’m very upbeat on the Orange County economy.”
