First Foundation is a multi-state bank holding company that has spent the past eighteen months systematically shrinking its multifamily loan book, and that exit has now collided with a pending merger into FirstSun Capital Bancorp. The strategic pivot from a nine-figure multifamily pipeline into agency securities and cash has reset the balance sheet, but the earnings reset that followed has been severe enough to trigger a full deferred tax asset write-down and a net loss that deepened year over year.
The core tension sits in the gap between a shrinking but stabilizing banking platform and a merger whose economics have not yet been tested by a full year of combined operations. The net interest margin in 2025, up 18 basis points from the prior year, suggests the margin compression from the multifamily exit has already worked its way through. Yet the provision for credit losses tripled as management repriced its loss assumptions across the remaining book, and the two forces pulled the bottom line in opposite directions.
The question that the next two quarters resolve is whether the FirstSun combination delivers a meaningfully larger deposit base and a lower cost of funds, or whether it simply adds another layer of integration risk to a company that has not yet returned to profitability on its own.
First Foundation Inc. operates as a Delaware bank holding company through its primary subsidiary, First Foundation Bank, a California state-chartered institution regulated by the FDIC, the California Department of Financial Protection and Innovation, and the Federal Reserve Bank of Dallas. A second subsidiary, First Foundation Advisors, runs a fee-based investment advisory and wealth management platform for high net-worth clients and family offices. A third entity, First Foundation Public Finance, handles municipal bond underwriting. The company maintains 29 banking offices and two loan production offices across California, Nevada, Florida, Texas, and Hawaii, with corporate headquarters in Irving, Texas.
The strategic center of gravity has shifted decisively away from multifamily lending. At the end of 2024, the bank held a large multifamily loan pool classified as held for sale, a pool it had transferred to sale status in August 2024 after moving nearly two billion in principal from the held for investment book. Through 2025, the company executed three sale tranches that disposed of roughly three-quarters of that pool, leaving a residual of about $261 million in multifamily loans held for sale at year-end. The remaining held for investment loan book stood at roughly $6.7 billion, of which about half was still multifamily and roughly $2.0 billion was commercial and industrial. The shift in mix from a book that was 42 percent multifamily a year earlier to a much smaller concentration reflects a deliberate de-risking of the single largest exposure in the portfolio.
The pending merger with FirstSun Capital Bancorp, announced October 27, 2025, represents the next strategic inflection. Under the agreement, First Foundation merges into FirstSun, with FirstSun as the surviving entity, and First Foundation Bank merges into Sunflower Bank, National Association. The transaction was expected to close April 1, 2026, subject to regulatory and other closing conditions. The strategic logic is that a larger combined deposit base across more states should reduce the cost of funds and broaden the lending franchise beyond the multifamily niche that the company has been exiting. The counterargument is that the company entered the merger while still generating losses, which weakens its negotiating position on integration terms and makes the combined entity's near-term earnings trajectory depend heavily on whether FirstSun's deposit base is meaningfully cheaper than what First Foundation has been paying for wholesale funding.
The wealth management segment provides a stabilizing fee income layer. First Foundation Advisors managed a roughly five-billion-dollar asset base at year-end 2025, down from $5.4 billion a year earlier as account terminations and net withdrawals outpaced new account additions and portfolio gains. The segment generated nearly $28 million in noninterest income for the full year and remains a small but consistent contributor to consolidated earnings, with the asset base supporting recurring advisory fee revenue that does not depend on the interest rate spread.
The company's product suite spans commercial and consumer banking, trust services, investment advisory, wealth management, and municipal bond underwriting. The banking platform emphasizes program-specific lending products delivered through a combination of physical branches, loan production offices, and a digital bank platform that attracts deposit clients nationally. The deposit mix at year-end 2025 was dominated by money market and savings accounts at 38 percent of total deposits, with certificates of deposit and demand deposits making up the rest. The weighted average rate paid on total deposits was 3.04 percent, a modest improvement from the prior year, reflecting the runoff of higher-cost specialty deposit accounts, principally mortgage servicing right deposit balances that the company chose to let mature rather than reprice.
The trust and investment advisory platform is the most differentiated element of the franchise. First Foundation Advisors operates under a California investment advisory license and serves high net-worth individuals, family offices, and institutional clients with discretionary and non-discretionary portfolio management. The asset base generates fee income that is largely counter-cyclical to the banking cycle, providing a recurring revenue stream that does not depend on the interest rate spread. The trust subsidiary manages a further $1.2 billion in trust assets under advisement across five states. The moat here is relationship-driven rather than technology-driven: the advisory book is built on long-tenured relationship managers who coordinate banking, trust, and investment services for the same client families, creating switching costs that are more behavioral than contractual.
The digital deposit platform is the most important technology asset on the balance sheet. It allows the bank to source deposits nationally, reducing dependence on local branch networks in any single state. The company has been using this channel to attract higher-cost wholesale deposits when local core deposit growth slows, and it was a factor in a roughly $658 million increase in wholesale deposits during 2025. The trade-off is that these deposits carry a higher cost than core relationship deposits, and the company's decision to exit its mortgage servicing right deposit program in late 2025 removed a segment of the liability base that was paying above-market rates. The net effect is a liability structure that is less concentrated in program-specific deposits but more exposed to the general movement of short-term rates.
The loan origination engine remains the primary revenue driver. New loan fundings in 2025 averaged a yield near 7.00 percent, down about a full point from the prior year, reflecting both the lower interest rate environment and the mix shift away from multifamily loans that previously commanded higher spreads. The commercial and industrial book, which is the most rate-sensitive segment, is the one most exposed to a potential credit cycle downturn in the remaining portfolio.
The fiscal year 2025 printed a net loss of roughly $155 million, nearly double the year-ago figure. The widening loss was driven by two discrete items: a $64.3 million provision for credit losses and an $83.6 million income tax expense. The tax item was itself a one-time event, a valuation allowance that management recorded against the entire net deferred tax asset balance after concluding that cumulative losses made realization more likely than not. The allowance was $98.7 million, and the loss per diluted share came in about 33 cents worse than the year-ago figure.
Before those two items, the pre-tax loss was roughly $72 million. That compares with a $137 million pre-tax loss in 2024. The year-ago figure had been inflated by a one-time lower of cost or market adjustment that had nothing to do with recurring credit performance. That charge totaled $117.5 million and was recorded when the multifamily loans were reclassified to held for sale in August 2024.
Net interest income grew modestly to roughly $187 million in 2025. That compares with about $183 million in the prior year. The growth was driven by an 18 basis point expansion in net interest margin. The margin expansion was the direct consequence of the multifamily exit. Average interest-bearing deposit balances fell 9.4 percent as the company let its higher-cost mortgage servicing right deposits mature. The yield on interest-earning assets declined only 13 basis points over the same period. The net interest margin reached 1.58 percent, up from 1.40 percent the prior year.
Noninterest income was roughly $47 million in 2025. That is a substantial recovery from the negative $66 million reported in 2024, which included the lower of cost or market charge. Excluding that one-time item, 2024 noninterest income was about $52 million. The adjusted figures are therefore roughly flat year over year. The wealth management segment contributed nearly $28 million in fee income. That segment is down modestly from the prior year as average assets under management declined.
The most consequential forward variable is the FirstSun merger, which was expected to close April 1, 2026. The transaction combines an $11.9 billion asset base with FirstSun's, creating a larger multi-state franchise with a broader deposit footprint. The strategic case is that FirstSun's core deposit base, presumably gathered through a different regional footprint and client relationships, should come in at a lower cost than the wholesale deposits that First Foundation has been relying on to fund its post-multifamily balance sheet. The execution risk is that the company enters the combination while still loss-making, which means the combined entity's initial post-merger financials absorb any integration charges, branch consolidations, and system migration costs on top of an already thin equity cushion. Shareholders equity at year-end 2025 was roughly $913 million, and a tangible book value per common share in the low teens means there is limited equity buffer if the combined loan book underperforms.
The provision for credit losses is the second major forward variable. Management repriced its allowance for credit losses assumptions in the third quarter of 2025. That change in accounting estimate lifted the provision to $64.3 million for the full year, roughly triple the prior year. The allowance for credit losses on the loan portfolio rose to $93.9 million. That equals 1.39 percent of loans held for investment, up from just 0.41 percent a year earlier. The company noted that $16.8 million of the quarterly provision in Q3 2025 related to a single large commercial and industrial loan that was moved from pooled evaluation to individual evaluation. That is a signal that at least one credit in the commercial and industrial book has deteriorated. The forward question is whether the provision normalizes as the multifamily runoff completes, or whether the new loss assumptions are a leading indicator of broader credit stress in the remaining commercial portfolio.
The deposit base trajectory is the third variable. Total deposits fell by roughly $586 million during 2025. That is a 5.9 percent decline, driven by the runoff of about $1.0 billion in higher-cost specialty deposits. Part of the outflow was offset by a $658 million increase in wholesale deposits. The weighted average rate paid on deposits improved to 3.04 percent from 3.09 percent. The deposit mix is now more dependent on certificates of deposit, and CDs are the most rate-sensitive and most likely to reprice when the Federal Reserve begins cutting.
The wealth management segment faces a slower, structural challenge. Assets under management declined by roughly $376 million during 2025, with account terminations and net withdrawals outpacing new account additions and portfolio performance gains. The segment's revenue is a function of the asset base, and a sustained decline in AUM erodes the fee income layer that provides the most stable earnings contribution in the consolidated income statement.
The most immediate downside risk is that the FirstSun merger does not close, or closes on terms that are materially less favorable to First Foundation shareholders than originally structured. The merger agreement includes a $31.4 million termination fee payable by First Foundation under certain conditions, including the acceptance of a superior proposal. If the transaction fails, the company returns to a standalone posture with a shrinking loan book, a deposit base that is still running off, and a deferred tax asset that has been fully written off, meaning any future profitability generates full cash tax expense rather than a deferred tax benefit. The absence of a DTA means the income tax provision in future quarters tracks pre-tax income at the statutory rate rather than being offset by the release of a previously recorded tax asset, which is a structural drag on net income margins.
Credit risk in the remaining commercial book is the second major downside. The commercial and industrial portfolio is the fastest-growing segment relative to the overall book decline, and the $16.8 million provision tied to a single large commercial and industrial loan in Q3 2025 is a specific signal that at least one borrower has deteriorated. The multifamily book that remains at about $3.2 billion is underwritten at an average loan-to-value of 53.6 percent, which provides meaningful collateral coverage, but multifamily property values in the Sunbelt states where the company has concentrated its lending have been subject to rising vacancy and declining rents. A continued softening in multifamily fundamentals could force additional provisions even on the remaining held for investment book.
Interest rate risk is the third structural exposure. The company is liability sensitive at the current rate, meaning that in a rising-rate environment, the cost of deposits and borrowings reprices faster than the yield on the securities portfolio that has replaced the loan book. The company's own NII simulation shows a 2.19 percent decline in net interest income under a plus 100 basis point parallel shock. A plus 200 basis point parallel shock produces a 1.51 percent decline. Both outcomes are within board-approved limits, but they remain a meaningful drag on the already thin net interest income base. In a rate-cutting scenario, the liability sensitivity is less of a concern, but the securities portfolio, which now represents a much larger share of the asset base, benefits from the duration gain, partially offsetting the deposit cost improvement.
The fourth risk is capital adequacy. Shareholders equity of $912.6 million against $11.9 billion in total assets implies a leverage ratio in the high single digits. That level is adequate but not generous. The loss-making trajectory, combined with the absence of a deferred tax asset to provide a future tax benefit, means that any further provision increases or securities losses erode the equity cushion more directly than at a profitable peer. The July 2024 capital raise brought in roughly $228 million of gross proceeds through common stock, preferred stock, and warrants. It added to the share count by about 26 percent and introduced a warrant overhang of 22.2 million shares. The warrant overhang sits at a $5.125 exercise price, diluting existing holders and capping upside in the equity.
Valuing First Foundation on a standalone basis is complicated by the pending merger and the loss-making trajectory, which makes traditional earnings multiples inapplicable. The more useful framework is a tangible book value per share analysis. At year-end 2025, shareholders equity was $912.6 million. The common share count was 82.9 million. Together those figures imply a book value per share of roughly $11.00. After deducting intangible assets, which are modest, tangible book value per share sits in the range of $10.50 to $11.00. The common stock was trading below this level through the first half of 2026, reflecting the market's assessment that the company's earning power is impaired and that the merger, while strategically rational, does not immediately restore profitability.
The bear case is that the merger closes, integration costs are higher than modeled, and the combined entity continues to generate losses for at least two to three quarters into 2026. In that scenario, the deferred tax asset write-off means there is no tax shield to soften the P&L impact of any further provisions, and the equity cushion erodes toward the low single digits in tangible book value per share. The warrant overhang of 22.2 million shares at $5.125 provides a floor-like dynamic: if the stock recovers above that level, the warrants become dilutive, capping the upside for common holders. The bear case tangible book value per share is in the range of $8.00 to $9.00, reflecting a further provision cycle and integration charges against a thinner equity base.
The base case assumes the merger closes as scheduled, the combined deposit base is larger and cheaper than the current standalone liability structure, and the provision for credit losses normalizes to a more typical 1.0 to 1.2 percent of the loan book as the multifamily runoff completes. In that scenario, the combined entity would have a larger loan-to-deposit ratio, a more stable fee income base from the wealth management segment, and a net interest margin in the 1.6 to 1.8 percent range. That combination of a broader deposit base and a stabilizing provision leaves the combined entity in workable capital territory despite the loss-making history. The base case tangible book value per share sits in the range of $10.00 to $12.00. The combined entity's assets are roughly 1.5 times the current standalone base. The premium or discount to current book value depends on the multiple the market assigns to a still-transitioning combined bank.
The bull case requires the merger to deliver a meaningfully larger deposit base at a lower cost, the commercial and industrial book to be re-underwritten without further provisions, and the wealth management segment to stabilize its asset base. In that scenario, the combined entity could return to pre-tax profitability within two to three quarters of closing, and the absence of a deferred tax asset means that profitability translates directly into cash flow. The bull case tangible book value per share is in the range of $13.00 to $15.00, reflecting a re-rating of the combined entity's earning power and the removal of the standalone merger uncertainty premium.
The fiscal 2025 print revealed a company that has completed the most painful part of its strategic transition, the multifamily exit, but has not yet found the footing that the new balance sheet is supposed to provide. The 1.58 percent net interest margin is the clearest evidence that the margin compression from the loan runoff has worked its way through, and the modest growth in net interest income confirms that the balance sheet is generating more income per dollar of assets than it did a year ago. But the provision for credit losses and the deferred tax asset write-down together erased that improvement and produced a deeper loss than the year before, which is the central contradiction in the story: the margin is improving while the bottom line is deteriorating.
The FirstSun merger is the single most important forward event in the company's near-term narrative. The strategic logic of a larger deposit base and a broader lending franchise is sound, but the execution risk of combining two loss-making or near-loss-making entities, absorbing integration costs, and re-underwriting a combined loan book that still carries a meaningful commercial and industrial and multifamily concentration, is substantial. The company's equity position, at $912.6 million and shrinking, does not provide a generous cushion against those costs, and the absence of a deferred tax asset means that any future profitability comes through at the full statutory tax rate rather than being partially offset by a previously recorded benefit.
The variables that the next two to three quarters resolve are specific and observable: the closing of the merger and the initial combined financial print, the trajectory of the provision for credit losses as the commercial and industrial book is re-underwritten, the deposit cost and mix in the combined entity, and whether the wealth management segment can halt its asset outflow. The data signal that would confirm the turnaround is a quarter in which the combined entity reports positive pre-tax income, a provision that is in line with charge-off experience rather than an assumption change, and a deposit base that is growing rather than running off. Until that quarter arrives, the stock trades on the merger optionality rather than on demonstrated earning power.