On Wednesday, First Foundation Inc . (NYSE: NYSE:FFWM) maintained its Neutral rating with a steady price target of $6.00, following the announcement of a significant capital raise. The financial institution disclosed its plans to generate $228 million through the issuance of common equity and non-cumulative convertible preferred shares. The pricing for the common equity is set at $4.10 per share.
The capital raise includes the sale of approximately $46 million in common equity and around $182 million in non-cumulative convertible preferred shares. Investors participating in this capital injection will also be granted 22.2 million warrants, exercisable at $5.125 per share. This fundraising effort is subject to shareholder approvals and is expected to dilute current shareholders' stakes by about 50%, not accounting for the potential dilution from the warrants.
The transaction will alter First Foundation's financial metrics, with a post-fundraising tangible book value (PF TBV) per share anticipated to drop to $10.15 from $16.35 as of March 31. Additionally, the tangible common equity (TCE) ratio is projected to increase to 8.3% from the previous 6.8%. Should all the warrants be exercised, the PF TBV might further reduce to $8.70 before any loan sales with marks are accounted for.
First Foundation aims to use the proceeds from this capital raise to reduce its high multifamily loan concentration, which post-fundraising (PF) would stand at 436%, expand its commercial and industrial (C&I) loan portfolio, and bolster its allowance for credit losses (ACL), which was 0.29% as of March 31.
While the long-term profitability of First Foundation is expected to benefit from these strategic moves, the immediate reaction to the highly dilutive nature of the capital raise may lead to the stock underperforming in the market the following day.
In other recent news, First Foundation has been the subject of significant financial developments. The Texas-based company recently secured a considerable equity investment of $228 million, led by Fortress Investment Group and supported by Canyon Partners, Strategic Value Bank Partners, and North Reef Capital. This capital infusion is expected to bolster the company's balance sheet and earnings, a move that is viewed as a strategic step towards financial stability and flexibility.
Analysts from DA Davidson upgraded First Foundation's stock from Neutral to Buy, raising the price target to $9. This adjustment is a response to the company's capital raise, which is seen as a pivotal moment that will allow for the sale of loans and reduction of concentration levels. However, Raymond James downgraded the company's stock from Strong Buy to Market Perform, citing a lack of clarity on the bank's plans for the newly raised capital.
In addition to the financial developments, changes to First Foundation's Board of Directors have been announced. Simone Lagomarsino, Henchy Enden, Sam Edelson, and Ben Mackovak are expected to join the board, subject to regulatory approvals. These changes are part of ongoing efforts to support the company's growth objectives.
InvestingPro Insights
In light of First Foundation Inc.'s (NYSE: FFWM) recent capital raise announcement, real-time data from InvestingPro provides additional context for investors considering the company's financial health and market position. First Foundation's market capitalization stands at approximately $371.28 million, reflecting the market's current valuation of the company. Despite a challenging revenue growth scenario, with a -32.72% change over the last twelve months as of Q1 2024, the company has seen a strong return over the last year of 63.06%. This could indicate resilience or market confidence in the face of revenue declines.
The company's Price / Book multiple is notably low at 0.4, potentially signaling an undervaluation of the company's assets relative to its share price, which is a point of consideration highlighted in one of the InvestingPro Tips. Additionally, the stock has experienced significant price volatility, with a 17.53% return over the last week and a 14.26% return over the last month, but a notable hit over the last six months with a -27.75% return. These fluctuations may be relevant for investors looking for short-term opportunities or considering the timing of their investments.
InvestingPro Tips also suggest that analysts are expecting net income growth for First Foundation this year, which could be a positive sign for investors focused on future profitability. Moreover, there's an anticipation that the company will be profitable this year, despite not being profitable over the last twelve months. For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/FFWM. To enhance your investment research, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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