Activist investor Abbott Cooper is seeking to elect allies to two board seats at Dallas-based First Foundation — and says his next step would likely be to take the matter to court.
Cooper claims leadership at the $13 billion-asset First Foundation, parent of First Foundation Bank, failed to anticipate the movement from an accommodative monetary policy to a tighter one, along with the rapid rise in interest rates that accompanied the shift.
According to Cooper, the managing member of Driver Management LLC in New York, directors should have known rates would begin rising eventually and prepared better for the likelihood. Instead, First Foundation's board "was asleep at the switch," Cooper said last week in an interview.
Cooper on Friday nominated Allison Ball and Lila Flores for seats on First Foundation's 10-member board. Both Ball and Flores have investment experience — Ball as a partner at Hanover Technology Investment Management in Menlo Park, California, and Flores as a principal at CAZ Investments in Houston. Both also worked at Goldman Sachs earlier in their careers (Ball from 2004 to 2005, Flores from 2006 to 2015).
The campaign appears to be getting off to a rocky start, however. Cooper said Wednesday that First Foundation had rejected Driver's nominations of Ball and Flores, a move that will "likely lead to litigation," Cooper wrote in an email. First Foundation declined to comment for this story. It did not confirm its rejection of the nominees to American Banker by publication time.
All 10 members of First Foundation's board are up for election in 2023. First Foundation has not yet announced a date for its annual meeting.
Cooper's main criticism of First Foundation centers on the concentration of multifamily loans in its portfolio. As of Dec. 31, 2022, multifamily loans made up 50% of First Foundation's portfolio, up from 39% at the end of 2021. Multifamily loans, which are used to finance apartment developments, are "a very safe asset class credit-wise," but individual credits are typically fixed rate and don't generate much in deposits, leaving First Foundation open to both liquidity and credit risk, Cooper said.
"They can focus on credit quality all day long, that's not the risk that's going to bite them," Cooper said.
The issues inherent in First Foundation's operating model were exposed when the Federal Reserve rapidly raised interest rates — a total of eight hikes since March 2022 — according to Cooper's assessment. First Foundation's cost of deposits has increased from 0.15% at the end of 2021 to 1.47% on Dec. 31. Rising deposit costs impacted First Foundation's profitability metrics. Its return on average assets totaled 0.55% for the quarter ending Dec. 31, down from 1.15% a year earlier.
In a press release, First Foundation labeled Cooper's proxy campaign "opportunistic," adding Cooper is ignoring the outsized growth First Foundation experienced between 2012 and 2022, including compound annual growth rates of 34% in net income and 12.5% in tangible book value per share.
First Foundation reported zero delinquent multifamily loans as of Dec. 31. Overall nonperforming assets totaled 0.13% of the company's $10.7 billion loan portfolio.
In a January 23 letter to Max Briggs, First Foundation's lead independent director, Cooper claimed the company "appears particularly unprepared — both in terms of the composition of its balance sheet and the dexterity of its management team — to adjust to the impact of higher interest rates and quantitative tightening."
Cooper is calling for the establishment of a new board committee, open only to independent directors, that would focus on risk. In its most recent proxy statement, First Foundation said the full board and its committees were involved in risk oversight, adding the audit committee "is responsible for overseeing any other significant risk management processes."
The potential for litigation between Cooper and First Foundation follows a frosty back-and-forth. First Foundation stated in the press release Cooper "has shown no interest in constructive engagement with the Company." Cooper said the bank's CEO, Scott Kavanagh, had rejected an offer of negotiations into a potential settlement precluding a contested election of directors.
Cooper's launch of a proxy contest comes just two months after First Foundation's management team was roiled by the departures of President David DePillo, who
Cooper has emerged as a frequent critic of community bank management teams he deems underperforming. In the past three years, Cooper has launched proxy campaigns against
In January, Cooper
First Foundation's stock price has dropped 42% over the past 12 months. Shares closed at $15.00 Wednesday. By contrast, the KBW Nasdaq Bank Index is down about 21% over the same period.
