First Foundation's new CEO has history of priming banks to sell

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UPDATE: This story includes comments from analysts and more information about Thomas Shafer's track record.

If the First Foundation in Dallas is interested in selling, the beleaguered bank would appear to have found the right CEO.

Banking industry veteran Thomas Shafer, 66, is coming out of retirement to take the reins from longtime CEO Scott Kavanaugh, the bank announced Friday. Notably, Shafer spent the last decade of his career leading a spate of banks through acquisitions until he stepped away from the industry in 2022.

Kavanaugh, who helped found First Foundation and has served in leadership positions there for 17 years, resigned from his C-suite role and board position Thursday. In a prepared statement, he said he's confident the $13.4 billion-asset bank will "thrive" under Shafer's leadership.

The incoming CEO is inheriting the role at a precarious time, as First Foundation works on executing a strategy overhaul.

In July, Fortress Investment Group led a $228 million capital infusion to provide some balance-sheet flexibility after an outsized exposure to long-term, fixed-rate multifamily loans put pressure on earnings as interest rates shot up.

The bank has since promised a laundry list of operational changes, including slimming down its commercial real estate book, building up its core deposits, increasing its cushion for loans going sour and beefing up its commercial lending in Texas and Florida. 

But Matthew Clark, an analyst at Piper Sandler, wrote in a note Friday that with its new, seasoned CEO, First Foundation could be ready to mix up its strategy again. 

And Terry McEvoy, an analyst at Stephens who covered the banks Shafer used to lead, said the new CEO has shown an ability to build and sell banks in deals that benefit shareholders. 

"When I look back at the banks he's worked with, they were of all shapes and sizes, involved in different lending areas and niches," McEvoy said. "So his background … .really is unique. The one consistent theme is that almost all those banks have been acquired."

McEvoy said he could only speak to Shafer's past performance since he doesn't currently cover First Foundation.

In 2013, Shafer was working at Talmer Bank in Michigan when it acquired First Place Bank, whose holding company filed for bankruptcy. Shafer was named CEO of First Place to oversee the troubled bank's integration and repair. Two years later, Talmer merged with Chemical Bank, where Shafer eventually became CEO again. 

In 2019, Shafer landed as vice chairman of TCF Financial and CEO of its subsidiary, TCF National Bank, following that company's merger with Chemical. When TCF was subsequently bought by Huntington Bancshares in 2021, Shafer spent a year and a half as the bank's co-president of commercial banking and senior executive vice president before retiring.

Piper Sandler's Clark said that Shafer is "highly respected" and, given his track record, thinks "the turnaround process could accelerate and make [First Foundation] a potential sale candidate sooner than previously anticipated."

The bank's stock rose 3.35% Friday to close at $8.03 per share. First Foundation did not respond to a request for comment.

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"We are excited to welcome Tom to First Foundation and look forward to his leadership in this new chapter," said Max Briggs, First Foundation's chairman, in a written statement. "He is a successful career bank executive bringing four decades of experience, including leadership at regional banks. I am confident that he will be able to guide the company to achieve our strategic objectives."

Briggs also thanked Kavanaugh, saying that his leadership "built the multi-state, financial services company that First Foundation is today."

Kavanaugh's decision to retire was "not the result, in whole or in part, of any disagreement with the company on any matters relating to the company's operations, policies or practices," First Foundation said in a public filing. Kavanaugh was 63 as of First Foundation's April proxy statement, several years younger than his replacement. 

During a call with investors in July, Kavanaugh said the capital infusion was meant to boost the bank's growth. Despite First Foundation's risky exposure to commercial real estate debt, it wasn't prompted by regulatory concerns, he said.

"I am incredibly proud of what we built at First Foundation over the course of the last 17 years," Kavanaugh said at the time. "Much like our clients, we have evolved and have grown into the next chapter of the company's life."

As part of his contract, Shafer will receive an annual base salary of $1.09 million, nearly 14% more than Kavanaugh's annual base salary of $950,000. Shafer will also be eligible for an annual bonus of up to 1.5 times his annual base salary, based on specific performance targets. In 2021 and 2022, bonuses helped Kavanaugh more than double his salary. He didn't receive a bonus in 2023.

Shafer will also be granted 500,000 restricted stock units to vest over time.