First Foundation Inc.

Greetings and welcome to First Foundation's fourth quarter 2020 earnings conference call. Today's call is being recorded. At this time all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time please press star 1 on your touch tone phone. If at any point your question has been answered you may remove yourself from the queue by pressing the pound key. we ask that you please pick up your handset to allow optimal sound quality. Speaking today will be Scott Cavanaugh, First Foundation's Chief Executive Officer, Kevin Thompson, Chief Financial Officer, and David DiPillo, President. Before I hand the call over to Scott, please note that management will make certain predictive statements during today's call that reflect their current views and expectations about the company's performance and financial results. These forward-looking statements are made subject to the safe harbor statement included in today's earnings release. In addition, some of the discussion may include non-GAAP financial measures. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, see the company's filings with the Securities and Exchange Commission. And now, I would like to turn the call over to Scott Cavanaugh.

Hello and thank you for joining us. We would like to welcome all of you to our fourth quarter and full year 2020 earnings conference call. We will be providing some prepared comments regarding our activities and then we will respond to questions. I'd like to say first and foremost that we had a new format and We worked very hard on it. I hope everybody appreciated the new format. We felt like it was a little more concise and provided numbers a little more in a straightforward manner. As highlighted in the earnings report, we experienced another strong quarter, which capped off a great year for First Foundation. Our earnings for the fourth quarter were $22.4 million, or 50 cents per share. For the full year, earnings increased by 50 percent over 2019 to $84.4 million, or $1.88, fully diluted earnings per share. Total revenues were $63.1 million for the quarter and $251.3 million for the year, a 19 percent increase over 2019. We are pleased to report that our stockholders in 2020 enjoyed a payment of $12.5 million in the form of cash dividends. And as we announced in our earnings report this morning, we increased our quarterly dividend for 2021 by 29% from $0.07 to $0.09 per share. Our tangible book value per share ended the year at $13.44. a 16% increase during 2020. Combined with the dividend and the increase in market cap, we are proud to have returned $128 million to our shareholders during 2020 for a total return of 17%. In a year that was marked with uncertainty and macroeconomic challenges, we are extremely pleased at how our team came together to serve our clients and deliver the results that we are reporting today. Taking a look at our business lines, our banking operations experienced strong loan growth as loan production in the fourth quarter hit $715 million and $2.5 billion for the year, while deposits grew in the quarter by $449.6 million and $1.02 billion for the year. The wealth management business saw a strong year both in terms of new clients and positive investment returns in our portfolios. Assets increased by $403 million in the fourth quarter and ended the year at a record $4.9 billion. Our process for delivering sophisticated wealth planning strategies continues to help us uncover new opportunities to serve our clients including making introductions to our banking and trust teams. A metric that I'm very pleased about is our wealth management and trust business saw a combined pre-tax profitability of 19% for the quarter. We believe this signals that we are hitting scale for this business and is a metric that we can continue to strive to achieve in 2021 and beyond. In general, our business model of providing banking, and private wealth management services has performed very well. Lending, deposits, investments, wealth planning, and trust services are each contributing in meaningful ways. We continue to build strong relationships with our clients who turn to us for their banking and wealth management needs. This translates to client referrals and new business opportunities, as well as healthy pipelines for each of our businesses heading into 2021. Let me share other highlights for the year. Our commitment to enhancing our technology continued as we invested in new ways to serve our clients, leveraging AI biometrics and automation. We added the ability to easily open and connect online checking account with our online savings account. We increased the functionality to allow our clients to use convenient payment and account linking features. We enhanced our client portal for our wealth management clients who want real-time information on their portfolios. And we have started to build a digital wealth planning offering to help clients better understand their complete financial profile. In 2020, we also successfully completed the sale and securitization of $553 million of multifamily loans in the third quarter. This was our fifth such securitization. Since 2015, we have sold $2.6 billion in loans, and we are already taking steps to prepare for our sixth securitization securitization, which we expect to complete in 2021. We also receive recognition in the media and in the community for charitable giving efforts. This included our supporting our community's nonprofit initiative, which was especially meaningful this year amidst the pandemic where many nonprofits needed our support to help further their mission. Related to our corporate giving efforts, we have taken the steps to create a charitable foundation in 2021. We are excited about what the initiative could mean for all nonprofits we support. I'm so proud of the contributions of our entire team, and I'm grateful to our employees who work hard every day to deliver amazing results for our clients. Overall, it has been a strong year. I believe that the strength of our offering and the favorable business environment ahead position us well in 2021. Looking at 2021, we plan to expand our presence into the state of Texas. The opportunities for growth in Texas for our banking and wealth management businesses are strong. Specifically, the Dallas Metroplex is one of the largest markets for multifamily lending and the diversity of businesses there makes it a strong fit for us. It also aligns with our strategic goal of expanding into major markets that present great opportunities for us. The Board of Directors has approved a move of our holding company to Dallas, which we expect to occur in the first half of 2021. we will continue to maintain our presence in the markets we currently serve, including existing bank and wealth management headquarters here in Irvine, California. Before I hand it off to Kevin, I want to remind everyone that our updated investor presentation can be found on our investor relations website and provides many of the details we are discussing on this call. As you will see, We've taken the opportunity to enhance the way we report our data and results. We hope you find it valuable. Let me turn it over to Kevin, our CFO.

Thank you, Scott. Earnings per diluted share of $1.88 in 2020 is a 50% increase over 2019. As a result of this momentum, our tangible book value per share increased 16% to 13.44 in the year. The full-year return on assets was a strong 1.26%, with a return on tangible equity of 15.5%, as our business model has helped us to navigate these uncertain times with great flexibility and success. The net interest margin expanded seven basis points to 3.19% in the quarter, as a result of the progress we have made in lowering deposit pricing and maintaining discipline in loan production. In addition, we recognized $1 million of net PPP fee income which is approximately 26% of the total expected fee income in our PPP loans originated. Excluding the effects of PPP, our NIM increased to 3.13% in the quarter. Loan fundings in the quarter of $715 million were a record for the first foundation, with full-year fundings of $2.5 billion. The loan yield increased 10 basis points in the quarter to 4.01%, as we have maintained strong underwriting discipline and saw some remix in loan fundings towards multifamily production. The cost of deposits decreased from 57 to 41 basis points in the quarter. Our strategy of increasing core deposits has gained traction as our core deposits increased from 75% to 94% in 2020. Total deposits increased by over $1 billion in the year to an all-time high, with 39% growth in non-interest-bearing accounts. Credit metrics remained strong in all our loan portfolios, and the allowance for credit losses for loans remained essentially flat, resulting in an allowance of 50 basis points of loans. This was a result of higher balances in loans held for investment and net charge-offs, partially offset by a slight improvement in the economic scenario we utilized for the CECL calculation. Net charge-offs were only two basis points for the full year, and non-performing assets remained low at 30 basis points of total assets. Through this cycle, First Foundation's credit performance relative to the industry has been a key differentiator. Asset management fees were strong with revenues of $7.6 million, and our advisory and trust divisions achieved a combined pre-tax profit margin of 19% in the quarter. Assets under management at FFA increased to $4.9 billion, while trust assets under advisement at FFB increased to $1.1 billion. The efficiency ratio for both the quarter and the full year was 49%. With strong expense management and the investments we've made in our infrastructure, we are seeing growing benefits for operational leverage and efficiencies. I will now turn the call over to David DePillo of First Foundation.