First Foundation Inc.

Greetings, and welcome to First Foundation's second quarter 2021 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 touchtone 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 hand the call over to Scott Cavanaugh. Please go ahead.

Scott Cavanaugh Hello, and thank you for joining us. We would like to welcome all of you to our second quarter 2021 earnings conference call. We will be providing some prepared comments regarding our activities, and then we will respond to questions. We delivered another strong quarter of results as our business model is performing well. a 17% increase over the first quarter of 2021 and a 46% increase year over year. Total revenues were 71.9 million for the quarter, a 9% increase for the first quarter of 2021, and a 25% increase year over year. Our tangible book value per share ended the quarter higher at $14.27. We declared and paid our second quarter cash dividend of $0.09 per share. The transformation of our business model has really taken shape. As I had mentioned on these calls before, we have been focused on transforming our balance sheet and diversifying our offering. This has only strengthened our position as a regional commercial bank. As we look at our business today, we are a much different bank than what we were just three short years ago. When many of you on the call first invested in us, let me elaborate on a few points related to this. Business and commercial loans now account for 28% of our loan portfolio. and no one sector accounts for more than 20% of our business lending portfolio, showcasing the diversity of the businesses we serve. We still do an amazing job with originating and funding multifamily loans, but our C&I division has been responsible for a significant uptick in originations, including 30% of the $1.1 billion we originated this quarter. to add to our commercial lending capability with the addition of new lending teams in Las Vegas and the Los Angeles area. And we brought on a new dedicated builder finance team that is focused on the construction lending, another way we are diversifying our loan offering. We also established our municipal finance team last year, and equipment finance continues to be a strong source of loan origination. and our single-family team is consistently adding high credit quality, low LTV loans to our portfolio. Looking at deposits, our core funding has also increased over the past quarters and today accounts for 98 percent of our total deposits, attributable to our significant reduction in our broker deposits and an increase in more business-related operating accounts. We have zero federal home loan bank advances today, while at the same time, our loan to deposit ratio improved to 85% at the end of the quarter. We think this updated profile of our bank's balance sheet has several meaningful benefits, two of which that I would like to highlight on this call. We have a solid pipeline of loans that generate attractive yields in spite of low interest rate environments. During a time when many banks are having trouble generating interest income, we have experienced net interest income growth of 20 percent year-over-year. Related to this, our funding costs have decreased to 18 basis points in the month of June, even as we have increased our total deposits by 26 percent year-over-year. This also means that we will not have an immediate need for home loan bank borrowings for the foreseeable future. In addition to the transformation of our balance sheet, I want to remind everyone that we have the added benefit of an in-house private wealth management offering, which also reached record levels of assets under management by adding $529 million and ending the quarter at $5.3 billion. This important offering includes investment management, wealth planning, trust services, and each provides meaningful value to our clients and generates additional sources of revenue for the company. Also, the wealth management business is continuing to gain scale as the combined pre-tax margin for trust and wealth management was 23% for the quarter. And soon, we will have a cryptocurrency offering through our collaboration with our partners NYDIG and FISO. This project is well underway, and we are closely working with our regulators on the scope of digital asset solutions that we can bring to traditional banking. We expect to roll out our offering in the fourth quarter of this year. All of these services position as well as we seek to serve our clients. Our business model is designed to help clients wherever they are in their financial lives, and today's results indicate that our model is working very well across the diverse and dynamic markets we serve. Related to our expansion efforts, our growth in Texas is going very well, and we are so grateful for the warm reception. As we operate today, our newly appointed general counsel, Kelly Brunsell, joins me in this space along with several other team members who are based here in Dallas. We are also pleased that we have officially opened our first LPO in Las Colinas in Texas, and we'll be looking for future growth in Plano and other areas. This includes signing space for our first retail branch. There are so many attractive markets in Texas that are business-friendly and a great fit for our offering. We are really pleased to be here. During the quarter, we announced our planned acquisition of Naples-based First Florida Integrity Bank. We are so pleased at the opportunity to expand into another business friendly state. Florida also excited about adding new talent from the existing team to our operation. At the close of the transaction, Gary Tice will join our board and Garrett Richter will become a regional president of our Florida operations. It will be really exciting to work with them and the FFIB team as we expand upon the legacy of what they have built. This truly is a merger of two firms with a common vision. In terms of a timeline related to the acquisition, there are still several steps to go, but we are making good progress. We have filed our S4 and expect regulatory approval by sometime next quarter. Then we would like to convert their operations onto the First Foundation bank platform in early 2022. There's a great presentation about the details of the merger on our investor relations page for those that would like more information. I want to say how pleased I am with the entire team at First Foundation. We have a great group of people who are very committed to serving clients and building a valuable business. have amazing clients who entrust us with their financial well-being. It is truly an honor to be able to lead this organization, and I am really excited about our future. Now, let me turn the call over to our CFO, Kevin Thompson.

Thank you, Scott. Earnings per diluted share of 58 cents in the second quarter included $1.2 million of expenses related to our acquisition of TGR Financial. The return on assets was strong at 1.4%, with a return on tangible common equity of 16.7%. Adjusting for the merger-related expenses, our return on assets would have been 1.45%, and our adjusted return on tangible common equity would have been 17.3%. The net interest margin expanded four basis points to 3.2% in the quarter as a result of strong loan growth and the continued success we've had in lowering deposit pricing. We maintained discipline in loan production with the average yield on loans dropping slightly by 11 basis points to 3.88%. Our cost of deposits decreased from 31 to 20 basis points in the quarter and continued the downward trend to 18 basis points in June. With strong C&I loan production and increasing core deposits over the past several quarters, our balance sheet is trending less liability sensitive. We completed a sell of $133 million of multifamily loans in the quarter, recognizing a $3.3 million gain. We recognized $905,000 of PPP fee income, or 16% of the total net PPP fees, bringing the cumulative fees realized 77% from the total PPP loans funded of $227 million. Excluding the effects of PPP, the NIM would have been 3.19% for the quarter. Credit metrics remained strong in all our loan portfolios, and the allowance for credit losses for loans decreased to 40 basis points of total loans. This was primarily a result of improvement in the economic scenario we utilized for the CECL calculation. We had net charge-offs of one basis point, and non-performing assets remained low at 20 basis points to total assets. We recognized a $1.3 million valuation allowance on mortgage servicing rights in the quarter as a result of changes in the interest rate environment and prepayment speeds. Asset management fees were strong, with revenues of $8.7 million, and as Scott referenced, our advisory and trust divisions achieved a combined pre-tax profit margin of 23% in the quarter. Assets under management at FFA increased to $5.3 billion, while trust assets under advisement at FFB remained strong at $1.2 billion. Our non-interest expense increased in the quarter, but excluding the $1.2 million in merger-related expenses was essentially flat. The efficiency ratio for the quarter was 47.3%. With strong expense management and the investments we have made in our infrastructure, we continue to realize benefits from operational leverage and efficiencies. I will now turn the call over to David DiPillo.