First Foundation Inc.

Greetings and welcome to the first Foundation's third 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 then 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 DeFillo, 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, including in today's earnings release. In addition, some of the discussion may include non-GAAP financial measures for a more complete discussion of the risk and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures. These accompany filings with the Securities and Exchange Commissions. 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 third quarter 2021 earnings conference call. We will be providing some prepared comments regarding our activities and then we will respond to questions. We had another strong quarter as each of our businesses contributed to our success. Our earnings for the quarter were 37.2 million or 83 cents per share. Total revenues were $89.9 million for the quarter, a 25% increase from the second quarter of 2021. Our tangible book value per share ended the quarter higher at $14.96, representing an 18.3% return on tangible common equity year to date. Our efficiency ratio continues to improve, and was 41.9% for the quarter. We also declared our third quarter cash dividend of nine cents per share. While we wait for final regulatory approval on our acquisition of First Florida Integrity Bank, which we still expect to receive in the fourth quarter, we are making excellent progress on our expansion efforts in Texas, including opening our LPO in Irving which I talked about last quarter, and our retail branch office in Plano, which we anticipate opening early next year. There is so much opportunity for First Foundation in Texas, and we are grateful for the warm reception. We are actively recruiting in the area and speaking with bankers, wealth managers, and others who want to join our Texas team as we ramp up the presence across the state, as well as our corporate location in Dallas. Being located in Texas also affords us the opportunity to look at expansion into new regions. We experienced this with Florida and we are now confident we can serve clients in other states. I used to say our expansion was focused in the region from the Rockies to the West, but now with our presence in Texas and soon Florida, I feel like our opportunities to expand just got larger. Speaking of Florida, we're very excited about having the employees of First Florida Integrity Bank join us and help lead our growth efforts in the state. Similar to Texas, there are great opportunities across the state of Florida. Once the merger is complete, we anticipate the core system conversion in the second quarter of 2022. We are also seeking trust powers in both Florida and Texas. Expanding into business friendly states such as Texas and Florida has really proven to be a successful strategy for our next phase of growth. That said, we remain committed to our operations in California, Nevada, and Hawaii. We recently expanded our presence in Los Angeles with the opening of our Sherman Oaks branch, and that location has proven to be very successful. Even amidst the challenging business environment in the state, our teams in California have done an incredible job attracting deposits, funding high quality loans, and offering top performing wealth management and trust services to our clients. Hawaii and Nevada also continue to play an important part of our story. There are great opportunities for us to serve businesses and individuals in these regions, and our trust offering helps set us apart from many of the other firms in the area. I mentioned last quarter that the transformation of our business model has really taken shape, and the diversification of our offering has only strengthened our position as a regional commercial bank. This is evidence, yet again, by another strong quarter of high-quality CNI originations, which accounted for 43 percent of the $802 million total we originated this quarter. We also saw contributions from our equipment finance offering and our builder finance team, which is officially up and running and beginning to bring in new business. We're really excited about having this as part of our offering. We accomplished all this while our single-family and multifamily lending teams continue to be strong, generating $79 million and $357 million in loans, respectively. Our ability to generate high-quality loans is something I'm very proud of, and our underwriting team has done an incredible job to ensure our MPAs stay at industry-leading levels, coming in at a low 24 basis points for the quarter. We had another successful securitization of $419 million of multifamily loans. These loan sales continue to be an important part of our business model and afford us the opportunity to meet the high demand for our lending solutions in the markets we serve. Dave will touch more on the current composition of our strong loan portfolio and pipeline. Looking at deposits, our core funding accounts for 98% of our total deposits, where our cost of funding continues to be favorable, and deposit costs decrease to 15 basis points per quarter. This attractive deposit profile is attributable to a significant reduction in our broker deposits and an increase in more business-related operating accounts. We continue to have zero federal home loan bank advances, while at the same time, our loan-to-deposit ratio remains at 85 percent at the end of the quarter. Looking at the rest of our business, our in-house private wealth management offering reached peak levels of assets under management by adding 109 million of organic new net growth in ending the quarter at $5.4 billion. This important offering, which includes investment management, wealth planning, and trust services, provides meaningful value to our clients and generates additional sources of revenue for the company. The wealth management business is also proving to be a profitable business for us, as the combined pre-tax profit margin for trust and wealth management was 19% for the quarter. This is the third straight quarter we have experienced scale at this level. We continue to pursue the cryptocurrency offering through our collaboration with NYDIG and Fiserv to bring Bitcoin into banking. We are closely working with our regulators on the scope of our solution, and we believe this is on track to launch in the coming months with the official rollout in Q1. We are grateful to have partnered with industry-leading firms such as NYDIG and Pfizer on this initiative. Speaking of our partners, our investments in technology allow us to offer best-in-class security and fraud prevention solutions for our clients. Whether it is in the branch or online, our teams remain vigilant about any security threats to our clients. We leverage the strictest industry protocols for secure technology, and we supplement this with education for both clients and our employees. All of what I've mentioned, our services, our expansion, and our commitment to technology position as well as we seek to best serve our clients. As I have said before, 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. I want to conclude my opening remarks by saying how pleased I am with the entire team of First Foundation. We have a great group of people who are very committed to serving clients and building a valuable business that we are committed to making this place the best place to work for each and every one of our employees. It is truly an honor to be able to lead this organization, and I'm very excited about our future. I will now turn the call over to our CFO, Kevin Thompson.

Thank you, Scott. Earnings per diluted share of 83 cents in the third quarter included $384,000 of expenses related to our acquisition of TGR Financial. The return on assets was strong at 1.88%, with a return on tangible common equity of 22.9%. Related to the multifamily loan securitization of 419 million this quarter, we booked a gain of 18.1 million, including associated mortgage servicing rights of 2.7 million. As has been our practice in the past, we purchased 201 million of the resulting Freddie Mac securities, with an approximate yield of 1.4%. The net interest margin decreased to 3.07% in the quarter, which was largely due to higher average cash and cash equivalent balances in the quarter. We maintained discipline in loan production with the average loan funding yield increasing 11 basis points to 3.46% from last quarter. We provided a new schedule in the earnings release detailing our loan fundings. Excluding the securitization, loans would have increased $219 million, or 3.6%, compared to the prior quarter. Our cost of deposits continued to decrease in the quarter, dropping from 20 to 15 basis points. We earned $750,000 of net PPP fee income in the quarter, and we have $1.2 million of fees from $51 million of PPP loans that remain. The allowance for credit losses for loans decreased by $1.2 million in the quarter to $21 million as a result of lower loan balances related to securitization activity. This was offset by an increase in the allowance for credit losses for investments of $1 million, which was a result of the low interest rate environment and faster-than-expected prepayments that impacted the projected cash flows on FFB's interest-only strip securities. We also recognized an $825,000 valuation allowance on mortgage servicing rights in the quarter due to the same reasons. Asset management fees were strong with revenues of $9.3 million, and as Scott mentioned, our advisory and trust divisions achieved a combined pre-tax profit margin of 19%. Non-interest expense increased $2.8 million to $38.4 million in the quarter. This was largely from compensation and benefits that increased due to 5.3% increase in FTE in the quarter, higher commission accruals due to strong year-to-date production in wealth management and other divisions, and lower deferred expenses due to seasonally lower loan production. The efficiency ratio was very strong at 41.9%. I will now turn the call over to David DiPillo.