First Foundation Inc.

Greetings and welcome to the First Foundation's fourth 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 the 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 2021 earnings conference call. As highlighted in our earnings report, we had another strong quarter, which capped off a great year for First Foundation. But before I get into the details of the financial results we reported, let me share how impressed I am with what our team has been able to accomplish this quarter, and frankly, for the entire year. When the fourth quarter started, We had many initiatives underway and there were a lot of moving parts. We had several important projects planned for completion all at the same time. Complicating these matters was the rise of cases due to Omicron, which hit many of our departments. We had to temporarily close some branches and there were a couple of days where entire departments were out. Yet through this Herculean effort from our team, I am pleased to report we delivered on all of our projects while still reporting the strong financial results we did today. Before I get into the details of the financial metrics, let me touch on a few of those projects and what they mean for our organization. First, we closed on our transaction with TGR Financial in Florida. This important transaction means a couple of things. We are now strategically positioned in another business friendly state with the ability to expand into some key markets within Florida. We also have a team of experienced bankers who know the local community. Keeping the local team in place is something we are very pleased we were able to do. In addition, this transaction gives us access to a very solid client base that we can offer complimentary services to, whether it be additional banking solutions, wealth management, or trust services. We are actively looking to recruit additional talent to build out these services from our Florida locations. Another important project in 2021 was our expansion into Texas. We moved our principal office to Dallas in the second quarter and opened an LPO in Irving. And we are planning to open a retail branch in Plano in the first quarter of this year. Texas, which as you know, is another business friendly state and has a ton of opportunity for retail and commercial banking, as well as our wealth management and trust services. You've heard me say it before. We're really excited about Texas. We continue to invest in our markets as well across Hawaii, Nevada, and California. We also launched our new mobile app in 2021, and the adoption of the app by our clients in the fourth quarter has been terrific. This new app transforms how we deliver our banking experience. Clients can now gain insights into all facets of their financial lives without leaving the First Foundation Bank environment. This solution will help our team better attract and target clients with complimentary services. We expect to deepen our client relationships with this important new tool. This is something you're likely to hear more about in future quarters. In addition, we recently announced the successful close of our 150 million sub debt offering to strengthen our capital position. This attractive source of capital will fuel our future growth, and allow us to continue to execute on our strategic plan without diluting our existing equity stakeholders. During 2021, we also completed the following projects. The successful Freddie Mac securitization of multifamily loans, our preparedness for becoming a $10 billion bank, the kickoff of our Bitcoin project with NYDIG and Fiserv, working through the majority of our remaining PPP loans and the continuation of our community giving program. There were a host of other important projects we completed in 2021 that I didn't cover. In fact, we have 35 strategic projects on our plan that are slated to be completed. This reinforces our commitment to enhancing the client experience and our technology. I want to say the projects that I just mentioned would take most other banks years to complete. We did it in 12 months, and much of this activity occurred in the past 90 days, which is truly remarkable. It's a testament to the experienced team we have in place. Our ability to successfully operate and grow a bank is second to none in our industry, and I am pleased with everyone's contributions. Let me touch on some details related to our financial results for the quarter. Our earnings for the quarter were 23.9 million or 51 cents a share. Total revenues were 75.8 million for the quarter, a 20% increase over the prior year fourth quarter. Return on average assets was 1.15%. Return on average tangible equity was 13.4%, and tangible book value per share remained strong at $14.92. I'm also pleased to announce that we increased our dividend payment by 22% from 9 cents to 11 cents per share in the prior quarter. Each of our business contributed to our success. Our banking operations experienced another record quarter of growth. as loan originations in the fourth quarter hit $1.2 billion and $3.9 billion for the year, while deposits grew in the quarter by $2 billion following the close of our acquisition of TGR Financial and $3 billion for the year. I've mentioned this before, but the transformation of our business model has really taken shape in the diversification of our offering has only strengthened their position as a premier regional bank. This is evidenced yet again by another strong quarter of high-quality CNI originations, which reached a record $518 million in the quarter and accounted for 43% of the $1.2 billion total that we originated in the quarter. We also saw contributions from our equipment finance, public finance, and builder finance teams as these businesses continue to ramp up. 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 remain at industry-leading levels, decreasing to 14 basis points for the quarter. Looking at deposits, our core funding accounts for 99% of our total deposits, while our cost of funding continues to be favorable, with deposit costs remaining low at 15 basis points for the quarter. Our loan to deposit ratio improved to 84% at the end of the quarter. Our attractive deposit profile continues to be attributable to a reduction in our broker deposits and an increase in more business-related operating accounts. Looking at our wealth management business, we had a strong quarter and year, both in terms of new clients and positive investment returns in our portfolios. Assets increased by $282 million in the fourth quarter, and assets under management ended the year at a record $5.7 billion. Additionally, our wealth management and trust businesses saw a record combined pre-tax profitability of 25% for the quarter. Our ability to maintain this level of profitability across several quarters now shows that we are hitting scale for this business. Again, I would remind everyone that we accomplished all this even as we completed several very important projects to close out the year. Kevin will provide some adjusted numbers for ease of comparison. but our reported numbers are strong even at face value. I can't say enough about how our team rose to the challenge and delivered great results. All of what I've mentioned, our services, our expansion, the projects we completed, our team, and our commitment to technology positions us well as we 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. It is truly an honor to be able to lead this organization, comprised of extraordinary professionals serving our wonderful clients. I continue to be very excited about our future. Now, let me turn the call over to our CFO, Kevin.

Thank you, Scott. Earnings per diluted share was $0.51 in the fourth quarter. As Scott mentioned, the return on assets was strong at 1.15% with a return on tangible common equity of 13.4%. These were especially good metrics considering our one-time expenses related to closing the acquisition of TGR Financial. These merger-related expenses included a recognition of $1.1 million in non-interest expense as well as $5.6 billion related to the day one CECL loan loss provision for non-purchase credit deteriorated loans. This is often called the CECL double count related to acquisitions. Adjusting for these items, our return on assets would have been around 1.4%, and our return on tangible common equity would have been approximately 16%. The TGR acquisition took place on December 17th, so there are only a few weeks of income statement impacts from the merger. We're very proud of our performance for the full year of 2021. Our return on assets was 1.41%, and our return on tangible common equity was 16.9% for the full year. Our investments in technology, talent, and processes have really taken root, and our operational leverage is evidenced in our metrics. A few quarters ago, we announced our strategic investment in NYDIG. which is an industry leader in providing Bitcoin-related solutions to banks and institutions. While we are very excited to continue to work with NYDIG to implement these services for our customers, we are very pleased that our strategic investment has increased in value and we recognized a $1.1 million gain on the investment this quarter. The net interest margin increased to 3.17% in the quarter, which was due to slightly improving loan yields lower average cash balances, and a slightly improving cost of funds in the quarter. Our continued balance sheet discipline resulted in an increase in loan yields of six basis points and a decrease in cost of funding of two basis points. We earned $561,000 in net PPP fee income in the quarter, and we have $618,000 of fees remaining. We added $23 million of PPP loans through the acquisition of TGR Financial With the pay down of 20 million of legacy PPP loans in the quarter and the addition of the acquired loans, 51 million of PPP loans remain. The allowance for credit losses for loans increased 12.8 million to 33.8 million, or 0.49% of total loans in the quarter. We recorded 15.1 million in additional allowance for credit losses associated with the acquisition of TGR Financial. Of this, $9.5 million was related to purchase credit deteriorated loans and $5.6 million was related to non-purchase credit deteriorated loans. This increase due to the acquisition was offset by a reduction in the allowance of $2.4 million related to the bank's legacy loan portfolio due to improvements in the economic scenario outlook offset by an increase in legacy loan balances. Asset management fees were strong, with revenues of $9.6 million, and our advisory and trust divisions achieved a record combined pre-tax profit margin of 25%. Non-interest expense increased $1.2 million to $39.6 million in the quarter. $1.1 million of professional fees and other expenses were related to the merger. With only two weeks of TGR financial in our results, the corresponding non-interest expense was very small at around $600,000. The efficiency ratio was very strong at 51% for the quarter and 47.5% for the full year. I will now turn the call over to David DiPillo.