First Foundation Inc.

Greetings and welcome to FIRST Foundation's second quarter 2022 earnings conference call. Today's call is being recorded. At this time, all participants have been placed in the 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 turn the call over to Scott Kavanaugh.

Good morning and welcome. Thank you for joining our second quarter 2022 earnings conference call. Today, we will be delivering some prepared remarks highlighting our activities and accomplishments this quarter. At the conclusion of the prepared remarks, we will open the mind for questions. This quarter, we delivered strong results as our business model continues to perform well. Our earnings for the second quarter were 33.3 million, or 59 cents per share, which represents a 7% increase over the first quarter of 2022. Total revenues were 95.2 million for the quarter, a 6% increase from the first quarter of 2022, and a 32% increase year over year. Our tangible book value per share ended the quarter higher at $15.61. We also declared and paid our second quarter cash dividend of 11 cents per share. As you are well aware, there are a lot of headwinds facing our industry and the economy right now, yet each of our lines of business have continued to perform well, and we have contributed in meaningful ways to this quarter's results. Our strong financial performance is a testament to the dedication of our employees who continue to deliver across all areas of the company. It also is a demonstration of the quality of our clients and our pipeline across banking, wealth management, and trust services. We continue to strategically build upon our growth story via organic opportunities while we also capitalize on our recent M&A activities. Furthermore, core deposits continue to increase so that we remain largely self-funded, a strategic advantage in the current environment. The favorable results we reported today reflect the strength of our institution and our continued positive outlook that our business model is working very well across the diverse and dynamic markets we serve. Loan originations hit record levels with $2.2 billion in new loans for the quarter, a truly remarkable feat. Another highlight in the quarter was our impressive balance sheet growth, which expanded from $10.4 billion to $11.2 billion. And we would have even been greater had we not put our excess cash to use. NPAs. continue to remain low at 15 basis points for the quarter as our lending team does a fantastic job maintaining our high credit standards. We have established a well-balanced loan portfolio that continues to perform very well. Dave will touch more on that later in the call. Our deposit profile remains diversified and attractive with core deposits at 99% of total deposits. Deposits increased by $581 million for the quarter, driven by our ability to continue to attract high-quality clients from online, retail, and commercial channels. All of this speaks to the strength of our deposit team and the attractiveness of our offerings. Our wealth management and trust business continue to provide meaningful contributions to the firm and have been successful in retaining existing clients and attracting new ones. Assets under management ended the quarter at $4.8 billion, largely due to market conditions expanding the first months of the quarter. The all-weather portfolios we manage for our clients performed well with respect to their benchmarks, even as the S&P and NASDAQ saw significant declines during the quarter. It is times like these that our investor clients seek our advice more than ever. We are actively working with each one of them. We successfully expanded our wealth management and trust offering into Florida with the addition of talented new team members, and we are pleased at the initial results we are seeing. As I have mentioned in the past, It's an excellent market for private wealth management services. We also secured trust powers in both the state of Texas and the state of Florida, which will allow us to offer a full suite of trust services to clients in these important markets. Looking more at our expansion efforts, the final step in the acquisition of First Florida Integrity Bank occurred when we converted our core systems in May. Florida is now up and running on our industry-leading technology platform, and we are successfully working with these new client base as we work to deepen these relationships and acquire new ones. To that end, we have already begun discussions with many of our Florida clients and have uncovered additional ways we can support them, whether it is through additional banking services or wealth planning investment management, or trust services. It's been a tremendous effort by the team, and I am so grateful for everyone who has worked hard to make this happen, especially all of our colleagues in Florida. Texas continues to present unparalleled opportunity for us. It produces 9% of U.S. GDP, second only to California. As the nation's largest annual state population growth, And in 2022, the number of businesses moving into Texas are on the rise. We officially opened the doors to our de novo branch in the city of Plano, Texas. This will serve as a valuable banking center to serve clients in one of the most business friendly regions as we operate. We expect great things from this branch and we are pleased at the warm reception we have received by the community of Plano. During the quarter, we also repurchased $2.5 million of stock at a weighted average price of $21 per share. Management will continue to utilize this stock buyback option should it be warranted. Also, we continue to invest in technologies to enhance our operational efficiency, which as important as ever as we expand and grow our team across multiple states and time zones. In this tight labor market, we have taken additional steps to ensure our employees are engaged and thriving. This includes offering advanced training for our future leaders, hybrid work setups for those who can work remotely, ongoing employee recognition and constant benchmarking of salaries to ensure we stay competitive in our markets. One of our best assets is our people, and we strive to make First Foundation a great place for our employees to call home. As we look ahead to a continuing rising rate environment and a transitioning economic cycle, First Foundation remains well positioned with a strong balance sheet and excellent credit quality. Demand for our services is at peak levels, and our pipelines across all business lines are very robust. I'm very grateful for all that we've accomplished in the quarter and the first half of the year. I want to conclude my opening remarks by saying how pleased I am with the entire team at First Foundation. We have a group of talented and dedicated professionals who are very committed to serving clients and building a valuable business. We also have amazing clients who entrust us with their financial wellbeing. It is truly an honor to be able to lead this organization. And now I'll turn the call over to our CFO, Kevin Thompson.

Thank you, Scott. As mentioned, earnings per diluted share was 59 cents in the second quarter. The return on assets was strong at 1.24%, with the return on tangible common equity of 15.5%. The debt and interest margin expanded 18 basis points to 3.18% in the quarter. The NIM increase was driven by our strong loan production as we utilized our excess liquidity and by an increase in the yield on interest earning assets, which expanded to 3.5%. This was offset partially by an increase in our cost of deposits from 15 to 28 basis points, as customer deposit rates have been adjusting to the rising rate environment. Credit metrics remain strong in all our loan portfolios. The allowance for credit losses for loans increased by $339,000 in the quarter to $33.2 million, primarily as a result of increased loan balances, offset by the release of specific reserves related to purchase credit deteriorated loans from prior acquisitions. The reserve ratio decreased from 44 to 37 basis points of total loans. Our non-interest income for the quarter was $13.4 million, driven primarily by wealth management revenues of $7.7 million, $2.1 million in trust administration and consulting fees, and the balance in banking-related fees. Our advisory and trust divisions achieved a combined pre-tax profit margin of 24%. Non-interest expense was $48.8 million for the quarter, which represents a slight uptick of 2.5% from the first quarter. Customer service costs increased by $2.8 million due to increases in the earnings credit rates paid on the related deposit balances. We saw a decrease in compensation and benefits primarily due to merit increases and annual bonus and commission payouts that took place in the first quarter. The efficiency ratio for the quarter was 50.7%. With strong expense management and the investments we have made in our infrastructure, we continue to realize benefits from operational leverage and efficiencies. Finally, our effective tax rate for the second quarter was 27.9% compared to 28.4% for the prior quarter. We are just beginning to realize benefits from our tax strategy that should continue to grow over the next several years. I will now turn the call over to David DiPillo. Thank you, Kevin.