First Foundation inc (FFWM) Q2 2021 Earnings Call Transcript

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First Foundation inc (FFWM 1.58%)
Q2 2021 Earnings Call
Jul 27, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to First Foundation's Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] Speaking today will be Scott Kavanaugh, First Foundation's Chief Executive Officer; Kevin Thompson, Chief Financial Officer; and David DePillo, 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 Kavanaugh. Please go ahead.

Scott F. Kavanaugh -- Chief Executive Officer

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 across the entire [Technical Issues] represents 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 have 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 safer bank than what we were just three short years ago when many of you on the call first invested in it. 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. We continue 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 originations. 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% of our total deposits that's attributable to our significant reduction in our brokered 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% 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% 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 had 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 generate 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 crypto currency offering through our collaboration with our partners, NiGIG and Pfizer. 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 us 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 [Technical Issues] As we operate today, our newly appointed General Counsel, Kelly Rentzel, 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 operations. 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 time line 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 is 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. We also 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'm really excited about our future.

Now, let me turn the call over to our CFO, Kevin Thompson.

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Thank you, Scott. Earnings per diluted share of $0.58 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 have 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 the sale 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 to 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 remain 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 1 basis point and nonperforming 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 DePillo.

David DePillo -- President

Thank you, Kevin. As Scott mentioned, the transformation of our balance sheet continues to develop nicely and today we are well positioned as a regional commercial bank servicing a diverse client base. Adding some more detail to that, I would like to highlight our commercial business lending accounted for 39% of our originations for the first six months of the year.

In the quarter, we funded $336 million of C&I loans, which contributed to our third straight record quarter of originations of $1.1 billion for this quarter. 57% of our C&I loans in the quarter were adjustable commercial revolving lines of credit, which is a strategic move for us as we continue to shift the balance sheet to more rate neutral from liability sensitive. The remaining C&I originations were comprised of $73 million of commercial term loans, $34 million of public finance loans, $27 million of equipment finance loans, and $10 million of owner-occupied commercial real estate loans. They are all high-quality business loans that generate strong yields and continue to diversify our loan portfolio.

Included in commercial term loan originations was $10.1 million of second round of PPP funding. Looking more broadly at the $1.1 billion of loans that we originated in the second quarter, the percentage breakdown was as follows. C&I, including owner-occupied commercial real estate 30%, multifamily 64%, single-family 5%, and 1% other. We continue to focus on high quality loans to solid borrowers. It is always important to note that we accomplished this record quarter of originations without changing our high underwriting standards and our NPAs fell to a low of 20 basis points during the quarter. Loan pipeline remains strong heading into the third quarter as we expect to have some seasonal cyclicality over the summer months.

Speaking more specifically about loan yields, we achieved a weighted average interest rate of 335 [Phonetic] on loan originations, which held steady from the first quarter, which was also 335. This continues to demonstrate our ability to achieve record volumes while defending the yields on our portfolio. As of June 30, 2021, our loans held for maturity consists of 51% multifamily loans, 28% C&I loans, 5% other CRE, 15% consumer and single-family loans, and 1% land and construction. Our deposit business also experienced historic levels of inflows with an increase of $861 million during the second quarter of 2021 to end the quarter at $7.1 billion, which reflects a 26% increase compared to the second quarter of 2020.

Deposit growth during the second quarter of 2021 was primarily driven by an increase of $1.1 billion or 50% in non-interest-bearing demand deposits, largely attributed to our commercial deposits, service division and retail branches. The increase in deposits were offset by a reduction in interest-bearing demand deposits of $116 million, a reduction in money market and savings accounts of $28 million, largely from our digital bank channel, in addition to a reduction in CDs of $89 million, primarily due to our intentional runoff of higher cost in broker deposits.

Our non-interest-bearing deposits now account for 46% of our total deposits. The $861 million growth in deposits during the second quarter of 2021 includes an increase in commercial deposit service group of $859 million and retail branch deposits of $76 million. Of the $892 million increase in core deposits, $884 million or 99% were attributed to commercial business deposits both from our commercial deposit channel, serving complex treasury management, commercial customers and from our business banking customers served by our retail branches.

Commercial deposits were 74% of our total core deposits as of June 30th. Core deposits now account for 98% of total deposits. Our cost of deposits have continued to improve and reached a low point of 18 basis points in June. As noted, this reflects the benefit of our continued transformation to a commercial regional bank. Although, as Kevin mentioned, NIM expanded to 320 during the quarter, our robust deposit growth has provided us some additional excess liquidity. This excess liquidity will likely provide a slight drag to NIM over the next couple of months as we put it to work through loan funding, which tend to slow down during the summer, but accelerate in the fourth quarter. Looking further out, we are preparing for our upcoming loan sale, which we expect to complete in the third quarter, which will be our seventh such deal to-date and has become a routine part of our business.

A few final points about our investment in technology. Our efforts in technology and digital innovation are going well with several key implementations already complete and some planned for later this year, including a significant enhancement to our digital offering for both our business and personal banking clients as well as a new mobile app for those clients that choose to engage with us using mobile devices, including phones and tablets. These enhancements should put our digital offering on par with anything offered by the fintech's or neo banks within a safe and secure environment of a traditional bank. We also continue to make further enhancements to our enterprise data that helps us better service our clients and improve operation efficiencies. With the addition of Texas and soon to be added Florida locations, these will be investments that are sure to pay off as we scale up these opportunities. All of this success in the quarter could not have been achieved without the great team we have in place. I'm so grateful for their dedication and hard work.

At this time, we are ready to take questions, and I will hand it back to the Operator.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And your first question comes from Matthew Clark of Piper Sandler.

Matthew Clark -- Piper Sandler -- Analyst

Hey, good morning, guys.

Scott F. Kavanaugh -- Chief Executive Officer

Good morning, Matthew.

Matthew Clark -- Piper Sandler -- Analyst

Just wanted to hone in on the non-interest-bearing deposit growth a little more. Can you give us a better sense of how much of that came from your Dallas initiative? How much of it might have come from cannabis [Phonetic] efforts and then just speak to kind of the more traditional types of sources of growth. It is a pretty meaningful increase, It is almost -- could be considering the size of a bank in one quarter.

Scott F. Kavanaugh -- Chief Executive Officer

So, its Dallas, it has not really kicked in yet. The reality is we are just signing our first branch opportunity and that probably won't even be online until the first quarter of next year. Cannabis has slowly increased, but it is still a very minor portion. I would say that the increase is really attributable more to the traditional means and the people that we have had and the staff for a while.

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yeah, I would just add that some of that is growth from existing clients. A lot of it is new client acquisition. But we would mention that we do have existing clients in the Dallas market that contributed a pretty significant growth during the second quarter, one particular client added several hundred millions. So we are seeing growth out of that market. We still happen to start banking that client prior to our move to the headquarters. But yeah, it is organic through our distribution channel and clearly demand is outstripping our ability to deploy deposits at this point.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And do you feel like those balances are sticky? Or do you feel like there is some portion of that growth this quarter that was more of a timing issue that might move in the upcoming?

Scott F. Kavanaugh -- Chief Executive Officer

I think they are very sticky, but the reality is there are high points and low points with some of those clients. And right now, the balances are starting to build back and they will fall one day in the fourth quarter slightly and then build.

David DePillo -- President

I would say we'll probably see a lot of the traditional balance growth of existing customers as Scott just stated, typically hits during the third quarter and then the cyclicality nature of some of those will we -- they're way down during the fourth quarter and then start building up. However, we have made a conservative effort to diversify those business deposits away from some of the cyclicality that we see in some of the clients. So we probably won't see the level of movement. But again, Matthew, the demand out there from even new customers is so high and they are pretty much -- yeah, we are turning away deposits at record levels.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then just shifting gears to the loan pipeline and kind of growth outlook a lot stronger this quarter. It sounds like you expect some seasonality in the third quarter, but what are your overall thoughts on production in the back half and kind of net growth in general?

David DePillo -- President

So we still expect the first quarter to be the low point. Third quarter will be obviously down from the second quarter just because of the summer months and actually knock on wood post COVID, people are actually traveling. So we are seeing more of a -- unlike last year, we had record lows in production mostly related to COVID during the third quarter. This will be a traditional cyclicality, but still should be greater than what we experienced in the first quarter. But I would say that we traditionally had run anywhere from $2.5 billion to $2.8 billion. Our current run rate is $3.5 billion to $4 billion. Our expectation is we are going to continue at that run rate and we don't see demand at this point falling off. So as we stated previously, we have kind of built infrastructure and teams to support a much greater funding level than we have historically achieved in the past and we are starting to see the fruits of those labor pay off.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And is it fair to assume with the acquisition that you will probably be at $5 billion next year, roughly?

David DePillo -- President

It all depends on how quickly we expand in that market. Their historical run rate -- Kevin, correct me if I'm wrong, I think it is $200 million to $300 million a year ex-PPP. We think that is going to be a gradual increase as we expand in that market. So I'm not sure it is going to be $1 billion by next year, but it will certainly be scaling up from what they historically have done. But again...

Kevin Thompson -- Executive Vice President, Chief Financial Officer

I think it depends on what Florida can chip in. Texas is already gearing up pretty substantially on the loan side. They are approaching $100 million in a pipeline, which is pretty healthy considering the team has only been here for a couple of months. So that may be a little bit ambitious on the $5 billion, but...

David DePillo -- President

Yeah, I would say we have not modeled that. However, we have not completely integrated all of the modeling around post acquisition, at least from our expectations outside of what we put a redeployment of cash in the model. But I would say our plan is to step up their historical run rate and are entering new markets relatively rapidly as they were planning to do that on their own but had tended to be a little more capital constrained in the past.

Matthew Clark -- Piper Sandler -- Analyst

Okay. And then just on the reserve, down a little bit ex-PPP, I think roughly 41 basis points. I think some of that is macro factors. And I would assume some of it is also just less C&I contributing to the overall production this quarter relative to last. But what are your thoughts on the reserves? Should we expect that to kind of reset back to 50 basis points with the acquisition in the fourth quarter?

David DePillo -- President

We haven't fully modeled that yet other than you can see our -- when we announced the deal, that's our latest modeling and you saw in our S4 we did some estimates as well. So more to come. We have a lot of work to do before we close to understand their loan portfolio better and to implement CECL as a smaller bank. They weren't subject to CECL requirements. So we will run their loans through our model.

And to your point, there are more commercial loans. So we do anticipate a higher reserve rate. I wouldn't say it would be that significant, even the credit quality of the portfolios and the historical performance and the seasoning of it. They are a very, very conservative bank and their reserve levels are at a little over...

Scott F. Kavanaugh -- Chief Executive Officer

They are 1.5%.

David DePillo -- President

Yeah, 1.5%.

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yeah, but on commercial real estate.

David DePillo -- President

At commercials, they're probably up there in the...

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yeah, so it may drive us up a little, Matthew, but given their portfolio compared to ours in size, the primary driver is obviously multifamily and residential mortgage tend to drive our ratio down since we do tend to reserve higher levels on C&I.

Matthew Clark -- Piper Sandler -- Analyst

Yeah, understood. Thank you.

Operator

Thank you. Your next question is from Steve Moss of B. Riley Securities.

Steve Moss -- B. Riley Securities -- Analyst

Hi good morning.

Scott F. Kavanaugh -- Chief Executive Officer

Hey, Steve.

Steve Moss -- B. Riley Securities -- Analyst

Nice quarter here. Maybe just tying up loan growth a little bit further. Obviously, it sounds good on the pipeline and originations are impressed. You do have a pickup in pay downs. As you think about the pace of growth, maybe even with TGRF, are you guys comfortable with kind of like a mid-teens type growth rate heading into next year?

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yeah, I think so. Like you say, it all really depends on where the market is as far as rates from a CPR standpoint. We have tended to step those up in our modeling recently to reflect current pay down rates. But if the CPRs stay where they are at, I would say mid-teens is probably where we expect to be.

Steve Moss -- B. Riley Securities -- Analyst

Okay perfect. That is helpful. And then just in terms of the teams you guys added in Vegas and Los Angeles, I think it was this quarter. Can you give a little more color as to what you are expecting from them and their business focus?

David DePillo -- President

Sure. So L.A. is more mid-market and below traditional team that has been in the market for, I would say several years now. So that would be kind of LA Metro mid-market and below. Pace is a little different animal. It is part of our corporate banking team. It is a team that originally came out of U.S. Bank and eventually made their way over to us, which have a strong hold in the Western region on the corporate. So we would say that is mid-market and above. And they are hitting stride and have been very successful. The management team there is also helping in leveraging our overall corporate initiatives nationwide. So it was really to add -- it is really additive not only from just a pure production standpoint, but just the depth and breadth to our corporate banking group.

Scott F. Kavanaugh -- Chief Executive Officer

Dave, you may also talk about the new builder finance team and their pipeline.

David DePillo -- President

Yeah, we added a builder finance team that actually -- the individual that runs that worked with us at a bank several years ago and it has been very successful. This is what we would consider more of an infill spec and owner builder program, they do infill as well as some multifamily construction as well. So this isn't large track or a large builder finance and its primarily in California where the majority of their production. They're actually doing extremely well so far, building their pipeline and we are adding the additional expertise. We always had a very, very strong funds control and infrastructure, but we lack a team to focus on really driving more scale in that production side. So we are very pleased they have been here for a few months now and already have a nice pipeline building.

Steve Moss -- B. Riley Securities -- Analyst

Got it. And maybe on the Texas LPO as well. I think Scott, you mentioned $100 million, close to $100 million pipeline. Just kind of curious what the type of loans you are seeing in the Texas activity.

David DePillo -- President

So that traditional commercial real estate, mostly multifamily focused throughout. As you know, Texas is a very large market for that and these are individuals that have been servicing the market. We are doing some bridge financing around that as well because of the repositioning of some complexes within the market as that market continues to grow and prosper. So I would say majority of its multifamily, multifamily bridge and a little bit of CRE. We have plans to add additional C&I bankers in the market, but have been very, very selective in our approach to that market as it relates to C&I.

Steve Moss -- B. Riley Securities -- Analyst

Okay. Great. And then just with all the investments ongoing, just excluding TGRF, kind of curious as to how you guys are thinking about expenses and expense growth rate here?

David DePillo -- President

So because -- we have always not been shy about adding infrastructure as needed in order to continue to expand our profitability and we kind of manage to an overall expense ratio. So we want to try to maintain that kind of 50% or below from an efficiency standpoint. And I think you saw in the second quarter, some of the investments we made in previous quarters are now starting to pay off. We still are going to add additional production and infrastructure, but our expectations are we kind of target the 50% efficiency.

Scott F. Kavanaugh -- Chief Executive Officer

Yeah, the only thing I would add on that Steve is as we were stuck at like 500 employees for a while until we decided to kind of ramp up the production side. And with that we had to ramp up underwriters, processors, funders, compliance people. You really have to have that same infrastructure build. And so we have gone just this year alone from 500 employees around the start of this year to, I think it is about 540 or 550. If not, we are leaning that way toward getting very close to it. But Dave's right, we are trying to do at lockstep with making sure that our efficiency ratio maintains around that 50-ish level until we can taper off and then hopefully get some efficiencies to scale.

Kevin Thompson -- Executive Vice President, Chief Financial Officer

And I will just add that with the acquisition of TGR Financial, we anticipate getting to the $9.4 billion level by year-end and sometime next year dipping into $10 billion area, which, as you know, brings a new regulatory regime and additional requirements for a bank. And we are well on the way of preparing for that and investing as we need to in talent. One of the nice things about TGR Financials, they come with a very talented team and a great addition to both our culture, but as well as the infrastructure we need to add in order to have a really high functioning team. So where normally, you would see higher cost saves. We have opted to retain many really talented employees from TGR at close, so that we can be prepared for this $10 billion mark. So there will be expenses related to that. But to Dave's point, we anticipate seeing at or below the 50% efficiency ratio mark.

Steve Moss -- B. Riley Securities -- Analyst

Okay, great. Well, thanks very much, guys.

Scott F. Kavanaugh -- Chief Executive Officer

Thank you, Steve.

Operator

Thank you. Your next question comes from Gary Tenner of D.A. Davidson.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks, good morning.

Scott F. Kavanaugh -- Chief Executive Officer

Good morning, Gary.

Gary Tenner -- D.A. Davidson -- Analyst

I want to Just touch on the margin for a second. Last couple of quarters or three quarters you have been able to kind of offset the decline in headwinds on earning asset yield side by lowering deposit costs. Given where those deposit costs are right now, is there enough room to kind of sustain the margin at the current level or given kind of the new loan production rate in the low threes and drag on loan yields, are we likely to see a little bit of pressure?

Scott F. Kavanaugh -- Chief Executive Officer

I'll start with the deposit side. We squeezed a fair amount out and I would say that for the most part we are probably drawing to a close on what we think we can really squeeze out of the marketplace. So I mean, I think we have done an exceptional job of lowering the cost of deposits. But I don't think that you are going to see much more in the way of our cost of funds shrinking much more than the 18 basis points that was experienced in June.

David DePillo -- President

So I would say on the loan side, it is interesting, Gary, it is a little less to do whether or not we are adding a lower loan yields on our portfolio and really getting cash returning close to zero deployed into some earning asset above zero. So whether we fund that 335 or 325 or even 300, on new loans is getting that $1 billion of excess cash that is earning 20 basis points or less into an earning asset -- about earning 3% or more, and that will probably have a much more material impact to maintain our margin than slightly lower loan yields. But as you can see, we have been funding in this range for quite some time. And whatever the yield curve does day-in and day-out, week-in, week-out, we pretty much have been funding at a floor rate for I would say well over a year. So our rate may vary 10 basis points up or down, but that certainly has some impact. But its really getting cash earning almost zero into something more than that is going to have the biggest impact.

Scott F. Kavanaugh -- Chief Executive Officer

I agree.

Gary Tenner -- D.A. Davidson -- Analyst

Yeah, that makes sense. So with the backdrop of obviously the liquidity build being a headwind in terms of asset yields, can you talk about the decision to sell loans this quarter in advance of the serialization?

David DePillo -- President

So that was interesting. Dealing with the agencies when we originally were talking to them, there was a focus on them securitizing assets that met a national BLI calculator, very little of what we originate meets the national BLI scenario. So we said, well, if we may move away from a single securitization and selling to private institutions and smaller blocks. We completed one of those and then went back and the agency said well we can actually complete a transaction which also benefited us. So net-net, at the end of the day, we are probably doing a slightly smaller transaction in a both scenario versus what we sold in the second quarter. So that was really the primary reason why you have a little bit of sale in this quarter and then we will have a larger sale in the third quarter.

Again, the majority of the reason we are selling these assets are to make room with existing customers in order to maintain our one-to-one borrower ratio. It is just our ability to service those customers year-in and year-out, and it is strategic for us to maintain the relationship, also the servicing through multi securitization. But that is the reason why we had that split.

Gary Tenner -- D.A. Davidson -- Analyst

I appreciate the color.

Operator

Thank you. [Operator Instructions] And your next question is from David Chiaverini of Wedbush Securities.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. A couple of questions for you. A follow-up on deposits. You mentioned about how the commercial deposit services channel serving complex treasury management, commercial customers. I was curious, is there anything new with the product offering as you approach clients or was it this Las Vegas corporate banking team that was a big contributor there? I'm just curious if there was any change or anything new that helped drive this strong growth.

Scott F. Kavanaugh -- Chief Executive Officer

I would say that the main reason for or the main changes that came about, historically most of our clients have done more batch operations. And some of our clients have now gone to more of an online type banking situation, which has required some changes. So I would say we are much more dynamic than we previously were in how we handle those clients, which overall has made our systems better. But frankly, there really hasn't been any product offerings or anything that has really changed other than meeting the demands of clients to upgrade IT to handle those types of online versus a batch.

David DePillo -- President

Yeah, I would say, in particular, we did a conversion of our commercial system this year in order to service those clients. As Scott mentioned, there is several complexities as far as open API environment and our ability to service those clients that have I would say more real-time needs versus nightly batch, which is a segment of the clientele.

So yes, strategically, we made an investment in our transformation of our C&I platform to what we consider a best-in-class delivery mechanism. And it can service clients from 1 million to 1 billion. It really doesn't matter. And our ability to handle large volumes of transactions significantly increase during that conversion process and post conversion process And as Scott mentioned, just outsized demand from our client base. Not necessarily that much is driven by the Vegas Group. They're particularly focused more on the loan side of the business, but they do provide us additional deposits through those relationships.

David Chiaverini -- Wedbush Securities -- Analyst

Got it, that is helpful. And then shifting gears. This is more of a housekeeping question. But I saw the professional services and marketing line item and expenses jumped up a little bit. Is that a function of the merger charge? Is that where that was?

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yes. All the merger charges that are in that line That's correct.

David DePillo -- President

It is legal.

Kevin Thompson -- Executive Vice President, Chief Financial Officer

Yeah, legal and professional.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. Thanks very much. Thank you. We have no further questions at this time. I will turn the call back over to Mr. Scott Kavanaugh for closing remarks.

Scott F. Kavanaugh -- Chief Executive Officer

Thank you again for participating in today's call. Very proud of the results we reported. All of our business lines are doing exceptionally well and I'm very pleased that the path we are on. There are great opportunities related to our geographic expansion in the Dallas-Fort Worth Metroplex and in Florida, and we continue to invest in serving our existing markets in California, Nevada and Hawaii. As a reminder, our earnings report and investor presentation can be found on the Investor Relations section of our website. Thank you, and have a great remainder of your day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Scott F. Kavanaugh -- Chief Executive Officer

Kevin Thompson -- Executive Vice President, Chief Financial Officer

David DePillo -- President

Matthew Clark -- Piper Sandler -- Analyst

Steve Moss -- B. Riley Securities -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

More FFWM analysis

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