Third Coast Bancshares (TCBX) 27 Jan 232022 Q4 Earnings call transcript

Greetings, and welcome to the Third Coast Bank Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Natalie Hairston with Dennard Lascar, Investor Relations. Thank you, Natalie.

You may begin.

good and operator, you, morning, everyone. Thank you call and appreciate fiscal XXXX joining fourth us conference Bancshares year Coast Third results. webcast and for quarter We to our review is Officer; and Duncan, Chief today With President Officer. Audrey Caraway, McWhorter, Financial John Chief and me Chief Executive Bart Officer; Credit Chairman,

are a First, will our available was to replay reported replay that on by no information may be telephonic earnings on today's features a of or the time-sensitive release. accurate There information also website and speaks longer the time X, reading. as call, Investors more a call listening housekeeping be that you items. of at access webcast only replay as There the XXXX, yesterday's of advised in ir.tcbssb.com. it be this few section transcript XX, February any today, information and Please until will of will included replay January of available these be XXXX, note therefore, how and on

views the within In statements conference management. may statements this call by These States the during securities management forward-looking forward-looking reflect current made the laws. meaning contain federal of the comments United of addition,

XX, XXXX, include made understand measures. annual the comments certain was better on on cause Form to could or the company's by to in results, the financial report is to read However, March management. reader risks, that non-GAAP prospectus encouraged uncertainties and statements The from those various risks, also contingencies. contingencies performance achievements uncertainties made XX-K those will today materially or actual The differ and expressed filed listener or

measures can directly in on most Third be are included which website. earnings Additional details yesterday's and reconciliation the Coast comparable the found release, GAAP to financial

CEO, to like over Third President turn Bart? and Chairman and Bart I'd Caraway. the to Mr. Now Coast call

we a begin fourth discuss good more everyone. significant John will you the I'll by return and provide year Thanks, then a for quarter. review, credit your will and our joining today. Audrey Natalie, and Then questions, full Thank highlighting give take detailed I'll before for outlook. financial us morning, events update. to

remarkable strategy, speaking, a public were business and year Third company. both operationally. Coast company's successful full Throughout are we financially executing in some the highlights. Financially had a XXXX, here as first

Third XX% deposits Coast of reported total growth XXXX. when gross during over loans, compared record-level XXXX and in assets to

development record billion, $X.X Specifically, have our periods. portfolio during strong future business We $X.X billion best to efforts rate the from yet. and our a reached expectations existing net for for gross newly fourth despite set by quarter believe the increased we changing conditions reported interest lenders. loans assets increasing return steps to margin extremely fueled and net year to and foundation grow grew levels, the interest And up XXXX strong exceeded on assets billion $X.X income. hikes. Likewise, on excellent taken economic also hired results. We Deposits and total internal loan to aggressive

Chief Antonio, bank successfully San of to significantly Risk opened year-end Fort governance added to corporate excellent ability total commercial and geared drive operations, environmental, sustainable advanced commitment Chief quality bank's habits. industry and strong, our team deposit growth. liquidity knowledge branch we other Chief to operations, Bill the Alexander compliance with and in with promotion as as Worth, Kingwood Texas, Compliance and Dechert big and the significant incredible bringing talent XX. strength Together The Michael company and of risk we as social Vicki adoption Officer towards the our additions The and operational Operations to Georgetown, an with efficiencies compliance in the overall Asset Banking extensive demonstrated experience From Bobbora internally and of strong And asset with campaigns X deep management increased and to by scale we with ratios metrics. continue Coast we Officer. e-statements leaders, And top at banking. perspective, highlights quality new locations Officer. remains its Third promoted

Third honor of employees. XXX talented to Coast each Arbor by Day trees our planting also over commemorated

Finally, and inclusion managers training launching employee commitment equity by banking Coast Diversity women's bank's resource and for to its providing furthered diversity, bias group the Third establishing and a staff unconscious and Council.

experienced performance of each and the strategic of engaged talented direct in to XXXX result Coast bank's Third the are vision. leaders, dedicated is the whom staff company's and

moment I'd especially sincerely continued employees, bank's everyone a success, thank and In with to management. like addition the bank's investors, involved directors to to our the take customers,

assuring the existing personal pledges clients, while future to Coast to maintain quality. deserve service commitment they Third our give and asset exceptional

With turn financial call the John? to over that, for detailed John review. more I'll a

good and financial We tables Bart, earnings release. in detailed the yesterday's everyone. morning, you, Thank provided

So sheet today, and and profitability for quarter fourth XXXX. I'll metrics review the balance year full the select

an billion the As third in quarter Gross billion year-end, billion growth mentioned, Bart experienced loan we $X.XX $X and increase billion in increase loans from X.X% million $XXX XX.X% year in of of the fourth $X.X quarter of or fourth strong or at an and increased to the from quarter, full XXXX. $X.XX XXXX.

from On were with the from third loans Sequentially, asset quarter, of higher margin and for of loans million year-end, third average XXXX. mix to a were and the improved commercial representing income billion up quarter totaled of Net for an $XXX,XXX. of at XXXX. loans diversified $XX.X interest performance of and sensitivity, continued the sequential was increase declined from million. $XX.X $X.X Net and million loans September for current the from prior growth quarterly Accretion real $XXX the period. full declined billion, for real fees the million of from up the million up year the XX% on in our and fourth X.X% totaled loans for $XXX,XXX from interest loan $XX $XXX estate billion estate same increase quarter purchased noninterest-bearing an $XX.X million XX X.X% balances. quarter $X.X $X.XX X.XX% was resulted compared of This basis, commercial a Deposits loan better-than-expected quarter well period. XXXX increase for X.XX% quarter

interest increase on net million income to third $XXX.X from sequentially totaled totaled quarter. to in from of in basis, year full a sales $XXX,XXX SBA Noninterest million $X.X quarter for XXXX. compared of XXXX. income quarter the of an Gains million million, decreased fourth loans $X.X XX.X% portion the $XX.X the in On guaranteed fourth of the $XXX,XXX

and for income as Series beginning $X.X well compared very due of declared totaled to X the to million $XX.X in the of the in our very professional. closing quarter, in $X.X increase business the at by fees and to employee legal addition, quarter, asset and end. legal were Dividends the associated third in expenses $XX.X rates A totaled past as fourth million X% decreased public to addition the quarter. Noninterest company increases at totaled doing with quarter. from In growth. Net the X preferred increased and in year-over-year fourth increased $X.X million the dividends the -- the fourth the expense $XXX,XXX preferred to assessment million X from derivative fourth total expenses The offset occupancy, $XXX,XXX and on in stock quarter, resulting headcount for regulatory quarter fourth down a salary Declines timing quarter. from the year fees million third in in related professional over costs as increased offering, increased in we

XX an year a diluted picked a And to $X.XX per we've at XXXX pass $XX.X That basis, would if net in income totaled to result, full up increase review. for million a compared call up our have point, per million this credit quality to $XX.X I'll little XX%. of XXXX, As financial an for not the for the review. extra back earnings in this, $XXX,XXX, share days over Audrey rounded share. On fully completes

John, everyone. good and you, Thank morning,

quality XXXX. million $X assets strong. nonperforming Asset $XX.X to December XX% decreased as or remains XX, of Year-over-year million by

increased from of the quarter $XX.X of $X.X as assets For XXXX, XXXX. million million nonperforming XX, September fourth

and losses The As quarter decreased low slightly of of of gross December recorded X.XX%, loans. and held loans was nonperforming X.XX% fourth which for and XXXX, of at XX, to from loan XX, loan XXXX, investment increased XXXX losses from X.XX% December $X for X.XX% the for provision remained September the as lease as ratio for loans XX, million the allowance XXXX. of represents

bank methodology, we charge-off X net net charge-offs basis, XXXX X the respectively. January have basis December rate for The million XXXX $XXX,XXX the ended months year basis Due On adopted to million. $X $X.X in for XXXX, The $X.X and XX, 'XX, has were increased XXXX. effective and CECL X, XX charge-offs reserves to in million declined $X.X by and During change were full million, annual a to and XXXX. points compared XXXX net respectively. points

information about additional to Before earlier. Bart our outlook, wanted diversity Bart I share that some covers council the mentioned

mission. will an we that, acceptance among regarding group's back well environment equity. With initiative, experiences brings call us plan As respect champion I'll Bart? support that We're a diversity that of education a becoming of the excited the company more of diverse this and a towards one to the steers to foster of Each launch co-chair build diverse other and council, turn and Bart. members our initiatives. council as professional awareness to issues as

Thanks, Audrey.

goals strong than Turning faster to to credit and XXXX our summarize. as We culture. to similar XXXX, maintain with entered revenues expenses grow

do strategic focusing priorities. will this by We on key

the expanding Labs. revenue partners, continue several digital made Alloy and low-cost streams. our strategic with Prime including and bank while Throughout will First, we sustainable, efforts XXXX, sourcing in deposits, diversifying partnerships Treasury

new to in XXXX XXXX with several of into foundation focus expect programs. the these offer built we rollout We during services come the will

commercial Second, investments the make we customer new enhancements, The and bank in technology on and account customers. improving to as such onboarding experience. and remain attracting retail new retaining focused continues important

the broader channels but retain leverage and also to only attract customer to relationships. base, innovative bank's not intend these We acquire improve to ability its excellent digital

customers, committed innovative the migration. digital savings to cost while are transaction serve to of facilitating our We identifying needs through ways

continue that company. improve will we our strengthen to and manage efficiencies expenses Third,

over ensure relatively with growth be continue the we operations actions time, that we're over XXXX. We terms look for next control and We're the of flat business in to with pleased we expenses in yet execution to our report XXXX, costs but want and where expenses to expect continuously by the of ratio. in remain decisive the last we we will our taking to and XX months. streamlining are improve scaling even growth, improve tremendous to opportunities first not flat our further X our processes, efficiency quarters sizable to of At same associated quarter efficiency

will better in opportunities. we position we We markets those to of in of Texas to operate. advantage markets opportunistic in economy particularly Finally, us puts believe continue growth across a the potential Texas, taking be the strength pursue the strong

to beyond, our commitment positioned prudent safe profitable begin that lending now would our our to banking have focusing continue to model these commitment in profitable initiatives, This excellent We superior well prepared the fundamentals in like is will on ensuring growth to solid and optimistic to session. we model strategic Coast unwavering Third disciplined XXXX to it Combined I improved efficiency. Operator? are originations, quality practices XXXX. deliver customer deliver operating that credit and and We the business to believe an drive and value. business loan thrive operator and shareholder and generating remarks. sound concludes back question-and-answer turn with

Instructions] [Operator

is Our Bank. Deutsche Gizycki first from with Bernard question Von

better So pointed I a just to than dig was It into NIM. you things. John, expected. to And few wanted the

XQ. some obviously, excess points, basis, closer to NIM which better than X.XX%, [indiscernible] declined I loan was the NIM was reported a in was guidance. it your So is think X.XX%. accretion on core that only There And the

believe, was ex could this you mentioned know quarter. walk And just I that accretion. bit in us a improvement I that accretion if little less, I you just So wondering through

just you I of So through was wondering us components? walk some could if those

loan still a side, Bernie, pressures flip deposit really to cost was I it the our exist. mean continue portfolio betas unexpected. for on is funds of on are was margin. We up, we XX% But side, quarter some the of the going the floating. have Yes, just is somewhat of It -- loan our our good high. that

demand all I you if even And mean it was sensitive. noninterest-bearing this deposits up. year. quarter. saying asset down, our we've So proved true were demand been we period our are And quarterly that certainly, average in though --

higher a little was our last was all was from quarter, mix way if factor not margin the ratio spreads bit quarter. good. around. good, did last quarter, quarter. our you up And have accretion We again. the the pressures actually it mean out still but our loan-to-deposit same from the So that good expect would Certainly a were average quarter-over-quarter, I we was that last

slightly a margin to than lower So certainly we I'd guide are today.

Okay. it. Got

from for hikes for then Fed Anything the XQ, And there you slightly provide margin. XQ? or you assumptions? anything So can are on lower what assuming

Yes.

next So time market us. is have basis just we're week. next XX have modeled this. basis the don't But a XX what points this we points on going forecasting basis to going mean not I by time, in. anything XX else for points and huge effect it's

So points factored that rates basis sensitive if net another a and we we're don't in. slightly be points, up explicitly it basis go positive asset XXX even have or XX should

And Right. a the NIM little XQ maybe lower pressure deposit essentially on -- then asset more on side. is being than bit the more the

Correct.

is Our Sandler. Milsaps Brad question from Piper next with

of curious lot for than sort you what wanted quarter, think of was had you in Bart, writing growth guys still but this some But during color kind if on moving the comments. kind of You get I maybe quickly additional the your could your appetite slower guys be some would of XXXX, growth trends. really out provide parts recent of year? good kind loan in to can there, what a of loan just do just you

Yes.

for of targeting is looking think convey growth at a is kind million in picture. I year. we're what best the full give $XXX way year net maybe What you to we're loan the

to the like we're pretty for you we us be we to ROA it nice is get loan $XXX at believe so second in ROA But looking probably growth still efficiency best the that through will that lumpy before, by of year. the the still And will year. best million us the half growth, X% net told bring which and factor

So for that manageable. us, very I think is

volume an very that would ROA and strong I strong Brad? could sure side making we have more really that a more pipeline. the a but tell asset do very more manage on the We to, standpoint. wanted team a a just and we Does risk I from lending lot we you, particular mean we from are if we're return. performance help,

variable that's Yes, mix I And to in it growing you I know everybody would would to -- the where similar some stands? gap do current how you very guess, cost need a expect to versus in in to environment? is portfolio what good. fixed fund you guys pipeline a rate Yes. way have is talked of kind terms you And of it? of plan be kind the in a lower this obviously, past. the in about to funding, get think deposit bridge in But I for ROA, bring which challenge

Yes.

it'll mix community the say the quarters, for couple very banking very think I slowed would have So payoffs from builder standpoint, and robust. the we'll in next the area. and corporate few maybe the a I of has that But still down that similar. be remains finance banking

of more on come we're multipronged treasury getting we from approach. involved to about retail anything. the we're covering starting the see now, because to large enough a -- side to terms functions we're see see the you'll that so the and you'll going to working of all portfolio side, in And to grow, lot and big from We're have you're fruition. Again, see that we swings is not if side grow. some banking And probably through a the But community it. C&I on deposit the and talked specialty entire the initiatives and deposit begin starting see bank

retail they matter As contributed historical last a more growth of now. where to a great fact, their had the than percentage quarter

feel support the able the growth million to in we'll that with with very So deposit we that loan gathering. $XXX comfortable be

me, January. CECL you remind this past guys off you adopt do maybe on And Great. guys Okay. adopted but this, --

may think correct, I be I off there. but that's

And you in if correct. expect. fact, that's, that Just changes any there's curious if

January Yes, did. XXXX. We

this January Yes, yes, Yes, right. yes, month,

of -- what -- curious, maybe in Just much forward. changes if going revealed. that give guys significant kind any Do adoption you any could us color many expect on you reserve

around Just thoughts curious your that.

Yes.

So we added...

based $X us That going on that. Audrey. I don't did the changes way reserves. see and again, is was looking on on I we million big did it This -- general a And new reserves. we doing methodology. It all to methodology don't was adopted and any any provision the all forward, We see not of was X, XXXX. based it specific in at Yes, general reserves. comply, to we based needed what the new January And the

be I in from -- And with Yes. holding We're color to CECL, where came loan portfolio pleased that little reserves effect the seems the the [current] have if could an provision add came bit a own more our and very the with national headwinds, steady. it in. environment. that to But on Brad, really with portfolio. where onetime is came on environment, the very that, macro does macro of That's that's it the quality

Our next with from question Rose Michael Raymond James. is

I I Sorry thoughts hopped late, for on but this. wondering get bit just missed a kind if little general you if expenses. of

I think tell Can might obviously, flattish said of you said I have the some have heard takes? for this, you just and have of I inflation. us kind puts the you might there's year. mean, might --

think, a I growth still hiring higher guys, There's as FDIC company. costs. are You

You have there's the investment incremental there. don't if fintech know partnerships, any I

expenses for looking just puts of into through and to it then and move as the relates the the So year. as the quarter first we takes some

Sure.

this increased year you first Bart said expect as thought first Michael, quarter, mean the growing fast. company, had last increased insurance, are that. expenses year. But legal, the public we would wouldn't flat a over back is what So he not that be think if for we necessarily I I for year,

us. behind do we assessment regulatory and being team squeezing the mean I we is But today headwinds company, better that not a spending inflation public all a related the are to can, those So have money until management much most everyday higher, lot we committed we're our have a everywhere number. can of were things as of to get and to to with. just we profitability as we deal

next the are quarter same a lot hopefully, and messaging we flat revenues expect that and going grow to the we're that really and is we this So that's than grow. to that continue going of think going continue. faster to X, expenses to second to had year we're be we quarter relatively all last And expenses,

that that on offer bigger efficient. could few We coming of thoughts I on more that seen the gotten year. haven't that. of have brought ways still team the benefit but If full that over banks some be happen from can management a even are implementing, We're the more much a we're we that will technology

we're up still also go and So Labor efficient. and very fighting judicious we've Everything operations our John and expensive. inflation. be looking as some, That's think them reconfiguring to them reengineering is both says, difficult. but adding I at to seems resources very been with more

grow So have the to compared platform the pace minimum a I that and be do revenue. that to of to believe pace the do we continue of expenses strong should the

That's helpful. appreciate color context I the there. and

Is And kind degradation a some more the I talked into mix? here? A Just that XX-ish XX% around outflows, you expect like of the takes. it's guys you some mix may from It be quarters percent I kind here perspective, change. had things of would of stabilize mix to looks DDA. Or the stabilized loan-to-deposit mean, kind moving puts quarter, about And and to deposits. you last a is there ago, couple context? back there's of big some ratio. know still

we just if were optimistic few loans most to if over. could deposits next our will peers side, working There hard But stretch. bring have it's be -- The that about see think a better. don't start. a any last over And a growth we on things say, about improve, even over sooner worse much today. good is by to of than would our it I Michael, think, pretty of everybody it quarters, our deposit you couple demand longer deposits, is lot number year, working that easier time I if a anything, on lot head bring the way, getting lead break on Yes. deposits. I I'm much And a and deposits the I think

I Yes. that, kind optimistic. I'm pretty echo that of

lot customers, of are to relationship board. nice We have coming where desirable get a kind very technology of areas they some we're overlap giving that on

large core Some noninterest-bearing with other. nothing some way good accounts But if very regardless or accounts. fairly one

do and our So I it few build, there we're -- to of coming continues deposit to we grow we're us that are grow seeing in. as starting that noninterest-bearing. -- getting can. as change deposits to I'm pipelines a to core some as That will to is that see of want help here continue course, think mix. we fast nice that wins But goal our And and

and that I improvements raise to one hardest do the it's And to believe for room we're probably improvement, we so those start says, deposits. have times as John going of fact the seeing despite

expenses And but know maybe me. on kind And finally there. growth I the for like just Helpful. is ask updates will pace environment. slower a any target loan of just there. color it's that's a flat wanted but quarter, and this detractor feel of out Obviously, somewhat challenging a sort obviously I updated then too. to every help, ROA the I get of any of thoughts

So I have. you any thoughts wanted for look updated just to guys

the there, I X X% we're we we're need a basis half ROA to mean targeting get do in quarter. year. of I the second And that. to track points still X on And to think Yes. to that improve

good it Yes. well. I about as feel

little second where believe it's funds, approach improvement as we a X.X cost revenue expenses we in -- that, then again multiple-pronged growth think, us. keeping years think is think ago I half this achievable. very for for It's more us, and year, I it's of I some a said of low.

Olney Inc. from is with question Matt [Operator Instructions] Our next Stephens

follow-up this quarter. you little questions a preferred few a was John, mentioned elevated I think dividend the here. modeling Just bit

be quarterly the what Just remind here? deferred normal from will dividend me

Yes.

a I remember, it's think $X,XXX,XXX I right? quarter, if

much balances it right? like these Is in paid And end it the FHLB, on then any the that you how on had looking may of at And XXXX? looks have the in more fourth off. to but Okay. like color FHLB average period, looks in utilize you you plan advances quarter, some

we At had the We'll use need deposit particularly good the December. it we it. didn't. year, We as end in growth, of

paid just we loan either on depends very for week short term, going or borrowings. of a are lumpiness our the all Any overnight or our growth. So It of off borrowings to our be maybe X.

can As managing last over are knew grow were you it they're imagine, going come exactly we the Deposits We to to harder fast. loans predict in. when to year. going

well. we to to So on time, the from depends home this we had is mean borrow too, be then loan from and but deposits timing loan else borrowings out a growth, mean, bank growth -- loan is the year, too. I time So sometimes anything the have than little home could are It playing as to of can how fund loan that expensive the today the some see there. bank more lumpy right? lumpy just I

So it's choice. definitely our last

loan the color yields the newer some Okay. the originations on of And on side? any on

Yes.

yield and booked the million month we about was of fees. before [indiscernible] in December, a loans $XXX in that So new with loan

we're So into averaging fees, after the well Xs. certainly

here? was And you accretion what's what but then any missed the this, kind have fourth did of remaining the expectations may Or I disclose amount of have quarter? in from

marked actually It less maybe and I up we than it X was $X,XXX. think X, even

and recognized of relatively recognize year. quarter of most the would be we the I much $XXX,XXX, from we have the And had to fourth I left immaterial and will number forward. spread what accretion over So it. net was swing We've to not do going a of period think, third a expect

So not there's left much just here.

some credits. out there. some the of borrowers to Okay. to what slow I Audrey loan what Kind What thinking now? get some on And more most and Feds focused more trying kind right airtime the of now you economy here you're want on the are with put or on pressure of categories about markets

-- that, a we're well, even we're with state. So great in fortunately,

things good one C&I focusing we're still So here. not concerned really on so growth, really particular are looking still diversified well still area. We're with

going Bart, bit. still, don't asset a want looking did John think little builder an is I to said, us. But slow anything add growth probably are you the good things I for quality there? to as know, from perspective,

has try what mean, look gone protection. add And what through to recession calls Matt, -- ahead guess an of the I'd potential underwriting customers she's as I have in lenders of with And entire it. well. of of to Yes. to our top is we to it what's monitoring a and process layers any tend kind I some on recession that Audrey where essentially, she that answer additional where the is our impact

and maybe think been we've questions more I underwriting So in certainly few with calculations have frequently in added a side, our more few contact customers they the she's and a portfolio to do good detailed sure our in on But to really make that thus shape. is that more that even shape. far, doing it, diligence we're we're in good due enhanced that

We're Yes. in process the process of that now. through going

so recession this low and and portfolios a loans. anything to high, kind the protection and risk our additional to of protracted speak, point, getting seeing of updated customers, some projections, recession contacting But concerning. them, medium looking grading testing some stress the said, Bart at greatly As that's not doing for

classified? Any into or mention the that saw during you fourth special quarter migrations

noticed loans actually the largest really probably It's X%. $X.X million. low. an classifieds an SBA for our remain in with nonaccrual, NPAs below that $XXX,XXX And was the we That of had on loans. No, quarter we increase actually you placed X

were average got the a $XXX,XXX other it's then XX% balance. And So X guarantee.

So individual there, not loans. very, granular very any big

from next question with Piper Millsap Brad Sandler. is Our

quarter? or dividend. was that present preferred curious, point each is that you inclusive excluding exclusive that the the dividend release, Just preferred about, you're clarity -- of have I on target. that the talking the ROA think in ROA guys noticed wanted X% to I about you the of should we

was I Yes, thinking it of exclusive.

the dividend. X% ROA before

Okay. sense. Makes

I Okay. the I sure page. just was on to want same make

Sure.

Caraway Thank the I'd closing back to no at further any Mr. questions for you. like turn this There to time. floor are over comments.

for Paul. on us quarter. again you, you support joining speaking forward to look the call for your you Coast all continued Thank Third next and Thank of to and we Bancshares,

weekend. a You good all have

This concludes today's conference.

Thank your at lines your this disconnect time. may participation. you for You