Third Coast Bancshares (TCBX) 27 Jul 232023 Q2 Earnings call transcript

Greetings, and welcome to the Third Coast Bancshares’ Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalie Hairston, Senior Vice President, Dennard Lascar, Investor Relations for Third Coast Bancshares. Thank you.

You may begin.

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

available call, on ir.tcbssb.com. few a replay the in on and a of website at today’s Investors will XXXX, There will also be telephonic a replay earnings will yesterday’s these section August First, it be available There more be to items. release. how included of replay housekeeping X, and until by webcast our was features information access

that that July transcript no longer time-sensitive as reported information the call this be of accurate note as XX, speaks of or therefore, today, and listing of any replay only advised information Please XXXX, time reading. may on are you

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

However, contingencies by actual achievements or management. performance statements from could in differ and materially various results, to those made cause expressed risks, uncertainties the

non-GAAP reader was measures. better uncertainties report the to encouraged Form XX-K financial The comments XXXX, on contingencies. and also that The read certain understand will or filed listener include XX, is March risks, on annual to those today made

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

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

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

assets peer XX faster strong in our Coast’s yesterday’s balance second same release, from maintain results quality, the quarter XXXX. demonstrate basis pressures, to points, and quarter nonperforming prior second Despite XX improving the in reported the points credit margins. sheet to ability basis than macro Third were total As of down as and growth press quarter assets

more year. $X.XX and quarter of billion, same quarter billion, XX% than year period which sequentially over prior Total first and grew billion, X.X% over was ago held quarter. reached for X.X% and XX.X% $X.XX assets which more than the higher the the Deposits period. the reached XX.X% XXXX to $X.XX last than prior a year was investment X.X% more Loans

interest net points quarter X.XX%. to X from points strong improved year prior basis Finally, margin the and from basis a X last

well pleased is in customers are and book and the a Coast’s alike. positive value strong the positioned for current market Third financial We for tangible increase environment. footing sign This also investors shows $XX.XX, achievement to with

reinforces our Third Coast’s ourselves and and The to remains slightly with company X.XX%. common position established By a institution. position have satisfaction of tangible strong tangible further increasing customer the the excellent quality confidence, capital we strong assets financial operational credit leadership equity prioritizing industry. dependable in as to

for over financial With a turn review. to it John that, John? I’ll more detailed

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

profitability metrics today, sheet some around provide balance second So color I’ll select quarter. additional and the from

assets new a over $XXX mentioned, up total increased million reached second billion, $X.XX record sequentially. or X.X% million loans and the first were the company. for quarter Bart As Deposits quarter $XX

to basis the points improvement margin year-over-year For X X.XX%. quarter-over-quarter due our loan increased improved points interest and net same to was X primarily period, This yields. basis

net slight interest spreads, lower drag the slightly being We business new resulting on with remain a asset-sensitive at margin. added in

realizing expense. a unwound to an over growth is expected we This interest our income. in just X pay-fix On as accreted $X of increases resulting pressures to Going net offset gain May interest law, over years XX, be to forward, loan gain margin $XXX million. offset will million

interest-bearing Based basis and previous equivalent average end, almost totaled the is we or on points. basis $X points. this with unwind, XX Combined gained approximately quarter’s billion offset have At to uninsured XX%. XX deposits, million equivalent quarter $X our our deposits X to

lines billion, XXXX first Our totaled are compared the available for the borrowing $XX ratio resulting million approximately quarter Non-interest quarter coverage XXXX. in a X.X:X. to of for $XX.X million expense $X.X of of second

slight and inflation As in from branches, new anticipated, increases in expense. non-interest increases have employees new resulted

XXXX, think the will expense I range million. be for of the non-interest remainder $XX in of

second compared on first shareholders quarter, $X.X were average the in on second for of equity and for totaled of in $X.XX a first million common This $X.X $X.XX basis earnings Net points million quarter. to the Diluted share decrease the resulted slight quarter returns performance returns quarter common income X%. to in assets XX average available of compared the X.XX%. to per

review. Additionally, our ROA approximately pretax That completes X.XX%. pre-provision the financial was

quality pass credit I’ll call Audrey to point, review. for this at And the our

first of and second million John, basis $X.X you, remains strong. recorded performance loans as to CECL points basis basis X, of beginning morning, of compared period. adopted and the loans We of quarter the which $X.X provision $X.X good XX low to XXXX points the new loan XXXX. the for methodology was the decreased quarter first million points a the points during again from the Credit prior methodology, current for quarter loss XX second quarters assets basis under second down XX for for and XXXX, XXXX. to January of basis at quarter XX year the from we XXXX, million of Thank was second and the held for basis for quarter Non-performing investment points, XX Non-performing assets total everyone. X

ACL same ACL XX the second loans for increased XXXX, basis from million. from of our million was to quarter last During The points total year. the $XX.X period X.XX% up $XX.X to

June net the and ended XXXX, During $XXX,XXX recorded XXXX respectively. XX, X months of company and the recoveries $XX,XXX,

back call the will I Bart. to turn Bart? that, With

Thanks, Audrey.

Coast executing on in about progress the As the the of year, third Third and internal vigilant following the objectives. we through quarter external remains half second

First, a liquidity. conservative fashion, continuing sheet to managing the balance enhance fund deposits to loan and in growing growth

rates to net advantage take towards very in face margin. of costs has higher rising deposit able been stabilize these solid. of performance interest our have objectives We like We been the feel to the

economic confidence fluctuating amid Second, current we market our the climate. continue growth conditions, ability optimistic our credit pursuing and Despite strong with position growth to our strategy. to be invest given in

asset coming quality us position cycles. the endure Our and through strong perform positions capital and market solid to

are Third, and in the with to loans expense the will Direct allocations improving asset million and $XXX,XXX discipline Auto our is capital Management regard, will assets, around return. reallocated be $XX allocation. higher be plus earning division. our tasked balance growth sheet In that efficient expense we Finance exiting to constantly maximize efficiency. managing savings

and to innovation. is ahead strategically important to strong competition. our By maintaining ways commitment stay our culture service finding credit innovative our and to build Fourth, quality of capabilities product and out

we finally, importance service the And understand and customer satisfaction. of

to side. listening well by in continuing and to we listen the believe success to our and maintain we customer provide we positioned staying growth satisfaction. diversified expectations and can to arise and attracting, Our for through to core to even Overall, we our to any may lending. connecting beliefs softening base, By a banking their loyal emerge continue challenges and stronger our retaining focused in other been customers, in needs, commitment with navigate shareholders has the are relationship on any testament face on customers our can that the value our

I’d This the our now it question-and-answer concludes turn remarks, Operator? begin and operator to over session. to back prepared like to the

line of the from comes question with first proceed Please Sandler. Graham Our Instructions] question. [Operator with Piper Dick your

Good Hey, everyone. morning.

morning. Good

on to of growth wanted just So the side things. I start loan

talked a It like little I think quarter, loan over bit $XXX guys are doing last $XXX about of million ahead last the we quarters. of about million this you growth had two year. seems schedule to

this you’re updates Just for that all’s wanted confident I year own color in at still what And mentioned around side. to on know get loan your you your any looking pretty strategy. you’re the growth on

to hear? there would to Thank guidance interesting that be any upside if So you. initial is

Graham, that. you, Thank appreciate Yes. I

up. because to You actually up did want I me teed bring for that that

end of the $XXX is in the probably looking million for the we’re $XXX growth the what net So to of year million from now rest to year.

of we’re that we’re selective in, terms accurate we’re and side. loan where that’s the the I very on in with probably environment think more being just seeing just

a seeing our meets great what of customers of criteria. us, selective very are being coming lot We also to but we’re

year. I think in probably you So $XXX million million range that see the the between is to will can I the $XXX of best end give we now and that number

Graham just to to And that. add Yes.

disciplined is but out on couple outstrip be deposit we faster last be been mentioned quarter deposits by limited limit of that a months want growth strong, we going so little we’re growth, there the even don’t obviously and that what year. we rest of can our will raise weren’t think think Last that somewhat if we have deposit the more rates growth growing good has could the of but been we I of growth business in mindful lots to to we for rate, and pretty bit loan credit and there.

That’s Okay. a perfect segue.

have in I sounds pipeline pretty guys mean Is guess, to to rest to you pretty match I of expect for year, the fair it assume? deposit you the you much guess. growth So the net that like growth I answered but that,

Correct.

impact wanted swap decision to to a Okay. I margin. the Great. and – then have the you this sell deposit just going that’s that to for and guys And from say I amortization points swap the kind have? on million there from Did of of impact follow-up – $X total XX forward lower $XX in going gain you then of million is $X the costs basis that from million the that on

Correct.

second not reflected is worse would we the we quarter, that be is that that effect. that’s those second in in gains, the we where If much included net did off. that’s swap are. not to I have mean, additionally but the quarter, fully Although

month in had a quarter, month where $XXX,XXX second were the of the paid month. we will We the for $XX,XXX particular for swap. forward, So were we And trade for we have about paid X going only that April. full

income it little we quarter, a baked was but not in. rest the accretion, for most So but – had the of excess the of exactly swap

Okay. the margin. for I the last guess, me, appreciate just direction I of And overall it. thing then be on the would

amount said quarter I pressure I the be it are your little basis quarter over was couple pressure an with here of know hit the Do have going you you this like. expecting? guys on you sounds points. of like the nail couple you guess, quarters, last expect guidance a to more it a of head next saying You kind of up

any year, is that can provide would the in in you you’re of helpful? pressure color half there back on of if expecting So terms the what be

fact easier not any us. today mean is I up it on making certainly went market the us. Yes, rates the helps that

I down, are protection We we the coming slightly are start putting on going for to going that swap rates income is mean, new be that deals at We that lower books sensitive. spreads. mentioned the great asset still Should rates have we’re down. had

quarter, the between for think go we averaged I X.XX% so about somewhere So and X%. to that X.X%, up should

do guess that spread is best net income over So quarter. margin the that of that been funds. based a this actually the is million cost last maybe probably look has on this net us basis our best of our you I is will interest this quarter a up But quarter. for so balance sheet know, cycle about I every But was back lower offset don’t And $X interest will this come kind kind of up marginal guess. think if for year, that the X versus growth down, income points max

I the $XX literally the up $X be growth million, probably $XX over in will million. We any next think $XX million million, but $XX do decline we’ve this quarter, won’t gone last So margin. four, offset million,

it. appreciate I John. helpful. It’s Thanks, very

you. Thank

comes Our the proceed Deutsche from with Pleas Bernard of Gizycki your Von next question Bank. question. with line

morning, guys. good Hi, Yes.

fees You derivative driven by the you in the and have any a the year? second expectations fees. in Can to nice just pickup sequential seeing talk and activity you’re increase of half

Yes.

in in point that that but from These we are swap are appeal wouldn’t them. customers, customer I are occasional cycle at would still going rates customer you So do they want up, expect to separate did. the we derivatives necessarily totally those the balance highs and have can rates, we about be just but any going likely decides profitable worry to the sheet the Bernie think much and close do have forward some those very we that [indiscernible]. as that there wouldn’t that, are because transactions this fees when

We’re happy them we can. help to where

enhanced Mayfair Got to you it. accounts. FDIC separately, then That’s $XX insurance just with guys helpful. recent you I provide And had to maybe on think million partnering up press noted a release, cash

I’m you uninsured XX% I and at total of incurred clients which there enhanced costs by of insurance? this sort two deposits. are $XXX about mostly providing on you’re comments updates is in for of Or was service the So to this curious, you? get had to the any believe the sharing X/XX just million some deposits, between clients

Yes.

So with partnering first pleased very some of all, of I technology doing mean, on that we’re we’re side. the the

very services We’re few banks do. going to some that provide can

some So they for and behind that. some and like partnership, we’ve great the we’re buy being able us Mayfair services others to certain provide customers are and great is market, a able the Mayfair of got to a provide that technology example where joining

couple continue to quarters that the expect prosper pretty even dramatically. through next to to of grow and We relationship grow over

through unique we to insurance few that’s large John? very us the accounts there. popular develop couple in are for insurance, product have being and different far that continue that, As and the offer a from as been last products months FDIC a order of some offer able to in to

Yes. I [indiscernible] quarter, Bernie, of new our a this think they last had out to customers, sent we similar one. as release as one mentioned

have customers Third have about sent now two we partnering that releases with So Coast. out

we for services, can these thing somewhat over and a that is their and I some institution, that card There the And significant others both these of are year, over the depository fin-tech rich, a we’ve of our with are that of all mean There deposits. lending. relationships. companies of kind lot difference deposits none. partnering with no is help we been these make those, So to talking relationships deposit are virtually things, optimistic long-term. about last the we’re still cash not

Okay. questions. Great, thanks for my taking

you. Thank

the of Please from your with comes Stephens question Ghent Inc. line with question. next Jordan Our proceed

Hey, good morning, everyone.

Good morning.

to few wanted on just questions a credit. I ask

your you exposure. First, could if CRE/office give us

classified don’t an if the special us And saw give that I just know mentioned, credit from could and be you I but mention would any during then it great. If update, also, migration quarter?

morning. Good Sure.

non-owner any occupied loan doing any non-owner Our occupied Owner is in office, classified. amount, quarter. medical new on Dollar office it’s the We – X.X% it’s But that’s about it owner Texas of occupied in last is X.X% – we we office. total loans. X% another loans. don’t of million office don’t then have $X.X have is our exception in the all – as up we about have both $X.X one same office, that’s total office markets. have of are really occupied with total And exposure and loan. it’s been been but of we in loans was And well million and haven’t the holding for us, of good

Yes.

pleased this really marketplace. position in are we right are for the We in the that change

little exposure smaller of very have and We is most office sight. ours

our office office large large particularly participations in part any miniscule have don’t we a so nor So, of non-owner office our occupied any deals, portfolio. just is

The about XX%. non-owner million, the is average average loan on balance is LTV and $X.X occupied the

truthfully, is have we very again, assets, special in handling to seeing portfolio been right what the regard is relatively the are now. market market with our then we And well stable. And

pretty – our see pretty stable, and e conditions, portfolio are pleased market how are very with performed. We been the well has it’s

that. Okay. you Perfect. maybe that follow-up through? is swap, for item Thank what where one line – then that And just is flowing on that answering

expense on release, the income deposit interest going be to So, looking at if statement press on it’s you the are accounts.

Thank Okay. you. Perfect.

tad interest will under for be The $XXX,XXX running next a X years, and credit years. to X the just that and expense it’s roughly a month,

is lined? straight that And

Yes, it is.

in I Perfect. the will queue. my hop questions. Thanks Okay. taking back for

Thank you.

our with Michael next your question. Please comes James. with of question from Thank And Rose you. proceed line the Raymond

Thanks guys. for morning my questions. Good taking Hi.

I said outlook, to you think wanted the start flattish. Just on expense

past to you You initiatives have rate here? of or other highlighted that going Thanks are in you And guys. press run here, the of quarters. be opportunistic over to added to initiatives if going is offsets release, some hiring to guys the kind the to place people in those ongoing flattish couple are that guys that are going Are are of what trying signal so, there from hiring? keep kind slow

than have they this quarters little We higher so little a rather mean this expenses just have are I X.X%. our But go year. was just a of were quarter were expenses year, up if this an back a full period were mean bit certainly, actually we had a a than think stuff. time several expenses certainly people And that if quarter, expecting. exact I only catch-up. Michael, with I I hard longer science to down. we over about of Yes. But this hired it’s one

the were in last Loans expenses year We than up less over are operations. X%. have hired XX% people and compliance and up

we but hired couple have opened compliance a pretty people, think there done we on and side. particularly have new a – of branches that, we have year, managing good So, the job this we

to income So, guesstimate kind we where was over and the We of be relationship. it’s interest are expenses. to expenses be, last was up where net growing faster can income sort the interest than net less same. of going of we XX%, are think storyline certainly grow in is is goal expense going $XX still that up our non-interest the was Certainly plus true but million that X%. than our year best That’s

making on are area a watching business hard in line ways we the path of certainly numbers those one that for are we we hit decisions expenses. every finance and the of in sure is like from auto internally which expect. that of make decision the to line made we And And every to returns have right exiting again, business

ways P&L going to to our do we isn’t make So, remain make we to decisions sure make to this continue our afraid to are And that. find we competitive. scour to sure team certainly and

my you the the Can finance question. to leads actually or risk of talk Bart, actually evaluate Yes. that you guys just was auto went through next process that the John kind about reward.

one are that of out back the to business. get or You first scale not

So, at yours the reducing or process, other there certainly was? you decision-making areas looking any more getting understand either are wanted resources that Thanks. or divisions or see what but to out allocating to? then And just is of conversely maybe

Yes.

So, every for to the reporting get a of shareholders. internally stack we equity. best down because what we view on to return trying to are are return holistic look the for that, on or And we performers point business ranking it. monitoring assets allocation of kind constantly at of line of What’s

think some accounting have gone And good have everything. different perspectives we obviously, are for I business internal So, put we as really lines rates different that that’s watching on up, of us.

we as so there would have grown that obvious our to are more it equity. shareholder allocate sheet ways to balance just become enhance And

look And a all obvious is ways to way at Everything earning there so higher are management for whenever have we looking the I businesses it, to that performance. for look of for and even enhance team you think leaders lines loans. always came down us to our really at, it an a the great assets we reallocate game, numbers of

right the the of sort businesses of obvious are that the growing. with else internal we But sharpening to on kind other our was businesses. line refine Everything answer. of pleased now, is are think pencils So pretty other that I we just working are

distressed those be securities, were sellers bank and quarter. as most quarter can we along at we lot over of there the same and over Michael, where looking lines, debt efficient, last at we sub were were of looking the a balance investment And last sheet the Yes.

not in we quarter So, average where debt, roughly so – million of sub $XX the we much the ended was quarter. for did the buy bank

$XX We million about are worried now.

trying well-known about just mostly these new good yields small for it opportunity, should averaged the had good but big, it like just were But to above money and and they we get million quarter. out stuff banks, we that a were seemed be XX%, sellers think I stress $XX of that. where pieces, the buying was to

generate like putting think sheet, relatively actually that fee from year. few kind It you Is could together, so you balance sense. some be that seems of banks one for this momentum actually here? just Thanks. kind everything some the me, finally just just point? of next side. positive is at I on expectation the And leverage that NII of flattish have Makes operating then positive guys goal And could the – expenses, growth the your

overnight, to I a Definitely. probably than We you right are operating that the will lot have to you it’s it our rest the ourselves think over of to structure It’s next I balance mean think be couple see certainly been definitely benefits a of And few lot in and next leverage. the more will just you on believe for into that of sheet said a and quarters. a nimble the on we able on improve but throughout we not so. this could. year, of see putting position I efficiency years fairer the and now. happen year I be have working planning

listening Yes, certainly especially couple our if calls, any it we deposits know than of they quarters, the we out the market But can is have of a there I deposit more peers continue had last tough the now. their in easier. hasn’t maybe do. confidence I little way right some to growing gotten

been up. Ours has

they have course most Even were end a our of on have a they great called group people We came that of lot they demand, our And a quarter I finance really actually opportunities. demand couple were of builder and had we we places, hard a where cash saw specialty – group lot out that lot stay great – and their the quarters. we of think finance had down of of the that up, our if there. there, at if month done customers all deposits last and

it. Appreciate questions. my all taking for Thanks Okay.

Michael. you, Thank

the with question KBW. next Please [indiscernible] of with your Instructions] proceed question. [Operator comes line Our from

Hey. everyone. morning Good

morning. Good Welcome. Hey.

you. Thank

efficient? and work on sheet first kind no the it while quarter, auto on a of is in making little finance which You commitment that quarter, as regards you your and frame the down for divest Thanks. – all expenses. target of this hit more Can a of the with the balance focused now surprise X% kind division that in ROA to you kind X% all

Yes.

quarter we ROA So, this get to year we the by would about ago, that projecting of third a were a year. X%

we we did sooner much So, it expected. than

So, ourselves schedule. of ahead we consider

If year-to-date, points our ahead. to other mean quite you or basis numbers, our anything look And whatever X.XX% a isn’t high X% satisfied we minimum. than a bare number so be And just is, at are is at if goal. are that the I performing bit the means again, certainly year-to-date we X% XX goal. X.XX% being not with or

it. Got That’s all my questions. Thank you.

Thank you.

Thank question-and-answer you. session. final will turn any Mr. for This I our Caraway comments. back concludes to the floor

you, seeing called everybody and Third you Coast Thank to Melissa. We look thank support you next Bancshares. participated. want to and of I that all. Thank We in you, your quarter. appreciate you for forward thank

concludes you. conference call. Thank This today’s

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