TCBX - Earnings call 4 2023 | Third Coast Bancshares, Inc.

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Operator

Greetings, and welcome to the Third Coast Bank Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalie Hairston, Investor Relations. Thank you.

You may begin.

Natalie Hairston

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

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

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

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

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

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

Bart Caraway

everyone. for you morning, us and Natalie, joining today. good Thanks, Thank

return billion bank, wrap IPO journey we November aware In going $X we X.XX%. launched as into to X on XXXX, a grow our we assets quarter, our we on our still since of had the reflected years a up fourth just with As public ago. that overhead

However, growth assets have XXX%, rate we that X.XX%. today, doubled on return $X.X an over impressive assets, and we're proud billion we our to at in almost report of over

and success the our risk branch. to include X and quick focus delivery and be daily Our efficiencies origination to strategic foundation credit shareholder personal we for corporate and improving a banking, could for an digitally both future for and including introduced years our maintaining for reinforcing several to by past management and technologies over our value growth. attributed in credit new culture. In scalable integrated software work issue platform priorities, opening on and efficient XXXX, account These solution streamline community lay and process accounts, package flexible and for loans efficiently the business account strong an

that took allowed streamline of improve expenses in costs, other division. $XX in now assets also our Finance bottom million per resulting to This decisive down Auto in reduction so our winding have overhead We proactive, and our we X% and the us actions reduce workforce and our line, operations to a employee. operating approximately

diversification Our and to growth C&I this CRE. of We outperform XXXX loan well-balanced talent our focusing mix by team. loan peers, our with continued a in on achieved adding to and credit

financial their success. With and customers I'll and more for long-term the best the achieving we're review. bankers working we believe past a shareholder the year, best Looking immensely to the of best that hard wholeheartedly work. over the have call that, over We turn value proud markets, John back our team John? in detailed driving with

John McWhorter

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

to of growth $X.X was a interest $X.XX. earnings XX.X% So and per down the balance the due profitability fourth income at quarter, X% are significantly, $XX.X better on million fourth million, loan quarterly early reported net in fourth from million of XX% in diluted on the leverage. Investment metrics resulting quarter. We purchased record immaterial were was XX% sheet expenses operating today, in select annualized million Net the million, $XX the income fourth around share $X.X was were a record color basis, year, I'll the strong or growth. Noninterest quarter only provide peer up equity for fourth some return additional an but in than resulting relatively for and in quarter $XXX year, XX.X% quarter. or but and securities

of the $XXX million. purchases. The gain which we million. of This ratio growth good, resulted current new loan in of material in a yield notional quarter of XX margin, accumulated entered was growth double points. In our XX.X%, mid-December, bank $XXX,XXX the loan-to-deposit for also resulted interest basis have on a and a X-year portfolio timing we these income. Deposit swap the X.XX%, $XXX other but in Our on $XX with amount and was gains a million, declined was a net have comprehensive into

our will margin the We ]. event about back received in to funds review. this This pay protection X.XX% today floating, is which the financial review. call And quality will at rates point, are expectations. That I'll that and credit Audrey the current at less fixed give Fed than completes down, for [ XXX turn market us good

Audrey Duncan

everyone. morning, and good John, you, Thank

quarter to loan of the XXXX. Net charge-off C&I one to focused on $X.X the loan the guarantee than XX% of and has that XX assets of resilient remains investors climate, is the portfolio charge-offs proven underwriting, to on loan our presented due Third mitigate points. more we XXXX, the current were Coast are strong. This and credit. total revolving borrower result segment-specific for in conservative books. Given with monitoring SBA million understand primarily risks. Nonperforming originated line same be credit extensive line difficulties the ongoing economic to to basis in of the the a by remained The at mix ever assets quality. Despite diversity The

the past high X.X% ACL medical the mix points portfolio B, and office accounts within all loan with for loans construction, footprint. Nonowner-occupied for X.X% is consists X%. and at remained properties have loans neighborhood in losses loans, occupied totaled within located estate, of remains total charge-offs centers of X% totaled commercial are Additionally, for years. Provisions balanced, and loans, credit Texas another the less loans owner-occupied for XX% nonowner-occupied while end Texas footprint. Multifamily new occupied the and and our million X.XX% X provisioning development at is XX%. of X.X%, of represents Class some to related XX%, real industrial CRE with quarter Hospitality $X.X the total than located and represents restaurants land and medical range. The low total at X of at fourth CRE of generally and space, accounting owner-occupied and of our another XX% of basis with retail owner-occupied consists portfolio, for for occupied X% office loan represents represent the ] [ X.X%. owner non-owner portfolio of total X.X% at and office office and are accounting loans The commitments. The office Non-owner portfolio loans. The C primarily well

of Management pass there to was the conducted the loans reviewed to turn and CRE, loans. construction our downgrade of annual that, one from fourth They Out development call quarter Bart? Asset loan only recommended C&I in XXXX, During reviewed, XX% launch. With concentration with total and a the I'll Gateway loan back portfolio, review. XXX Bart.

Bart Caraway

Thanks, Audrey.

execute Looking is of to its in and plan, years. the on Third ability past XXXX, ahead building to X Coast while confident strategic refine our success the

quality the while increase excellence continuously prioritize Our and risk goals long-term maintaining customers, primary of our execution our for credit have management success this serve to several year: efficiencies, coming achieve our first, shareholders is through to is We and we paramount. year. To to identified objective ensure goals, our quality key key the of commitment our in business. pristine maintaining communities priorities credit the

and team diligently to experienced work Our is loan approved. underwriters, is officers each before ensure that evaluated credit thoroughly it of bankers

any We to regularly measures our mitigate proactive loan to take risk also and identify potential them. review portfolio

reputation customers credit helped build on focus strong has Our a our and quality among investors. us

position. capital strong our Second,

not XXX% our times Having future uncertainty. that, economic is will also asset that going expect in is vital but growth support of ensuring about growth, a maintaining earnings position just to We said robust stability capital of forward. supporting

mitigate we their are position, We risk that us identify, and provide enables measure capital impact to to framework investment. could that our our investors have risk management return implemented able with a on prioritizing By strong our position. capital a

Third, our commitment to relationship banking.

and providing aim everything to Our place means those accounts from of to become focus that offering clients' understanding that with premium institution, checking financial relationship and them our needs range a financial on loans options. clients' meet We on primary them savings needs. investment we products our the a banking

which, results, relationships our in our strengthening will that with strategies deposit confident clients. to are continue lead will positive yield to our turn, We

expenses. unnecessary balancing Finally, minimizing future with growth

We mindful to growth, while of in investing are committed our being expenses.

day. successes our we products our Third and building identifying the services. In that our spending. generate past value improving and every team of don't and long-term We our that for Our on will investments areas or while cost-saving to reviewing compromise measures is to customers, processes seeking Coast company our where can dedicated out also quality prioritize our optimize is closing, dedicated

Our is XXXX customers, in employees, relevant our beyond. ultimate and value to goal communities remain to shareholders add and and

the remarks. come believe any confident us now will that Operator? session. We opportunities and our to our concludes to question-and-answer turn are would help to operator call back I the begin over prepared navigate like it or strategy in challenges way. This our the

Operator

with question first of the comes Gailey Our KBW. line from Brady Instructions] [Operator

Brady Gailey

to you about about deposit guys the in I know in roughly 'XX last side, on $XXX and million growth on flip Maybe million. as are quarter, update we for well? growth growth an 'XX just loan thinking how expectations loan talked of $XXX

Bart Caraway

consistently economy the $XXX and But qualifier pipeline at. some Yes, what as end well may of looking demand. $XXX of timing. put we million does still the side, what as to our unchanged see on the million, relatively we're Obviously, affect I still it

million. we're remain $XXX our $XXX so with estimate going of to to million And

Brady Gailey

And think it's do you positive [ ]?

Bart Caraway

Yes.

on loan we've growth, deposit last So rolling side, better deposit on and growth. the deposit actually all feeling about strategies out we're been growth, year the matching

remix is growth cost to working but goal tendencies of signs some funds. skill for or So our loan of we're portfolio And of not actually. better deposit some the those seeing just initiatives those

John McWhorter

I It's We of quarter lot be forecast say fourth for that quarter going has initiatives growth the double us, the in that a started has lot the even people pay was expired, of we some mean expecting deposits deposit year forward. But Yes, certainly earlier for been off, very will, that of quarter harder. the -- weren't would probably continue fourth though growth. promising. the of that to that been deposit forecasting deposits. I had the year It's were easiest you the we the deposits loan hard a most have from that. if even coming still produce where the out prices, giving we to campaign in to

Brady Gailey

expense but we then in investing right. expense How All mindful side of And on optimize of think the same time, in to expense should the creep the the at and the heard for one growth, looking expenses being is priorities ways about 'XX? side, expense base. on I

John McWhorter

Yes.

last noninterest in fourth the we'll in of first to we're in guided growth, expense, while fully because to So to of best December XX% kind is expense think our net you of was say would that talking the done number. XX% that pretty received lot still it. of probably in with had realized Most will, XX% more we month noninterest net quarter, going quarter. Kind quarter, still fourth was late quarter in and interest so that of for to income, a about we increases we're to our X% staff risk see range quarter, We that grow XX% the X% comfortable that and if immediately. I that expenses the income had interest it was range. the the and the in third salary

we expect leverage. that positive still operating So

Brady Gailey

hear. That's great to

Operator

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

Bernard Von Gizycki

in I on wanted Just dig expenses, a little there to bit.

how about regulatory legal big year-end in You're that we Was sequential those can trend anything, saw that cleanup? slightly how that above XQ? and wondering, mostly a could uptick. the a think on but expenses, the like just guide, and Just

John McWhorter

of to was Yes. combined most line don't at in improvement that the kind Those the, we those in two those won't two range one-off items are some know, should expect specific actually items see recurring. that expenses first in the the quarter. And that fourth I not We $XXX,XXX that the have unusual did going probably $XXX,XXX be I to excess expense forward, things. least quarter line

Bernard Von Gizycki

out. the sequentially maybe due to fee derivative that guys then And income Perfect. on Okay. income there you fee the side, called nice was in part lift

activity you kind for starts year-end to like, to you as that the of or pertains much seasonality how color XQ, and there? Any say, was would add purposes, anything of can Just seeing some just it year sort or that better you're continue? expect at

John McWhorter

ago, going up. Yes. have just everyone I that mean, would be much a derivative income we I for because not rates year would thought But XXXX, thought we did. that

quarter to very year. have like sales, business those derivatives or expect bit swaps some little and think two. selling both are There's this be and good expectation expect, with just dropping, nothing if the a next I continued because a our for We to that rates would probably the wouldn't we SBA pressure slow things special lines on now. of flat be I we'll right of relatively that fee would for now income market customers. And

Bernard Von Gizycki

Great. Okay.

Operator

with Piper next from Dick the Sandler. Our comes Graham of line question

Graham Dick

to deposit or more Just this idea a of deposits there on this and of could kind anything granularity you the level wanted helpful. what you understand of circle the like? that the came growth would customers quarter of help and these or deposits were us to like color get type do saw just I be look quarter back little what to

John McWhorter

incenting bringing campaign a be talked deposit it existing and more to ask banks I mean, -- than money us. have -- fantastic summer, worked taking we they're before of were in staff have with done the has We the at for they're and They've consolidating better that would for expected. their job that to the deposits for did about multiple most retail we I part, well, and exceedingly salespeople Yes. money us. money the it's customers from particularly

continue. bright been to So it's really a we spot. that And expect

Bart Caraway

of for they've as hunting bankers we've but little community our that deposits. to been out, the while incentive a plan, the bankers And changed all takes actually, well, roll and all up

that's had more sales has And outward-bound so Treasury that, bringing along a more accounts. with on focus been commercial

business relationship. deposits And this, loan a was a been on, on. takes as customer just year is and lot came bought comes towards end those we last of And finally the full-wallet too, the of of onboard it to some first, a sometimes the while what's for nice

Graham Dick

be, out be sort sheet into neutral if so helpful. I what's know and at the I given I you bottoming this, cuts, initial makes definitely I guess margin, that go? And get your we out rate And just question guidance, a is or And very relative XXXX? guess, then can part just would today. it's the assuming back of No, guess the sense settling well. But of then to cuts, see margin of heard I second loan sort guys coming balance and is as do know to get probably NII I more we where NIM, the you where would something looking in outlook guess might obviously, the reaction? if growth with that it do you the Where are I I it loan the want no growth at on the dilutive kind guess, margin, rate side, on missing I but there? of there's

John McWhorter

Yes.

margin. So than lower new loan growth slightly spread has a our

went and just the train some noninterest-bearing way. And thought. thought I going I So back, wouldn't the of have we some would NIM, those going still saw flat hard And quarter, to versus of in drag the quite specifically, kind my have a noninterest-bearing bit again, fourth demand come deposits lost margin. And there. things of then little crisis down. Yes, decline, one of on by then be liquidity which predict, pressure the was year demand of after may the -- down, a we that

positioned. neutrally I think are well we pretty

agree that Yes. may all I it's there material. Yes. not be impact, we but some think that

We that going So I the to about ratio that from XX%. XX% sorry weren't down other -- thing say necessarily declining was either. the loan-to-deposit expecting -- that was to

Fed just So we or don't funds. at basically it those -- thereabouts, know million cash had was year-end, $XXX I and in in somewhere

So nothing. our was spread virtually that on

decline the we of in down, right, evenly ratio it that change mix margin. But affected the So the went loan-to-deposit was the you're are matched. demand, probably in

evenly that show to very going are we're again. numbers matched December Our

a at we shows as that a XXX than in all as have first looks We little a should will more be point of good don't scenario. we have dramatic have trade in every that to a our decline that in rate long do right the for now least modeling we be off better of as basis gain a from rates, interest swap and and virtually it today, quarter, tailwind this transaction bit that

Graham Dick

Okay. Good to hear.

driven So declined I at seemingly bottom Do I maybe in feel mentioned there balance mean, than on a really, around the all go then rather end, deposits lower. about they a guess point little they it's or that the at mix nothing the at anything here can't the day, bit, noninterest-bearing rate. And meaningful end sheet a balance like more this of bounce good you but much bit. pretty to you super than XXXX?

Bart Caraway

that's We accurate Yes. good a description. think

expenses You and that we end year at and because a of property have paying of other tax the management some accounts. such folks lot commercial have taxes fairly we see, common that's the

So there's irregular nothing really there.

Graham Dick

Okay.

cost Good this sneak provision. cycle? but if, and persisted, more in say if there's I need is credit allowance what above year say, of credit that your specifically that all for to does losses just your for a And loan uncertainty longer-term economy, target, the on in I or loss credit the could heard imply hear. not reserve provisioning [ ] huge the Okay. you terms more then one

Bart Caraway

for let models, portfolio. buyer with us, jump in. deterioration we're seeing in loan our not Audrey But I'll Yes,

As fact, strong. very of a matter it remains

shows on based the growth than provisioning more So or our the and model we're anything. expecting more less what

Audrey Duncan

based CECL carrying fairly a portion methodology. unallocated on the Yes. We've been sizable

down did we loans ACL. that in ], the million need didn't it charge-off. from the charge-off to to $XXX we million cover saw already million ACL, $XXX have fully We you when the [ So that $X.X go provisioned to total had because

have portion still -- we're well a that the we've within still we So ACL. range on the our whittled unallocated kind we had, down of but

Bart Caraway

just always any don't Yes. It year. seems points the we've and this we've XX like to close said count on XX basis come points, see since public, it, I going basis really but difference never

Graham Dick

Okay. to Good hear.

Operator

comes Mitchell next the Tim from James. line of Our with question Raymond

Timothy Mitchell

to I want out. start just

you're us are could where any the wondering loan in what You guys the on I kind if rate mentioned then still strong. of fourth just looks loans on that? you putting new was give color And pipeline you quarter? seeing

Bart Caraway

Yes.

I that kind specialty growth a we've us going it. on side base we the think of much strong what is we're cherry difficult of business the it's rather on been the just end with have loan our of side it, as finance rates But rate that approval, But with overall, side, too. do of high fortunate criteria, be more rest you we coming is our So would find I a have gone because still seeing providing banks other as of tell difficult gets really to just C&I we'll that most up cherry the sure CRE had then on good enough, pick on very their I'm some past and think it. customer because some really to It's CRE picking of on to are just that. Most all is over, that the the our meets growth environment. we customers

So John, else add? do you to have anything

John McWhorter

we're I are probably loans, X.X%. For loans X%. typically X.XX% yield going and new between the on books in mean, new

Timothy Mitchell

any variable fixed in chunky And loan due on do of coming book loans guys we your you and repricing are kind loan year? breakdown have that what rate in helpful. the about 'XX, Very rate when Awesome. think like Yes. then is

John McWhorter

Yes.

matched. very XX% of portfolio. Our the mean we're floating about loans are I rate evenly

side our the I for the XX balance sheet. months think entire the asset duration balance something on sheet is or of that like

loans So ago. we up CRE we're there short. And the like in that to anything very that older Xs doing coming are that's say, years were might we X loans, renewals, X back certainly have for

big for up they're to going be but the come those not As higher, priced have margin. to a effect renewal, probably on going that's

Timothy Mitchell

related one anything kind to last a Do Awesome. Very book on helpful. out way betas, of kind the indexed or on percentage we as about that's that think then else on of call front, And deposit just to beta? one your have expectations of those you down. your

John McWhorter

but We That, up. down as don't but just competitors them know to certainly indexed, is our went little for fast went make lot can fully have it the the mimic up. way as the go sometimes that plan. harder, intent to our a we whole they betas that's a expect I to bit

Timothy Mitchell

helpful. Very Okay.

Operator

[Operator Matt Instructions] from with of comes Olney the Stephens. question next Our line

Matt Olney

I was last that pick going on line of there. to up questioning

not on I of deposits bit you a think XX% you mentioned the lower. liability want lot indexed is to whole and are floating side, loans obviously reprice

more to setup. us with how sounds neutral with appreciate Just you appreciate, Any everything challenge like provide those a help me that more that'd help neutral. being industry of you keep can neutral It be color dynamics? be or would

John McWhorter

we most and I it's look of of side sheet in materially it to accounts, the of are. as little come expect money in I'd -- most interest mean have Yes. those percentage and as I did rates think immediately. a don't to we I rate percentages come is sensitive. the expect different. we to go market, are it down. We in to be back than today and market But lower fully down money be is it what a higher deposits balance year may liability our the have ago, mean just should CDs going but

Matt Olney

repricing where full margin John, Could lower impacted from reset neutral? the as loans be liabilities commentary be of faster of the mean a negatively over about that I is year or reset could time frame. being what lower? than a lag? rate assume an initial be kind cycle would about any I could there lag, the X more more

John McWhorter

to rates it, to There peers don't of the do harder certainly it makes back for again, our us lower competitive it. nature could. And if immediately, it

in XX the points, first only XX deposit our instance, basis the So to yes, we and comes lag can't there if costs that for May that lower cut, basis say, ones could points. be is there be

there yes, could So lag some -- there. there be

Matt Olney

the disclosed are yields quarter. kind Any on And recently? new what funding those newer color the of incremental Okay. loan fourth loans you more of at in

John McWhorter

Yes. banks, other generally being that they're to that we're in were Most accounts range. at bringing X% X.XX% existing paying over, accounts

Matt Olney

you of heard loan Okay. for of I I growth what I it to of loans your grow scenario? point the start what's scenario do And as think level 'XX, from guess, far kind would in that view. At in thinking acceptable? borrowers before pressuring and that capital? could expectations year. better have to you the me then capital, about feeling slow kind loan Would pressure think then be capital. Help softer And in about as tolerance of things a landing, about their Or really down growth this internal

Bart Caraway

side bank the going for of that capital, definitely the of of basically. to it We're mindful and grow Yes. best the allocation we're capital

grow $XXX So million we prudently loans be leverage. But to to there is is fill or earnings easily. X capital chance the to ability operating interested possible What out we're basically to as to going is the to provide $XXX do think loans million as that we'd hit in going supplementing. raising pretty the really in

year be own fully forward. going see be issue able an to next, our or capital for So that to going we're think I I because growth is don't that, going this to sustain

John McWhorter

capital that. doing we're we net to if less. this and year, loans year, last But more about We think you used and grow about if income year grew $XX million last earn in X.XX% [ And made expecting ]. Yes.

we'll be accretive very this capital that it's think likely I So year.

Matt Olney

guys. right, for All all That's me.

Operator

further queue. closing like no in hand questions Mr. remarks. to call the There I'd are to for Caraway the back

Bart Caraway

Thank call for Coast forward We you the joining for to Third quarter. on with Doug. speaking next look you, very Well support appreciate thank your of and all [ I and ] you Bancshares. us done, much.

Operator

conclude gentlemen, and does for your you this Ladies today's Thank teleconference. participation.

your time, wonderful disconnect and lines day. this at have a may You

Third Coast Bancshares (TCBX) 26 Jan 242023 Q4 Earnings call transcript