TCBX - Earnings call transcript Q2 2024 | Third Coast Bancshares, Inc.

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Operator

Greetings, and welcome to the Third Coast Bank's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard.

Ken Dennard

Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bancshares conference call and webcast to review our second quarter 2024 results. With me today is Bart Caraway, Chairman, President and Chief Executive Officer; John McWhorter, Chief Financial Officer; and Audrey Duncan, Chief Credit Officer.

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

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

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

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

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

Bart Caraway

our XXXX, quarter the our like start, the to some I'd rest in has the earnings second Audrey's a was quarter outlook highlights company, discuss strides morning, quarter I'll Ken. followed Good of note TCBX and Then financial the to great by which quarter first John's review public third improving review. the credit of I call. you, fourth company profitability. the the like outlining progress. everyone, and to and I'd made year. To few highlight by thank start for the Since as quality a will performance Welcome of

expenses consecutive net just a dramatic expense income to resulting we X for interest $XX.X X.XX%. quarterly have we noninterest of from to million, asset million a in XX.X%. Also, quarters, ratio of decreased increase grown First, earning $XX.X average noninterest have

We we tangible to doubled ratio for $XX.X $X.XX efficiency also book fourth our from of And credit been our million. of XX.X%. to $XX.XX. also has since million quarter of value have XX.X% losses The allowance XXXX $XX.X have improved an net result to XX.X% or increase from the

we XX in the our Additionally, Texas, successfully and expanding Austin, in have the branches. locations presence to branch region Triangle opened Woodlands, new Texas Texas

we ahead. With John. our Although accomplished, are turn proud it days think what have best we are to of we that, I'll John? over

John McWhorter

and earnings you, Bart, good everyone. tables release, were detailed provided. morning, In yesterday's Thank financial

results a So $XX.X $X.XX equity, and in a income financial mainly today, because return average resulting million Net grew paydowns. insight on the income quarter despite under quarter, initial growth second for offer earnings I'll share million, further of assets for basis X.X% second was our annualized diluted record quarter. Loans net specific And higher-than-expected on of the return XX.X% per coming up quarter. into projections, XX points. the for on an loan by interest was modest in $XX basis of

the and $XXX for second Investment X.X%. Overall, million million. as With down was expenses will $XX loan we for lowest is million were $X.X books expense pipelines from unlikely were roll-off to third $XX securities to due up to Noninterest $XX more slightly are for million quarter take million accruals. us for the levels, paid due at notes in approximately loans that the rates base quarter were quarter. Tax of million They loans quarter quarter new fourth range. million current in improved This tax-free of the and X. in consecutive notes million $X.X yielding effective the an third of our chose and quarters appear quarter the anticipation $XX and to sheet. range. AOCI a and third at down on we will approximately rate for was the XX%. strong on tax-free the it spreads. continue They in down balance among to Bond add we previously to lower to paydowns and $XX the anticipation $X.X in bid increase the the the finalization Specifically, mentioned to bond portfolio on classified for the million not the loans year-end target third municipal

approximately be to rate quarter. third effective our expect XX.X% in the We

from liability rates, of of asset X.X% sensitive X.X%. change to almost anticipation sensitive, management X.X% lower Regarding moved in we liability asset a have

growth deposit as seasonal quarter, noninterest-bearing last the highlighted deposits. we the patterns the We in exhibited did mix first quarter. for anticipated, improve deposit second quarter deposits As decreased by more overall adding and

Our reserves rate throughout the completes down XX%, million expected range are the review. And for at financial review. both the which the we capital X.XX%. in we this the point, of for our credit dividended Since to quality was debt, loan-to-deposit call bank ratio be $X to to had pass Audrey That company pay maintained million aligning cash to of I'll $XX remainder the holding and maintain the quarter, the with at a of XX%, closely year. projected to accretive XX%

Audrey Duncan

morning, good John, you, and everyone. Thank

$X.X of total slightly income represented was to result quarter, relationship primarily the decline increased was quarter. of previous due portfolio loan well of to with XX%, from total loans, to Our our footprint. loans owner-occupied quarter in slightly on of XX% loans shared Street X.XX% increased loans mix during approximately quarter some loss. of C&I office declined loans, was Main Net with remained assets remain which was development consists payoff previous XX.X% from the Main do like average that X B The generally in the both land similar balanced C X.XX% is of million. The our space due Medical percentages of and quarter. loans construction XXXX a numbers totaling million The primarily upon the the our while $X.X is $XX $X.X is remained The strong and of of another XX% yesterday's LTV release. and one represents a to the we a based which substandard portfolio X Texas office color the average fee owner-occupied and XX%. And non-owner-occupied to placed represented for in million million the with and primarily XX% previous add portfolio XX%. I'd Street combined to Main Class total $X.X $XX.X office approximately X.X% a to Classified of the total to was LTV Nonperforming second an full all and charge-off some or medical being Bart. loan represented the loan. X.X% of the with Bart? during X.X% earnings million nonaccrual. The portfolio has that, not loans. call office located to loans and loans million, loans in quarters, the totaled Consistent XX% CRE turn over LTV XX% loans charge-offs loan. I'll respectively. Office of for Lending anticipate little the gross back average is owner-occupied. Combined and Program originated Multifamily half Street with total bank LTV current. total appraisals

Bart Caraway

Thank you, Audrey.

few I outlook our adversities, a rally the for during in discussions faced to expectations communities serve unwavering services. Despite heartfelt and trying of team team remainder challenges, shone this of quarter year, our the profoundly resilience together commitment unprecedented as for weeks dedication dedicated extend one into I our the power our In outages appreciation prolonged several our including am such time. through Coast regarding delving team's markets support another disrupted wish and Beryl's with and impact grateful the of efforts. the Before of their and on to third employees. wake exceptional my to customers Hurricane Texas and an communication our they ago,

plan operations sustainable through primary our the operational we growth quarter, for remains As excellence. promoting our in on focus third

is extent the our dedicated our hurricane's on to full managing expenses. the uncertain, of we Although are prudently impact expenses still

bring improvement our continuous we across to initiative enhance foster to culture promote to efficiency. technology our continue a organization and ideas utilize will the We employees creative operations where improvement by increase empowering X% of and

enduring to exceptional customer valuable to committed service relationships by cultivating deliver and empowering our bankers products. are We

pipelines, still per will million remain $XXX loan robust. This Coupled few drive to operating with quarter. of more we the gain continue next million the $XX the of We company interest Regarding believe they growth income therefore growth leverage noninterest net less to exceed X%, should XX%. quarters. expect than over expense to growth

adaptability, the dedication planning to and challenges opportunities year. as innovation overcome capitalize the Our to and positions us strategic we progress through on team's

concludes This to back experience quality begin the growth, driving now We operator building are our would making question-and-answer enhancing to prepared headway excellence turn and in operations. Operator? customer session. the the like remarks. I it over to in our

Operator

Michael question from Raymond first James. Your comes Rose Instructions] [Operator with

Michael Rose

We're $XX going million run you the to about are excluding -- third quarter, the that? to the kind loan Is on outlook. I we we million of inclusive should about ask municipal off. as said net or think to going loans or that think know that of $XXX that

John McWhorter

Yes. to we years I selective see and give said but this a pipeline. you business. I couple as of it, do even last just bit going choppy is wish it exact a quite projections. nice still be a that little been for going net? see of We've more falls. It's Obviously, often But far lumpy as Really to whenever all talking we've year be we with about could loan

Michael Rose

up, of from have growth your that? of opened I client your mean, coming new hearing help kind some can well. some near-term here from assume I being as it things But but expand little hearing it. Bart, what of generally Got to Texas, customers? the acquisition, kind with of I I what coming maybe given other will lenders a then kind as like But And you branches, uncertainty that. you more plans and bit ones, growth that in clients on. saw out assume customers of just just are is of you're are some still even most and we X customers their if things banks, like from heard kind there you relates on election new the larger the cautious just

Bart Caraway

would and lines call economy businesses in selective in customers own haven't seems their any of on judicious about It from kind is in as lower-cost using with carefully the still own dramatic swings doing Yes. funds drawing where it being prudence being what versus despite our well their their market. I But capital more of I and it. But seen well managing more just down they're their even the our business like markets. headwinds the is

more relationship, than part, the coming has that through banker that most with the had the already very customers been are likely where downturn before. For relationships customer are has long-term a us a to

they're that it and sort a So usual almost of waiting they've had little they turn. for bit business of are business, kind I to bit call with But prepared now pivot of maybe already economic made some the pivot just more with their factors as little and but would a caution. to

Michael Rose

just me. Maybe helpful. for one Very more

performance nice a $X million talked on quarter, about above puts benefits again I guys you swap. you this and quarter. last think just this of Really about Just fees. know from the discuss momentum that's you of $XXX,XXX takes? just going some some that the you quarter, I Like talk forward? ] last something about of the obviously can quarter. But a quarter. Can know monetizing expectations just I and the north announced drivers quarter, the of [

John McWhorter

Yes, Michael, is John. this

So But running mean, excess, up may been I really more in I whatever quarter. excess loan when than strong just had they quarters. some that fees so make SBIC excess And was. the for have we far July, in did say that recent fees they look

million good $X.X pretty So income. for fee of range sort still feel I I -- about the

make to that So $XXX,XXX hundred may million and be. not in SBIC the we to a We'll again, may the of had up what thousand. that's predict going loan $X.X $XXX,XXX be fees, kind of be will maybe about It be think, difference. It's couple in I but X it hard quarter, next range.

Operator

Woody [ question, Next Lay with KBW. ]

Wood Lay

sensitive So the rates you drove comments, right modestly. liability I What the sort is in think of made sensitivity in all's your change comment now in about a that how quarter? just opening to you screen

John McWhorter

on hard if make back to which last to the had the But to more quarter, cash sheet, quarter-to-quarter. lot from balance is much a It's sheet Yes. you more we us remember change asset-sensitive. going balance

The it cash So balances we rate. If everything We to may don't loan-to-deposit increasing having positioned could as I take for our we easy changes our want least not But to that X. is reason. of ratio, that that. within that. lot bought of jump I well at we to customers do. cash. an point do investment Fixing up, proactive less see be trying big thing us this loans But a And mean, as changes we But quarter, at don't back feel were next rates. we're in to securities in we're obviously kind like did fixed closer can.

Bart Caraway

would and guess an kind if it not And hone we that to be our like on asset-sensitive. John intentional. want needed us towards we to of feel to job sheet of Yes. fantastic prepare of has in be a balance reliability neutral, is was And a at done to nothing. went site like did the do job drops to just positioning that rate public, the since to after all that. felt least I Obviously, biased be be great asset-sensitive balance we we with this that moving we potentially sheet now

Wood Lay

sense. makes grow deposit then year segment that encouraging to where continue the here? in in of from Yes, you And think momentum half quarter. that there's the back the trends the Do were can noninterest-bearing

Bart Caraway

internally our one that the on making noninterest-bearing some challenging And going Hard to to are of a But accounts year that grow of but is Again, tell initiatives lot of I'm to hard make end trying optimistic to growing going that in and say a do growing that's as it. in there's I I'll we're balances of the lot believe like what headway. we're efforts far number bank. the work in very the Well, that, the it. to we're actual with this times look of as it. most

Wood Lay

And then maybe for me. just last

for in of Any openings branch You had the branch the more quarter. back year? the half the planned X openings

Bart Caraway

Yes.

that a So these basically for while some were on actually had. teams are in strategies we've the and work based that

the one for we drawing that, that location then other don't on the approval. is more in have after We board have any And works. potentially

Operator

Gizycki Bank. Bernard comes Von question with from Next Deutsche

Bernard Von Gizycki

just So basis the NIM. was some of increased expected wanted better drivers to points. to The the than and discuss of X NIM

liabilities. color on XX provide you dynamics pickup NIM loan that basis of you basis just munis had John, in in total a for pickup nice the sequentially. the runoff just the there. You offset And the low-yielding expectations helped yields points points mentioned I and of X know, pricing interest-bearing Could on XQ? the some those

John McWhorter

Yes.

of was mean, with than it on second the reprice lot There's bit better balance a So a million to little the are. in is where $XXX that quarter I we're targeting had kind sheet. I we range what not expected.

our was the saw not but improvement we're It going see million. It of the with rates, bit a big mix in be more the had whether think cutting start be to in does mix quarter-over-quarter. are number. finally than that to big do stay the just So should million time time, that we anything this I that else. And about they range, change changes I to to a $XXX driving $XXX easier Fed little rates this or decide if kind where don't

Bernard Von Gizycki

cost the the drove from on have reduction about. some been benefits measures and that just some the it. And was decline you that hoping moving some then a Okay. about maybe just wondering the In maybe and you can expenses. Got operating little expected. color down release, Obviously, provide you I details quarter? but I A than noted lines the talking it get guys resulted was just that the talked came salary few to efficiencies if on. of in to bit, lower for it continued you color in

John McWhorter

Yes.

done the good we've count a job last or head on year over months. So XX particularly

essentially we with same have employees people real are of number We the we're and numbers that And we XX happy employees the just of with did that months we ago. have. the where

day have salary and I quarter I daily X comments, does accrue expense was extra basis. on after Now make thinking third about the a we do my

several that's for extra hundred thousand just third quarter probably So by the dollars itself.

support a open, be lenders couple talking There recently. at and that $XX.X of to couple looking in million There's a range. we've that that million there. employees there's couple a of to kind we'll are branches we're we people of So of $XX that the hired

but work super -- to unlikely we guess. in either. That's X% maybe in don't So row. I modest growth we've be or of out a going -- X%, my kind to don't cut unlikely forward. have percentages to the expenses million think than know it And been it's less again, best that growth quarters but we what happy $XX.X I substantial would be, X happen going It's see be

Operator

Jordan question, Next with Ghent Stephens.

Jordan Ghent

them I wondering the what wanted are just give it a deposit if like costs. to but was guys I any you just a have ticked seeing up additional little answered, touch basis? of been but interest-bearing looks on guys Most maybe could and month-to-month on bit, It like color you

John McWhorter

question. good so that with It's for were We quarter that had inexpensive. we're them roll many anything on has deposits mix of else. the I at rates. more Yes, deposits higher some not do than putting to really mean, relatively off new and

it about I is and up were it wholesale going on but different range. deposits been up, X%, we've just from of the do know and And going to bigger X.XX% on to we Our hard there mix that from a the wasn't the is accounts funds core any. than of what X.X% core But might for like anything the seems our wholesale the is harder on over, a at stuff we predict don't books there and cost quarter-to-quarter. But be basically it stuff at we're typically doing. marginal talked they're was that on if the Fed before basis X% wholesale wasn't funds say. it's cost basis, and in X.X% to has moving making whatever

Operator

with question, Next Storms Dave Stonegate.

David Storms

conversation wanted any know of had, the that any sort ratio that there is is goal to touch avenue there to if on just or to the you given a Just get line on expenses the sub-XX% number? efficiency time don't I -- to number? getting to

John McWhorter

good goal round is the mean, that, Yes, easy our Once are lower be. can question. to be to or going from always and we we sure better XX% to our be I'm XX%. want numbers next XX% goals, but lower goal best and there. Dave, to certainly than XX%, is nice Big get we I be

bank will grow, will If we relatively harder think mean to that is the million continues may right growing loans, If be XX%. The fourth line operating expenses intact. the and it As million, bit below to of growth, think to of is there not that I I probably on little faster maybe enough top quarter, flat, third predict. where expenses, $XX be $XX below. for timing in grow We leverage, a quarter this are take additional quarters. think but continue third we're concept many us quarter, we than

Bart Caraway

And a get we every it the is to that. could time about team. that it if I with consistent together. on talk mean, management add We I topic

even ahead be got in the to it's found and this little of time, other lot make in to nice So cut leverage. is indeed, help be we to It's need just a of to high team what projected of John some efficient. time some this us growth experience at on some just -- a team matter the as lot there. that we've internal said, able forefront of got to going we a I will And of closer lot just more costs. going momentum. Again, plan, order performing. a ways growth we're to getting a and avenues And think has it's get our get be have And to this has be. to I operating a to And

just again, there. when we of a a It's time be So to high-performing all bank want we the across board. get matter

David Storms

one for just helpful. me. Understood. That's very more then And

high a that level? like operating or such being such count help the a anything position, retention highlight the any at keep good With to are in head to there policies team

John McWhorter

they are talk very basically judicious. process around we hiring about the management Well, the team,

and So we And picture be count. of assets we're even what and watch we're number to we handled track could the think add keeping And of looking where with about I that head bigger monthly. scalable versus judicious software all also employees. adding very of

it. So of I there's think just a lot about conversations

I is that, the we I goal, Our With just that's on to guide decisions. helped to HR improve think And going case. continued be ratio. efficiency everybody know that's think the

we because better part through we momentum efficiency now it's the to And have it's of cultural about culturally. kind few progress. has of almost I And next it's think this at the going continue for think a of we're I quarters talk become think lexicon, shift what what going is So become to part doing. our just we're get in I

Operator

are further to would closing questions. to over remarks. Caraway floor like There for Bart no the turn I

Bart Caraway

for speaking Thank us you, everybody all. quarter. joining to we Thank on the call Stacy. and I of Third look just forward appreciate support continued Bancshares to Coast you and your you, next

Operator

teleconference. This today's concludes

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

Third Coast Bancshares (TCBX) 25 Jul 242024 Q2 Earnings call transcript