Q1 2024 Third Coast Bancshares Inc Earnings Call
Greetings and welcome to the third Coast Bank first quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference call.
Operator: Greetings and welcome to the Third Coast Bank First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalie Hairston. Thank you. You may begin.
Please press Star zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Natalie Hairston. Thank you you may begin.
Natalie S. Hairston: Thank you, Operator, and good morning, everyone. We appreciate you joining us for Third Coast Bankshare's conference call and webcast to review our first 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.
Natalie S. Hairston: Thank you operator, and good morning, everyone. We appreciate you joining us for our third test Bancshares conference call and webcast to review, our first quarter 'twenty 'twenty four result.
Natalie S. Hairston: With me today is Bart Caraway, Chairman, President and Chief Executive Officer, John Mcwhorter, Chief Financial Officer, and Audrey Duncan Chief Credit Officer.
Speaker Change: First a few housekeeping items, there will be a replay of today's call and it will be available by webcast on the investors section of our website at IR Dot third test Dot bank. It will also be a telephonic replay available until may 2nd and more information on how to access. These replay features was included in yesterday's earnings release.
Natalie S. Hairston: There will be a replay of today's call, and it will be available by webcast on the Investors section of our website at ir.thirdcoast.bank. There will also be a telephonic replay available until May 2, and more information on how to access these replay features was included in yesterday's earnings release. Please note that the information reported on this call applies only as of today, April 25, 2024, and therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of replay listening or transcript reading.
Natalie S. Hairston: Please note that the information reported on this call speaks only as of today April 25th 'twenty 'twenty four and therefore, you are advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.
Natalie S. Hairston: In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States' federal securities laws. These forward-looking statements reflect the current views of management. However, various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the annual report on Form 10-K that was filed on March 7, 2024, to better understand those risks, uncertainties, and contingencies.
Natalie S. Hairston: In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities laws. These forward looking statements reflect the current views of management. However, various risks uncertainties and contingencies could cause actual results performance or achievements to differ materially from those expressed.
Natalie S. Hairston: Breast in the statements made by management.
Natalie S. Hairston: And our readers are encouraged to read the annual report on Form 10-K that was filed on March 7th 2024 to better understand those risks uncertainties and contingencies.
Natalie S. Hairston: The comments made today will also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the Third Coast website. Now, I would like to turn the call over to Third Coast Chairman, President, and CEO, Mr. Bart Caraway.
Natalie S. Hairston: The comments made today will also include certain non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the third test website.
Natalie S. Hairston: Now I would like to turn the call over to <unk>, Chairman, President and CEO, Mr. Bart Caraway art, Thanks, Natalie and good morning, everyone. Welcome to the <unk> first quarter 2024 earnings call I'll begin with highlights from the quarter, John will cover our profitability metrics in more detail.
Bart O. Caraway: Thanks, Natalie, and good morning, everyone. Welcome to the TCBX First Quarter 2024 Earnings Call. I'll begin with highlights from the quarter. John will cover profitability metrics in more detail, and Audrey will present the credit quality review.
Bart O. Caraway: Audrey will percent credit quality review, then I will conclude with our outlook and expectations for the second quarter through the remainder of the year.
Bart O. Caraway: Then I will conclude with our outlook and expectations for the second quarter through the remainder of the year. As you can glean from the earnings release, Third Coast beat expectations in nearly every category, with successive record quarterly profits attributed to strong loan growth, enhanced operational efficiency, and successful execution of the company's expense optimization plan. We do expect these factors to continue driving consistent financial improvement as per our plan. In terms of cost savings initiatives, we continue to capitalize on automation, software enhancements, staffing adjustments, and workflow advances.
Natalie S. Hairston: As you can glean from the earnings release third co speed expectations in nearly every category with successive record quarterly profit attributed to.
Bart O. Caraway: Our strong loan growth enhanced operational efficiency and successful execution of the company's expense optimization plan. We do expect these factors to continue driving consistent financial improvement as per our plan.
Natalie S. Hairston: In terms of cost savings initiatives, we continued to capitalize on automation software enhancements staffing adjustments and workflow advances. Additionally, we have introduced a new 1% initiative to boost overall efficiencies wherein we are encouraging every employee to suggest improvement.
Bart O. Caraway: Additionally, we have introduced a new 1% initiative to boost overall efficiency. We're in We are encouraging every employee to suggest improvement. All together, we believe there is still opportunity to gain efficiency in operations, and it remains a high priority for management. Our focus on operational leverage has also benefited from strong loan growth of over $107 million in net new funds for the quarter, reflecting a trend of attracting high-quality customers. Deposit growth was also strong, resulting from initiatives implemented over the past year. Nearly all business segments have exceeded their deposit goal.
Bart O. Caraway: Altogether, we believe there is still opportunity to gain efficiency in operations and it remains a high priority for the management team.
Bart O. Caraway: Our focus on operational leverage has also benefited from strong loan growth of over $107 million and net new funds for the quarter, reflecting a trend of attracting high quality customers.
Bart O. Caraway: Deposit growth was also strong resulting from initiatives implemented over the past year, nearly all business segments have exceeded their deposit goals.
Bart O. Caraway: In particular success in deposit acquisition by our commercial and specialty groups Treasury services have also led to solid core count expansion and kudos to our retail group and financial advisors for their significant contributions over the last year.
Bart O. Caraway: In particular, success in deposit acquisition by our commercial and specialty groups. Treasury Services has also led to solid core account expansion, and kudos to our retail group and financial advisors for their significant contributions over the last year. I attribute our positive trends to a sound strategic plan, a skilled management team executing well, and a group of exceptional bankers aligned with stakeholder objectives. Additionally, it certainly helps that we operate in resilient and growing markets throughout Texas.
Bart O. Caraway: I attribute our positive trends to a sound strategic plan, a skilled management team executing well in a group of exceptional bankers aligned with stakeholder objectives. Additionally, it certainly helps that we operate in a resilient and growing markets throughout Texas.
Bart O. Caraway: We believe our first quarter results underscore the company's long-term ability to provide valuable, relevant services to our market and continue to prove the value of our strategic model. With that, I'll turn it over to John for the company's profitability update. John. Thank you, Bart, and good morning, everyone.
Bart O. Caraway: We believe our first quarter results underscore the company's long term ability to provide valuable relevant services to our market and continues to prove out the value of our strategic model with that I'll turn it over to John for the company's profitability update John.
John: Thank you Bart and good morning, everyone and yesterday's earnings release, we provided the detailed financial tables. So today I'll offer further insights into specific profitability metrics for the first quarter.
John McWhorter: In yesterday's earnings release, we provided the detailed financial tables, so today I'll offer further insights into specific profitability metrics for the first quarter. We reported first quarter net income of $10.4 million, resulting in an 11% return on equity and record diluted earnings per share of $61 million. Net interest income was up 12.5% on an annualized, days-adjusted basis. The increase was primarily due to higher yield on investments and higher average levels. However, non-interest expenses were down 1.9% or $500,000 due to cost-cutting initiatives implemented in prior quarters.
John McWhorter: We reported first quarter net income of $10 4 million, resulting in an 11% return on equity and record diluted earnings per share of <unk> 61 cents.
John McWhorter: Net interest income was up 12, 5% on an annualized days' adjusted basis. The increase was primarily due to better yields on investments and higher average loans.
John McWhorter: Noninterest expenses were down 1.9% or $500000 due to cost cutting initiatives implemented in prior quarters.
John McWhorter: Investment securities are up $68.2 million, and the current yield on the portfolio is $615,000 versus $536,000 in the previous quarter. Deposit growth for the quarter was $248 million, more than double our loan growth of $107 million. This resulted in a loan-to-deposit ratio falling to 92.5% and resulted in net interest margin pressure, which declined one basis point. Much of this quarter's deposit and loan growth was seasonal. As of today, loans are down $30 million, and deposits are down $175.
John McWhorter: And investment Securities are up $68 2 million and the current yield on the portfolio is $6 15 versus $5 36 in the previous quarter.
John McWhorter: Deposit growth for the quarter was 248 million more than double our loan growth of 107 million. This resulted in a loan to deposit ratio falling to 92, 5% and resulted in net interest margin pressure, which declined one basis point.
John McWhorter: Much of this quarter's deposit and the loan growth was seasonal as of today loans are down $30 million and deposits were down 175.
John McWhorter: On April 10, we sold our five year pay fixed swap realizing a gain of 5.25 million. This will be accreted into income at roughly $275000 per quarter.
John McWhorter: On April 10, we sold our five-year pay-fix swap, realizing a gain of $5.25 million. This will be accreted into income at roughly $275,000 per month. That completes the financial review, and at this point, I'll pass the call to Audrey for our credit quality review. Thanks, John.
John McWhorter: That completes the financial review and at this point I'll pass the call to Audrey for our credit quality review.
Audrey A. Duncan: Thanks, John, and good morning, everyone. Given the current economic climate, we understand that investors are focused more than ever on credit quality. Despite the difficulties presented in 2023, Third Coast's loan portfolio has remained strong. Non-performing assets increased by $4.4 million and represented 0.47% of total assets. The increase was attributed to a $1.5 million increase in non-accrual loans and a $2.9 million increase in loans over 90 days past due and still accruing.
Audrey: John and good morning, everyone. Given the current economic climate, we understand that investors are focused more than ever on credit quality. Despite the difficulties presented in 'twenty twenty-three third coast loan portfolio has remained strong nonperforming assets increased by $4 4 million and represented zero point.
Audrey A. Duncan: Four 7% of total assets. The increase was attributed to a $1.5 million increase in non accruals and a $2 9 million dollar increase in loans over 90 days past due and still accruing. The nonaccrual increase was primarily due to four relationships being placed on non accrual.
Audrey A. Duncan: The non-accrual increase was primarily due to four relationships being placed on non-accrual, two of which had 75% SBA guarantees, one of which represented our 5% portion of a Main Street loan and one small mortgage loan. The increase in loans past due over 90 days and still accruing was a matured real estate loan that was pending renewal. Net charge-offs of $742,000 for the quarter were primarily the result of the charge-off of two C&I loans. Charge-offs for the quarter totaled $839,000, and we recognized recoveries of $97,000. Provisions for credit losses totaled $1.6 million for the first quarter, which was related to provisioning for new loans and commitments.
Audrey A. Duncan: <unk> two of which had 75% SBA guarantees one of which represented our 5% portion of the main street loan and one small mortgage on the increase in loans past due over 90 days and still accruing was a mature real estate loan they were spending with you all.
Audrey A. Duncan: Net charge offs of 742000 for the quarter were primarily the result of the charge off of two C&I loans charge offs for the quarter totaled 839000, and we recognized recoveries of 97000.
Audrey A. Duncan: Provisions for credit losses totaled $1 6 million for the first quarter, which was related to provisioning for new loans and commitments. The ACL remained at 1.02% of total loans and was right in the middle of the range.
Audrey A. Duncan: The ACL remained at 1.02% of total loans and was right in the middle of the range. The loan portfolio mix remained well balanced with percentages similar to the previous quarter. CNI loans represented 36% of total loans, construction, development, and land loans remained at 19%, while owner occupied and non-owner occupied CRE represented 14% and 16% of total loans respectively. Office space represented 3.9% of total loans, with a little over half being owner occupied.
Audrey A. Duncan: Loan portfolio mix remained well balanced with percentages similar to the previous quarter C&I loans represented 36% of total loans construction development and land loans remained at 19%, while owner occupied and non owner occupied CRE represented 14%.
Audrey A. Duncan: And 16% of total loans respectively.
Audrey A. Duncan: Office represented three 9% of total loans with a little over half being owner occupied medical office was another 1.3% of total loans.
Audrey A. Duncan: Medical office was another 1.3% of total loans. Office and Medical Office Loans increased less than $1 million each for the quarter. The office portfolio generally consists of class B with some owner-occupied C space and is all located in our Texas footprint. The average LTV of our office portfolio is approximately 60%, and the average LTV for medical office is approximately 55%. Multifamily represented 3.2% of total loans, which was a slight increase from 3% of total loans the previous quarter and had an average LTV of 59%.
Audrey A. Duncan: Office and medical office loans increased less than 1 million each for the quarter.
Audrey A. Duncan: The office portfolio generally consist of class B with some owner occupied C space and is all located in our Texas footprint.
Audrey A. Duncan: The average LTV of our office portfolio is approximately 60% and the average LTV for medical office is approximately 55%.
Audrey A. Duncan: Multifamily represented three 2% of total loans, which was a slight increase from 3% of total loans the previous quarter and had an average LTV of 59%.
Audrey A. Duncan: Our credit management practices are robust with regional credit officers dedicated to each of our verticals. The credit officers have an average of 30 years of experience and each one is highly experienced in their specific vertical they hold regular meetings to review their portfolios and the corporate banking.
Audrey A. Duncan: Our credit management practices are robust, with regional credit officers dedicated to each of our verticals. The credit officers have an average of 30 years of experience, and each one is highly experienced in their specific vertical. They hold regular meetings to review their portfolios, and the corporate banking and builder finance groups maintain trend cards that track financial trends and covenants on each borrower, as well as compare projections to actual performance. The Commercial Banking Vertical monitors covenant and borrowing-based compliance, tracks financial trends, and reviews loans on at least an annual basis. In addition, stress testing is conducted at both the individual loan level at origination and renewal, as well as annually on a portfolio-wide basis.
Audrey A. Duncan: <unk> and builder finance groups maintained trend cards that track financial trends and covenants on each borrower as well as comparing projections to actual performance the commercial banking vertical monitors covenant and borrowing base compliance tracks financial trends and reviews loans on at least an annual.
Audrey A. Duncan: Basis.
Audrey A. Duncan: In addition stress testing is conducted at both the individual loan level at origination and renewal as well as annually on a portfolio wide basis with that I'll turn the call back to Bart Barthes.
Bart O. Caraway: With that, I'll turn the call back to Bart. Bart?
Bart: Thank you Audrey move.
Bart O. Caraway: Moving forward into the second quarter and the rest of the year, as referenced earlier, our team continues to execute on the company's strategic objectives. Priorities involve diversifying our deposit portfolio, reducing the company's cost of funds, managing expenses, and enhancing operational efficiencies. Additionally, we are focused on revenue generation and identifying strategic opportunities for future growth, building upon our efforts from previous years. Additionally, loan pipelines remain robust. Therefore, we continue to expect growth of $300 to $400 million for the year.
Bart: Moving forward into the second quarter and the rest of the year as referenced earlier our team continues to execute on the company's strategic objectives priorities involve diversifying our deposit portfolio, reducing the company's cost of funds managing expenses and enhancing operational efficiencies. Additionally, we are focused.
Bart O. Caraway: On revenue generation and identifying strategic opportunities for future growth building upon our efforts from previous years.
Bart O. Caraway: Loan pipelines remain robust, we therefore continue to expect growth of 300 to 400 million for the year.
Bart O. Caraway: This should drive net interest income growth to exceed 10 percent, and coupled with non-interest expense growth of less than 5 percent, we believe the company will gain more operating leverage over the next few quarters. Our team's dedication to adaptability, innovation, and strategic planning positions us to overcome challenges and capitalize on opportunities as we progress through the year. We are making headway in driving quality growth, enhancing the customer experience, and building excellence in our operation. This concludes our prepared remarks. I would now like to turn the call back over to the operator for the question and answer session.
Bart O. Caraway: This should drive net interest income growth to exceed 10%, coupled with noninterest expense growth of less than 5%. We believe the company will gain more operating leverage over the next few quarters.
Bart O. Caraway: Our team's dedication to adaptability innovation and strategic planning positions us to overcome challenges and to capitalize on opportunities as we progress through the year.
Bart O. Caraway: We're making headway in driving quality growth enhancing the customer experience and building excellence in our operations. This.
Bart O. Caraway: This concludes our prepared remarks, I would now like to turn the call back over to the operator for the question and answer session operator.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from Bernard von Gizycki with Deutsche Bank. Please go ahead.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Speaker Change: Before pressing the star keys.
Speaker Change: First question comes from Bernard If I guess Vicki with Deutsche Bank. Please go ahead.
Bernard Von Gizycki: Hey guys, good morning. So just wanted to discuss some of the drivers of the NIM. You know, it came in better than expected.
Speaker Change: Hey, guys. Good morning, So just wanted to discuss some of the drivers of the NIM.
Speaker Change: It came in better than expected. It just declined just one basis point.
Unknown Executive: It just declined by just one basis point. Obviously, there are some good cost controls with interest bearing deposit costs and total interest bearing liabilities declined by two basis points. Loan yields were flat, but there was a nice uptick in securities, which I believe picked up seven basis points. So could you just provide some color on the pricing dynamics and maybe some expectations on the NIM for 2Q?
Unknown Executive: Obviously, there was some good.
Unknown Executive: Cost controls with interest bearing deposit costs and total interest bearing liabilities declined two basis points.
Unknown Executive: Loan yields were flat.
Unknown Executive: But there was a nice uptick in securities, which I believe picked up seven nine basis points. So could you just provide some color on the pricing dynamics are and maybe some expectations on the NIM for you here.
Speaker Change: Yeah. So Bernie you know we sold our swap in April and that that was providing a nice tailwind and remember that's a reduction to interest expense that we won't have as much in the second quarter, but what we will have is now basically locked in guarantee.
Unknown Executive: Yeah, so Bernie, you know, we sold our swap in April and that was providing, you know, a nice tailwind. And remember, that's a reduction to interest expense that we won't have as much of in the second quarter. But what we will have is now basically locked in guaranteed for the next five years.
Unknown Executive: <unk> for the next five years.
Unknown Executive: Yeah.
Unknown Executive: And everything, including the uptick in investments. I think the margin is going to be flat in the second quarter. I mean, if I had to pick a number, I'd say we're going to be exactly where we are today.
Unknown Executive: All in everything including the uptick in investments I think the margin is going to be flat in the second quarter. I mean, if I had to pick a number I'd say, we're going to be exactly where we are today I know theres a lot of moving parts in there. The one big drag that we had the margin would have been up but we had so much cash.
Unknown Executive: I know there are a lot of moving parts. You know, the one big drag that we had, the margin would have been up, but we had so much cash come in late in the first quarter. And our spread on that was, you know, 10 basis points, 20 basis points. So that was a real drag on the margin. And while I'm thinking about it, one thing that may have been a little misleading about my comment on the seasonality, that was just concerning our deposits, not so much our loans.
Unknown Executive: Come in late in the first quarter and our spread on that was you know 10 basis points 20 basis points. So that was a real drag on the margin.
Unknown Executive: And while I'm thinking about it one thing that may have been a little misleading about my comment on the seasonality that was just concerning our deposits not so much our loans our loans were down a little bit in April but that was just because of a payoff nothing nothing unusual there were obviously still early in the quarter, but but deposit for seasonal a lot of that money has gone.
Unknown Executive: Our loans were down a little bit in April, but that was just because of a payoff. Nothing unusual there. We're obviously still early in the quarter, but deposits were seasonal. A lot of that money has gone out. You know, that changes our mix. That will certainly help improve the margin, and, you know, all in net net, I think the margin will be pretty stable.
Unknown Executive: And out you know that changes our mix that will certainly help improve the margin and you know all in net net I think the margin will be pretty stable.
Speaker Change: Okay I appreciate that and John just maybe just following up I believe and Bart when you mentioned the net interest income guide for the full year I think you said, a plus 10% I think the previous guide was plus 10 to 15 just wanted to make sure.
Unknown Executive: Okay, I appreciate that. And John, just maybe just following up, I believe, and Bart, when you mentioned the net interest income guide for the full year, I think you said plus 10%. I think the previous guide was plus 10 to 15. Just wanted to make sure, you know, if you could just confirm, and if that's the case, why the lower and what kind of rate cuts are you assuming, or if any, what are you assuming in that?
Unknown Executive: You can just confirm if that's the case why to the lower end now what what kind of rate cuts are you or if any what are you assuming in that.
Unknown Executive: Yeah, and we weren't necessarily trying to guide to a lower number. It's, you know, there's the uncertainty there because of the lumpiness in the portfolio. You know, if you look at our average loan balances, much of our loan growth came late in the first quarter. That, you know, doesn't do anything to help us when we're thinking about full-year numbers. I mean, literally, most of the growth that we had was in the last two or three weeks of March.
Speaker Change: All right.
John McWhorter: Yeah, and we weren't necessarily trying to guide to a lower number. It's you know there's the uncertainty there because of the lumpiness in the portfolio. You know if you look at our average loan balances much of our loan growth came late in the first quarter that you know it doesn't do anything to help us when we're thinking about full year.
Unknown Executive: Year numbers I mean literally most of the growth that we had was in the last two or three weeks of March. So just just kind of layering that in may make it a little harder to get to the 15%. It. It just depends on you know we're still comfortable with this range of three or 400 million, but it but as far as net interest income it is highly dependent.
Unknown Executive: So just kind of layering that in may make it a little harder to get to the 15 percent. It just depends on, you know, we're still comfortable with this range of three or four hundred million. But as far as net interest income is concerned, it is highly dependent on how early in the year we book those loans. Now, we have bought a lot of investment securities over the last three or four or five months.
Unknown Executive: On how early in the year, we book those loans now.
Unknown Executive: We have bought a lot of investment securities over the last three or four or five months. We thought it was a good opportunity to do that in and that's going to help offset some of the lumpiness and in the loan portfolio, but but weren't specifically trying to guide to a to a lower number in that way.
Unknown Executive: We thought it was a good opportunity to do that, and that's going to help offset some of the lumpiness in the loan portfolio, but we're specifically trying to guide to a lower number now. Do you still think it'll be over 10%?
Unknown Executive: Would you still think it'll be over 10%.
Unknown Executive: Perfect. All right. Thanks for the color and thanks for taking my question.
Speaker Change: Perfect all right. Thanks for the color and thanks for taking my questions.
Unknown Executive: Thanks for Mexico next question, Michael Rose with Raymond James. Please go ahead.
Michael Edward Rose: Next question: Michael Rose with Raymond James, please go ahead.
Michael Edward Rose: Hey, Michael Thanks, Hey, good morning, Thanks, Richard Thanks for taking my questions I'm, just kind of following up on that I noticed the and I'd be mix continued to tick down around 10%.
Unknown Executive: Good morning. Thanks. Hey, good morning.
Michael Edward Rose: Thanks for taking my questions. Just kind of following up on that, I noticed the NID mix continued to tick down around 10%. You know, as relates to just kind of expectations for the margin, and then I talked about, you know, what you are assuming there in terms of, you know, potentially reaching a trough, hopefully growing, and maybe just more broadly, if you could talk about some of the deposit growth strategies in place to help, you know, drive that percentage point higher. Thanks.
Michael Edward Rose: As it relates to just kind of expectations for the margin and NII as you just talked about you know what are you assuming there in terms of potentially reaching a trough hopefully growing and then maybe just more broadly if you can talk about some of the deposit growth strategies in place to to help drive that percentage point higher.
Unknown Executive: Yeah, and you know, on the margin, certainly, we haven't had the strain that a lot of banks have had. I mean, since the beginning of the cycle, I think we're down 17 basis points, if I remember right. So, you know, we don't expect a lot of pressure; we're not going to have a big drop and then a big uptick the way some of the other banks have had. You know, the non-interest bearing specifically is, I mean, that's hard to model.
Speaker Change: Yeah, and you know on the margin certainly we havent had the strain that a lot of banks have had I mean since the beginning of the cycle I think we're down 17 basis points, if I remember right. So.
Unknown Executive: We don't expect a lot of pressure you know, we're we're not gonna have a big drop and then a big uptick the way some of the other banks have had you know the noninterest bearing specifically is I mean, that's hard to model I mean, it certainly dropped more this quarter than I would've expected I think some of that was tax Roe.
Unknown Executive: I mean, it certainly dropped more this quarter than I would have expected. I think some of that was tax related and will come back to us. So we'll, you know, if anything, have a little bit of an increase this time, but we're bringing on new treasury customers all the time that are non-interest bearing. But that was that was certainly a little bit of a surprise to us to see that drop so much and certainly weighed on the margin, but I don't expect that to happen again. Yeah.
Unknown Executive: Weighted and we'll come back to with the well will you know if anything had a little bit of an increase this time, but we're bringing on new treasury customers. All the time that our noninterest bearing but that was that was certainly a little bit of a surprise to us to see that dropped so much and certainly that certainly weighed on the margin but.
Unknown Executive: I don't expect that to happen again and to follow up on your question, Michael with regard to what we're doing internally.
Unknown Executive: To follow up on your question, Michael, with regard to what we're doing internally, deposits were certainly one of the top three objectives that we've had for the entire bank. And every line of business, you know, has been charged with developing a plan to help us grow those deposits. And I think it's been very, very helpful because in the last 12 months, we've seen the fruition of, you know, a lot of these plans helping us grow the deposit side. So what I would tell you is we probably have a couple of other products that we're working on.
Unknown Executive: What we you know deposits.
Unknown Executive: We're certainly one of the top three objectives that we had for the entire bank and every line of business.
Unknown Executive: You know has been charged with developing a plan to help us grow those deposits and I think it's been very.
Unknown Executive: Very helpful. Because in the last 12 months, we've seen the fruition of a lot.
Unknown Executive: While these plans, helping us grow the deposit side so.
Unknown Executive: What I would tell you is we probably have a couple of other products that we're working on.
Unknown Executive: Certainly, we're in the midst of executing on, you know, each one of the lines of the businesses' plans, and it's been relatively successful in a pretty hard market. And part of it, too, is that we do have the benefit, again, of having a lot of bankers that joined us over the last, I'll call it two years, and they're still moving business over. So we're fortunate that we have the benefit of kind of a pipeline of customers that we continue to work on.
Unknown Executive: Certainly we're in the midst of executing on each.
Unknown Executive: Each one of the lunch business plans and it's been relatively successful in a pretty hard market and part of it too is we do have the benefit again, we have a lot of bankers that joined us over the last call. It two years and they're still moving business over so we were fortunate that we have the benefit of kind of a pipeline of customers that we can.
Unknown Executive: Continue to work on your mood in deposits is slow right, so, especially whenever it's bigger commercial accounts.
Unknown Executive: You know, moving deposits is slow, right, especially whenever it's bigger commercial accounts. But, you know, Treasury has been instrumental, as John said. We've actually had a nice uptick in those commercial accounts. And it's just more of the same.
Unknown Executive: But you know treasury has been instrumentalist as John said, we've actually had a nice uptick in it.
Unknown Executive: And those commercial accounts and it's just more of the same executing at this point.
Unknown Executive: Yeah.
Michael Edward Rose: That's great, Kyler. I appreciate it. Maybe just as a follow-up, expenses stepped down this quarter, and I think you said less than 5% year-on-year growth. Can you just talk about some of the... I know you guys have done some cost cutting, and you guys are highly focused on expenses, but at the same time, ongoing investments to continue to build the earnings power of the company, right? And I know some of that is on the deposit side, as you mentioned, John, or Bart. Excuse me. And then, can you just talk about some of the other areas that you're continuing to invest in as we think beyond this year and into the next couple of years? Thanks.
Speaker Change: That's great color I appreciate it.
Michael Edward Rose: Maybe just as a follow up.
Michael Edward Rose: Expenses stepped down this quarter and I think you said less than.
Michael Edward Rose: Kind of 5% year on year growth can you just talk about some of the I know you guys have done some some cost cutting and you guys are are highly focused on expenses, but at the same time I mean, yeah ongoing investments to continue to build you know are the the earnings power of the company right and I know some of that is Ahmedabad societies dispatch them John.
Michael Edward Rose: Our BARDA excuse me and then can you just talk about some of the other areas that.
Michael Edward Rose: You know you're continuing to invest then you know as we think beyond kind of this year and into the next couple of years. Thanks.
Unknown Executive: Yeah, Michael, you know, the biggest number, of course, is salary expenses. And we do all of our annual raises in the first quarter. So we have a pretty good handle on that number going forward. We don't have a lot of openings.
Unknown Executive: Yeah. So Michael you know the the biggest number of courses salary expenses and we do all of our.
Kyler: Annual raises in the first quarter or so so we have a pretty good handle on that number going forward. We we don't have a lot of openings, we're not looking to hire a lot of people. So it helps give us confidence on on that number.
Unknown Executive: We're not looking to hire a lot of people, so it helps give us confidence in that number. You know, we did talk about opening a branch. Obviously, we have to hire people for that.
Unknown Executive: We did talk about opening a branch I'm, obviously, we have to hire people for that but we literally have 30 fewer employees today than we did a year ago. So we think we've done a pretty good job managing that.
Unknown Executive: But we literally have 30 fewer employees today than we did a year ago, so we think we've done a pretty good job managing that. You know, I'd say pretty confident on salary numbers going forward, not increasing too much. Some of the other things are, you know, a little harder.
Unknown Executive: I'd say, a pretty good confidence on salary numbers going forward not increasing too much some of the other things are you know a little harder sometimes you have legal expenses, you weren't expecting or consulting or that sort of thing that you know.
Unknown Executive: Sometimes you have legal expenses you weren't expecting, or consulting, or that sort of thing. But, you know, I think we've done a pretty good job managing that. You know, no big expenses that I'm aware of that we're soon to add. We do have one more branch that is kind of in the process, but we already have employees there. So there's not going to be a big increase in expenses. It's an administrative office today, and it'll become a full branch within months, I think. But again, no big increase in expense. You know, I think holding under that 5%, unless something out of the ordinary happens, should be relatively easy.
Unknown Executive: No no.
Unknown Executive: No big expenses that I'm aware of that we're soon to add we do have one more branch that is kind of in process, but we already have employees. There. So there's not going to be a big increase in expenses. It's an administrative office today and will become a full branch within months I thing.
Unknown Executive: But but again no big no big increase in expense.
Unknown Executive: I think holding under that 5% unless something out of the ordinary happens should should be relatively easy and a little different color taken toward their perspective, Michael is that you.
Unknown Executive: And a little different perspective, taking it from a different angle, Michael, is that, you know, we kind of have decided to really focus in on priorities. So, you know, for us, particularly, when it comes to project management or new software, I mean, we have really been surgical in our approach in that we've simplified our processes, and any new projects have been tailored down to just a handful versus being wider. So, you know, we're spending more resources and focusing on the important things, which is developing deposits, developing businesses, and reducing distractions from other things.
Unknown Executive: We kind of have decided to really focus in on priorities. So you know for us, particularly when it looks like like project management or new software I mean, we have really been surgical in our approach that we've simplified our processes and.
Unknown Executive: Any new projects have been tailored down to just a handful of horses broader so you know what.
Unknown Executive: We're spending more resources.
Unknown Executive: In focusing on the important things, which is developing deposits developing business and less distractions from from other things and I think we're just getting better and better refining and what also saves there's a philosophical difference in the company that it is not just big things like staffing, it's little things. So theres a focus in just everywhere.
Unknown Executive: And I think we're just getting better and better at refining. And what I also say is there's a philosophical difference in the company, that it's not just big things like staffing; it's little things. So, you know, there's a focus everywhere, in any job position, looking at how we can simplify it and do it more efficiently. And a lot of little things add up to big things, right? And so there are big and little things happening, and it's kind of changing hearts and minds internally that we're all rowing in the same direction. And I think we still have a lot of efficiency to gain as these things take momentum.
Unknown Executive: Any job position looking at how we can simplify it and do it more efficiently in a lot of little things add up to big things right and so it's big and little things happening and its kind of changing hearts and minds internally.
Unknown Executive: We're all rowing in the same direction and I think we still have a lot of efficiencies to gain.
Unknown Executive: As these things take momentum.
Speaker Change: No, that's great and well understood and I think putting it all together just last question for me.
Michael Edward Rose: No, that's great and well understood.
Unknown Executive: And, you know, I think putting it all together, just my last question, you know, for me, is just, you know, Bart, you talked about operating leverage and, you know, the strength there, I think, for a growth bank, you know, especially given the intense focus on the expense side of being surgical, as you mentioned, as we think kind of intermediate to longer term, you know, balancing growth and investment together. I mean, do you think ultimately the goal at this point in your life cycle is to continue to drive that efficiency ratio down? You know, again, intermediate and longer term to somewhere below 60%? Does that just feel theoretically right? You know, as you think about the franchise over the next three to five years?
Unknown Executive: It's just.
Unknown Executive: Bart you talked about operating leverage and the strength there I think for a growth bank, especially given the intense focus on the on the expense side it'd be in surgical as you mentioned.
Unknown Executive: As we think kind of intermediate to longer term balancing the growth and investment.
Unknown Executive: Together I mean do you think ultimately the goal at this point your lifecycle is to continue to drive that efficiency ratio down.
Unknown Executive: Intermediate longer term to somewhere below 60% does that just.
Unknown Executive: Theoretically feel right you know as you think about the franchise over the next three to five years.
Unknown Executive: It's funny, you say that one it's not going to take three to five years.
Unknown Executive: It's funny you say that. One, it's not going to take three to five years, but you know, there's a strong emphasis internally to get our efficiency ratio to something that starts with a five. So that's what I've been told, and everybody in the organization knows it, and everybody has been just a great supporter of trying to get us there. So, you know, I'm not going to predict exactly when we get to something that starts with a five, but I will tell you internally there's a heavy emphasis on us finding our way there.
Unknown Executive: There's a strong emphasis internally to get our efficiency ratio to something that starts with a five so that's what I have been said and everybody in the organization knows it and everybody has been just great supporters of trying to get US. There. So you know I'm not going to predict exactly when we get to something.
Unknown Executive: It starts with a five but I will tell you internally, there's a heavy emphasis of us finding our way there and part of that would be a little growth, but you know it's also more focus on the <unk>.
Unknown Executive: And, you know, part of that will be a little growth, but, you know, it's also more focused on the, you know, expense side. And the two are going to marry up, and, you know, hopefully, we get there a lot sooner than you think.
Unknown Executive: <unk> side and the two is going to marry up and hopefully we get there a lot sooner than what you all think.
Michael Edward Rose: Perfect. And I lied. Maybe one last one just for John, what drove the increase in service charges this quarter? And is that a decent run rate to think about? I'm just curious if there's any kind of one-time, you know, catch up or anything in there. Thanks.
Unknown Executive: Okay.
Michael Edward Rose: Perfect.
Speaker Change: I like maybe one last one just.
Speaker Change: For John.
Speaker Change: What drove the increase in service charges this quarter and is that a decent run rate to think about it I'm. Just curious if there's any kind of one time catch up or anything in there. Thanks.
Speaker Change: So the service charges this quarter related more to loans or at least to increase related more to loans and deposits, which is something we haven't necessarily seen in the past, but it's just all the little things I mean.
Unknown Executive: So the service charges this quarter related more to loans, or at least the increase related more to loans than deposits, which is something we haven't necessarily seen in the past, but it's just all the little things, you know, charging customers for not using unfunded lines and things like that. So, you know, that that line item itself may go down just a little bit. But I mean, for the most part, I think it's a good number.
Unknown Executive: You know charging customers for not using unfunded lines and things like that so you know that.
Unknown Executive: That line item itself may ticked down just a little bit, but I mean for the most part.
Unknown Executive: I think it's a good number I mean that same 2 million dollar run rate is pretty.
Unknown Executive: I mean, that same $2 million run rate is pretty good. You know, we don't expect a lot of swaps income like we've had in years past, but I think there are other little things making up for it. And, you know, we are comfortable with that $2 million number, a little bit more than $2 million going forward.
Unknown Executive: Pretty good you know, we don't expect a lot of swaps income like we've had in years past, but I think theres other little things, making up for it.
Unknown Executive: We're comfortable with that $2 million number a little bit more than 2 million going forward.
Michael Edward Rose: Perfect. I appreciate all the color. Thanks. Thank you.
Michael Edward Rose: Perfect I appreciate all the color. Thanks.
Speaker Change: Thank you.
Michael Edward Rose: Next question Woody lay with <unk>. Please go ahead.
Woody Lay: Next question is from Woody Lay with KBW. Please go ahead.
Woody Lay: Hey, good morning, guys.
Woody Lay: Good morning.
Woody Lay: I wanted to ask one follow-up question just on expenses, that as we think about next quarter, you know, it sounds like you remain very expense focused, but it's the, you know, roughly 26 million is at a pretty good run rate going forward.
Woody Lay: Wanted to ask.
Woody Lay: Just one follow up just on expenses as we think about next quarter you know it sounds like you remain very expense focus, but as you know the roughly 26 million without a pretty good run rate going forward.
Unknown Executive: It is, It was a pretty clean number.
Unknown Executive: It is it was a pretty clean number.
Unknown Executive: Okay.
Unknown Executive: Um, and then shifting over to credit, you know, the MPAs remain stable, but I was just curious about any trends within the criticized or classified bucket that you could speak of.
Unknown Executive: And then shifting over to credit you know the M. P. As remain stable, but was just curious on any trends within the criticized are criticized or classified bucket that you could speak on.
Audrey A. Duncan: I'm sure this is Audrey. I can answer that. We had a few downgrades in the quarter. They don't show up in the non-performing because they are still paying and accruing. But one of them was a consumer, kind of a consumer notes receivable loan. We've got a 60% LTV on that. We have a few assisted living facilities, with brand new appraisals on those with a 69% LTV. And then there is another kind of discretionary consumer goods manufacturer. We have an owner-occupied building and a line of credit, and we've got a well below 55% LTV on that owner-occupied real estate.
Unknown Executive: I'm sure. This is Andre I can answer that we had a.
Audrey A. Duncan: A few downgrades in the quarter.
Audrey A. Duncan: They don't show in the nonperforming because they are still paying.
Audrey A. Duncan: Paying and accruing, but one of them was a consumer kind of consumer notes receivable loan we've got a 60% LTV on that we have a few assisted living facility brand new appraisals on those with a 69%.
Audrey A. Duncan: T V and then another.
Audrey A. Duncan: Discretionary consumer goods manufacturer, we have an owner occupied building and our line of credit and we've got a.
Audrey A. Duncan: Well below 55% LTV on that owner occupied real estate.
Audrey A. Duncan: Alright.
Woody Lay: All right, that's helpful color. And maybe last for me, you know, I know there was some seasonal seasonal noise in the deposits, but if I sort of strip out that 175, you still had 8% deposit growth. Is the goal from here to match the loan growth with the deposit growth?
Audrey A. Duncan: Helpful color.
Woody Lay: And maybe last for me you know I know there is some seasonal seasonal noise the deposits, but if I sort of strip out that 175, I mean, you still had 8% deposit growth is the goal from here to to match the loan growth with deposit growth.
Unknown Executive: It is. So, you know, if we're guiding to three or 400 million in loan growth, which is what we expect, the deposits are going to be about the same thing that we'll manage around it. We can always adjust our wholesale funding to not get too terribly far ahead of ourselves. But, you know, a loan to deposit ratio of kind of that 94 to 98% is what you should probably expect us to run at for the rest of the year.
Unknown Executive: It is so you know if we're guiding to three or $400 million in loan growth, which is what we expect that the deposits are going to be about the same thing that we'll manage around it that we can we can always adjust our wholesale funding to not get too terribly far ahead of ourselves but.
Unknown Executive: Our loan to deposit ratio and kind of that you know now.
Unknown Executive: <unk>, 94% to 98% is what you should probably expect us to run at for the rest of the year.
Speaker Change: Alright, thanks for taking my questions.
Woody Lay: Alright, thanks for taking my questions.
Speaker Change: Thank you.
Operator: Once again, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from Thomas Wendler with Stevens. Please go ahead.
Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Operator: Next question comes from Thomas Wendler with Stephens. Please go ahead.
Thomas Wendler: Hey, good morning, everyone. Morning. We saw some build-up in excess liquidity towards the end of the first quarter with these seasonal deposits running off. Can you give us an idea of just where you expect the excess liquidity to shake out?
Thomas Wendler: Hey, good morning, everyone.
Thomas Wendler: Good morning.
Thomas Wendler: We saw some build in excess liquidity towards the end of the first quarter with the seasonal deposits running off can you give us an idea of just where you expect the excess liquidity to shake out.
Thomas Wendler: So most of the excess liquidity, we just kept in cash because we knew it was somewhat seasonal just based on the customers that we're sending to us. So it was literally just in cash at the fed or maybe at one of our correspondents and.
Unknown Executive: So most of the excess liquidity we just kept in cash because we knew it was somewhat seasonal just based on the customers that were sending it to us. So it was literally just in cash at the Fed or maybe one of our correspondents. And you know, as I mentioned, we've had, you know, about $150 million already this month roll off. So it's tax-related sort of stuff for a couple of our customers. It was relatively few customers that caused the seasonality. So, you know, the rest of the balance sheet is not going to be much affected by it, just cash. Okay, thanks for that. And then
Unknown Executive: As I've mentioned, we've had about $150 million already this month roll off so its tax related sort of stuff for a couple of our customers. Those are relatively few customers that that cause the seasonality. So you know the rest of the balance sheet is not going to be much much affected by just just cash.
Unknown Executive: <unk>.
Speaker Change: Okay. Thanks for that and then can you give us an idea of what youre seeing for loan yields on new production.
Unknown Executive: Okay, thanks for that. And then, can you give us an idea of what you're seeing for loan yields on new production?
Unknown Executive: Okay.
Unknown Executive: Typically we don't go below sales were plus 300.
Speaker Change: Yeah, we're we're kind of looking at each other I think.
Unknown Executive: Sorry.
Speaker Change: Right. So I mean, you know the thing is if you think about we have kind of <unk>.
Unknown Executive: Barge divisions within in each one of them operates a little differently than some of our fee income based versus those but I think what.
Speaker Change: Yes, I mean, the best thing we would probably say is so proposed 300 is sort of like the decision point.
Unknown Executive: We're kind of looking at each other.
Unknown Executive: Sports. Right. I would say so. And the builder... That's in the, you know, eight and a half range. Yeah. Some of the fixed rate deals that we're doing, of which there are not many, may be a little bit lower than that, but we're averaging over 8%. The builder group is typically around prime, Prime Floating, but they have a lot of other fees.
Unknown Executive: If it goes below that and it has to be a special reason for it and but I think we're probably averaging just a little above that a few basis points right I would say so.
Unknown Executive: In the builder and.
Unknown Executive: Eight and a half range yes.
Unknown Executive: Some of the fixed rate deals that we're doing of which theres not many may be a little bit lower than that but where we're averaging over 8%.
Unknown Executive: Builder group is typically around prime.
Unknown Executive: I'm floating but they have a lot of other fees.
Unknown Executive: [inaudible]
Unknown Executive: Enhance that to get it back up to that.
Thomas Wendler: All right, thanks for answering my questions. Yeah, that was great. Thank you.
Speaker Change: Alright, some change yeah.
Speaker Change: Alright, Thanks for answering my question Bob.
Bart O. Caraway: There are no further questions. I would like to turn the call over to Mr. Caraway for closing remarks.
Bart O. Caraway: Yeah that was great. Thank you.
Bart O. Caraway: There are no further questions I would like to turn the call over to Mr. Caraway for closing remarks.
Bart O. Caraway: Well, thank you, Stacy, and thank you all for joining us on the call and your continued support of Third Coast Bank shares. We look forward to speaking with you next quarter.
Caraway: Oh, well, thank you Stacy and thank you all for joining us on the call and your continued support of <unk> Bancshares, We look forward to speaking with you next quarter.
Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.