Q2 2024 Third Coast Bancshares Inc Earnings Call
Operator: Greetings and welcome to the Third Coast Bank Second 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, Ken Denard.
Greetings and welcome to the third Coast Bank second 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.
<unk> on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Ken Dennard.
Ken Denard: Thank you, operator. And good morning, everyone.
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.
Ken Denard: We appreciate you joining us for the Third Coast Bank Shares 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.
With me today is bar Caraway, Chairman, President and Chief Executive Officer, John Mcwhorter, Chief Financial Officer, and Audrey Duncan Chief Credit Officer first a few housekeeping items, there will be a replay of today's call and it'll be available by webcast on the investors section of the website and that's.
Ken Denard: There will be a replay of today's call, and it will be available by webcast on the investor section of the website. And that's ir.thirdcoast.bank There will also be a telephonic replay available until August 1, 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 speaks only as of today, July 25th, 2024, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.
I R Dot third coast Dot bank.
It will also be a telephonic replay available until August 1st 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 speaks only as of today July 25, 2024, and therefore, you are advised that time sensitive information may no.
Longer be accurate as of the time of any replay listening or transcript reading.
Ken Denard: 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 law. 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 managers. 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.
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 seven 2024 to better understand those risks uncertainties and contingencies.
Ken Denard: 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'd like to turn the call over to the Chairman, President, and CEO of Third Coast, Mr. Bart Caraway.
Comments made today will also include certain non-GAAP financial measures additional details and reconciliation to the most directly comparable GAAP financial measures are included in yesterday's earnings release.
Which can be found on the third coast website now I'd like to turn the call over to this third coast Chairman President and CEO, Mr. Bart Caraway Bart.
Bart O. Caraway: Good morning everyone and thank you, Ken. Welcome to the TCBX second quarter earnings call. I'll start by outlining a few performance highlights, followed by John's financial review and Audrey's credit quality review. Then I will discuss our outlook for the third quarter and the rest of the year.
Good morning, everyone and thank you Ken welcome to the T. C. D X second quarter earnings call I'll start by outlining a few performance highlights followed by John's Financial review and Audrey is credit quality repeat then I will discuss our outlook for the third quarter and the rest of the year.
Bart O. Caraway: To start, I'd like to highlight the great strides the company has made in improving profitability. Since our first quarter as a public company, which was the fourth quarter of 2021, I'd like to note some of the progress. First, we have grown quarterly net interest income from $24.6 million to $38.9 million, a dramatic increase of 57.8 percent. Additionally, we have decreased non-interest expenses for three consecutive quarters, resulting in a non-interest expense to average earning asset ratio of just 2.39 percent.
To start I'd like to highlight the great strides the company has made in improving profitability.
Bart O. Caraway: We have also improved our efficiency ratio since the fourth quarter of 2021 from 75.3% to 61.4%, and we have also doubled our allowance for credit losses from $19.3 million to $38.2 million. The net result has been an increase in tangible book value of $4.90, or 23.7%, to $25.60. Additionally, we have successfully opened new branch locations in Austin, Texas, and the Woodlands, Texas, expanding our presence in the Texas Triangle region to 18 branches. Although we are proud of what we have accomplished, we think our best days are ahead. With that, I'll turn it over to John. John. Thank you, Bart. And good morning, everyone.
Since our first quarter as a public company, which was the fourth quarter of 2021 I'd like to note. Some of the progress first we have grown quarterly net interest income from $24 6 million to $38 9 million a dramatic increase of 57, 8%.
Also we have decreased noninterest expenses for three consecutive quarters, resulting in a noninterest expense to average, earning asset ratio of just $2 three 9%.
We have also improved our efficiency ratio since the fourth quarter of 'twenty, one 2021 from 75, 3% to 61, 4% and we have also doubled our allowance for credit losses from $19 3 million to $38 2 million.
The net result has been an increase of tangible book value of $4.90 or 23, 7% to $25.60.
Additionally, we have successfully opened new branch locations in Austin, Texas, and the Woodlands, Texas, expanding our presence in the Texas triangle region to 18 branches.
Although we are proud of what we have accomplished we think our best days are ahead with that I'll turn it over to John John.
John McWhorter: In yesterday's earnings release, detailed financial tables were provided, so today I'll offer further insights into specific financial results for the second quarter. Our second quarter net income was $10.8 million, resulting in a 10.5% return on equity, a record diluted earnings per share of 63 cents, and a return on average assets of 97 basis points. Net interest income was up 8.2% on an annualized basis, despite modest loan growth for the. Loans grew by $12 million for the quarter, coming in under initial projections, mainly because of higher than expected payday. Specifically, we chose not to bid on new bond anticipation notes due to lower spreads. Bond anticipation notes are classified as tax-free municipal loans on the balance.
Thank you Bart and good morning, everyone and yesterday's earnings release detailed financial tables were provided.
So today I'll offer further insight into specific financial results for the second quarter or.
Our second quarter net.
Pinpoint 8 million, resulting in 10.5% return on equity a record diluted earnings per share of <unk> 63, and our return on average assets of 97 basis points net.
Net interest income was up eight 2% on an annualized basis, despite modest loan growth for the quarter.
Loans grew by $12 million for the quarter coming in under initial projections, mainly because of higher than expected pay down.
Specifically, we chose not to bid on new bond anticipation notes due to lower spreads.
Bond anticipation note, which are classified as tax free municipal loans on the balance sheet.
John McWhorter: They paid down $40 million in the second quarter, and approximately $40 million more in paydowns for the third quarter will take us down to zero. They were among the lowest yielding loans on the books at approximately 5.5%. Overall loan pipeline for the third and fourth quarters appears strong and in the $50 to $100 million range. Non-interest expenses were down slightly for the third consecutive quarter, and we continue to target a base in the $26 million.
Paid down $40 million in the second quarter and approximately $40 million more in pay down for the third quarter will take us down to zero.
They were among the lowest yielding loans on the books at approximately five 5%.
Overall loan pipeline for the third and fourth quarters appears strong and in the $50 million to $100 million range.
Noninterest expenses were down slightly for the third consecutive quarter and we continue to target a.
Target of base and the $26 million.
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John McWhorter: Investment securities were up $40 million for the quarter, and AOCI improved from $2.9 million to $4.2 million. With rates at current levels, it is unlikely that we will add to the portfolio in the third quarter. Tax expense for the quarter was $3.4 million, for an effective rate of 24%.
Investment Securities were up $40 million for the quarter and Aoc I improved from $2 9 million to $4 2 million.
With rates at current levels, it's unlikely that we will add to the portfolio in the third quarter.
Tax expense for the quarter was $3 4 million for an effective rate of 24%. This increase was due to the roll off of tax free loans previously mentioned and Finalization of our year end accruals, we expect our effective rate to be approximately 22, 5% in the third quarter.
John McWhorter: This increase was due to the roll-off of tax-free loans previously mentioned and the finalization of our year-end accrual. We expect our effective rate to be approximately 22.5% in the third quarter, due to asset liability management and anticipation of lower rates. We have moved from 1.4% asset sensitive to 0.9% liability sensitive, a change of almost 2.3%. As we highlighted last quarter, deposit growth in the first quarter exhibited seasonal patterns, and as anticipated, deposits decreased for the second quarter.
Regarding asset liability management in anticipation of a lower rates, we have moved from 1.4% asset sensitive to 0.9% liability sensitive.
<unk> of almost two 3%.
Okay.
As we highlighted last quarter deposit growth in the first quarter exhibited seasonal patterns and as anticipated deposits decreased for the second quarter we.
John McWhorter: We did improve the overall deposit mix by adding more non-interest-bearing deposits. Our loan-to-deposit ratio was 97%, aligning closely with the projected range of 95% to 98%. I'm expected to be maintained throughout the remainder of the year. Since we were capital accretive for the quarter, the bank dividended $10 million to the holding company to both maintain cash reserves and pay down $7 million in debt, which we had at a rate of 7.85%. That completes the financial review. And at this point, I'll pass the call to Audrey for our credit quality review.
We did improve the overall deposit mix by adding more noninterest bearing deposits.
Our loan to deposit ratio was 97% aligning closely with the projected range of 95% to 98% expected to be maintained throughout the remainder of the year.
Since we are a capital accretive for the quarter the bank dividend at $10 million to the holding company to both maintain cash reserves and pay down $7 million in debt, which we had at a rate of 785%.
That completes the financial review and at this point I'll pass the call to Audrey for our credit quality.
Audrey A. Duncan: Thank you, John, and good morning, everyone. Our loan portfolio remains strong during the quarter, and I'd like to add some color to the numbers shared in yesterday's earnings release. Classified assets declined $20 million, or 33.4%, during the second quarter. The decline was primarily the result of the payoff in full of a $14.6 million substandard loan. Non-performing loans to total loans increased slightly to 0.65% from 0.58% the previous quarter, primarily due to one relationship totaling $7.9 million that was placed on non-accrual. The combined LTV is 69% based upon 2024 appraisals, and we do not anticipate a loss.
Thank you John and good morning, everyone. Our loan portfolio remained strong during the quarter and I'd like to add some color to the numbers shared in yesterday's earnings release.
Massify it assets declined 20 million or 33, 4% during the second quarter. The decline was primarily the result of the payoff in full of our $14.6 million sub standard loan non performing loans to total loans increased slightly to 0.65%.
0.58% the previous quarter, primarily due to one relationship totaling $7 9 million. It was placed on non accrual. The combined LTV is 69% based upon 2024 appraisals and we do not anticipate a loss.
Bart O. Caraway: Net charge-offs for the quarter totaled $1.8 million, which was primarily due to the $1.2 million charge-off of a Main Street Lending Program loan. The bank originated six Main Street loans, of which two remain and both are current. The combined gross fee income from the Main Street loans was $1.7 million. The 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 increased slightly to 20%, while owner-occupied and non-owner-occupied CRE represented 13% and 16% of total loans, respectively.
Net charge offs for the quarter totaled $1 8 million, which was primarily due to the $1.2 million charge off of the main street lending program loan the.
The bank originated six main street loans of which two remain in both our current combined gross fee income from the main street loans was $1.7 million.
The 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 increased slightly to 20%, while owner occupied and non owner occupied CRE represented.
13% and 16% of total loans respectively.
Bart O. Caraway: Office space represented 3.8% of total loans, with a little over half being owner occupied. Medical office space was another 1.3% of total loans. Consistent with previous quarters, the office portfolio generally consists of Class B office space with some owner-occupied C space and is all located in our Texas footprint. The average LTV of our office portfolio is approximately 50. 60%. And the average LTV for medical office properties is approximately 55%, multifamily represents 3.3% of total loans and has an average LTV of 59%. And with that, I'll turn the call back to Bart.
Office represented three 8% of total loans with a little over half being owner occupied medical office was another one 3% of total loans.
Consistent with previous quarters. The office portfolio generally consist 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 50, 60% and the average LTV for medical office is approximately 55%.
Multifamily represents three 3% of total loans and has an average LTV of 59% and with that I'll turn the call back to Bart Bart. Thank you Audrey before delving into discussions regarding our third quarter expectations and the outlook for the remainder of the year I wish to extend my heart.
Bart O. Caraway: Thank you, Audrey. Before delving into discussions regarding our third quarter expectations and the outlook for the remainder of the year, I wish to extend my heartfelt appreciation to our dedicated team of employees. In the wake of Hurricane Beryl's impact on the Texas coast and several of our markets a few weeks ago, our team faced unprecedented challenges, including prolonged power outages and disrupted communication services. Despite such adversities, our team's resilience and dedication shone through as they rallied together to support one another and serve our customers and communities with an unwavering commitment during this trying time. I am profoundly grateful for their exceptional effort.
Felt appreciation to our dedicated team of employees in the wake of Hurricane barrels impact on the Texas coast and several of our markets a few weeks ago, our team faced unprecedented precedented challenges, including prolonged power outages and disrupted communication services despite such.
Adversities, our team's resilience and dedication shown through as they rallied together to support one another and serve our customers and communities with an unwavering commitment during this trying time.
I am profoundly grateful for their exceptional efforts.
Bart O. Caraway: As we plan for our operations in the third quarter, our primary focus remains on promoting sustainable growth through operational excellence. Although the full extent of the hurricane's impact on our expenses is still uncertain, we are determined. Prudently Managing Our Expenses. We will continue to promote our 1% Improvement Initiative, where we foster a culture of continuous improvement across the organization by empowering employees to bring creative ideas and utilize technology to enhance our operations and increase efficiency.
As we plan for our operations in the third quarter, our primary focus remains on promoting sustainable growth through operational excellence.
Although the full extent of the hurricane's impact on our expenses is still uncertain. We are dedicated to prudently managing our expenses. We will continue to promote our 1% improvement initiative, where we foster a culture of continuous improvement across the organization by empowering employees to <unk>.
Creative ideas and utilize technology to enhance our operations and increase efficiency.
Bart O. Caraway: We are committed to cultivating enduring, valuable customer relationships by empowering our bankers to deliver exceptional service and products. Regarding the loan pipelines, they still remain robust. We therefore continue to expect growth of 50 to 100 million per quarter, which should drive net interest income growth to exceed 10%. Coupled with non-interest expense growth of less than 5%, 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 committed to cultivating enduring valuable customer relationships by empowering our bankers to deliver exceptional service and products.
Regarding the loan pipelines they still remain robust. We therefore continue to expect growth of $50 million to $100 million per quarter.
This should drive net interest income growth to exceed 10% coupled with non interest expense growth of less than 5%. 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 in building excellence in our operations.
Bart O. Caraway: We are making headway in driving quality growth, enhancing the customer experience, and building excellence in our operations. This concludes our prepared remarks. I would now like to turn it back over to the operator to begin the question and answer session. Operator. Thank you.
This concludes our prepared remarks, I would now like to turn it back over to the operator to begin 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. Your first question comes from Michael Rose with Raymond James. Please go ahead.
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 before pressing the star keys.
Your first question.
It comes from Michael Rose with Raymond James. Please go ahead.
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. We're going to ask about the loan outlook. I know you said the municipal loans are going to kind of run off, but as we think about the third quarter, should we think about that 50 to 100 million net of that or inclusive or excluding that?
Hey, good morning, guys. Thanks for taking my questions, we're going to ask on the loan outlook. I know you said the municipal loans are going to kind of run off is that.
As we think about the third quarter should we think about that 50 to 100 million net of that or inclusive or excluding that.
Unknown Executive: really talking about the net. Yeah.
We're really talking about net yeah yeah.
<unk> often said for last couple of years that loan is going to be lumpy and I wish I could give you all exact projections, but we do see quite a bit of business. Obviously, we've been even more selective.
Unknown Executive: I, you know, we often said for the last couple of years that loans were going to be lumpy, and I wish I could give you all exact projections, but we do see quite a bit of business. Obviously, we've been even more selective this year with it, but we still see a nice pipeline. It's just going to be a little choppy as far as whenever it falls.
This year with it but we still see a nice pipeline, it's just going to be a little choppy as far as whenever it falls.
Bart O. Caraway: Got it. And Bart, if you can just kind of expand on, you know, kind of what you're hearing from customers. I mean, I assume most of the growth is still kind of, you know, client acquisition, new clients coming on. I saw you open, you know, two new branches. I assume that will kind of help as well. But, you know, we have heard, you know, from some other banks, maybe some larger ones, that, you know, customers are being a little bit more cautious here, even in Texas, just given some of the near-term uncertainty with the election coming up, things like that. But what are you generally hearing from, you know, your liners and then your customers out, you know, out there just as it relates to their growth plans and things like that? Thanks. Yeah.
Got it and Bart if you can just kind of expand on.
What you're hearing from customers I mean, I assume most of the growth is it still kind of client acquisition new clients coming on I saw you opened two new branches I assume that will what kind of help as well, but we have heard.
From some other banks, maybe some larger ones but.
Customers are being a little bit more cautious here, even in Texas I'm, just given some of the near term uncertainty with the election coming up things like that but what are you generally hearing from.
Your lenders and then your customers out.
Out there just as it relates to.
Their growth plans and things like that thanks.
Bart O. Caraway: Yeah, you know, it still seems like the economy, despite the headwinds, is doing well in our markets. But what I would call it is prudence from our customers, where they're being more selective in their business as well, being judicious about using, you know, their own capital and lower-cost funds of their own versus drawing down on lines, and just managing their businesses even more carefully with it. But I haven't seen any kind of dramatic swings in the market.
Yeah, I you know it still seems like the.
Economy, despite the headwinds is doing well in our markets, but what I would call. It as prudence from are our customers where they.
They are being more selective in their business as well.
Being judicious about using their own capital and lower cost you know funds have their own versus drawing down on lines and just managing their businesses, even more carefully with it but I haven't seen any kind of dramatic swings in the market.
Bart O. Caraway: For the most part, the customers that are coming to us are relationships where the banker has had a very long-term relationship, and more than likely has already been through a downturn with that customer before, so, you know, they're kind of prepared. Maybe they had to pivot a little bit with their business, but they've already sort of made that pivot now and are just, you know, waiting for some of the economic factors to turn. But I would almost call it business as usual with a little bit more caution.
For the most part the customers that are coming to us our relationships, where the banker has had a very long term relationship more than likely has already been through a downturn with that customer.
Before so you know they're kind of prepared maybe they had to pivot a little bit with their business that they've already sort of made that pivot now and are just.
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Waiting for some of the economic factors to turn but I would almost call it business as usual with a little bit more caution.
Michael Edward Rose: Very helpful. Thanks, Bart.
Michael Edward Rose: Maybe just one more for me just on fees. Really nice momentum again this quarter. I know, you know, last quarter you guys talked about something just north of $2 million a quarter. Obviously, we were above that, you know, this quarter. Can you talk about just some of the puts and takes? Like, I think last quarter you announced the benefits of, you know, monetizing the swap. You know, I know that's about $275 a quarter, but could you discuss some of the drivers of the performance and expectations going forward? Thanks.
Very.
Helpful. Thanks, Bart maybe just one more for me just on fees really nice momentum again.
This quarter I know you know last quarter, you guys talked about something just north of $2 million.
The quarter, obviously above that this quarter can you talk about just some of the puts and takes like I think last quarter, you announced the <unk>.
Benefits from monetize on the swap that you know I know.
That's about 275 a quarter.
But just can you discuss some of the drivers of the of the performance and expectations going forward. Thanks.
John McWhorter: Yeah, Michael, this is John. So, you know, we did have some excess SBIC fees for the quarter. And when I say excess, I mean just more than they had been running in recent quarters. But so far in July, loan fees look really strong, and they may make up whatever, you know, that excess was. So, you know, I still feel pretty good about the $2.5 million sort of range for fee income. So we had about $600,000 in SBIC. And, you know, it's hard to predict what it may be.
Yeah, Michael this is John so.
We did have some some excess SB I see fees for the quarter and when I say access I mean, just more than they had been running in recent quarters, but so far in July loan fees look really strong that they make that may make up whatever you know that access.
Was so I still I feel pretty good about the two and a half million dollars sort of range for fee income. So we had about 600000 and S. P. I C.
That's hard to predict what it may be it may be zero next quarter. It may be a couple of hundred thousand its not going to be 600, again, but the loan fees I think will make up the difference will be kind of in that $2 $5 million range.
John McWhorter: It may be zero next quarter. It may be a couple of hundred thousand. It's not going to be $600,000 again. But loan fees, I think, will make up the difference. We'll be kind of in that $2.5 million range.
Yeah.
Michael Edward Rose: Very helpful setback. Thanks, guys. Thank you.
Helpful I'll step back thanks, guys.
Thank you.
Operator: Next question, Woody Lay with KPW: please go ahead.
Next question Woody lay with <unk>. Please go ahead.
Hey, good morning, guys.
Good morning Woody.
Wood Neblett Lay: So I think in your opening comments, you made a comment about how your screen is liability sensitive right now. Just, you know, modestly, what sort of drove that change in the sensitivity to rates in the quarter?
So I think in your opening comments you made a comment about how your screen as liability sensitive right. Now just you know modestly, but what sort of drove that change and our sensitivity to rates in the quarter.
Unknown Executive: Yeah, you know, it's hard to change the balance sheet much from quarter to quarter. But if you remember back to last quarter, we had a lot more cash on the balance sheet, which is going to make us more asset sensitive. So increasing our loan to deposit ratio, having less cash, we bought a lot of investment securities that were fixed rate. You know, if next quarter our cash balances jump back up, it may take us closer to zero. But you know, we kind of did everything that we could within reason. You know, fixing loans at this point is not an easy thing to do. The customers obviously don't want to do that.
Yeah, you know it's hard to change the you know the balance sheet much from quarter to quarter, but if you remember back to last quarter, we had a lot more cash on the balance sheet, which is going to make us more asset sensitive so increasing our loan to deposit ratio, having less cash we bought a lot of investment securities that were fixed rate.
If next quarter, our cash balances jumped back up I mean, it may take us closer to zero, but we kind of did everything that we could within reason fixing.
Fixing loans at this point is it's not an easy thing to do the customers, obviously don't want to do that.
We're trying to be as proactive as we can.
Unknown Executive: But you know, we're trying to be as proactive as we can, and I don't see big changes in that, but we at least feel like we're well-positioned for changes in rates. Yeah, and I guess to kind of hone in on that is that this was all intentional. Obviously, you know, after we went public, we felt like we needed to be asset-sensitive and did a fantastic job of moving the balance sheet to be asset-sensitive, and now... You know, we just feel like with the potential rate drops that we want to prepare our balance sheet to be, you know, at least neutral, if not slightly biased towards, you And I think Johnson's a great job in that position to do that.
I don't see big changes in that but we at least feel like we're well positioned for for changes in rates.
Yes.
Kind of hone in on that is that this was all intentional obviously after we went public we felt like we needed to be asset sensitive and did a fantastic job of moving the balance sheet to be an asset sensitive but now.
We just feel like with the potentially the rate drops that we want to prepare our balance sheet to be at least neutral if not bias towards slightly liability sensitive I think Johnson, a great job of positioning us to do that.
Wood Neblett Lay: Yeah, that makes sense. And then the non-interest-bearing deposit trends we're encouraging in the quarter. Do you think there's momentum in the back half of the year where that segment can continue to grow from here?
Yeah that makes sense and then the noninterest bearing deposit trends were encouraging in the quarter do you think there's momentum in the back half of the year, where where that segment can continue to grow up from here.
Unknown Executive: Well, I'll say that we're making a lot of efforts to grow it. Again, this is one of the most challenging times to grow it, but there are a lot of initiatives internally in the bank. And, you know, I'm optimistic that we're going to make some headway. Hard to tell, you know, what that's going to look like as far as the end of the year is concerned. But I do believe that our non-interest-bearing number of accounts is growing, and we're trying to work very hard to grow that, you know, the actual balance is on.
Well I'll say that we're making a lot of efforts and then again. This is one of the most challenging times to grow that but there's a lot of initiatives internally in the bank and you know them.
Speaker Change: I'm optimistic that we're going to make some headway.
Speaker Change: Hard to tell you know what that's going to look like as far as it ended the year with it but I do believe that our noninterest bearing number of accounts are growing and we're trying to work very hard in growing that.
Actual balances on it.
Wood Neblett Lay: Yeah, and then maybe just last for me, you had the two branch openings in the quarter. Any more planned branch openings for the back half of the year?
Speaker Change: Yeah, and then maybe just last for me you had the two branch openings in the quarter any more planned branch openings for the back half of the year.
Unknown Executive: Yeah, so these were actually in the works for a while that are basically based on some teams and strategies that we've had. We have one more location that is on the drawing board potentially for approval, and then after that, we don't have any others in the works.
Speaker Change: Yeah. So these were actually in the work for a while that are basically based on.
Speaker Change: Some teams and strategies that we've had we have one more location.
Speaker Change: That is on the drawing board potentially for approval and then after that we don't have any other in the works.
Wood Neblett Lay: Alright, that makes sense. Thanks for taking my questions.
Speaker Change: Alright, it makes sense, thanks for taking my questions.
Speaker Change: Thank you.
Operator: The next question comes from Bernard von Gizycki with Deutsche Bank. Please go ahead.
Bernard Von Gizycki: Next question comes from Bernard <unk> with Deutsche Bank. Please go ahead.
Bernard Von Gizycki: Hey guys, good morning. So I just wanted to discuss some of the drivers of the NIM. You know, the NIM was better than expected and increased by two basis points. You also had a nice pickup in the loan yields of 11 basis points sequentially. I know, John, you mentioned the runoff of the low yielding munis helped there, and that offset the nine basis points pickup in total interest-bearing liabilities. Could you just provide some color on, you know, those pricing dynamics and just expectations for the NIM?
Bernard Von Gizycki: Oh, Hey, guys. Good morning, So just wanted to discuss some of the drivers of the NIM. The NIM was better than expected and increased to two basis points.
Speaker Change: You had a nice pickup in the loan yields of 11 basis points sequentially I know John you mentioned the run off of the low yielding munis are help there and then offset the nine basis points pickup in total interest bearing liabilities could you just provide some color on just pricing dynamics and just expectations on the NIM for <unk>.
Speaker Change: Yeah.
John McWhorter: Yeah, so you know, it was a little bit better in the second quarter than I had expected. I mean, that 360 range is, you know, kind of what we're targeting with where we are, you know, there's not a lot to reprice on the balance sheet. So that the improvement that we saw this time had more to do with mix than anything else. You know, we're not going to be driving big changes to the mix quarter over quarter. It was a little bit easier this time, but.
Speaker Change: Yeah. So it was a little bit better in the second quarter than I had expected I mean that $3 60 range is kind of what we're targeting with where we are you know theres not a lot to reprice on the balance sheets.
Speaker Change: And the improvement that we saw this time had more to do with mix than anything else.
Speaker Change: No, we're not going to be driving big changes to the mix quarter over quarter. It was it was a little bit easier this time, but.
John McWhorter: You know, kind of in that 360 range. I think whether rates stay where they are or if the Fed finally just does decide to start cutting rates, I just don't see a big, big change in that number. It should be about 360.
Speaker Change: You know kind of in that $3 60 range I think whether rates stay where they are or if the fed finally, just does decide to start cutting rates I just don't see a big big change in that number it should be about $3 16.
Bernard Von Gizycki: Okay, got it. And then maybe just moving to expenses, obviously, you talked about it a little bit, but, you know, came in lower than expected, a few lines. I was hoping to get some color on, you know, in the release, the decline in salary and benefits resulted from the operating efficiencies and the continued cost reduction measures that, you know, you guys have been talking about. I just want to use some color on, you know, maybe some of the details that drove that down for the quarter.
Speaker Change: Okay got it and then maybe just moving to expenses. Obviously, you know you talked about it a little bit, but you know it came in lower than expected.
Speaker Change: You know a few lines I was hoping to get some color on the release.
Speaker Change: You noted the decline in salary and benefits resulted from the operating efficiencies and the continued cost reduction measures that.
Speaker Change: You know you guys had been talking about I was just wondering if you can provide some color on that.
Speaker Change: Maybe some of the details that drove that down for the quarter.
John McWhorter: Yeah, so we've done a particularly good job on headcount over the last year or 18 months. We have essentially the same number of employees that we did 18 months ago, and, you know, we're just really happy with where we are with the number of people and the employees that we have. Now, after I made my comments, I was thinking about the third quarter having one extra day, and we do accrue salary expense on a daily basis, so that's probably several hundred thousand dollars extra for the third quarter just by itself.
Speaker Change: Yeah. So we've done a particularly good job on head count over the last year or 18 months, we have essentially the same number of employees that we did 18 months ago.
Speaker Change: We're just real happy with where we are with the numbers of people and the employees that we have now after I made my comments I was thinking about the third quarter does have one extra day and we do we do accrue salary expense on a daily basis. So that is probably several hundred thousand dollars extra for the third quarter.
Speaker Change: Just by itself, so what kind of be in that 26 to 26 and a half million dollar range. There are a couple of support people that we've hired recently there is a couple of lenders that were looking at and talking to you now.
John McWhorter: So we'll kind of be in that 26 to 26 and a half million dollar range. There are a couple of support people that we've hired recently. There are a couple of lenders that we're looking at and talking to. You know, the branches that we open, there are a couple of employees there.
The branches that we opened Theres a couple of employees there so.
John McWhorter: So, you know, it's unlikely. We've been super happy that we have cut expenses three quarters in a row. That's unlikely to happen again, but we don't see substantial growth either. It's going to be modest growth going forward, and I don't know what the percentages work out to be, and maybe two or 3%, but kind of in, you know. I think less than 26 and a half million would be my best guess.
Speaker Change: It's unlikely.
Speaker Change: We've been Super happy that we have cut expenses three quarters in a row that that's unlikely to happen again, but we don't see.
Speaker Change: Substantial growth either it's going to be modest growth going forward.
Speaker Change: What the percentages work out to be maybe two or 3%, but then.
Speaker Change: Less than $26 $5 million would be my best guess.
Bernard Von Gizycki: Okay, great. Thanks for taking my question.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Thank you.
Operator: Next question: Jordan Jen with Stevens, please go ahead.
Jordan Chad: Next question question, Jordan, Chad with Stephens. Please go ahead.
Jordan Jen: Hey, good morning. Thanks for taking my questions. Most of them have been answered, but I just wanted to touch on the interest-bearing deposit costs. Looks like it picked up a little bit, but I was just wondering if you guys could give any additional color on what you guys are seeing, and maybe on a month to month basis.
Speaker Change: Hey, good morning, Thanks for taking my question most of them have been answered, but I just wanted to touch on the interest bearing deposit costs.
Jordan: It looks like it ticked up a little bit, but I was just wondering if you guys could.
Jordan: Give any additional color on what you guys are seeing and maybe like a month to month basis.
Unknown Executive: Yeah, good question. I mean, that really has more to do with mixing than anything else.
Speaker Change: Yeah. Good question I mean that really has more to do with mix than anything else. We had so many deposits roll off for the quarter and some of them were relatively inexpensive it's not that we're putting on new deposits it at higher rates.
Unknown Executive: You know, we had so many deposits roll off for the quarter, and some of them were relatively inexpensive. It's not that we're putting on new deposits at higher rates. You know, our marginal cost of our bigger wholesale deposits has basically been fed funds. You know, moving accounts over, it seems like they're typically in the four and a half to five percent range.
Speaker Change: No.
Speaker Change: Our marginal cost of of our bigger wholesale deposits.
Speaker Change: Basically been fed funds and.
Speaker Change: In a moving accounts over it seems like there typically in the 4.5% to 5% range and we've talked about it before that whatever we don't do.
Unknown Executive: And, you know, we've talked about it before that, you know, whatever we don't do on a core basis, we're making up for on a wholesale basis, and it's hard to predict what that might be from quarter to quarter. But if the core stuff is going on the books at four, four and a half, and wholesale stuff is going on at five and a quarter, and, you know, the mix from there is just harder to say. But there weren't any. I know the cost of funds was up, but it wasn't anything different.
Speaker Change: On a core basis, we're making up for on a wholesale basis and its hard to predict what that might be from from quarter to quarter, but if if the core stuff is going on the books at four four and a half in life sales stuff is going on at five in a quarter and you know the mix from there is just just harder to say, but there there wasn't.
Speaker Change: I know the cost of funds was up but it wasn't anything different that we were doing.
Jordan Jen: Perfect. Thanks for answering my question.
Speaker Change: Perfect. Thanks for answering my question.
Operator: Next question is Dave Storms with Stonegate. Please go ahead.
Speaker Change: Next question, Dave storms with Stonegate. Please go ahead.
Speaker Change: Yeah.
Dave Storms: Good morning. I just wanted to touch on given the conversation on expenses. So you just have, is there any avenue to getting the efficiency ratio to a sub-60 number? And if there is, is there any sort of timeline or goal to get to that number?
Dave Storms: Good morning, just wanted to touch on given the conversation on expenses. So you just had there any avenue to getting the efficiency ratio to a sub 60 number.
Speaker Change: And I sort of was there any sort of timeline or.
Speaker Change: Goal to get to that number.
Speaker Change: Yeah.
John McWhorter: Yeah, Dave, you know, good question. You know, big round numbers are always nice, an easy goal of 60%. I mean, we certainly want to be better than that. But you know, our goal is to be the best we can be. Once we get to 60, I'm sure our next goal is going to be 58 or 56. And, you know, lower and lower from there.
Dave: Yeah, Dave Good question.
Speaker Change: <unk>.
John McWhorter: You know, as the bank continues to grow, I think it will be below 60. The timing is harder to predict. You know, if we grow loans 50, 75 million in the third quarter and expenses are, you know, relatively flat, maybe a little bit of growth, I mean, that may be enough right there to take us below 60. If not the third quarter, you know, probably the fourth quarter.
Dave Storms: No big round numbers are always nice easy goal, 60% I mean, we certainly want to be better than that but our goal is to be the best we can be once we get to 60 I am sure. Our next goal is going to be 58 or 56.
Dave Storms: In a lower and lower from from there.
Dave Storms: As the bank continues to grow.
Dave Storms: I think it will be below 60, the timing it's harder to predict you know if we grow loans $50 $75 million in the third quarter and expenses are.
Dave Storms: Relatively flat, maybe a little bit of growth I mean that may be enough right there to take us below if not if not third quarter, probably fourth quarter, but this concept of additional operating leverage where we're growing top line faster than expenses. We think is intact. We think that'll continue on.
John McWhorter: But, you know, this concept of additional operating leverage where we're growing top lines faster than expenses, we think is intact. We think that will continue for many quarters. And if I could add to that, I mean, it is a consistent topic with the management team. We talk about it every time that we get together.
Dave Storms: <unk> for.
Speaker Change: For many quarters and if I could add onto that I mean, it is a consistent topic with the management team. We talk about it every time that we get together so it's at the forefront.
Unknown Executive: So it's at the forefront of getting this operating leverage, and we're going to get there. It's just going to be a matter of time and growth that we need in order to get to be closer to higher performance. And it's just, I think this team has got a lot of experience and has found a lot of ways to cut costs. And indeed, on our internal plan, the team is ahead of what, you know, I projected us to be.
Speaker Change: Of getting this operating leverage and we're going to get there. It's just going to be a matter of time and growth that we need.
Speaker Change: In order to get to be closer to a high performing and it's just I think this team has got a lot of experience and has found a lot of ways to cut cost and indeed on our internal plan. The teams ahead of what our projected us to be.
Unknown Executive: And, you know, we've got some nice momentum. Again, as John said, a little growth will help a lot in just some time. We have some other avenues to be able to make us even more efficient. Again, we want to be a high-performance bank, you know, all across the board. It's just a matter of time when we get there.
Speaker Change: And we've got some nice momentum again as John said low growth will help a lot and just some time, we have some other avenues to be able to to make us even more efficient.
John: Again, we won't be a high performing bank.
John: All across the board.
John: It's just a matter of time, when we get there.
Dave Storms: And then just one more for me, with the headcount being in such a good position, are there any retention policies or anything like that to highlight to help keep the team operating at such a high level?
Speaker Change: Understood. That's very helpful. Thank you and then.
Speaker Change: Just one more for me with the head count being in such a good position are there any potential policies or anything like that to highlight.
Speaker Change: Team operating at such a high level.
Unknown Executive: Well, we basically talk about the hiring process around here, and the management team is very judicious. So, you know, we're keeping track of the number of assets to employees. And I think we all watch that monthly.
Speaker Change: Well, we basically talk about.
Speaker Change: The hiring process.
Speaker Change: Around the management team are very judicious. So we're keeping track of the number of assets to employees and I think we all watch that monthly and we're also very judicious about where we add and looking even bigger picture of what can be handled with software and scalable versus adding.
Speaker Change: You know our head count so I think just theres a lot of conversations about it. Our goal. We know is is to improve the efficiency ratio and with that I think that has helped guide everybody on HR decisions and I think that just can be continued the case I think what the momentum we have just because the continue in through the next few.
Unknown Executive: And we're also very judicious about, you know, where we add, and looking at the even bigger picture of, you know, what can be handled with software and scalable versus, you know, adding, you know, headcount. So I think there's a lot of conversations about it. Our goal, we know, is to improve the efficiency ratio. With that, I think that's helped guide everybody on, you know, HR decisions. I think that's just going to continue to be the case.
Unknown Executive: The momentum we have is just going to continue through the next few quarters for progress. I think it's become almost a cultural shift now because efficiency has become part of our lexicon, part of what we talk about culturally, and I think we're just going to get better at what we're doing.
Speaker Change: Quarters for progress and I think it's become almost cultural shift now because it's kind of this efficiencies become part of our lexicon part of what we talk about culturally and I think we're just going to get better at what we're doing.
Dave Storms: I understand. That's very helpful. Thank you for taking my questions and good luck in the next quarter.
Speaker Change: Understood. That's very helpful. Thank you for taking my questions and good luck next quarter.
Speaker Change: Thank you.
Thanks.
Stacey: There are no further questions, so I would like to turn the floor over to Bart Caraway for closing remarks.
Operator: There are no further questions. I would like to turn the floor over to Bart Caraway for closing remarks.
Bart O. Caraway: There are no further questions I would like to turn the floor over to Bart caraway for closing remarks.
Bart Caraway: Thank you, Stacey. Just appreciate everybody for joining us on the call and your continued support of Third Coast Bank Shares, and we look forward to speaking to you next quarter. Thank y'all.
Bart O. Caraway: Thank you, Stacey. I just appreciate everybody for joining us on the call and your continued support of Third Coast Bank Shares, and we look forward to speaking to you next quarter. Thank y'all.
Bart O. Caraway: Thank you Stacy.
Bart O. Caraway: Just appreciate everybody for joining us on the call and your continued support of <unk> Bancshares and we look forward to speaking to you next quarter. Thank you all.
Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Unknown Executive: This concludes today's teleconference. You may disconnect your line at this time, and thank you for your participation.
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Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Bart O. Caraway: Okay.
Bart O. Caraway: [music].