Third Coast Bancshares, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Third Coast Bank Share's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. A 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. I would now like to turn the conference over to your host today, Ken Denard, with Denard Lasker Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bank Shares inaugural conference call and webcast to review first quarter 2022 results. With me today is Bart Carraway, Chairman, President, and Chief Executive Officer, John McWhorter, Chief Financial Officer, and Audrey Duncan, Chief Credit Officer. First, a few housekeeping items to run through. There'll be a replay of today's call and it will be available by webcast on the investor sections of the website ir.bcbssb.com. There'll also be a telephonic replay available until May 5th, 2022. More information on how to access these replay features were included in yesterday's earnings release. Please note that information reported on this call speaks only as of today, April 29th, 2022. Therefore, you're advised that time-sensitive information may no longer be accurate as the time of any replay listening or transcript reading. 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 company's prospectus or annual report on Form 10-K that was filed March 17, 2022, to understand certain of those risks, uncertainties, and contingencies. Comments today may 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 also be found on the Third Coast website. Now with that behind me, I'd like to turn the call over to Third Coast Chairman and CEO, Mr. Bart Carraway. Bart.

Thanks, Ken, and good morning to everyone. Thank you for joining us today for our first quarter 2022 earnings conference call. Because this is Third Coast's first earnings call since completing our IPO in mid-November, I'd like to welcome our employees, shareholders, and analysts. Third Coast IPO would not have been possible without the commitment and dedication of our employees, and I'd like to thank them for their efforts. As for today's agenda, I'll give a brief overview of Third Coast Bank and our first quarter performance. After that, John will provide a more detailed financial review, Audrey will give a credit update, and then I will return with our outlook before we take your questions. But before I get to that, I would like to remind everyone of the history of Third Coast and some of the topics during the IPO Roadshow. I'll begin with some of the key milestones in the bank's history. Third Coast was chartered in 2008 as a $17 million de novo bank with five employees working on temporary folding tables in Humboldt, Texas. In 2011, Third Coast had over $200 million in total assets. And just four years later, the bank doubled in size, surpassing $400 million in total assets. By our 10th anniversary in 2018, we doubled in size again, achieving $800 million in assets. The bank has always had a strong growth story, averaging 29% CAGR through 2019. From 2019 on, the bank has had three consecutive transformational events. The first was merging with Heritage Bank on January 1, 2020. which put us over the $1 billion in total assets. The second was PPP. As we were prolific PPP and Main Street lending producers, originating 5,700 loans for nearly $850 million, which helped us double in size again. Then in 2021, due to the disruption in the banking markets and changes associated with the pandemic, we seized the opportunity to lift out some impactful banking talent en masse. We recruited a premier builder finance team, several community banking teams, a middle market CNI group, and a wealth management group. Altogether, we hired over 70 new bankers and more than doubled our sales force. Fast forward to today. Third Coast is a $3 billion bank and one of the fastest growing financial institutions in the nation. We have more than 330 employees in 13 branches across the state of Texas. consisting of seven branches in the Greater Houston Market, four branches in the Dallas-Fort Worth Market, and two branches in the Austin-San Antonio Market. We believe our footprint enhances our geographic diversity across the state of Texas, and our business lines position us for continued organic growth both in and around our markets we serve. As a reminder, our business lines consist of community banking, corporate banking, and specialty finance. And part of the story today I would like to convey is that the progress of our business lines has met or exceeded expectation, that management has done what they said they were going to do, and that the overall plan execution for the bank is going exceptionally well. Over the past six months, we have met with over 50 institutional investors and answered a lot of questions. During those meetings, we talked a lot about Third Coast financial goals and objectives. Today, I'm pleased to share with you that we have met or exceeded our stated objectives. On the roadshow, we projected that loan growth would be lumpy, but about $210 million per quarter or $70 million per month. Since then, actual growth has averaged more than $139 million per month. This is a testament to the quality of employees we have hired and the strength of the markets we operate in. For example, the builder finance group hit their 18-month goals in nine months, and the CNI team is 50% ahead of their goals. On the roadshow, we also discussed our funding strategies. This included expected contributions from newly hired community bankers, private bankers, PPP customers, and enhanced treasury management. Together, this has worked exceptionally well, with deposits growing faster than loans in the last quarter, while the cost of deposits declined at several basis points. We also projected that the bank would become more asset sensitive, and it did. At September 30th, 2021, floating rate loans represented 55% of the loan portfolio and has since increased to 65%, just as we predicted. Further, loan quality has improved from last quarter, as Audrey will go over in a minute. And lastly, earnings has had a very positive trend. We said we believe we made investments in support and infrastructure last year to accommodate the new growth, and that revenue would outpace expenses by a large measure. Expenses have stayed relatively flat, just as we estimated, and you can see improvement and strong trends in the pre-provisioned pre-tax incomes. In sum, the progress has been on target from what we conveyed during the IPO process. We are in great markets that still provide significant tailwind. The quality talent we recruited are performing better than our expectations and are enhancing our loan portfolio. And finally, revenue growth along with expense control is trending positively and ahead of our early expectations. With that, I'll turn the call over to John for a more detailed financial review. John? Thank you, Bart, and good morning, everyone. I'll begin with our recent offering. Earlier this month, we announced the completion of our $82 million notes offering. The fixed uploading rate subordinated notes, which mature April 1st, 2032, and will initially bear interest at a fixed rate of 5.5%. We intend to use the net proceeds to bolster our capital position and for general corporate purposes. Moving to our first quarter financial results, yesterday we provided detailed financial tables in our earnings release. So today I'll review select balance sheet and profitability metrics for the first quarter of 2022 compared to the prior quarter. In the first quarter, we experienced strong loan growth of $379 million, 18.3% over the fourth quarter of 2021. This growth was well diversified with real estate loans up $222 million and commercial loans up $145 million. Following that trend, deposits grew $446 million over the prior quarter, a 21% increase. Deposit growth has exceeded our expectations to the extent that we decided to purchase $100 million in Treasury securities. and we are in the process of buying an additional $25 million in BOLI. We closed the first quarter with just over $3 billion in assets, an increase of more than $500 million since year-end. We expect growth closer to $100 million per month for the next couple of quarters. Net interest margin was 4.09% for the quarter, a decrease of 69 basis points from the fourth quarter of 2021. The great majority of this decline was related to fees. EPP fees were down $1.1 million, PCI accretion was down $1 million, and all other fees were down about $968,000. Non-interest expense totaled $20.2 million in the first quarter of 2022, basically flat, versus $20.1 million in the fourth quarter of 2021. Significantly, salary expense was down due to several large signing bonuses that were paid in the fourth quarter. employee headcount increased from 334 to 339. Regarding interest rate risk, as Bart mentioned, the bank has become more asset sensitive. According to our modeling, over a 12-month horizon, our net interest margin will increase 19 basis points with a 100 basis point increase in rate and 40 basis points with a 200 basis point increase in rate. I would now like to turn the call over to Audrey for our credit quality review.