Third Coast Bancshares, Inc.

and welcome to Third Coast Bank Third Quarter 2023 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, Nathalie Hairston, Thank you. Ms. Heston, you may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for the Third Coast Bank Shares conference call and webcast to review our third quarter 2023 results. With me is Bart Kerwin, 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 will be available by webcast on the Investors section of our website at ir.tcbssb.com. There will also be a telephonic replay available until November 3, 2023, 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, October 26, 2023, And therefore, you would advise that time-sensitive information may no longer be accurate as of 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 meeting 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 15, 2023, to better understand those risks, uncertainties, and contingencies. 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. Bart?

Thanks, Natalie. Good morning, everyone. Thank you for joining us today. I'll begin by highlighting the company's performance for the third quarter. John will then provide a more detailed financial review, and Audrey will give a credit update. Then, before we take your questions, I'll return to discuss our outlook. During the third quarter, we achieved significant progress towards our strategy of conservative loan growth, disciplined expense management, and strengthening shareholder value. Total assets reached $4.22 billion during the third quarter, an increase of 6.4% over the prior quarter, and 19.9% increase over the prior year period. We booked over $226 million in high-quality loans. an increase of 6.8% sequentially and 19.7% increase over the third quarter last year. Likewise, deposits reached $3.65 billion, a 7% increase from the linked quarter, and a year-over-year increase of 22.2%. In response to market conditions, we took some deliberate actions to reduce our operating expenses and other overhead costs. including the previously announced winding down of our auto finance group, as well as a 5% reduction in workforce. As a result, our full-time employee headcount now stands at approximately 370, which is consistent with our numbers from the beginning of the year. We have been able to grow the bank by $443 million in that same timeframe. During the quarter, we also booked a $2.6 million provision for credit losses primarily driven by strong loan growth for the quarter, which Audrey will discuss in more detail in her prepared remarks. These actions were necessary to position us for the fourth quarter and establish a solid foundation for 2024. Deposit rates remained highly competitive for this quarter, and we were able to increase our deposits by $238 million, or 7% from the previous quarter, a notable achievement. Our success in deposit acquisition can be attributed to the deposit campaign contest held across multiple lines of business, including retail, private banking, treasury management, and commercial bankers. We were able to raise deposit by an impressive $275 million within a short span of four months. Our bankers' unwavering focus on deposits, coupled with their commitment to building strong relationships with clients, played a crucial role in achieving this feat. This approach, combined with our commitment to providing innovative solutions and exceptional service, has resulted in success across all our markets. Our insured cash suites and treasury management services have particularly proven to be innovative solutions contributing to our company's growth. As we progress, we will continue to explore new ways to deepen our relationships with existing customers and attract new ones, all while maintaining our focus on deposits and loans. Additionally, we were able to increase book value and tangible book value per share by 1.4% and 1.5% respectively. By delivering exceptional shareholder value and increasing tangible book value per share, we have made significant progress in enhancing our balance sheet and maintaining a strong financial position in the third quarter. We believe we can continue to drive increased shareholder value and achieve sustainable success long term. With that, I'll turn the call over to John for a more detailed financial review. John? Thank you, Bart, and good morning, everyone. We provided the detailed financial tables in yesterday's earnings release, so today I'll provide some additional color around select balance sheet and profitability metrics for the quarter. As Bart mentioned, loans were up $226 million, deposits were up slightly more at $239 million, and total assets reached $4.22 billion all new records for the company. Net interest margin for the quarter was down 11 basis points, slightly more than expected, due primarily to higher than expected loan growth. Spreads on new loans tend to average less than the bank's current net interest margin. Loan growth is expected to be less in the fourth quarter, which should result in less margin pressures. Additionally, the bank has $100 million Treasury security maturing in October, yielding 2.25%. If the proceeds were used to pay down wholesale funding, the net interest margin would improve two to three basis points. We therefore believe that for the fourth quarter, the net interest margin will be down less than five basis points. Non-interest expense was materially higher than expected due to several non-recurring items, including severance expenses, fraud losses, and legal fees associated with those items. As previously mentioned, severance expense totaled $460,000. We reduced headcount to roughly where we started the year, and as a result, we expect fourth quarter salary and benefit expense to be less than $1,600. All other non-interest expenses were up $1.35 million in the third quarter versus the second quarter. This increase was primarily due to the fraud losses and legal fees as previously mentioned. Even though net interest margin was down 11 basis points per quarter, net interest income was up $1.2 million to $35.3 million due to strong loan rates. We have shown consistent growth in net interest income since going public in the fourth quarter of 2021, when our net interest income was only $24.6 million. The third quarter performance also resulted in increases in both book value per share, which reached $24.57, and tangible book value per share, which reached $23.17. This is up 11 percent, or 223, from $20.94 since going public in 2021. This compares very favorably to our peers, who over the same period saw an average decrease in tangible book value of 9.3%. Also, as a reminder, we used the converted method to calculate earnings per share. For the third quarter, this resulted in anti-dilution, and therefore the preferred shares were excluded from our diluted share count. We expect this to flip back in the fourth quarter. That completes the financial review, and at this point, I'll pass the call to Audrey for our credit quality review.