Third Coast Bancshares, Inc.

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.

Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bank Shares conference call and webcast to review our second quarter 2024 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. 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.com. thirdcoast.bank. There'll 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 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. 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. 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 Third Coast Chairman, President, and CEO, Mr. Bart Caraway. Bart?

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. To start, I'd like to highlight the great strides the company's 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%. Also, 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%. 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 of tangible book value of $4.90 or 23.7% to $25.60. Additionally, we have successfully opened new branch locations in Austin, Texas, in 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. 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 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 quarter. Loans grew by $12 million for the quarter, coming in under initial projections, mainly because of higher than expected paydowns. 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 sheet. 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 pipelines for the third and fourth quarters appear 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 range. 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%. 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. Regarding asset liability management, in 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. 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%, 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.