Third Coast Bancshares, Inc. Q1 FY2025 earnings call

Key Points

• Successful commercial real estate loan securitization in April provided balance sheet flexibility, improved capital ratios, generated fee income, reduced commercial real estate concentration, and enhanced risk-based capital ratios.
• Net interest margin improved 9 basis points to 3.80%.
• Credit quality improved with non-performing loans declining $9.3 million, non-performing assets to total assets ratio dropping 2 basis points to 0.56%, and net charge-offs decreasing.
• Loan growth: Period-end loan growth was $21.6 million, with April loans up over $50 million. Consideration of a share buyback due to accreted capital.

First quarter net income was $12.4 million. Net interest margin improved 9 basis points to 3.80%. Investment securities increased by $13.4 million to $397 million. Deposits declined by $62 million resulting in a loan-to-deposit ratio of 93.9%. Non-performing loans decreased by $9.3 million, with the non-performing loans to total loans ratio improving by 23 basis points. Period-end loan growth was $21.6 million, and loans were up over $50 million in April. Investment securities rose by $78 million due to the securitization.

Forward-Looking Statements

• Expect loan growth of $325 million for the year, translating to an 8% annual run rate.
• Potential for additional securitizations to manage concentrations and support sustainable growth.
• Securitization origination fee is expected to benefit the net interest margin by approximately 5 basis points in the second quarter, with less impact in subsequent quarters.

Risks Identified

• Market uncertainties and regulatory changes could impact loan demand and portfolio performance.
• Concentration risks in commercial real estate, although the securitization helps mitigate this concentration.

Q: Hey, guys. Good morning. Just my first question on the fee income. It was really good at the $3.1 million, and I think the biggest driver was in the service charges. Just wanted to know, has there been any pricing changes? What maybe you can just get some color on what drove the increase and if that's mostly a recurring trend from here.

A: Yeah. Bernie, we probably haven't talked about it in a couple of quarters, but our treasury management division, the fee income from that business year before last was up 100%. Last year was 75%. It's coming off a relatively small base, but we've done a great job in moving commercial businesses over that have lots of fee income. And some of the billings on that are quarterly. So after any quarter end, you'll see a little bit of a pickup. And more course, I'm looking at it on a monthly basis, but particularly after year-end, that'll be our largest billing cycle. So it wasn't an increase in fees or anything like that. It was more of those annual billings.

Q: Good morning, guys. Thanks for taking my question. Just wanted to go back to the puts and takes to the margin. So five basis point benefit from the securitization. You guys still have a fairly high, you know, cost of deposits that I think you can kinda continue to bring down. Although you did have a step down at DDA, so above some color there. And then just on the loan side, you know, kind of where are new production yields trending. Obviously, saw the average yield came down, but just to get a sense for, you know, kind of what the all-in margin could kinda look like, puts and takes, with the securitization benefit, and then how many, you know, cuts you know, do you have baked into those expectations?

A: Sure. So I think you remember last quarter, we said our margin was somewhat tamped down by all the extra cash that we had. You know, we had some seasonal deposits, and for the most part, we just left that money at Fed. So our spread on that was modest. And if I remember right, I said that, you know, it was probably five basis points to the margin and said we went up nine. So we did do a little bit better than I expected. All things being equal, that kinda 3.75% to 3.80% on the margin, I think is what you should expect. And then adding to that is the securitization, which will be five basis points or roughly five basis points for the second quarter. That'll be kind of a one-time shot as we pick up the origination fee income from the loan that we booked. There is other amortized fee income, but it won't have a material effect on the margin, I wouldn't say. Kind of in that 3.75% range. And, you know, we've talked before about being pretty well matched assets versus liabilities and that if rates move, whether it be up or down, that we feel well-positioned to take care of it. We do expect rates to come down, you know, at least a couple of times this year. And if it does, I think the margin will be flat to somewhat better.