Third Coast Bancshares Q4 2024 Earnings Report

Third Coast Bancshares EPS Results

• Actual EPS: $0.79
• Consensus EPS: $0.68
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: N/A

Third Coast Bancshares Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $43.79 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Third Coast Bancshares Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 11:00AM ET

Third Coast Bancshares (NASDAQ:TCBX) operates as a bank holding company for Third Coast Bank, SSB that provides various commercial banking solutions to small and medium-sized businesses, and professionals. The company's deposit products include checking, savings, individual retirement, and money market accounts, as well as certificates of deposit. It also offers commercial and industrial loans, equipment loans, working capital lines of credit, guaranteed loans, auto finance, letters of credit, commercial and residential real estate, and construction, development, and other loans. In addition, the company provides retail and commercial online banking platforms, mobile banking apps, mortgage, treasury management solutions, merchant card services, and customer digital solutions, as well as debit and credit cards. Third Coast Bancshares, Inc. was founded in 2008 and is headquartered in Humble, Texas.

Third Coast Bancshares Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Third Coast Bank Fourth Quarter and Full Year 20 24 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natalie Harrison of Investor Relations.

[Operator]

Thank you. You may begin.

[Natalie Hairston, Investor Relations at Third Coast Bancshares]

Thank you, operator, and good morning, everyone. We appreciate you joining us for 3rd Coast Bankshare's conference call and webcast to review our Q4 and full year 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 Investors section of our website at ir.

[Natalie Hairston, Investor Relations at Third Coast Bancshares]

3rdcoast. Bank. There will also be a telephonic replay available until January 28, and more information on how to access these replay features was included in yesterday's earnings release. Please note that information reported on this call speaks only as of today, January 23, 2025, and therefore, you are advised that any 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.

[Natalie Hairston, Investor Relations at Third Coast Bancshares]

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 ks 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 reconciliations to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the Third Coast website.

[Natalie Hairston, Investor Relations at Third Coast Bancshares]

Now, I would like to turn the call over to Third Coast's Chairman, President and CEO, Mr. Bart Carraway. Bart?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Good morning, everyone, and thank you, Natalie. I'll begin by sharing the key highlights from the earnings release, followed by John's review of the financials and Audrey's review of credit quality. After that, I will outline our plans for the future. There are several things to highlight. First, we are proud to achieve 14 consecutive positive quarters of net interest income growth.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

In the 4th quarter, our net interest income reached $43,400,000 reflecting a 7.6% rise from $40,400,000 in the Q3 of this year and a 16.4% increase from 37 point $3,000,000 in the Q4 of the previous year. 2nd, 4th quarter loan growth rose by $76,600,000 up 2%, while for the full year, loans grew by $327,600,000 or 9%. 3rd, we increased deposits by $316,000,000 or 7.9 percent in the 4th quarter, while the full year, they grew by $507,400,000 or 13.3%. Our dedication to customer service has been instrumental in driving this growth. By understanding the unique needs of our customers and offering tailored financial solutions, we have strengthened our relationships and broadened our base of full wallet customers.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

A keystone of our strategy is our commitment to operational excellence, ensuring we improve efficiency as we scale. In the Q4, we improved our efficiency ratio to 58.8%. For the 2nd consecutive quarter, we exceeded our initial internal efficiency ratio target of below 60%. This significant milestone underscores our determined pursuit of cost management and process optimization. Our 1% improvement initiative has proven to be an effective tool, motivating our team to explore innovative ways to streamline operations, leverage technology, reduce overhead and enhance productivity.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

These efforts are essential for maintaining profitability as we continue to expand our operations and market presence. Overall, I'm extremely pleased with the Q4 and full year results for 2024. Our team has shown exceptional focus and discipline in implementing the bank's strategic priorities, which has resulted in these tremendous results. Their hard work not only has driven impressive financial performance, but has also laid a strong foundation for future successes. With that, I'll turn the call over to John for the company's financial update.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

John?

[John McWhorter, CFO at Third Coast Bancshares]

Thank you, Bart, and good morning, everyone. As Bart highlighted, we experienced yet another outstanding quarter. Along with the loan and deposit growth that Bart mentioned, we also experienced significant growth in investment securities, which increased $91,900,000 These purchases were made possible due to the large increase in deposits. Yields on securities purchased averaged 5.44 percent and the yield on the total portfolio at period end was 6.31%. As previously mentioned, deposits grew $316,000,000 in the 4th quarter.

[John McWhorter, CFO at Third Coast Bancshares]

Much of this was seasonal, particularly the large increase in non interest bearing demand. We think a better reflection of our deposit growth can be found on Page 9 of our press release, which has average quarterly balances. Looking at the income statement, net interest income was up $3,100,000 versus the prior quarter. This increase resulted from a large increase of $347,000,000 in average earning asset and a net interest margin, which fell just 2 basis points. The bank's cost of funds improved materially falling 35 basis points following the Federal Reserve's rate cuts.

[John McWhorter, CFO at Third Coast Bancshares]

Overall, the net interest margin was better than expected considering a large increase in low margin cash balances. Without this large increase in cash, we estimate that the net interest margin would have been about 5 basis points higher. Furthermore, our net income and other profitability metrics showed consistent positive growth throughout all 4 quarters of 2024. For the year, net income reached $47,700,000 translating to $3.14 $2.78 per basic and diluted share respectively. This marks a 42.7% increase from the previous year's total of 33.4 dollars Other non interest expenses experienced a modest rise in the 4th quarter, primarily due to increased salary expense resulting from new hires, increased bonus expense and a reduction in salary expense deferral related to loan funding during the Q4.

[John McWhorter, CFO at Third Coast Bancshares]

That completes the financial review. At this point, I'll pass the call to Audrey for our credit quality review. Audrey?

[Audrey Duncan, Senior EVP & Chief Credit Officer at Third Coast Bancshares]

Thank you, John, and good morning, everyone. We are pleased to report that our thorough underwriting standards and proactive risk management practices have contributed to maintaining strong credit quality for the Q4 and throughout 2024. Our disciplined approach to credit has further enabled us to maintain our well diversified portfolio. The non performing loans to total loans ratio increased to 0.7% in the 4th quarter compared to 0.62% in the 3rd quarter. While we had $6,700,000 in loans placed on non accrual during the quarter, they were partially offset by $1,700,000 in pay downs, dollars 1,100,000 in loans placed back on accrual and a $690,000 charge off.

[Audrey Duncan, Senior EVP & Chief Credit Officer at Third Coast Bancshares]

Of the loans placed on non accrual, one commercial loan relationship represented $5,400,000 and has a combined loan to value of 35%. We do not anticipate losses on these recent non accruals. The bank reported net charge offs of $879,000 for the 4th quarter or 0.09 percent of average loans compared to $1,500,000 or 0.17 percent of average loans for the same period last year. The loan portfolio continued to be well diversified with percentages remaining consistent with previous quarters. C and I loans stayed at 38% of total loans.

[Audrey Duncan, Senior EVP & Chief Credit Officer at Third Coast Bancshares]

Construction, development and land loans held steady at 22%, while owner occupied and non owner occupied CRE stayed near prior percentages at 11% 16% of total loans, respectively. Office represented 3.3% of total loans with approximately 59% being owner occupied. Medical office was another 1.3% of total loans. Consistent with previous quarters, the office portfolio generally consists of Class B with some owner occupied fee space and is all located in our Texas footprint. The average LTV of our office portfolio is approximately 68%, and the average LTV for medical office is approximately 60%.

[Audrey Duncan, Senior EVP & Chief Credit Officer at Third Coast Bancshares]

Multifamily represented 3.3% of total loans and has an average LTV of 57%. We remain dedicated to maintaining a balance between expanding our portfolio and upholding our strict credit standards. This approach allows us to adjust to evolving market conditions, helping us to capitalize on new opportunities, while safeguarding the integrity of our portfolio. With that, I'll turn the call back to Bart. Bart?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you, Audrey. We entered the 4th quarter with strong momentum, allowing us to close out 2024 with impressive results. We are executing exactly as promised when we became a public company with our strategy and priorities focused on aligning efficiency and profitability to provide even greater value to our stakeholders. It's truly remarkable to be where we are today given the challenges of the last 3 years. We have navigated a global pandemic, participated in PPP, endured extraordinary Texas weather events, dealt with macroeconomic tensions, experienced bank failures that impacted our industry and weathered a liquidity crisis.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yet we are surpassing our projected figures. This achievement reflects the passion and commitment of our talented team. Their resilience and dedication to doing what's right for our customers and for our company is truly inspiring. Looking ahead, we are excited about the opportunities 2025 will bring. We are confident in our ability to navigate the ever changing financial services landscape.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

In terms of operational excellence, our priorities include continuing our 1% improvement initiative, which I'm proud to say has truly become a cultural cornerstone of our company. This commitment is now integrated into nearly every task and project we pursue as we consistently seek ways to improve our operations while controlling spending and further improving our efficiency ratio to ensure it remains below our 60% target. In terms of growth and expansion, our plans include strengthening our relationships with customers and increasing our share of deposits. While we anticipate some fluctuations, particularly typical seasonal dip in the Q1, we are optimistic that deposits will grow throughout the course of the year with the launch of our new core and improved product and service offerings. Sustaining our loan growth targets of $50,000,000 to $100,000,000 each quarter, For the full year, we expect 2025 loan growth of approximately 8% or roughly $325,000,000 on par with 2024.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

When it comes to profitability and performance, our goals include maintaining our return on average assets target of 1% or better and upholding our strong credit quality. Our unwavering commitment to these strategic Our unwavering commitment to these strategic objectives will ensure that we remain a trusted and reliable financial partner for our customers as well as an attractive investment for our shareholders. Zircos is well positioned to achieve these goals and capitalize on the opportunities that lie ahead, ensuring our company's continued success. This concludes our prepared remarks. I'd like to now turn the call back over to the operator to begin the question and answer session.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Operator?

[Operator]

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Woody Lay with KBW. Please proceed with your question.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Hey, good morning, guys.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

Good morning.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

I wanted to start on the Q4 loan yield. I thought the beta was pretty impressive given the floating rate loan exposure. Could you just walk through that loan yield and any expectations going forward?

[John McWhorter, CFO at Third Coast Bancshares]

Yes. We have outperformed a little bit on both the yields on loans and the cost of funds. And I don't think really have a great explanation for it because we are very rate sensitive, very floating on both sides of the balance sheet. But it's just the new loans that we have been putting on the books have been at better spreads and has made up the difference. And that's one of those things that's kind of hard to predict.

[John McWhorter, CFO at Third Coast Bancshares]

It depends on the volumes that we have as to whether they're enough to make a difference, but they did in the Q4. So we were very happy with both loan yields and the drop in the cost of funds. We're both a little better. I think we talked about this a little last quarter that relative to the modeling that we're doing, we outperformed on both of those sides versus our assumptions.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. And part of it's not accident. I mean, we have some very dynamic discussions internally between loan committees and sales committees that we have internally about what those full wallet relationships and the discipline around pricing in both loans and deposits. So I think those discussions have been healthy and contribute to part of that spread as well. Yes,

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

that's good color. Maybe a follow-up there. Any color you could give on the spreads of new loan production? And are you seeing those spreads impacted by loan competition at all? It feels like across the industry, everyone's talking up a greater appetite for growth.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

So are you seeing that play out in the competition?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. I mean, part of that, I mean, me and John can tag team a little bit on this. From what I'm seeing in terms of the market is we have some really good bankers that are on board. And because of that, I think we have a pretty strong pipeline. But even with that, we're very disciplined on is making sure that, if it's a good deal that we try to maintain $300,000,000 over if it's a good deal that we try to maintain $300,000,000 over SOFR for that.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And there's occasionally we'll go under that. But for the most part, we will probably turn around a deal or turn away a deal if it doesn't hit those price targets for us. So I think that's part of it. I think the market is a little bit more competitive and as you will see probably most banks will see some loan growth. But I think also the market in general has a little bit more openness to credit at this point.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And I think the positivity that is rolling out is going to take a while for that to be seen in loan fundings going up. But I do think throughout the year that that's going to be a positive trend for all banks. I just think for us, we'd already built up such a pipeline that we're just a little ahead of the curve.

[John McWhorter, CFO at Third Coast Bancshares]

Yes, I mean just following on to those points, anything priced at less than SOFR plus 300 would require BarterEye's approval and we just haven't made many of those lately. The team really haven't even come to us much lately. So if our starting point is SOFR plus 300 and there's loan fees tacked on top of it, we end up with a pretty good yield out of it.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

That's really helpful. I guess just putting sort of a bow on the margin, any near term expectations? I know that I think you made a comment that there was about 5 basis points of excess liquidity headwind. Do you think we could see the margin up a little bit in the coming quarters or will I guess any expectations there?

[John McWhorter, CFO at Third Coast Bancshares]

Yes. The margin would have been at least 5 basis points, maybe 6 or 7 basis points higher had we not had all the excess cash in the 4th quarter. Now much of that rolled off very shortly after year end, but we expect it to ramp back up before the end of March. So the timing of it is hard to say, but certainly I think the margin going forward will be higher than we reported for this quarter. Depends on our cash balances.

[John McWhorter, CFO at Third Coast Bancshares]

Our loan to deposit ratio was much lower at year end than it has been in recent quarters. So if we're in that 95%, 96% kind of loan to deposit ratio, which is our goal, I think the margin will be about 5 basis points higher than it is. And we feel pretty good about it for the rest of the year. As the Fed has cut rates, we've been very successful in lowering our cost of funds by having a relatively high cost of funds has I think made it easier for us to reduce that and it's been good for the margin.

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

All right. That's all

[Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)]

for me. Thanks for taking my questions.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you.

[Operator]

Thank you.

[Operator]

Our next question comes from the line of Bernard Ivanovich with Deutsche Bank. Please proceed with your question.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Hi, guys. Good morning. Just on expenses, obviously, you've done done improvement throughout the last several quarters and you did kind of get past the 60% efficiency ratio. How should we think about the expense growth in 2025?

[John McWhorter, CFO at Third Coast Bancshares]

Yes. So we did have a tick up in the 4th quarter, Bernie, to that kind of $27,000,000 range. So we were up 4% or roughly 4% year over year. That's about what I would expect to see for next year. I think that $27,000,000 number is probably pretty good for the next couple of quarters.

[John McWhorter, CFO at Third Coast Bancshares]

We have recently hired a couple of relatively senior lenders and some credit underwriters to help manage the pipeline of the loans that are coming in and the renewals and whatnot. So we have done some hiring in recent months that caused that number to go up.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. We do expect some savings the latter half of the year from some technology changes, but unfortunately it will be post July probably before we get the benefit of that on it.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Great. Thanks for that color. And then maybe just on fee income, even ex the securities gains, it came in better than expected. Any thoughts on just like the near term expectations or any areas that you want to call out that you're expecting to see better growth in?

[John McWhorter, CFO at Third Coast Bancshares]

I mean, we certainly have lots of optimism there. The improvement that we have seen in non interest income each quarter seems to be something a little bit different. A couple of quarters ago, we said it was SBIC income. I think last quarter, we said it was treasury management fees. Back to the Q1, it was primarily loan fee income.

[John McWhorter, CFO at Third Coast Bancshares]

So we're really working hard on all of those individual pieces. And what it may be exactly for the next quarter is maybe harder to say because some of these things tend to be lumpy. Remember when we talked about SBIC income, it was $600,000 in the Q3, which wasn't necessarily expected. But going forward, our wealth management division is doing well. We're still making about $50,000 a month there.

[John McWhorter, CFO at Third Coast Bancshares]

Treasury that we talked a lot about last quarter, they're growing roughly 50% to 60% a year in fee income, and we don't see that slowing down. If anything, it may speed up. It's still coming off a relatively small base, but the commercial deals that we have been looking at is resulting in lots of fee income. Loan fee swaps are a little bit harder to predict, but the more deals we're seeing, the more lenders we have, we're pretty optimistic about that non interest number being in the $3,000,000 range for the next several quarters.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And to further recognize a lot of the groups, treasury has made just such tremendous improvements and they have so many initiatives going forward that's really exciting, both changing our deposit mix, but also the fee side of it, growing customer base. But also each line of business from the community bank, the corporate as well as the specialty finance, they've each been very innovative about reviewing their customer base, changing their pricing models to actually move the needle a lot last year in terms of fee income. So I think it's just a combination of things, everybody working together to find base hits that have added up to some big scores.

[John McWhorter, CFO at Third Coast Bancshares]

Internally, when we're talking about fee income, there's kind of 2 pieces. There's the piece that is included in interest that's primarily associated with the loans. And of course, with FAS 91, we're capitalizing those fees. And the capitalized balance of our loan fees has never been higher. We're amortizing just under $1,000,000 a month on loan fees.

[John McWhorter, CFO at Third Coast Bancshares]

And if you do expect rates to fall next year, that's going to be a great hedge to the margin to have that extra close to $1,000,000 a month in fee income that we're recording there. And that's fees that we would include in the margin in interest income and it's just another thing helping the margin.

[Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank]

Great. Thanks for taking my questions.

[John McWhorter, CFO at Third Coast Bancshares]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Tim Mitchell with Raymond James. Please proceed with your question.

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

Hey, good morning guys.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Good morning.

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

Just wanted to start, it's great to see the continued progress on the non interest bearing balances. Just curious if you could shed some more light on kind of initiatives around that, maybe how you're structuring kind of banker incentive and your expectations for net balances in the mix kind

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

of through the year here?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes, depending on which group the bankers are in, some of them the largest component of their incentive is deposits. So and the other thing that helps too is on the treasury side that they're their own sales engine as well. I mean, they certainly complement and get a lot of business from the commercial bankers, but they also have their own kind of outbound calling initiatives in there. So I think you have a number of different components there that are working together. Each line of business has their own goals on the deposits that are in stretch goals, they've been very effective in.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

At the same time, our retail group has multiple different strategies that they're trying to implement that will affect the deposit base positively as well. And then, of course, treasury is just on fire in terms of adding new accounts and more sophistication. So what I would say, it's probably over a dozen different initiatives. And depending on the quarter, each one of them has some sort of a record or standout month, and they all add together to be hitting the goals that we need them to hit.

[John McWhorter, CFO at Third Coast Bancshares]

Yes. And Tim, if I could add to that, we talked about this on the last call that our non interest bearing demand had dropped every month consecutively for 6 or 8 months in a row. And then starting in about July, it has grown every month since then. So we kind of pass that hurdle where we started growing those non interest bearing demand deposits. Now with that said, the $600,000,000 that we had at year end had a little fluff in that we had one customer that had a very large balance that left the bank shortly after year end.

[John McWhorter, CFO at Third Coast Bancshares]

So the period end number was more like 500,000,000 dollars but still a nice increase from where we were back in March, dollars 424,000,000 in demand, dollars 450,000,000 or $460,000,000 last year end. We've made big improvements and would expect that to continue just slowly ticking up, I don't know, call it $10,000,000 $20,000,000 a quarter in demand.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. And of course, we usually have around tax time a little bit of a drop, but it's always temporary and then it comes right back.

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

Understood. Thanks for all that color. And just it sounds like you have a lot of opportunities on the loan side. You're trying to turn yourself away, it sounds like. How should we think about deposit growth as kind of a governor of what you're willing and able to do on

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

the loan side through the year?

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

And kind of would you want how far would you let that loan to deposit ratio tick up if kind of when demand continues to grow?

[John McWhorter, CFO at Third Coast Bancshares]

I don't think deposits have been a particular governor for us over the last 3 years. We're still relatively small in our markets. I think for us, it's more a question of cost that most of our peers are paying less than us. So I think it's just making the calls. I think we can bring in the deposits.

[John McWhorter, CFO at Third Coast Bancshares]

They may cost us something close to SOFR, but we're pretty confident that we can bring in the money to fund the bank. And we like running in that loan to deposit ratio of about 95% is our goal. And

[John McWhorter, CFO at Third Coast Bancshares]

yes, I think we're focused on growing the capital being accretive through profitability and that's more of a governor to us than the deposit side because again we pass on a lot of good loan deals because we're trying to hit certain margins and productivity and efficiency ratios more than we are necessarily worried about the deposit side of it. But it's still a journey, this bank. We're still going through the process of building. And so there'll be different fluctuations from time to time. But again, I feel pretty good about where our deposit base is going and how it's going to remix a lot this year.

[John McWhorter, CFO at Third Coast Bancshares]

And I think

[John McWhorter, CFO at Third Coast Bancshares]

basically the way that we look at it is if we think loans are going to be up $50,000,000 to $100,000,000 a quarter that deposits are going to mirror that to the extent that the loan to deposit ratio that we're shooting for is 95%. So we're kind of solving for deposits depending on where loan growth ends up and we're still comfortable with that $50,000,000 to $100,000,000 a quarter number. And it tends to be lumpy for us. I know we had a big Q3 last year and that sort of thing is certainly possible at any time.

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

Got it. Well, it was good to see another great quarter. So thanks for taking my questions

[Tim Mitchell, Equity Research Associate at Raymond James Financial]

guys.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Jordan Jank with Stephens Inc. Please proceed with your question.

[Jordan Ghent, Senior Research Associate at Stephens Inc.]

Hey, good morning guys. I just had a quick question around expenses and more about the additional hires. What are you guys expecting as far as making additional hires in 2025? So if you could just give any color on that, that would be great. Thanks.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. For the last few years, we've always talked about being selective and surgical. And for us, I think we're constantly reviewing our bankers. And what we have now is a group of very high performing bankers. And I think that raises the bar on who joins us.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

So I think for us, we're looking at a few things. 1, if there is a really good talent that's out there that you don't get a look at very often, we certainly don't mind bringing them on board. I mean, we're always a talent magnet. But at the same time, we're also grooming bankers internally. So you have some junior bankers taking the step up as well.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And then each basically division sort of has its own needs and plans. So as we grow, we may have need more PMs or junior bankers to help with that or in particular areas where we've had substantial growth and there's a talent, we'll end up adding them. So what I would say is judiciously, we will be selective, opportunistic and maybe 1 or 2 bankers for the rest of the year is what I'm thinking. But it's also subject to whatever the opportunities are in the market as well.

[Jordan Ghent, Senior Research Associate at Stephens Inc.]

Got it. And then just one other question, what are you guys expecting for number of

[Jordan Ghent, Senior Research Associate at Stephens Inc.]

Fed cuts this year, if

[Jordan Ghent, Senior Research Associate at Stephens Inc.]

you guys have that number?

[John McWhorter, CFO at Third Coast Bancshares]

So certainly something that we talk about a lot. We don't necessarily put anything in our public releases, but we're so evenly matched from an asset liability perspective that we're somewhat indifferent. I think if rates are moving, whether it be up or down, we tend to find a way to take advantage of it. But whether it's 2 or whether it's 4, we're somewhat indifferent.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. John is much more diplomatic. My first thought was I don't care because we're going to take advantage of it, which way or the way it goes. I mean, we're so nicely poised where we are in the balance sheet that we will get some momentum either way. Actually, the change is an opportunity more than just being flat.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

I don't think we want it to be flat. We want to change one direction or another. It's going to benefit us.

[Jordan Ghent, Senior Research Associate at Stephens Inc.]

Perfect. Thanks for taking my questions.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Dave Storn with Stonegate. Please proceed with your question.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Good morning. I wanted to

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

start by circling back on some of the tech improvements that were mentioned earlier that are maybe scheduled for the second half of this year. Is there anything more you can tell us about maybe the nature of these changes and maybe a sense of their expected impacts?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. I mean, we've elected to change course. So we're going from Jack Henry to FIS. And just the team did just an incredible job of basically eventually negotiating contracts that's going to save us money and give us more functionality. So it's going to be a win win for us on that.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

The conversion is going to be in the middle of

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

this year.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Post that, we think it's going to help with regard to deposit taking as well that our treasury products are going to have some enhanced functionality and then we're going to be able to bring on some larger corporate customers. In addition to that, the contract that we have has really substantial savings in it compared to our old contract. So we're going to see a little bit of help from the expense side, but we're also going to see some help on the productivity side as well.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Understood. That's very helpful. Thank you. And then just one more, you mentioned outlook for long growth of 8% in 2025. Should we expect similar seasonal patterns and similar segment growth trends as we saw in 2024?

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Or is there anything to highlight here that may differentiate 2025 from 2024?

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes, I

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

would be very cautious in looking at trends because a lot of this is either eternally driven or market driven and some of it outside of our control. It's easy to say that in the Q3 of last 2 years, we had big loan increases, but I would not project necessarily that this year. It may happen, it may not. But we basically look at the portfolio growth based on what the goals we're trying to achieve as well as what's happening in the market. And I would not draw any parallels from that.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

But I do think once again, it probably will be a little lumpy. I mean we rarely get it evenly each quarter. And but in the end the number ends up being pretty close to what we said and that's where I would basically target is at the end of the year, I think we're going to hit pretty close to that number.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Understood. That's very helpful. And thank you for taking my questions.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Brian Ager with Kennedy Capital Management. Please proceed with your question.

[Brian Hagler, Research Analyst at Kennedy Capital Management LLC]

Hey, good morning guys.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Hey, good morning, Brian.

[Brian Hagler, Research Analyst at Kennedy Capital Management LLC]

I guess, first of all, congrats on a really solid 2024. You guys have grown quarterly earnings every quarter since the Q3 of 2023. I just wanted to give you guys an opportunity to maybe comment on if you think that can continue and if that's maybe a little unclear because of some of the 1Q deposit seasonality you talked about, maybe just comment on expectations for earnings growth year over year in 2025.

[John McWhorter, CFO at Third Coast Bancshares]

Yes. Thanks, Brian. The one quarter that we didn't have earnings growth is when we had a reduction in force or we would have grown then also. So it actually would have been every quarter since we've gone public. So call it 14 quarters.

[John McWhorter, CFO at Third Coast Bancshares]

And we don't see that stopping anytime soon. I mean, I think we'll continue to have good growth and I think the margin is going to be pretty stable. We've proven we can be good at expense control. I think it'll be roughly 4% we'll roughly have a 4% increase in non interest expense for the year. So if we're growing loans 8%, the margins stable, we're pretty optimistic about the year.

[John McWhorter, CFO at Third Coast Bancshares]

We think fee income will be good. It will continue to increase. So yes, we expect future quarters to be better than the Q4.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Yes. And Brian, you followed the story from almost day 1 with all of it. And so kind of understand what we're trying to build. And part of that is just build story like flywheel. Once you get started going, it gets easier.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And we've accumulated such an incredible management team that is good about hitting strategic goals as well as a lot of bench depth. We have some amazing bankers, high concentration, just high performing people in general. Plus, I mean, I just think by the nature of the markets that we're in, there's just, as John says, we're relatively small compared to the other banks in this Texas triangle. I think the market is going to disproportionately outperform the nation and we're going to be partially beneficial of that. And the other thing is just the strategies that we've been implementing over this time are finally taking effect like that flywheel deal where all of a sudden a lot of the infrastructure and initiatives are paying off now.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

And I don't see that momentum going backwards. I see that going forwards. It's just going to keep getting better and better. And it's a lot of strategies that we still launch that we're going to get the benefit of that we haven't even gotten the benefit of yet. So I'm pretty optimistic that in the long term, the direction is very, very positive for us.

[John McWhorter, CFO at Third Coast Bancshares]

And Brian, Audrey didn't get a chance to talk today. No credit questions. But speaking orders only speak for you, but I think we are very optimistic about credit right now and just don't see anything out there that worries us. We had 9 basis points in charge offs last year and don't see that changing much.

[Audrey Duncan, Senior EVP & Chief Credit Officer at Third Coast Bancshares]

Yes. I agree with you, John.

[Brian Hagler, Research Analyst at Kennedy Capital Management LLC]

Great. No, I appreciate that color. And Bart, I'll agree, you guys have delivered on everything since the IPO, if not better. So congrats to the team.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Hey, thank you very much. It's really an exceptional team. I'm very proud of them. And so in the beginning, Brian, we still got some really interesting things ahead of us. It's going to be good.

[Operator]

Thank you. And we have reached the end of the question and answer session. And I'd like to turn the call back over to Mr. Carraway for closing remarks.

[Bart Caraway, Chairman, President & CEO at Third Coast Bancshares]

Thank you, Shamali, and I appreciate everyone for joining us on this call. Thank you for your continued support of Third Coast Bancshares, and we look forward to speaking with you again next quarter. Have a good morning.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Natalie Hairston, Investor Relations
• Bart Caraway, Chairman, President & CEO
• John McWhorter, CFO
• Audrey Duncan, Senior EVP & Chief Credit Officer

Analysts

• Woody Lay, Vice President at Keefe, Bruyette & Woods (KBW)
• Bernard Von Gizycki, Equity Research Analyst at Deutsche Bank
• Tim Mitchell, Equity Research Associate at Raymond James Financial
• Jordan Ghent, Senior Research Associate at Stephens Inc.
• Dave Storms, Director of Equity Research at Stonegate Capital Partners
• Brian Hagler, Research Analyst at Kennedy Capital Management LLC