Third Coast Bancshares, Inc. Q2 FY2025 earnings call

• Closed the second of 2 securitization deals, reducing risk-weighted assets, lowering construction concentrations, and nominated for awards.
• Achieved strong profitability with net interest income CAGR 21.7%, noninterest expenses CAGR 10.7%, tangible book value per share up $8.75 to $29.69, and ROA improved to 1.38%.
• Robust loan growth with Q2 loans up $91.7 million, pipelines remaining strong, projecting $50M-$100M new loans quarterly.
• Improved operational efficiency with efficiency ratio at 55.45% in Q2, down from 61.39% y/y.
• Strong credit quality with nonaccrual loans improving, nonperforming loans ratio improving, and well-diversified loan portfolio.

Net interest income grew at a compound annual rate of 21.7%, while noninterest expenses increased at an annualized rate of 10.7%. Second quarter net income was $15.6 million, up 25% from the first quarter. Second quarter loans grew by $91.7 million, with compound annual growth of 21.1% since IPO, expanding from $2.07 billion in December 2021 to $4.08 billion in June 2025. Loan portfolio breakdown: Commercial and industrial loans were 42% of total loans, construction development and land loans were 19%, owner-occupied CRE was 11%, and nonowner-occupied CRE was 16% of total loans.

• Project $50M-$100M of new loans each quarter with annualized growth near 8%.
• Expect 2 rate cuts by the Federal Reserve by year-end, ready to capitalize on them by managing asset/liability mix.
• Continue to improve operational efficiency ratio.

• Market fluctuations due to interest rate changes and economic uncertainties.
• Potential credit risks from economic conditions affecting loan quality.
• Impact of regulatory changes on operations and compliance.

Q: Greetings, and welcome to the Third Coast Bancshares Second Quarter Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Natalie Hairston. Please go ahead.

A: Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bancshares Conference Call and Webcast to review our second quarter 2025 results. With me today is Bart Caraway, Founder, Chairman, President and Chief Executive Officer; John McWhorter, Chief Financial Officer; and Audrey Spaulding, Chief Credit Officer.

Q: First question is around the securitizations. I'm wondering if you could kind of add any color to it and kind of maybe what's the appetite for more? And kind of what are your expectations for doing more securitizations?

A: Yes. John, do you want to start with that?

Q: So just a question. John, I know you mentioned, I think, the $2 million, I think, benefit in net interest income from securitization and you gave the guidance of 3.90% to 3.95%. What was the core NIM if we take out what the securitization impact was in 2Q?

A: Yes, it would have been in that same range of 3.90% to 3.95%. So we did have improvement in margin. And the improvement that we saw was primarily from loan fees.

Q: Just 1 more follow-up on the loan yield and NIM expectations. So does that 3.90% to 3.95% range exclude all impact of capitalized loan fees?

A: I'm sorry, I didn't quite follow the question.

Q: Let me start out on the loan growth outlook. I think you kind of reiterated that 8% number moving forward. Just curious if you could kind of unpack some of the drivers, customer sentiment, line utilization, et cetera, as we think ahead.

A: Yes. Sure, Tim. So we always kind of caution everybody to realize that our growth tends to be kind of lumpy. And you've seen that over the last 3 years. But we've been pretty consistent in what our messaging is with it, which is $50 million to $100 million per quarter. And I still feel good about the next 3 quarters or so of sticking with that kind of guidance.

Q: Just wanted to start with the portfolio and the loan growth expectations. Hoping to get a little more granular. When you're looking at the pipeline there, are you expecting the commercial and industrial segment to be a standout driver again for the back half of the year? Or do you think growth might come from somewhere else?

A: The C&I portfolio has been pretty robust all year. The problem is we've had some substantial payoffs. And I do know that we are going to have some more payoffs before the end of the year, just company selling, not really anything to do with the economy, more like customers are doing well and some of them are taking the advantage to sell their companies.

Q: I just want to thank you, Carrie. Appreciate your help in this. And thanks, everybody, for joining the call and for your continued support of Third Coast Bancshares. And we look forward to talking to you next quarter. Thank you all.

A: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.