Third Coast Bancshares, Inc. (NASDAQ:TCBX) Q2 2023 Earnings Call Transcript

Bart Caraway: Yes. So, we kind of look at a holistic view point for return on equity. What’s the best allocation of assets to return what we are trying to get for the shareholders. And because of that, we constantly internally are reporting or monitoring every line of business down to stack ranking performers on it. So, I think we have some really good internal accounting that we are watching everything. And as rates have gone up, obviously, that’s put different perspectives on different lines of business for us. And so as we have grown it would just become more obvious that there are ways to allocate our balance sheet to enhance shareholder equity. And so it really came down to a numbers game, whenever you look at it, that there is an obvious way for us to reallocate our assets for higher earning loans.

Everything we look at, I think we have a great management team and even the leaders of all the lines of businesses are always looking for ways to enhance performance. So right now, I think that was sort of the obvious internal answer. Everything else that we are working on is just sharpening our pencils to kind of refine the other businesses. But we are pretty pleased with the other line of businesses are growing.

John McWhorter: Yes. And Michael, along those same lines, as we were looking at the balance sheet over the last quarter and where we can be most efficient, we were looking at investment securities, and there were a lot of distressed sellers of bank sub debt over the last quarter. So, we did buy roughly $20 million in bank sub debt, much of – so the average for the quarter was not where we ended the quarter. We are worried about $90 million now. I think we averaged about $77 million for the quarter. But the new stuff that we were buying had yields above 10%, and these were big, well-known banks, they should be money good and it just seemed like a good opportunity, where it was mostly small pieces, but just to stress sellers trying to get out of that.

Michael Rose: Makes sense. And then just – I think just finally for me, just putting everything together, so you have positive NII growth from balance sheet, relatively flattish expenses, some momentum on the fee side. It seems like you guys could actually be one of the few banks that could actually generate some positive operating leverage next year. Is that the kind of the goal here? And is that your kind of expectation at this point? Thanks.

John McWhorter: Definitely. We believe so. I mean you probably said it fairer than I could. I just think we are putting ourselves in a position to be nimble and have the right balance sheet structure and efficiency to be able to improve on our operating leverage. And I think you will see a lot more of that happen over the next few quarters. It’s not overnight, but it’s definitely certainly throughout the rest of this year and into next year, you will see a lot of the benefits on the planning that we have been working on for a couple of years now.

Bart Caraway: Yes, especially if we can continue growing deposits the way we have in the last couple of quarters, it certainly hasn’t gotten any easier. I know some of our peers listening to their calls, they maybe had a little more confidence than I do. But the deposit market is tough out there right now. Ours has been up. We have done great the last couple of quarters. And if that – if we stay the course there, I think we have a lot of opportunities. Even demand, we saw at month end our demand deposits were up, where most people were down and a lot of that actually came out of our specialty finance group of all places, our builder finance group that – they called hard on their customers and they had a lot of cash and they really had a great quarter there.