Company Overview
Third Coast Bancshares, Inc. (TCBX) is a commercially focused, Texas-based bank holding company operating primarily in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets through its wholly owned subsidiary, Third Coast Bank. The company has demonstrated a strong track record of financial performance and strategic execution, positioning it as a high-performing community bank within its regional footprint.
History and Growth
Founded in 2008 in Humble, Texas, Third Coast Bank has grown to 19 branch locations across its key markets. The bank's focus on serving small-to-medium sized businesses and professionals has been a key driver of its success, as it has been able to leverage its deep market expertise and customer-centric approach to deliver tailored financial solutions.
In its early years, Third Coast Bank opened its first branch locations in Humble, Kingwood, and The Woodlands, establishing a presence in its primary market. Despite facing challenges common to de novo banks, such as building a deposit base and loan portfolio from scratch, the management team's focus on relationship banking and understanding the local market allowed Third Coast to gain traction and grow its business.
As the company expanded, it attracted experienced bankers and commercial lending teams to serve new markets, enabling it to maintain asset quality during this period of growth. In 2021, Third Coast Bancshares completed a successful initial public offering, listing its shares on the Nasdaq stock exchange. This milestone provided the company with additional capital to support its continued growth and expansion plans. Since the IPO, Third Coast has opened several more branch locations and expanded its product offerings, including the launch of its commercial finance subsidiary, Third Coast Commercial Capital, to provide working capital solutions to small and medium-sized businesses nationwide.
Throughout its history, Third Coast Bancshares has navigated various economic and market conditions, including the COVID-19 pandemic. The company's focus on relationship banking, conservative credit culture, and operational efficiencies have allowed it to maintain strong financial performance and asset quality, positioning it well for continued success.
Financials
In the latest quarter reported (Q3 2024), Third Coast Bancshares delivered impressive financial results, with net income reaching $12.8 million, or $0.74 per diluted share. This represents a 129% increase in net income compared to the same period in the prior year. The company's return on average assets (ROAA) increased to 1.14% on an annualized basis, up from 0.56% in the year-ago quarter. Additionally, Third Coast's efficiency ratio improved to 59.57% in the third quarter of 2024, down from 62.1% a year earlier, showcasing the bank's focus on operational efficiency.
The strong performance was driven by a 14.5% year-over-year increase in net interest income, which reached $40.4 million in the third quarter. This was primarily attributable to loan growth, as the company's loan portfolio expanded by $131.7 million, or 6.9%, during the quarter. The growth was well-diversified, with commercial and industrial loans and real estate loans being the primary contributors. Notably, Third Coast was able to improve its loan mix by reducing exposure to lower-yielding municipal loans.
For the full fiscal year 2023, Third Coast Bancshares reported revenue of $266.54 million and net income of $33.40 million. The company generated operating cash flow (OCF) of $39.08 million and free cash flow (FCF) of $35.64 million in 2023. Comparing the most recent quarter (Q3 2024) to the same period in the previous year, revenue grew by 28.2%, net income increased by 129.0%, OCF improved by 34.9%, and FCF surged by 132.0%.
Deposit Growth
On the deposit front, Third Coast Bancshares reported a $138.8 million, or 5.0%, increase in total deposits compared to the prior quarter. The bank has been successful in growing its noninterest-bearing demand deposits, which increased by $25.3 million, or 5.5%, during the quarter. This has helped improve the company's deposit mix and contributed to the expansion in net interest margin.
Liquidity and Credit Quality
In addition to its strong financial performance, Third Coast Bancshares has remained focused on maintaining robust credit quality. The bank reported net recoveries of $57,000 during the third quarter, and its nonperforming loans to total loans ratio improved to 0.62% from 0.65% in the previous quarter. The company's allowance for credit losses stood at 1.02% of total loans as of September 30, 2024.
As of September 30, 2024, Third Coast Bancshares had a strong liquidity position with $270.46 million in cash. The company's debt-to-equity ratio was 0.25, indicating a conservative capital structure. Third Coast also maintains several credit facilities to ensure ample liquidity, including a $55 million revolving line of credit with $23.1 million available, $36.5 million in federal funds lines of credit, and $1.4 billion in borrowing capacity from the Federal Reserve Bank of Dallas Discount Window. The company's current ratio and quick ratio both stood at 1.16, further demonstrating its strong liquidity position.
Future Outlook
Looking ahead, Third Coast Bancshares remains well-positioned to capitalize on the growth opportunities within its Texas markets. The company's management team has executed on its strategic initiatives, including investments in technology, talent development, and targeted market expansion. These efforts have contributed to the bank's consistent performance and have positioned it as a high-performing community bank within its regional footprint.
Third Coast Bancshares has provided positive forward-looking guidance for the upcoming quarters. For the fourth quarter of 2024, the company expects loan growth to be on the higher end of their $50 million to $100 million per quarter target. Management anticipates maintaining strong credit quality and sustaining the current efficiency ratio level of 59.57% going forward. The company remains optimistic about growth opportunities in its robust Texas markets and its ability to capitalize on them.
Overall, Third Coast Bancshares' strong financial results, disciplined risk management, and strategic focus make it a compelling investment opportunity within the regional banking space. The company's robust loan growth, improving deposit mix, and operational efficiency enhancements have enabled it to navigate the current interest rate environment effectively and deliver consistent value to its shareholders.
Business Overview and Market Position
Third Coast Bancshares operates in a single segment - community banking. The company provides commercial banking solutions to small and medium-sized businesses and professionals in its primary markets of Greater Houston, Dallas-Fort Worth, and Austin-San Antonio. As of September 30, 2024, TCBX had total assets of $4.63 billion, total loans of $3.89 billion, and total deposits of $3.99 billion.
The company's loan portfolio is well-diversified, with 38.6% in commercial and industrial loans, 21.2% in construction, development and other loans, 15.7% in non-owner occupied commercial real estate, and 12.1% in owner-occupied commercial real estate as of September 30, 2024. This diversification helps mitigate risk and provides multiple avenues for growth.
Third Coast Bancshares has demonstrated strong organic loan growth, with total loans increasing by $251 million, or 6.9%, from December 31, 2023 to September 30, 2024. This growth was well-diversified across the commercial and industrial and real estate loan categories. The company's total loans as a percentage of deposits was 97.4% as of September 30, 2024, up from 95.7% at the end of 2023, indicating efficient deployment of deposits into earning assets.
The bank's primary funding source, deposits, grew by $191.3 million, or 5.0%, to $3.99 billion during the nine months ended September 30, 2024. Notably, noninterest-bearing deposits made up 12.3% of total deposits as of the end of the third quarter, contributing to the bank's favorable funding mix.
Third Coast Bancshares has maintained a strong net interest margin of 3.73% for Q3 2024, up 11 basis points from the prior year quarter, reflecting disciplined balance sheet management and pricing. This performance, combined with the company's focus on operational efficiency and credit quality, positions Third Coast Bancshares as a strong competitor in its Texas markets.