Third Coast Bancshares, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. Unaudited consolidated results for the three months ended March 31, 2024, compared with Q1 2023 for income and cash flows and December 31, 2023 for balance-sheet changes. The Texas-based community bank operates 17 branches in Greater Houston, Dallas-Fort Worth, and Austin-San Antonio; its subsidiary also provides accounts-receivable factoring. The Bank converted from a Texas state savings bank to a Texas banking association on March 13, 2024.
Key financial results
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Total assets | $4.66 billion | Up $264.3 million, or 6.0%, from year-end |
| Gross loans | $3.75 billion | Up $107.4 million, or 3.0%, from year-end |
| Total deposits | $4.05 billion | Up $247.5 million, or 6.5%, from year-end |
| Net interest income | $38.1 million | Up 16.0% year over year |
| Net interest margin / spread | 3.60% / 2.73% | 3.79% / 3.01% in Q1 2023 |
| Net income | $10.4 million | Up 12.2% year over year |
| Net income available to common shareholders | $9.2 million; diluted EPS $0.61 | $8.1 million; diluted EPS $0.55 in Q1 2023 |
| Noninterest income / expense | $2.3 million / $25.9 million | Income up 23.2%; expense up 17.6% year over year |
| Provision for credit losses | $1.6 million on income statement | $1.2 million in Q1 2023 |
| Cash and cash equivalents | $498.3 million | Up $86.4 million from year-end |
| Shareholders’ equity | $423.6 million | Up $11.6 million, or 2.8%, from year-end |
Interest income increased 37.5% year over year, while interest expense rose 66.2%. Management attributed higher net interest income primarily to loan growth and higher loan yields, partly offset by higher deposit costs. Average loan yield was 7.75%, versus 6.90%; average rate paid on interest-bearing deposits was 4.65%, versus 3.45%.
Q1 operating cash flow was $9.4 million, compared with $8.0 million in Q1 2023. Investing activities used $174.5 million, chiefly reflecting loan growth and securities purchases; financing activities provided $251.5 million, principally from deposit growth and a $5.0 million line-of-credit draw.
Balance sheet, credit, and liquidity
- Interest-bearing deposits were $3.63 billion; noninterest-bearing deposits were $424.0 million, down $35.5 million from year-end. Management cited growth in national wholesale, fiduciary, institutional, and local-market deposits.
- Loans were 92.5% of deposits at quarter-end, down from 95.7% at year-end. Commercial and industrial loans represented 36.0% of gross loans; construction, development, and other loans were 19.4%.
- Nonperforming loans were $21.7 million, or 0.58% of loans, versus $17.3 million, or 0.48%, at year-end. Nonaccrual loans were $18.1 million. The increase included new commercial and industrial and commercial real estate nonaccruals; $2.9 million of loans more than 90 days past due and still accruing primarily reflected a matured commercial real estate loan pending renewal.
- The loan allowance was $38.1 million, or 1.02% of gross loans, versus $37.0 million and 1.02% at year-end. Q1 net charge-offs were $742,000. Substandard loan balances rose to $58.1 million from $24.0 million at year-end; doubtful balances were $1.8 million versus $322,000.
- Available-for-sale securities were $246.3 million, up $68.2 million from year-end. Net unrealized losses were $5.2 million; management recorded no securities credit-loss allowance and attributed unrealized losses to market interest rates.
- Borrowings totaled $124.5 million: $43.9 million outstanding on the senior line and $80.6 million net subordinated debt. The senior revolving facility was increased to $55.0 million and extended to March 2026. No FHLB advances were outstanding. Disclosed available capacity included $643.9 million at the FHLB and $1.3 billion through the Federal Reserve discount-window arrangement.
- The Bank’s capital ratios remained above “well capitalized” thresholds: total capital 13.28%, Tier 1 risk-based 12.32%, and Tier 1 leverage 11.81% at March 31, 2024. The Company’s consolidated total capital ratio was 12.41%.
Outlook, risks, and unusual items
The filing provides no numerical earnings or balance-sheet guidance. Management cautions that quarterly results are not necessarily indicative of full-year results. Its interest-rate simulations showed that a +300-basis-point shock was associated with a 1.32% increase in modeled net interest income and a 7.93% decrease in modeled fair value of equity; a -100-basis-point shock was associated with a 0.77% decrease in modeled net interest income. These are model estimates, not forecasts.
Key disclosed risks include interest-rate movements, deposit retention and funding costs, credit quality and collateral values, real-estate and construction exposure, geographic concentration in Texas, wholesale funding, fraud, technology and cybersecurity, and regulatory changes. Commitments to extend credit were $1.42 billion and standby letters of credit were $25.7 million. Estimated uninsured time deposits were $304.0 million. Management reported no material change to the risk factors in its 2023 Form 10-K, no material legal proceedings, and effective disclosure controls.
After quarter-end, on April 10, 2024, the Company terminated $200 million of notional cash-flow hedges for a realized gain of $5.4 million. The gain is to be recognized in interest expense over the contracts’ remaining term. Existing terminated-hedge gains reduced Q1 interest expense by approximately $445,000.
Important facts for investors to verify
- Whether deposit growth is sustainable and how wholesale funding, deposit mix, and deposit pricing affect net interest margin.
- Whether rising nonperforming loans and adversely graded balances lead to further charge-offs or allowance increases, particularly in commercial and real estate lending.
- The performance and renewal status of the $2.9 million matured commercial real estate loan and other loans more than 90 days past due.
- The size, timing, and realized cost of unfunded credit commitments, and the availability and terms of contingent borrowing capacity.
- How securities valuation changes and the April 2024 hedge termination affect future reported earnings, interest expense, and accumulated other comprehensive income.