Third Coast Bancshares, Inc. (TCBX)·Q1 2024 Earnings Summary

Executive Summary

• Record profitability: Net income rose to $10.4M with diluted EPS of $0.61; NIM held essentially flat at 3.60% while the efficiency ratio improved to 64.11% .
• Balance sheet expansion accelerated: Loans grew 3.0% q/q to $3.75B and deposits rose 6.5% q/q to $4.05B, taking total assets to $4.66B .
• Management emphasized operating leverage from cost actions and technology, introduced a “1% initiative,” and guided FY24 net interest income growth to “over 10%,” loan growth of $300–$400M, and noninterest expense growth of <5% .
• Q2 outlook: Margin expected to be flat sequentially; deposit seasonality in April reversed mix pressure and should aid margin stability .
• Consensus estimates were not available from S&P Global at the time of request; management stated it “beat expectations in nearly every category,” but we cannot validate vs Street numbers without SPGI data .

What Went Well and What Went Wrong

What Went Well

• Record EPS and profitability with operating discipline: “Third Coast beat expectations in nearly every category” driven by strong loan growth, cost optimization, and efficiency gains; diluted EPS reached a record $0.61 .
• Strong deposit and loan growth: Deposits +6.5% q/q to $4.05B and loans +3.0% q/q to $3.75B; asset base reached $4.66B .
• Efficiency improvement: Efficiency ratio improved to 64.11% from 66.89% in Q4, with continued focus on automation and surgical project prioritization .

What Went Wrong

• Credit metrics ticked higher: Nonperforming loans rose to $21.7M (0.58% of loans), up from $17.3M (0.48%) in Q4; net charge-offs of $742K in the quarter .
• Deposit mix pressure: Noninterest-bearing demand fell to 10.5% of deposits from 12.1% in Q4, pressuring funding costs; average deposit cost increased 2 bps q/q to 4.09% .
• Rising interest expense: Interest expense increased to $40.8M (+2.7% q/q), offsetting part of the benefit from higher earning asset yields .

Financial Results

Segment (Loan) Composition – Period-End Balances

Key KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Third Coast beat expectations in nearly every category, with successive record quarterly profits attributed to strong loan growth, enhanced operational efficiency and successful execution of the company's expense optimization plan.” — Bart Caraway .
• “We have introduced a new 1% initiative to boost overall efficiencies...there is still opportunity to gain efficiency in operations.” — Bart Caraway .
• “On April 10, we sold our 5-year pay fixed swap realizing a gain of $5.25 million. This will be accretive to income at roughly $275,000 per quarter.” — John McWhorter .
• “All in...I think the margin is going to be flat in the second quarter.” — John McWhorter .
• “There’s a strong emphasis internally to get our efficiency ratio to something that starts with a 5.” — Bart Caraway .
• “We...expect growth of $300 million to $400 million for the year...net interest income growth to exceed 10%...noninterest expense growth of less than 5%.” — Bart Caraway .

Q&A Highlights

• NIM outlook: Management expects Q2 margin to be flat; late-Q1 cash inflows with very low spread were a drag but seasonal deposit outflows in April should improve mix .
• Guidance clarification: FY24 NII guidance now framed as “over 10%” vs prior +10–15%, reflecting timing/lumpiness of loan growth; investment securities purchases help offset loan timing .
• Deposit strategy: Broad-based plans across lines of business with treasury services driving core account expansion; aim to increase NIB deposits from current levels .
• Expense run-rate: ~$26M quarterly noninterest expense viewed as a clean and sustainable run rate; headcount ~30 lower y/y .
• Credit watchlist: Select downgrades (assisted living, consumer notes, discretionary goods manufacturer) but strong LTV cushions; office exposure ~3.9% of loans with ~60% LTV and Texas-only footprint .
• Loan pricing: New production generally at SOFR+300 (~8.5% range), fixed deals slightly lower; builder finance uses prime floating + fees .

Estimates Context

• Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable due to system request limits at the time of retrieval, so we cannot benchmark reported results against consensus. Values that would be retrieved from S&P Global were unavailable.*

Key Takeaways for Investors

• Operating leverage is materializing: sequential efficiency ratio improvement and stable NIM amid rising deposit costs support earnings durability .
• Balance sheet growth remains the core catalyst: strong deposit and loan growth, with management guiding deposits to match loan expansion, reduces reliance on wholesale funding and supports margin .
• Credit normalization bears watching: rising NPLs and net charge-offs reflect pockets of stress; strong LTVs and SBA guarantees mitigate severity .
• Near-term EPS support: swap gain accretion (~$275K/quarter) plus cost controls provide incremental tailwinds through 2024 .
• Q2 tactical setup: margin expected flat; deposit mix improvements post-seasonality should aid margin stability—watch NIB mix and average deposit costs .
• Medium-term thesis: Management’s explicit drive to sub-60% efficiency ratio, disciplined loan pricing (~SOFR+300), and targeted branch expansion underpin ROE improvement potential .
• Estimate validation pending: Without SPGI consensus, we cannot declare beats/misses; consider monitoring Street revisions post-print given internal commentary of exceeding expectations .