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TC

Third Coast Bancshares, Inc. (TCBX)·Q3 2024 Earnings Summary

Executive Summary

  • Record quarter: net income $12.8M and diluted EPS $0.74, with net interest margin rising 11 bps QoQ to 3.73% and efficiency ratio improving to 59.57% .
  • Loans grew $131.7M QoQ to $3.89B, driven by C&I (+$137.9M) and real estate (+$33.0M); municipal loans declined $39.0M to optimize mix .
  • Deposit mix improved: noninterest-bearing demand deposits rose $25.3M QoQ to $489.8M (12.3% of total), while total deposits reached $3.99B (+3.6% QoQ) .
  • Management reiterated $50–$100M quarterly loan growth target and expects NIM stability near-term; efficiency ratio now below 60% with ambition to drive further down .
  • Consensus estimates from S&P Global were unavailable at time of review; no explicit comparisons to Street estimates provided (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Strong profitability and margin expansion: NIM up to 3.73% (+11 bps QoQ), net interest income up 3.9% QoQ to $40.4M; efficiency ratio improved to 59.57% .
  • Loan and deposit mix improvements: C&I momentum (+$137.9M QoQ); noninterest-bearing demand deposits increased, supporting funding costs and NIM outlook .
  • Management execution and cost control: fourth consecutive quarter of noninterest expense declines/flatness (~$25.6M), with “1% improvement” program driving ROA 1.14% and ROE >12%; quote: “We achieved our goal of bringing the efficiency ratio below 60% ahead of schedule” .

What Went Wrong

  • Securities losses reduced noninterest income: realized losses on the sale of a corporate bond and two MBS led to noninterest income declining to $2.5M from $2.9M QoQ .
  • Deposit costs remain elevated: average cost of deposits at 4.18% (down 4 bps QoQ but up 45 bps YoY), reflecting competitive funding environment; management expects room to reprice down over time .
  • Asset quality still monitored: nonperforming loans remained ~flat QoQ ($24.0M), though NPL ratio improved slightly (0.62% vs. 0.65%); continued vigilance in CRE/office exposure (average LTV ~60%) .

Financial Results

MetricQ3 2023Q2 2024Q3 2024
Net Interest Income ($USD Millions)$35.3 $38.9 $40.4
Noninterest Income ($USD Millions)$1.9 $2.9 $2.5
Net Income ($USD Millions)$5.6 $10.8 $12.8
EPS – Basic ($USD)$0.32 $0.70 $0.85
EPS – Diluted ($USD)$0.32 $0.63 $0.74
Net Interest Margin (%)3.71% 3.62% 3.73%
Efficiency Ratio (%)74.07% 61.39% 59.57%
Return on Avg Assets (%)0.56% 0.97% 1.14%

Segment breakdown (Loan Portfolio at period-end, $USD Millions):

SegmentQ3 2023Q2 2024Q3 2024
C&I$1,288.3 $1,361.4 $1,499.3
CRE – Owner Occupied$517.9 $499.9 $470.2
CRE – Non-Owner$567.0 $612.3 $611.6
Residential$326.4 $349.5 $339.6
Construction/Development/Other$655.8 $756.6 $825.3
Municipal & Other$171.3 $145.2 $106.2
Consumer$2.7 $2.2 $2.0
Total Loans$3,560.0 $3,758.2 $3,889.8

Key KPIs and Asset Quality:

KPIQ3 2023Q2 2024Q3 2024
Total Deposits ($USD Billions)$3.65 $3.86 $3.99
NIB Demand Deposits ($USD Millions; % of total)$500.2 (—) $464.5 (12.0%) $489.8 (12.3%)
Average Cost of Deposits (%)—4.22% 4.18%
Nonperforming Loans ($USD Millions)$16.4 $24.4 $24.0
NPL / Total Loans (%)0.46% 0.65% 0.62%
Allowance / Total Loans (%)1.07% 1.02% 1.02%
Net Charge-offs (Recoveries), QTD ($USD Millions)$0.02 $1.83 $(0.06)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Loan GrowthQ4 2024 and near-term$50–$100M/quarter (prior commentary) Maintain $50–$100M; Q3 exceeded at $131.7M Maintained
Net Interest MarginQ4 2024Stable/flat outlook (implied) Guide to flat; comfortable positioning; asset-sensitive models may understate performance Maintained
Efficiency RatioThrough 2025Target <60% (goal) Achieved 59.57% in Q3; aiming “much further” declines over time Raised (target ambition)
Charge-offsFY 2024Annual goal <10 bps On pace (~9 bps YTD) Maintained
Debt Paydown (Senior Line)Q4 2024 / FY 2025Opportunistic reductions No further in 2024; reevaluate Q1 2025; potential $5M/quarter depending on conditions Maintained
Preferred Dividend (Series A)Q4 2024Quarterly cash dividend $17.06–$17.25 historically Declared $17.25 per share payable Oct 15, 2024 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
Operational efficiency (1% improvement initiative)Efficiency ratio fell from 64.11% (Q1) to 61.39% (Q2) on cost actions Achieved 59.57% (<60% goal) ahead of schedule; plan to push further Improving
Deposit mix and cost of fundsNIB demand fell in Q1 then rose in Q2; average cost 4.09%→4.22% NIB demand up again; avg cost down to 4.18%; pricing flexibility discussed Improving mix; moderating cost
Loan growth & mix optimizationLoans +$107M in Q1; +$12M in Q2; municipal loans reduced Loans +$132M; strong C&I; continued municipal runoff Accelerating growth; favorable mix
Net interest marginNIM 3.60% (Q1); 3.62% (Q2) NIM 3.73%; guide to flat/comfortable Improving to stable
Asset quality (NPLs, charge-offs)NPL ratio 0.58% (Q1) rising to 0.65% (Q2) NPL ratio 0.62% (slight improvement); net recoveries; office LTVs ~60% Stabilizing
Branch network17 branches end-Q1; 18 by Q2 Opened 19th; de novo Houston; minimal further expansion planned Largely complete
Treasury/fee growthNoninterest income improved in Q2; treasury initiatives highlighted Service charges up; guidance ~$2.5M/quarter; securities losses a headwind Growing underlying fees; volatile items

Management Commentary

  • “We are pleased to report another quarter of record-setting earnings... efficiency ratio below 60% ahead of schedule... 13 consecutive quarters of net interest income growth” — Bart Caraway, CEO .
  • “Net interest income was up $1.5M... driven primarily by better loan mix, better deposit mix and balance sheet growth... fourth consecutive quarter of declines in noninterest expense” — John McWhorter, CFO .
  • “Credit quality remained strong... Nonperforming loans to total loans improved slightly to 0.62%... net recoveries of $57,000” — Audrey Duncan .
  • Outlook: “Maintaining our target of $50M to $100M per quarter [loan growth]... efficiency ratio below 60%... confident in NIM stability and asset quality” — Bart Caraway .

Q&A Highlights

  • Loan growth trajectory: Pipelines support continued $50–$100M quarterly growth; Q4 may be on higher side; municipal/BAN runoff largely complete .
  • NIM outlook: Despite asset-sensitivity models, actual performance exceeded assumptions post Fed cut; elevated cost of funds provides room to reprice down; guide to flat NIM near-term .
  • Deposit strategy: Strong incentives across commercial/treasury/retail lines; significant floating-rate money market base (~75%); NIB demand improved in Q3 and continued into October .
  • Efficiency ratio: Target to drive below mid/high-50s over time; selective additions (underwriters/PMs) but revenue expected to outpace expenses .
  • Funding: Short-term brokered CDs used tactically to manage loan-to-deposit ratio during September loan surge; avoid FHLB borrowing; expect seasonal deposit inflows .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 EPS and revenue were unavailable at the time of request due to provider limits; no formal beat/miss assessment versus Wall Street estimates can be provided now.
  • Implication: In absence of Street comps, operational beats are evident — NIM expansion, record EPS, and efficiency gains — which typically support multiple expansion for improving profitability banks .

Key Takeaways for Investors

  • Profitability inflection: NIM expansion and sub-60% efficiency ratio underpin ROA >1% and ROE >12%; durability supported by deposit mix improvements and loan pricing discipline .
  • Growth momentum: Strong C&I-led loan growth with improved mix; municipal runoff reduces lower-yield exposure; guidance sustained at $50–$100M per quarter .
  • Funding tailwinds: Elevated cost of funds presents repricing opportunity as rates decline; NIB demand growth provides ongoing support for NIM .
  • Asset quality steady: NPL ratio edged down; net recoveries in quarter; office exposure manageable with ~60% LTVs in Texas footprint .
  • Expense discipline: Fourth consecutive quarter of flat/down noninterest expense; management targeting further efficiency improvements into 2025 .
  • Tactical funding flexibility: Temporary brokered CDs and ongoing senior debt paydown strategy optimize balance sheet while avoiding FHLB dependence .
  • Dividend context: Preferred dividend maintained ($17.25/share for Series A); no common dividend .

Additional document references:

  • Q3 2024 earnings press release (primary): .
  • Q3 2024 8-K Item 2.02 and exhibits: .
  • Q3 2024 call transcript (prepared remarks and Q&A): .
  • Prior quarters press releases (trend analysis): Q2 2024 ; Q1 2024 .
  • Q3 2024 earnings call announcement: ; Q3 2024 preferred dividend: .