Stonegate Updates Coverage on Third Coast Bancshares, Inc. (NasdaqGS:TCBX) Q4 2024

DALLAS, TX -- January 27th, 2024 -- Third Coast Bancshares, Inc. (NasdaqGS:TCBX): Stonegate Capital Partners updates their coverage on Third Coast Bancshares, Inc. For 4Q24, Third Coast reported net income of $13.7M, up from $12.8M in 3Q24. This was equal to a basic and diluted EPS of $0.92 and $0.79, respectively. The Q/Q growth was primarily attributed to higher net interest income, driven by loan growth and increased investments in federal funds sold and interest-bearing deposits with correspondent banks. However, this increase was partially offset by a slightly higher provision for credit losses and rising expenses related to salaries and employee benefits. We anticipate that the Company will continue prioritizing operational efficiency by sustaining its 1% improvement initiative. This strategy is expected to support Third Coast in the current macroeconomic landscape.

Company Summary 

Interest Income and Expenses: TCBX reported a net interest margin of 3.71% for the quarter, which is down from 3.73% in 3Q24. We note that this remains elevated compared to the median comps NIM of 3.39%. Year over year NIM increased 10bps from 3.61%. This was primarily due to an increase in net interest income, resulting from federal funds sold and deposits in interest-bearing correspondent banks, reflecting an increase of $1.9M in 4Q24, a 68.4% change Q/Q from 3Q24.

Deposits and Loans: The Company’s loan portfolio continues to show strong growth, with an increase of $327.6M year over year. During the same period, net deposits rose by $507.4M, representing a 13.3% increase. Non-performing assets for 4Q24 were $27.9M, up from $24.0M in the previous quarter. This corresponds to a nonperforming loan to total loans ratio of 0.70%, compared to 0.62% in 3Q24. The Company recorded net charge-offs of $879,000 for the fourth quarter of 2024, down from $1.5M in the fourth quarter of 2023. Lastly, we note that the quarter end book value and tangible book value were $28.65 and $27.29, respectively. This was up from 3Q24 in values of $28.13 and $26.75.

Financial Ratios: At the end of 4Q24, Tier 1 capital ratio was 9.90%, down slightly from 9.93% in 3Q24. Third Coast’s non-performing loans to total loans percentage was 0.70%, an increase from 0.62% in 3Q24. TCBX had a ROAA and ROAE of 1.13% and 12.66%, respectively. The efficiency ratio for the quarter was 58.80%, an improvement from 59.57% last quarter. The Bank currently has $421.2M in cash and equivalents, representing a 35.78% increase from $270.4M in 3Q24. This is equal to $30.75 per share or approximately 89% of the stock value.

Growth Initiatives: TCBX continued its expansion in 2H24, opening its 19th branch. The Company maintained its focus on strategic objectives, achieving the above-mentioned efficiency ratio. Management emphasized ongoing efforts to diversify the deposit portfolio and manage expenses effectively. The loan portfolio saw significant growth, with gross loans increasing to $3.97B. With a robust loan pipeline and strategic initiatives in place, TCBX is well-positioned for sustained growth.

Valuation: We use a comp analysis on P/E and P/BV to frame our valuation of TCBX. Using a forward P/E range of 9.0x to 10.0x with a mid-point of 9.5x on FY26 estimates results in a valuation range of $36.85 to $40.95 with a mid-point of $38.90. Using a P/BV range of 1.3x to 1.5x with a mid-point of 1.4x results in a valuation range of $37.25 to $42.98 with a mid-point of $40.11.

About StonegateStonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.

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