Third Coast Bancshares Inc. (TCBX)

A. Company Overview

Third Coast Bancshares Inc. is a bank holding company headquartered in Humble, Texas. It operates through its wholly owned subsidiary, Third Coast Bank, and the Bank’s wholly owned subsidiary, TCCC. Founded in 2008, the company specializes in providing commercial banking solutions aimed at serving small and medium-sized businesses and professionals within its operational markets. The company’s emphasis on market expertise and an understanding of customer needs enables it to deliver tailored financial products and services to its clientele. As of December 31, 2023, Third Coast Bancshares reported consolidated total assets of approximately $4.40 billion, total loans of around $3.64 billion, and total deposits of about $3.80 billion, culminating in total shareholders' equity of $412.0 million.

On August 16, 2023, Third Coast Bank announced its application with the Texas Department of Banking (TDB) to convert from a Texas state savings bank to a Texas banking association. This transition is expected to enhance its regulatory framework and operational capabilities within the banking landscape. Following its approval, the conversion is scheduled to take effect on March 13, 2024.

B. Market Area

Third Coast Bancshares operates principally in three metropolitan markets: Greater Houston, Dallas-Fort Worth, and Austin-San Antonio. Within these areas, it manages a total of fifteen branches: eight located in the Greater Houston market, three in the Dallas-Fort Worth market, and four in the Austin-San Antonio market. Additionally, there is one branch situated in Detroit, Texas. The widespread presence across these dynamic economic regions is expected to facilitate continuing growth and the delivery of sophisticated banking services.

C. Competition

The banking sector in which Third Coast operates is characterized by intense competition from both traditional financial institutions and emerging non-bank entities. Competitors range from community banks to national and regional banks, credit unions, finance companies, and money market mutual funds. Third Coast Bancshares distinguishes itself with a high-touch, relationship-driven approach, focusing on personalized service aimed at meeting the specific banking needs of small and medium-sized businesses. This customer-centric approach, coupled with a team-oriented culture, aims to create a competitive edge over larger banking institutions that may lack the capacity for individualized service.

D. Lending Activities

Third Coast Bank's lending activities are governed by lending limits established by both state and federal regulations. As of December 31, 2023, the legal limit for loans to a single borrower was $126.3 million, with the largest loan recorded at $51.0 million. The bank adheres to conservative internal lending limits that are significantly lower than the legal caps to manage risk adequately. The credit department of the bank, overseen by the Chief Credit Officer, encompasses various specialized areas such as underwriting, loan monitoring, and special assets management.

An internal loan risk rating system is employed to identify potential risks associated with loans, with annual reviews mandated for significant loans. Additionally, a Special Assets Committee reviews loans categorized as substandard or worse, assessing necessary actions to mitigate risks and losses associated with those assets.

E. Deposits

Third Coast Bancshares’ core deposits include checking, money market, savings accounts, and various certificate of deposit offerings. The bank utilizes a relationship-based marketing strategy to attract deposits, targeting both individuals and businesses within its operational markets. This is supplemented by a national wholesale deposit strategy aimed at obtaining larger, stable deposits, thus diversifying the bank’s funding sources. Technology-enabled customer solutions also play a crucial role in enhancing the bank's deposit acquisition and retention capabilities.

F. Other Banking Services

The institution provides a comprehensive suite of traditional banking products including retail and commercial online banking services, mobile banking applications, treasury management solutions, and merchant card services. Additionally, it offers customer-focused digital solutions, further positioning the bank as a modern financial institution equipped to handle diverse banking needs.

G. Investments

The investment portfolio as of December 31, 2023, primarily encompasses U.S. government and agency securities, mortgage-backed securities, collateralized mortgage obligations, and corporate bonds classified as available for sale. The Asset Liability and Investment Committee (ALCO) regularly reviews the investment portfolio to ensure compliance with internal policy frameworks and regulatory requirements.

H. Borrowings

To complement its core deposit strategy, Third Coast Bancshares engages in various borrowing practices, including advances from the Federal Home Loan Bank (FHLB) of Dallas, a line of credit with third-party lenders, and issuing subordinated notes. As of December 31, 2023, total borrowings stood at $119.5 million, which corresponds to around 3.0% of total liabilities.

I. Information Technology Systems

Significant investments in innovative information technology systems have been a strategic priority for Third Coast Bancshares to enhance operational capabilities and improve customer experiences. The core data processing services are outsourced to a recognized vendor capable of accommodating the growth aspirations of the bank, while the internal network and email systems are maintained in-house. A robust business continuity plan is actively managed to ensure minimal disruption to operations in the event of unforeseen circumstances.

J. Enterprise Risk Management

The institution maintains a strong emphasis on risk management, integrated into its overall operational culture. This encompasses comprehensive measures across various areas, including lending practices, regulatory compliance, and operational risks. Regular meetings of the Officers' Loan Committee and the Directors' Loan Committee allow for thorough discussions regarding lending activities, while assessments and ongoing audits of risk management processes help mitigate potential financial instability.

K. Supervisory and Regulatory Environment

Third Coast Bancshares and its subsidiary bank are subject to vigilant oversight by various regulatory bodies, including the Texas Department of Banking, Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC). The bank complies with a comprehensive set of regulations that govern its operational framework, lending practices, and capital reserves. This regulatory landscape influences its growth strategies, financial health, and operational performance.