Third st Bancshares(TCBX) - 2023 Q3 - Quarterly Report

python import urllib.parse def get_display_title(full_title): """ Generates a concise display title for the page-jump link, following the pattern observed in the example output. """ if full_title.startswith("Item "): Remove "Item X." or "Item XA." prefix for display title parts = full_title.split(". ", 1) if len(parts) > 1: return parts[1] return full_title Fallback if split fails elif full_title.startswith("PART "): return full_title Keep "PART I", "PART II" as is for display return full_title Default for other titles (like "Consolidated Balance Sheets") def generate_outline(data): """ Recursively generates a professionally structured report outline in Markdown format. """ markdown_output = [] for item in data: heading_prefix = "" * item["level"] Determine the starting page for the link current_start_page = item.get("start_page") if current_start_page is None and item.get("children"): If the current item doesn't have a start_page, use the start_page of its first child def find_first_start_page(children_list): for child in children_list: if child.get("start_page") is not None: return child["start_page"] if child.get("children"): found_page = find_first_start_page(child["children"]) if found_page is not None: return found_page return None current_start_page = find_first_start_page(item["children"]) Generate summary text summary_text = item.get("summary") if summary_text: Remove trailing period if present, as per requirement if summary_text.endswith('.'): summary_text = summary_text[:-1] else: Generate concise summaries for specific null cases if item["title"] == "PART I. FINANCIAL INFORMATION": summary_text = "This section covers unaudited financial statements, management's analysis, market risk, and internal controls" elif item["title"] == "Consolidated Balance Sheets": summary_text = "This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates" elif item["title"] == "Consolidated Statements of Income": summary_text = "This section details the company's revenues, expenses, and net income over specific periods" elif item["title"] == "Consolidated Statements of Cash Flows": summary_text = "This section outlines the company's cash inflows and outflows from operating, investing, and financing activities" elif item["title"] == "Item 3. Defaults Upon Senior Securities": summary_text = "This section confirms no defaults occurred on senior securities during the reporting period" elif item["title"] == "Item 4. Mine Safety Disclosures": summary_text = "This section is not applicable to the company's operations" elif item["title"] == "Item 5. Other Information": summary_text = "This section reports on director and officer trading arrangements during the quarter" elif item["title"] == "Item 6. Exhibits": summary_text = "This section lists all exhibits filed with the Form 10-Q, including key corporate documents and certifications" elif item["title"] == "PART II. OTHER INFORMATION": summary_text = "This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures" else: summary_text = "A concise summary for this section" Fallback, should ideally not be hit URL encode item_id for the page-jump link encoded_item_id = urllib.parse.quote(item["item_id"]) Construct the heading with page-jump link if current_start_page is not None: display_title = get_display_title(item['title']) markdown_output.append(f"{heading_prefix} [{display_title}](index={current_start_page}&type=section&id={encoded_item_id})") else: markdown_output.append(f"{heading_prefix} {item['title']}") if summary_text: markdown_output.append(summary_text) Process key_points if item.get("key_points"): for kp in item["key_points"]: if kp["type"] == "insight": content = kp["content"] Remove trailing period if present if content.endswith('.'): content = content[:-1] Apply bold formatting for key metrics and conclusions content = content.replace("16 branches", "**16 branches**") content = content.replace("$4.0 million", "**$4.0 million**") content = content.replace("$3.2 million", "**$3.2 million**") content = content.replace("'well capitalized'", "**'well capitalized'**") content = content.replace("$5.6 billion", "**$5.6 billion**") content = content.replace("7.26%", "**7.26%**") content = content.replace("5.10%", "**5.10%**") content = content.replace("0.88%", "**0.88%**") content = content.replace("3.91%", "**3.91%**") content = content.replace("$7.7 million", "**$7.7 million**") content = content.replace("11.7%", "**11.7%**") content = content.replace("$452.4 million", "**$452.4 million**") content = content.replace("14.6%", "**14.6%**") content = content.replace("$3.56 billion", "**$3.56 billion**") content = content.replace("$16.4 million", "**$16.4 million**") content = content.replace("0.39%", "**0.39%**") content = content.replace("$12.3 million", "**$12.3 million**") content = content.replace("0.32%", "**0.32%**") content = content.replace("$410.7 million", "**$410.7 million**") content = content.replace("12.7%", "**12.7%**") content = content.replace("$3.65 billion", "**$3.65 billion**") content = content.replace("$38.1 million", "**$38.1 million**") content = content.replace("1.07%", "**1.07%**") content = content.replace("$30.4 million", "**$30.4 million**") content = content.replace("0.98%", "**0.98%**") content = content.replace("$3.4 million", "**$3.4 million**") content = content.replace("$369.2 million", "**$369.2 million**") content = content.replace("$1.2 billion", "**$1.2 billion**") content = content.replace("$33.0 million", "**$33.0 million**") content = content.replace("$18.6 million", "**$18.6 million**") content = content.replace("4.9%", "**4.9%**") content = content.replace("$400.3 million", "**$400.3 million**") content = content.replace("$23.7 million", "**$23.7 million**") content = content.replace("$3.5 million", "**$3.5 million**") content = content.replace("32.5%", "**32.5%**") references = "".join([f"[{cn}](index={cn}&type=chunk)" for cn in sorted(kp["chunk_num"])]) markdown_output.append(f"- {content}{references}") elif kp["type"] == "table": markdown_output.append(f" {kp['title']}") Table title as subheading markdown_output.append(kp["content"]) Raw markdown table content Recursively process children if item.get("children"): markdown_output.extend(generate_outline(item["children"])) return markdown_output The provided outline content outline_content = [{"level": 1, "title": "PART I. FINANCIAL INFORMATION", "item_id": "PART I. FINANCIAL INFORMATION", "summary": None, "children": [{"level": 2, "title": "Item 1. Financial Statements (unaudited)", "item_id": "Item 1. Financial Statements (unaudited)", "summary": "This section presents the unaudited consolidated financial statements for Third Coast Bancshares, Inc. as of September 30, 2023, and for the three and nine-month periods then ended. It includes the Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows, and the accompanying notes which provide detailed explanations of accounting policies and financial items.", "children": [{"level": 3, "title": "Consolidated Balance Sheets", "item_id": "Consolidated Balance Sheets", "summary": None, "children": [], "end_page": 5, "key_points": [{"type": "table", "title": "Consolidated Balance Sheet Highlights (unaudited)", "content": "| (In thousands) | Sep 30, 2023 | Dec 31, 2022 |\n| :--- | :--- | :--- |\n| **Total Assets** | **$4,215,792** | **$3,773,148** |\n| Cash and cash equivalents | $286,530 | $332,014 |\n| Loans, net | $3,521,886 | $3,077,200 |\n| Investment securities available-for-sale | $201,035 | $176,067 |\n| **Total Liabilities** | **$3,815,461** | **$3,391,368** |\n| Total deposits | $3,646,822 | $3,236,146 |\n| **Total Shareholders' Equity** | **$400,331** | **$381,780** |", "chunk_num": [14]}], "start_page": 5}, {"level": 3, "title": "Consolidated Statements of Income", "item_id": "Consolidated Statements of Income", "summary": None, "children": [], "end_page": 6, "key_points": [{"type": "table", "title": "Consolidated Statements of Income Highlights (unaudited)", "content": "| (In thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 |\n| :--- | :--- | :--- | :--- | :--- |\n| Net interest income | $35,268 | $31,355 | $102,194 | $84,303 |\n| Provision for credit losses | $2,620 | $2,900 | $5,220 | $10,250 |\n| Noninterest income | $1,866 | $2,538 | $6,048 | $5,470 |\n| Noninterest expense | $27,505 | $22,728 | $73,384 | $65,682 |\n| **Net income** | **$5,578** | **$6,770** | **$23,712** | **$11,134** |\n| Net income available to common shareholders | $4,394 | $6,770 | $20,173 | $11,134 |\n| **Diluted earnings per share** | **$0.32** | **$0.49** | **$1.41** | **$0.81** |", "chunk_num": [16]}], "start_page": 6}, {"level": 3, "title": "Consolidated Statements of Cash Flows", "item_id": "Consolidated Statements of Cash Flows", "summary": None, "children": [], "end_page": 12, "key_points": [{"type": "table", "title": "Consolidated Cash Flow Highlights (unaudited)", "content": "| (In thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 |\n| :--- | :--- | :--- |\n| Net cash provided by operating activities | $21,544 | $15,614 |\n| Net cash used in investing activities | ($479,187) | ($1,095,956) |\n| Net cash provided by financing activities | $412,159 | $971,165 |\n| **Change in cash and cash equivalents** | **($45,484)** | **($109,177)** |", "chunk_num": [26]}], "start_page": 10}, {"level": 3, "title": "Notes to Unaudited Consolidated Financial Statements", "item_id": "Notes to Unaudited Consolidated Financial Statements", "summary": "The notes detail the company's accounting policies, including the significant adoption of the Current Expected Credit Loss (CECL) model (ASC 326) on January 1, 2023, which resulted in a $4.0 million increase to the allowance for credit losses. The notes also provide breakdowns of the loan portfolio, investment securities, deposits, borrowings, derivatives, and regulatory capital, confirming the bank remains 'well capitalized'.", "children": [], "end_page": 46, "key_points": [{"type": "insight", "content": "The company provides commercial and consumer banking services through 16 branches in Texas markets including Greater Houston, Dallas-Fort Worth, and Austin-San Antonio.", "chunk_num": [31]}, {"type": "insight", "content": "On January 1, 2023, the Company adopted ASC 326 (CECL), recording a $4.0 million increase in the allowance for credit losses and a net after-tax adjustment to retained earnings of $3.2 million.", "chunk_num": [80]}, {"type": "table", "title": "Loan Portfolio Composition (in thousands)", "content": "| Loan Category | Sep 30, 2023 | Dec 31, 2022 |\n| :--- | :--- | :--- |\n| Commercial & industrial | $1,288,320 | $1,058,910 |\n| Construction, development & other | $655,822 | $567,851 |\n| Non-farm non-residential non-owner occupied | $566,973 | $506,012 |\n| Non-farm non-residential owner occupied | $517,917 | $493,791 |\n| Residential | $326,354 | $308,775 |\n| Municipal and other | $171,256 | $145,520 |\n| Farmland | $30,646 | $22,820 |\n| Consumer | $2,665 | $3,872 |\n| **Total Loans** | **$3,559,953** | **$3,107,551** |", "chunk_num": [94]}, {"type": "insight", "content": "As of September 30, 2023, the Bank and the Company met all regulatory capital adequacy requirements and were classified as 'well capitalized'.", "chunk_num": [227, 230, 232]}], "start_page": 13}], "end_page": 46, "key_points": [], "start_page": 5}, {"level": 2, "title": "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", "item_id": "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", "summary": "Management discusses the company's financial performance, highlighting a 113% increase in net income for the first nine months of 2023 compared to 2022, driven by strong loan growth and higher interest income, which offset rising deposit costs. The analysis covers significant growth in total assets to $4.22 billion, a 14.6% increase in the loan portfolio, and a 12.7% rise in deposits. The company maintains strong liquidity and capital ratios, remaining 'well capitalized'.", "children": [{"level": 3, "title": "Overview", "item_id": "Overview", "summary": "The company is a commercial-focused bank holding company operating through 16 branches in major Texas markets. As of September 30, 2023, it held $4.22 billion in total assets, $3.56 billion in total loans, and $3.65 billion in total deposits. On October 26, 2023, the bank received approval to convert from a Texas state savings bank to a state bank under the name Third Coast Bank.", "children": [], "end_page": 47, "key_points": [{"type": "insight", "content": "The company focuses on providing commercial banking solutions to small and medium-sized businesses and professionals in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets.", "chunk_num": [255]}, {"type": "insight", "content": "On October 26, 2023, the Bank received approval from the Federal Reserve Bank of Dallas to convert to a state bank named Third Coast Bank, pending final state approvals.", "chunk_num": [258]}], "start_page": 47}, {"level": 3, "title": "Results of Operations", "item_id": "Results of Operations", "summary": "For the nine months ended September 30, 2023, net income rose 113.0% to $23.7 million from $11.1 million in the prior year period. This was driven by an 84.3% increase in interest income due to loan growth and higher rates, which outpaced a 372.0% surge in interest expense. For Q3 2023, net income decreased 17.6% to $5.6 million from $6.8 million in Q3 2022, as the sharp rise in interest expense more than offset the growth in interest income for the quarter.", "children": [], "end_page": 55, "key_points": [{"type": "table", "title": "Results of Operations Summary (in thousands)", "content": "| | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change |\n| :--- | :--- | :--- | :--- |\n| Net interest income | $102,194 | $84,303 | 21.2% |\n| Provision for credit losses | $5,220 | $10,250 | (49.1)% |\n| Noninterest income | $6,048 | $5,470 | 10.6% |\n| Noninterest expense | $73,384 | $65,682 | 11.7% |\n| **Net income** | **$23,712** | **$11,134** | **113.0%** |", "chunk_num": [260]}, {"type": "insight", "content": "The increase in net interest income for the first nine months of 2023 was primarily due to a $5.6 billion increase in average loans and a rise in loan yields to 7.26% from 5.10% YoY, offsetting a significant increase in the average rate paid on interest-bearing deposits from 0.88% to 3.91%.", "chunk_num": [262]}, {"type": "insight", "content": "Noninterest expense for the first nine months of 2023 increased by $7.7 million (11.7%) YoY, mainly due to higher salaries and benefits from increased headcount and severance costs, and increased occupancy expenses related to new branches.", "chunk_num": [281, 282, 283]}], "start_page": 48}, {"level": 3, "title": "Financial Condition", "item_id": "Financial Condition", "summary": "As of September 30, 2023, total assets grew to $4.22 billion, up from $3.77 billion at year-end 2022, driven by a 14.6% increase in total loans to $3.56 billion. This growth was funded by a 12.7% increase in total deposits to $3.65 billion. Nonperforming assets remained low at 0.39% of total assets. The allowance for credit losses increased to $38.1 million (1.07% of total loans), partly due to the adoption of CECL.", "children": [], "end_page": 64, "key_points": [{"type": "insight", "content": "Total loans increased by $452.4 million (14.6%) to $3.56 billion as of September 30, 2023, from December 31, 2022, with diversified growth in real estate and commercial loans.", "chunk_num": [294]}, {"type": "insight", "content": "Nonperforming assets increased to $16.4 million (0.39% of total assets) at September 30, 2023, from $12.3 million (0.32% of total assets) at December 31, 2022. The increase was primarily due to two loan relationships, which are reported as well-secured with minimal expected losses.", "chunk_num": [308]}, {"type": "insight", "content": "Total deposits increased by $410.7 million (12.7%) to $3.65 billion as of September 30, 2023, driven by growth in national wholesale deposits and expansion in primary market areas.", "chunk_num": [325]}, {"type": "insight", "content": "The allowance for credit losses (ACL) stood at $38.1 million, or 1.07% of total loans, as of September 30, 2023, up from $30.4 million (0.98%) at year-end 2022. The increase was primarily due to a $4.0 million adjustment from adopting ASC 326 (CECL) and a $3.4 million provision during the period.", "chunk_num": [315]}], "start_page": 55}, {"level": 3, "title": "Liquidity and Capital Resources", "item_id": "Liquidity and Capital Resources", "summary": "The company maintains a strong liquidity position, with primary funding from core deposits and access to significant borrowing capacity, including $369.2 million from the FHLB and $1.2 billion from the Federal Reserve's Discount Window as of September 30, 2023. Total shareholders' equity increased by $18.6 million to $400.3 million since year-end 2022. Both the company and the bank remain 'well capitalized' under all regulatory measures.", "children": [], "end_page": 66, "key_points": [{"type": "insight", "content": "As of September 30, 2023, the Company had significant available liquidity, including borrowing capacity of $369.2 million from FHLB, $1.2 billion from the Federal Reserve Discount Window, and $33.0 million in federal funds lines of credit.", "chunk_num": [336]}, {"type": "insight", "content": "Total shareholders' equity increased by $18.6 million (4.9%) to $400.3 million as of September 30, 2023, primarily due to net income of $23.7 million, offset by a $3.2 million CECL adoption adjustment and $3.5 million in preferred stock dividends.", "chunk_num": [341]}, {"type": "table", "title": "Regulatory Capital Ratios (Company)", "content": "| Ratio | Sep 30, 2023 | Minimum Requirement w/ Buffer |\n| :--- | :--- | :--- |\n| Tier 1 leverage capital | 9.79% | 4.00% |\n| Common equity tier 1 capital | 8.01% | 7.00% |\n| Tier 1 capital | 9.68% | 8.50% |\n| Total capital | 12.72% | 10.50% |", "chunk_num": [346]}], "start_page": 64}], "end_page": 69, "key_points": [], "start_page": 47}, {"level": 2, "title": "Item 3. Quantitative and Qualitative Disclosures About Market Risk", "item_id": "Item 3. Quantitative and Qualitative Disclosures About Market Risk", "summary": "The company's primary market risk is interest rate volatility, managed by the Asset Liability and Investment Committee. Simulation models are used to test the sensitivity of net interest income (NII) and fair value of equity to interest rate shocks. As of September 30, 2023, a 200 basis point increase in rates is projected to decrease NII by 0.65% and fair value of equity by 4.07% over 12 months, indicating a liability-sensitive position.", "children": [], "end_page": 68, "key_points": [{"type": "table", "title": "Interest Rate Sensitivity Analysis (Simulated Change over 12-month horizon)", "content": "| Change in Interest Rates (bps) | % Change in Net Interest Income (Sep 30, 2023) | % Change in Fair Value of Equity (Sep 30, 2023) |\n| :--- | :--- | :--- |\n| +300 | (1.01)% | (6.70)% |\n| +200 | (0.65)% | (4.07)% |\n| +100 | (0.30)% | (1.77)% |\n| -100 | 0.24% | 0.91% |", "chunk_num": [363]}], "start_page": 67}, {"level": 2, "title": "Item 4. Controls and Procedures", "item_id": "Item 4. Controls and Procedures", "summary": "Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023. No material changes to internal control over financial reporting occurred during the third quarter of 2023.", "children": [], "end_page": 69, "key_points": [{"type": "insight", "content": "Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.", "chunk_num": [376]}, {"type": "insight", "content": "There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.", "chunk_num": [377]}], "start_page": 69}], "end_page": 69, "start_page": 5}, {"level": 1, "title": "PART II. OTHER INFORMATION", "item_id": "PART II. OTHER INFORMATION", "summary": None, "children": [{"level": 2, "title": "Item 1. Legal Proceedings", "item_id": "Item 1. Legal Proceedings", "summary": "The company is not currently subject to any material legal proceedings. It is involved in various claims and litigation arising in the ordinary course of business, but management believes the outcome of these will not have a material adverse effect on the company's financial condition.", "children": [], "end_page": 70, "key_points": [{"type": "insight", "content": "The Company is not currently subject to any material legal proceedings, and management believes that any liability from ordinary course litigation would not have a material adverse effect on the consolidated financial statements.", "chunk_num": [379, 380]}], "start_page": 70}, {"level": 2, "title": "Item 1A. Risk Factors", "item_id": "Item 1A. Risk Factors", "summary": "This section highlights new risk factors related to recent negative developments in the banking industry. Key risks include eroded customer confidence in regional banks following high-profile bank failures, which could impact liquidity and profitability. The company also anticipates increased regulatory scrutiny and potential new regulations for banks of its size, which could increase costs.", "children": [], "end_page": 70, "key_points": [{"type": "insight", "content": "Recent high-profile bank failures have eroded customer confidence in the banking system, which could negatively impact the Bank's liquidity, loan funding capacity, and results of operations as customers may move deposits to larger institutions.", "chunk_num": [382]}, {"type": "insight", "content": "The Company anticipates increased regulatory scrutiny and new regulations for banks of its size, which may increase costs and affect operations. The Bank's level of uninsured customer deposits was 32.5% at September 30, 2023.", "chunk_num": [383]}], "start_page": 70}, {"level": 2, "title": "Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities", "item_id": "Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities", "summary": "During the three months ended September 30, 2023, the company repurchased a total of 633 shares of its common stock. These purchases were made to satisfy tax withholding obligations related to the vesting of restricted stock awards and were not part of a publicly announced repurchase plan.", "children": [], "end_page": 70, "key_points": [{"type": "table", "title": "Issuer Purchases of Equity Securities (Q3 2023)", "content": "| Period | Total Shares Purchased | Average Price Paid Per Share |\n| :--- | :--- | :--- |\n| July 2023 | 0 | N/A |\n| August 2023 | 389 | $20.17 |\n| September 2023 | 244 | $19.15 |\n| **Total** | **633** | |", "chunk_num": [384]}], "start_page": 70}, {"level": 2, "title": "Item 3. Defaults Upon Senior Securities", "item_id": "Item 3. Defaults Upon Senior Securities", "summary": None, "children": [], "end_page": 71, "key_points": [{"type": "insight", "content": "None.", "chunk_num": [385]}], "start_page": 71}, {"level": 2, "title": "Item 4. Mine Safety Disclosures", "item_id": "Item 4. Mine Safety Disclosures", "summary": None, "children": [], "end_page": 71, "key_points": [{"type": "insight", "content": "Not applicable.", "chunk_num": [386]}], "start_page": 71}, {"level": 2, "title": "Item 5. Other Information", "item_id": "Item 5. Other Information", "summary": None, "children": [], "end_page": 71, "key_points": [{"type": "insight", "content": "No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of 2023.", "chunk_num": [387]}], "start_page": 71}, {"level": 2, "title": "Item 6. Exhibits", "item_id": "Item 6. Exhibits", "summary": None, "children": [], "end_page": 72, "key_points": [], "start_page": 72}], "end_page": 72, "start_page": 70}] Generate the Markdown output markdown_output = generate_outline(outline_content) print("\n".join(markdown_output)) PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section covers unaudited financial statements, management's analysis, market risk, and internal controls Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Third Coast Bancshares, Inc. as of September 30, 2023, and for the three and nine-month periods then ended It includes the Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows, and the accompanying notes which provide detailed explanations of accounting policies and financial items Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $4,215,792 | $3,773,148 | | Cash and cash equivalents | $286,530 | $332,014 | | Loans, net | $3,521,886 | $3,077,200 | | Investment securities available-for-sale | $201,035 | $176,067 | | Total Liabilities | $3,815,461 | $3,391,368 | | Total deposits | $3,646,822 | $3,236,146 | | Total Shareholders' Equity | $400,331 | $381,780 | Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific periods Consolidated Statements of Income Highlights (unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $35,268 | $31,355 | $102,194 | $84,303 | | Provision for credit losses | $2,620 | $2,900 | $5,220 | $10,250 | | Noninterest income | $1,866 | $2,538 | $6,048 | $5,470 | | Noninterest expense | $27,505 | $22,728 | $73,384 | $65,682 | | Net income | $5,578 | $6,770 | $23,712 | $11,134 | | Net income available to common shareholders | $4,394 | $6,770 | $20,173 | $11,134 | | Diluted earnings per share | $0.32 | $0.49 | $1.41 | $0.81 | Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Cash Flow Highlights (unaudited) | (In thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,544 | $15,614 | | Net cash used in investing activities | ($479,187) | ($1,095,956) | | Net cash provided by financing activities | $412,159 | $971,165 | | Change in cash and cash equivalents | ($45,484) | ($109,177) | Notes to Unaudited Consolidated Financial Statements The notes detail the company's accounting policies, including the significant adoption of the Current Expected Credit Loss (CECL) model (ASC 326) on January 1, 2023, which resulted in a $4.0 million increase to the allowance for credit losses The notes also provide breakdowns of the loan portfolio, investment securities, deposits, borrowings, derivatives, and regulatory capital, confirming the bank remains 'well capitalized' - The company provides commercial and consumer banking services through 16 branches in Texas markets including Greater Houston, Dallas-Fort Worth, and Austin-San Antonio[31] - On January 1, 2023, the Company adopted ASC 326 (CECL), recording a $4.0 million increase in the allowance for credit losses and a net after-tax adjustment to retained earnings of $3.2 million[80] Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial & industrial | $1,288,320 | $1,058,910 | | Construction, development & other | $655,822 | $567,851 | | Non-farm non-residential non-owner occupied | $566,973 | $506,012 | | Non-farm non-residential owner occupied | $517,917 | $493,791 | | Residential | $326,354 | $308,775 | | Municipal and other | $171,256 | $145,520 | | Farmland | $30,646 | $22,820 | | Consumer | $2,665 | $3,872 | | Total Loans | $3,559,953 | $3,107,551 | - As of September 30, 2023, the Bank and the Company met all regulatory capital adequacy requirements and were classified as 'well capitalized'[227][230][232] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 113% increase in net income for the first nine months of 2023 compared to 2022, driven by strong loan growth and higher interest income, which offset rising deposit costs The analysis covers significant growth in total assets to $4.22 billion, a 14.6% increase in the loan portfolio, and a 12.7% rise in deposits The company maintains strong liquidity and capital ratios, remaining 'well capitalized' Overview The company is a commercial-focused bank holding company operating through 16 branches in major Texas markets As of September 30, 2023, it held $4.22 billion in total assets, $3.56 billion in total loans, and $3.65 billion in total deposits On October 26, 2023, the bank received approval to convert from a Texas state savings bank to a state bank under the name Third Coast Bank - The company focuses on providing commercial banking solutions to small and medium-sized businesses and professionals in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets[255] - On October 26, 2023, the Bank received approval from the Federal Reserve Bank of Dallas to convert to a state bank named Third Coast Bank, pending final state approvals[258] Results of Operations For the nine months ended September 30, 2023, net income rose 113.0% to $23.7 million from $11.1 million in the prior year period This was driven by an 84.3% increase in interest income due to loan growth and higher rates, which outpaced a 372.0% surge in interest expense For Q3 2023, net income decreased 17.6% to $5.6 million from $6.8 million in Q3 2022, as the sharp rise in interest expense more than offset the growth in interest income for the quarter Results of Operations Summary (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $102,194 | $84,303 | 21.2% | | Provision for credit losses | $5,220 | $10,250 | (49.1)% | | Noninterest income | $6,048 | $5,470 | 10.6% | | Noninterest expense | $73,384 | $65,682 | 11.7% | | Net income | $23,712 | $11,134 | 113.0% | - The increase in net interest income for the first nine months of 2023 was primarily due to a $5.6 billion increase in average loans and a rise in loan yields to 7.26% from 5.10% YoY, offsetting a significant increase in the average rate paid on interest-bearing deposits from 0.88% to 3.91%[262] - Noninterest expense for the first nine months of 2023 increased by $7.7 million (11.7%) YoY, mainly due to higher salaries and benefits from increased headcount and severance costs, and increased occupancy expenses related to new branches[281][282][283] Financial Condition As of September 30, 2023, total assets grew to $4.22 billion, up from $3.77 billion at year-end 2022, driven by a 14.6% increase in total loans to $3.56 billion This growth was funded by a 12.7% increase in total deposits to $3.65 billion Nonperforming assets remained low at 0.39% of total assets The allowance for credit losses increased to $38.1 million (1.07% of total loans), partly due to the adoption of CECL - Total loans increased by $452.4 million (14.6%) to $3.56 billion as of September 30, 2023, from December 31, 2022, with diversified growth in real estate and commercial loans[294] - Nonperforming assets increased to $16.4 million (0.39% of total assets) at September 30, 2023, from $12.3 million (0.32% of total assets) at December 31, 2022 The increase was primarily due to two loan relationships, which are reported as well-secured with minimal expected losses[308] - Total deposits increased by $410.7 million (12.7%) to $3.65 billion as of September 30, 2023, driven by growth in national wholesale deposits and expansion in primary market areas[325] - The allowance for credit losses (ACL) stood at $38.1 million, or 1.07% of total loans, as of September 30, 2023, up from $30.4 million (0.98%) at year-end 2022 The increase was primarily due to a $4.0 million adjustment from adopting ASC 326 (CECL) and a $3.4 million provision during the period[315] Liquidity and Capital Resources The company maintains a strong liquidity position, with primary funding from core deposits and access to significant borrowing capacity, including $369.2 million from the FHLB and $1.2 billion from the Federal Reserve's Discount Window as of September 30, 2023 Total shareholders' equity increased by $18.6 million to $400.3 million since year-end 2022 Both the company and the bank remain 'well capitalized' under all regulatory measures - As of September 30, 2023, the Company had significant available liquidity, including borrowing capacity of $369.2 million from FHLB, $1.2 billion from the Federal Reserve Discount Window, and $33.0 million in federal funds lines of credit[336] - Total shareholders' equity increased by $18.6 million (4.9%) to $400.3 million as of September 30, 2023, primarily due to net income of $23.7 million, offset by a $3.2 million CECL adoption adjustment and $3.5 million in preferred stock dividends[341] Regulatory Capital Ratios (Company) | Ratio | Sep 30, 2023 | Minimum Requirement w/ Buffer | | :--- | :--- | :--- | | Tier 1 leverage capital | 9.79% | 4.00% | | Common equity tier 1 capital | 8.01% | 7.00% | | Tier 1 capital | 9.68% | 8.50% | | Total capital | 12.72% | 10.50% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed by the Asset Liability and Investment Committee Simulation models are used to test the sensitivity of net interest income (NII) and fair value of equity to interest rate shocks As of September 30, 2023, a 200 basis point increase in rates is projected to decrease NII by 0.65% and fair value of equity by 4.07% over 12 months, indicating a liability-sensitive position Interest Rate Sensitivity Analysis (Simulated Change over 12-month horizon) | Change in Interest Rates (bps) | % Change in Net Interest Income (Sep 30, 2023) | % Change in Fair Value of Equity (Sep 30, 2023) | | :--- | :--- | :--- | | +300 | (1.01)% | (6.70)% | | +200 | (0.65)% | (4.07)% | | +100 | (0.30)% | (1.77)% | | -100 | 0.24% | 0.91% | Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023 No material changes to internal control over financial reporting occurred during the third quarter of 2023 - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[376] - There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[377] PART II. OTHER INFORMATION](index=70&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures Legal Proceedings The company is not currently subject to any material legal proceedings It is involved in various claims and litigation arising in the ordinary course of business, but management believes the outcome of these will not have a material adverse effect on the company's financial condition - The Company is not currently subject to any material legal proceedings, and management believes that any liability from ordinary course litigation would not have a material adverse effect on the consolidated financial statements[379][380] Risk Factors This section highlights new risk factors related to recent negative developments in the banking industry Key risks include eroded customer confidence in regional banks following high-profile bank failures, which could impact liquidity and profitability The company also anticipates increased regulatory scrutiny and potential new regulations for banks of its size, which could increase costs - Recent high-profile bank failures have eroded customer confidence in the banking system, which could negatively impact the Bank's liquidity, loan funding capacity, and results of operations as customers may move deposits to larger institutions[382] - The Company anticipates increased regulatory scrutiny and new regulations for banks of its size, which may increase costs and affect operations The Bank's level of uninsured customer deposits was 32.5% at September 30, 2023[383] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the three months ended September 30, 2023, the company repurchased a total of 633 shares of its common stock These purchases were made to satisfy tax withholding obligations related to the vesting of restricted stock awards and were not part of a publicly announced repurchase plan Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 0 | N/A | | August 2023 | 389 | $20.17 | | September 2023 | 244 | $19.15 | | Total | 633 | | Defaults Upon Senior Securities This section confirms no defaults occurred on senior securities during the reporting period - None[385] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[386] Other Information This section reports on director and officer trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of 2023[387] Exhibits This section lists all exhibits filed with the Form 10-Q, including key corporate documents and certifications