THIRD COAST BANCSHARES, INC. REPORTS 2023 FIRST QUARTER FINANCIAL RESULTS

Continued progress results in 1.02% ROAA on improved margins

HOUSTON, April 26, 2023 /PRNewswire/ -- Third Coast Bancshares, Inc. (NASDAQ: TCBX) (the "Company," "Third Coast," "we," "us," or "our"), the bank holding company for Third Coast Bank, SSB, today reported its 2023 first quarter financial results.

2023 First Quarter Financial Highlights

• Loans held for investment grew $105.8 million to $3.21 billion, or 3.4%, over the $3.11 billion reported as of December 31, 2022 and 31.3% over the $2.45 billion reported as of March 31, 2022.
• Deposits reached $3.32 billion, an increase of $86.4 million, or 2.7%, over the $3.24 billion reported as of December 31, 2022 and 28.4% over the $2.59 billion reported as of March 31, 2022. Noninterest-bearing deposits represented 15.6% of total deposits compared to 15.0% as of December 31, 2022.
• Total assets reached $3.86 billion, an increase of $86.5 million, or 2.3%, over the $3.77 billion reported as of December 31, 2022 and 26.9% over the $3.04 billion reported as of March 31, 2022.
• Net income for the first quarter of 2023 totaled $9.2 million compared to $7.5 million for the fourth quarter of 2022 and $2.1 million for the first quarter of 2022.
• Book value per share and tangible book value per share⁽¹⁾ increased to $23.63 and $22.22, respectively, as of March 31, 2023 compared to $23.32 and $21.90, respectively, as of December 31, 2022 and to $22.40 and $20.97, respectively, as of March 31, 2022.
• Return on average assets increased to 1.02% annualized for the first quarter of 2023 compared to 0.84% annualized for the fourth quarter of 2022 and 0.32% annualized for the first quarter of 2022.

"Third Coast's first quarter performance underscores the many positive trends from the preceding fourth quarter," said, Bart Caraway, Third Coast's Chairman, President and Chief Executive Officer. "The industry wide liquidity crisis gave us the opportunity to reach out to both customers and prospects, which resulted in deposit growth of $86.4 million for the quarter with $30.8 million being noninterest bearing demand. We had no need to take on brokered deposits, or public funds. At March 31, 2023, our uninsured deposits were $932 million, or 28% of total deposits, well below industry average. 

"While no one is immune from market headwinds, Third Coast is well positioned and is focused on improving performance. For the quarter our net interest margin improved 4 basis points to 3.79% and our noninterest expense was down $583,000. Non-performing assets declined 16.3% and we delivered net recoveries of $364,000. We were especially pleased to report $9.2 million in net income, or $0.55 per diluted share, in the quarter, representing a 25% increase from the sequential fourth quarter.

"As we start the second quarter, we are optimistic regarding our deposit opportunities. We expect another quarter of similar loan growth as we navigate an increasingly uncertain environment. We also expect our net interest margin to continue to improve in the second quarter due to a recently purchased pay fixed SWAP. We will continue to be prudent in our lending practices from a risk return standpoint, conservative in our expenditures, and poised and ready to take advantage of future growth opportunities," Caraway concluded.

Loan Portfolio and Composition

For the quarter ended March 31, 2023, gross loans increased to $3.21 billion, an increase of $105.8 million, or 3.4%, from $3.11 billion as of December 31, 2022, and an increase of $765.4 million, or 31.3%, from $2.45 billion as of March 31, 2022. We believe the loan growth was well diversified with real estate loans up $57.2 million and commercial loans up $53.7 million from December 31, 2022.

Asset Quality

Asset quality improved during the first quarter of 2023 with non-performing assets decreasing to $10.3 million as of March 31, 2023, or 16.3%, from $12.3 million as of December 31, 2022. On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326"), such that the allowance calculation is based on current expected credit loss methodology ("CECL") and recorded an increase of $4.0 million to the allowance for credit losses for the cumulative effect of adopting ASC 326 for its loans held for investment portfolio. In addition, the provision for credit loss recorded for the first quarter of 2023 was $1.2 million and related to provisioning for new loans. The entries combined served to increase the allowance to $35.9 million, or 1.12% of the $3.21 billion in gross loans outstanding as of March 31, 2023.

As of March 31, 2023, the nonperforming loans to loans held for investment ratio remained low at 0.32%, a decrease from 0.39% as of December 31, 2022 and 0.44% as of March 31, 2022. During the three months ended March 31, 2023 and 2022, the Company recorded net recoveries of $364,000 and $17,000, respectively.

Deposits and Composition

Deposits totaled $3.32 billion as of March 31, 2023, an increase of 2.7% from $3.24 billion as of December 31, 2022, and an increase of 28.4% from $2.59 billion as of March 31, 2022. Noninterest-bearing demand deposits increased from $486.1 million as of December 31, 2022 to $516.9 million as of March 31, 2023. Noninterest-bearing demand deposits represented 15.6% of total deposits as of March 31, 2023, up from 15.0% of total deposits as of December 31, 2022. As of March 31, 2023, interest-bearing demand deposits increased $32.0 million, or 1.3%, time deposits increased $23.1 million, or 10.7%, and savings accounts increased $525,000, or 1.5%, from December 31, 2022.

The average cost of deposits was 2.92% for the first quarter of 2023, representing a 75 basis point increase from the fourth quarter of 2022 and a 259 basis point increase from the first quarter of 2022 due primarily to the increase in rates paid on interest-bearing demand deposits.

Net Interest Margin and Net Interest Income

The net interest margin for the first quarter of 2023 was 3.79% compared to 3.75% for the fourth quarter of 2022 and 4.09% for the first quarter of 2022. The yield on loans for the first quarter of 2023 was 6.90% compared to 6.27% for the fourth quarter of 2022 and 4.90% for the first quarter of 2022. The increase in yield on loans during the first quarter of 2023 was primarily due to the increase in the Prime Rate.

Net interest income totaled $32.8 million for the first quarter of 2023, an increase of 2.1% from $32.2 million for the fourth quarter of 2022. Interest income totaled $57.4 million for the first quarter of 2023, an increase of 12.2% from $51.2 million for the fourth quarter of 2022. Interest and fees on loans increased $5.8 million, or 12.1%, compared to the fourth quarter of 2022, and increased $27.2 million, or 102.1%, from the first quarter of 2022. Interest expense was $24.5 million for the first quarter of 2023, an increase of $5.5 million, or 29.2% from $19.0 million for the fourth quarter of 2022 and an increase of $22.6 million, or 1,143.6%, from $2.0 million for the first quarter of 2022. The increase in interest expense was primarily due to interest-bearing deposit growth and increases in interest rates paid on interest-bearing deposit accounts.

Noninterest Income and Noninterest Expense

Noninterest income totaled $1.9 million for the first quarter of 2023, compared to $1.8 million for the fourth quarter of 2022, and $1.7 million for the first quarter of 2022.

Noninterest expense totaled $22.0 million for the first quarter of 2023, down from $22.6 million for the fourth quarter of 2022 and up from $20.2 million for the first quarter of 2022. The year-over-year increase was primarily attributed to increased salary expenses related to additional employees hired in 2022 and administrative expenses related to opening of four branches during 2022. The employee headcount increased from 339 as of March 31, 2022 to 370 as of March 31, 2023.

The efficiency ratio improved to 63.47% for the first quarter of 2023, from 66.74% for the fourth quarter of 2022, and 75.09% for the first quarter of 2022. The improvement was primarily due to the increase in interest and fees on loans while maintaining noninterest expense consistent with prior quarters.

Net Income and Earnings Per Share

Net income totaled $9.2 million for the first quarter of 2023, compared to $7.5 million for the fourth quarter of 2022. Net income available to common shareholders totaled $8.1 million for the first quarter of 2023 compared to $6.1 million for the fourth quarter of 2022. Dividends on our Series A Convertible Non-Cumulative Preferred Stock totaled $1.2 million for the first quarter of 2023 and $1.4 million for the fourth quarter of 2022. Basic earnings per share and diluted earnings per share were $0.60 per share and $0.55 per share, respectively, in the first quarter of 2023 compared to $0.45 per share and $0.44 per share, respectively, in the fourth quarter of 2022.

Earnings Conference Call

Third Coast has scheduled a conference call to discuss 2023 first quarter results, which will be broadcast live over the Internet, on Thursday, April 27, 2023, at 11:00 a.m. Eastern Time / 10:00 a.m. Central Time. To participate in the call, dial 201-389-0869 and ask for the Third Coast Bancshares, Inc. call at least 10 minutes prior to the start time, or access it live over the Internet at https://ir.tcbssb.com/events-and-presentations/events. For those who cannot listen to the live call, a replay will be available through May 4, 2023, and may be accessed by dialing 201-612-7415 and using passcode 13735405#. Also, an archive of the webcast will be available shortly after the call at https://ir.tcbssb.com/events-and-presentations/events for 90 days.

About Third Coast Bancshares, Inc.

Third Coast Bancshares, Inc. is a commercially focused, Texas-based bank holding company operating primarily in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets through its wholly owned subsidiary, Third Coast Bank, SSB. Founded in 2008 in Humble, Texas, Third Coast Bank, SSB conducts banking operations through 16 branches and one loan production office encompassing the four largest metropolitan areas in Texas. Please visit https://www.tcbssb.com for more information.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "looking ahead," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: interest rate risk and fluctuations in interest rates; market conditions and economic trends generally and in the banking industry; our ability to maintain important deposit relationships; our ability to grow or maintain our deposit base; our ability to implement our expansion strategy; credit risk associated with our business; and changes in key management personnel. For a discussion of additional factors that could cause our actual results to differ materially from those described in the forward-looking statements, please see the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the "SEC"), and our other filings with the SEC.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this press release. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures, including Tangible Common Equity, Tangible Book Value Per Share, Tangible Common Equity to Tangible Assets and Return on Average Tangible Common Equity, which are supplemental measures that are not required by, or are not presented in accordance with GAAP. Please refer to the table titled "GAAP Reconciliation and Management's Explanation of Non-GAAP Financial Measures" at the end of this press release for a reconciliation of these non-GAAP financial measures.

Third Coast Bancshares, Inc. and Subsidiary
GAAP Reconciliation and Management's Explanation of Non-GAAP Financial Measures
(unaudited)

Our accounting and reporting policies conform to GAAP (generally accepted accounting principles) and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this earnings release as being non-GAAP financial measures. Specifically, we review Tangible Common Equity, Tangible Book Value Per Share, Tangible Common Equity to Tangible Assets, and Return on Average Tangible Common Equity for internal planning and forecasting purposes. We classify a financial measure as a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively financial measures calculated in accordance with GAAP.

The non-GAAP financial measures that we discuss in this earnings release should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this earnings release may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this earnings release when comparing such non-GAAP financial measures. 

Management believes the following non-GAAP financial measures assist investors in understanding the financial condition of the company:

• Tangible Common Equity. The most directly comparable GAAP financial measure for tangible common equity is total shareholders' equity. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity.
• Tangible Book Value Per Share. The most directly comparable GAAP financial measure for tangible book value per share is book value per share. We believe that the tangible book value per share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value.
• Tangible Common Equity to Tangible Assets. The most directly comparable GAAP financial measure for tangible common equity is total shareholders' equity, the most directly comparable GAAP financial measure for tangible assets is total assets, and the most directly comparable GAAP financial measure for tangible common equity to tangible assets is total shareholders' equity to total assets. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both total shareholders' equity and assets while not increasing our tangible common equity or tangible assets.
• Return on Average Tangible Common Equity. The most directly comparable GAAP financial measure for average tangible common equity is average shareholders' equity, and the most directly comparable GAAP financial measure for return on average tangible common equity is return on average common equity. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of return on average tangible common equity, exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing average shareholders' equity while not increasing our tangible common equity.

The calculations of these non-GAAP financial measures are as follows:

Contact:
Ken Dennard / Natalie Hairston
Dennard Lascar Investor Relations
(713) 529-6600
[email protected]

SOURCE Third Coast Bancshares