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

Total loans grow $225.7 million to $3.56 billion

Book Value grows 1.4% and Tangible Book Value⁽¹⁾ grows 1.5%

HOUSTON, Oct. 25, 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 third quarter financial results.

Third Quarter Financial and Operational Highlights

• Total assets reached $4.22 billion, an increase of $252.3 million, or 6.4%, over the $3.96 billion reported as of June 30, 2023, and 19.9% over the $3.52 billion reported as of September 30, 2022.
• Loans held for investment grew $225.7 million to $3.56 billion, or 6.8%, over the $3.33 billion reported as of June 30, 2023, and 19.7% over the $2.97 billion reported as of September 30, 2022.
• Deposits reached $3.65 billion, an increase of $238.5 million, or 7.0%, over the $3.41 billion reported as of June 30, 2023, and 22.2% over the $2.98 billion reported as of September 30, 2022.
• Book value per share and tangible book value per share⁽¹⁾ increased to $24.57 and $23.17, respectively, as of September 30, 2023, compared to $24.23 and $22.82, respectively, as of June 30, 2023 and to $22.93 and $21.51, respectively, as of September 30, 2022.
• Implemented a cost reduction plan to proactively align with current market demands.

Bart Caraway, Chairman, President, and CEO of Third Coast, stated, "Third quarter growth was impressive with sequential and year over year increases in total assets, loans, and deposits. Book value per share growth continued at 1.4% and tangible book value per share growth continued at 1.5%, demonstrating a positive sign to investors and the overall financial health of the Company.

"To better align with current market conditions, we recently took some deliberate actions to reduce our operating expenses and other overhead costs. This included the previously announced winding down of our auto-finance division and a 5% reduction in workforce. Combined, this should allow us to immediately re-position Third Coast for continued growth over the next several quarters.

"Looking ahead, we expect to maintain our strong asset quality metrics, and we continue to be laser focused on credit quality across all lending verticals. Our ability to remain well capitalized despite market fluctuations is a testament to our dedication to our customers and shareholders. We believe our above–average industry performance and strong asset portfolio position us to perform in any economic environment, invest in strategic initiatives, and drive shareholder returns over the long term," Caraway concluded.

Operating Results

Net Income and Earnings Per Share

Net income totaled $5.6 million for the third quarter of 2023, compared to $8.9 million for the second quarter of 2023 and $6.8 million for the third quarter of 2022. Net income available to common shareholders totaled $4.4 million for the third quarter of 2023, compared to $7.7 million for the second quarter of 2023 and $6.8 million for the third quarter of 2022. The quarter-over-quarter decrease was primarily due to higher provision for credit losses of $1.2 million, higher salary expense which included $460,000 in severance costs, and $400,000 in fraud losses.  Dividends on our Series A Convertible Non-Cumulative Preferred Stock totaled $1.2 million for each of the quarters ended September 30, 2023 and June 30, 2023. Basic earnings per share and diluted earnings per share were each $0.32 per share in the third quarter of 2023 compared to $0.57 per share and $0.53 per share, respectively, in the second quarter of 2023 and $0.50 per share and $0.49 per share, respectively, in the third quarter of 2022.

Net Interest Margin and Net Interest Income

The net interest margin for the third quarter of 2023 was 3.71% compared to 3.82% for the second quarter of 2023 and 3.77% for the third quarter of 2022. The yield on loans for the third quarter of 2023 was 7.57% compared to 7.29% for the second quarter of 2023 and 5.59% for the third quarter of 2022. The increase in yield on loans during the third quarter of 2023 was primarily due to the increase in the Prime Rate.

Net interest income totaled $35.3 million for the third quarter of 2023, an increase of 3.4% from $34.1 million for the second quarter of 2023 and an increase of 12.5% from $31.4 million for the third quarter of 2022. Interest income totaled $69.4 million for the third quarter of 2023, an increase of 10.6% from $62.7 million for the second quarter of 2023 and an increase of 61.0 % from $43.1 million for the third quarter of 2022. Interest and fees on loans increased $6.1 million, or 10.3%, compared to the second quarter of 2023, and increased $24.9 million, or 61.4%, from the third quarter of 2022. Interest expense was $34.1 million for the third quarter of 2023, an increase of $5.5 million, or 19.2%, from $28.6 million for the second quarter of 2023 and an increase of $22.4 million, or 190.4%, from $11.7 million for the third quarter of 2022.

Noninterest Income and Noninterest Expense

Noninterest income totaled $1.9 million for the third quarter of 2023, compared to $2.3 million for the second quarter of 2023 and $2.5 million for the third quarter of 2022. The decrease in noninterest income from the second quarter of 2023 was primarily due to the decrease in Small Business Investment Company income.

Noninterest expense totaled $27.5 million for the third quarter of 2023, up from $23.8 million for the second quarter of 2023 and up from $22.7 million for the third quarter of 2022. The year-over-year increase was primarily attributed to increased salary expenses related to additional employees during the nine months ended September 30, 2023, and administrative expenses related to opening new branches and administrative offices.

The efficiency ratio was 74.07% for the third quarter of 2023, compared to 65.52% for the second quarter of 2023 and 67.06% for the third quarter of 2022.

Balance Sheet Highlights

Loan Portfolio and Composition

For the quarter ended September 30, 2023, gross loans increased to $3.56 billion, an increase of $225.7 million, or 6.8%, from $3.33 billion as of June 30, 2023, and an increase of $587.1 million, or 19.7%, from $2.97 billion as of September 30, 2022. We believe the loan growth was well diversified with real estate loans up $106.0 million and commercial loans up $123.7 million from June 30, 2023.

Asset Quality

Non-performing loans were $16.4 million at September 30, 2023, compared to $10.0 million at June 30, 2023, and $10.3 million at September 30, 2022. The increase in non-performing loans was primarily due to the placement of a $2.3 million loan on nonaccrual and a $2.0 million loan that is over 90 days matured and still accruing. Both of these loans are well secured, and no losses are anticipated. In October 2023, the $2.0 million loan was renewed and is current. The remaining loans placed on nonaccrual this quarter consist of two relationships totaling $2.0 million, and minimal losses are expected as these loans are worked out. The remaining loans that are over 90 days past due at quarter end are well secured and in the process of renewal. 

The provision for credit loss recorded for the third quarter of 2023 was $2.6 million and related to provisioning for new loans and commitments. The allowance for credit losses increased to $38.1 million, or 1.07% of the $3.56 billion in gross loans outstanding as of September 30, 2023.

As of September 30, 2023, the nonperforming loans to loans held for investment ratio was 0.46%, compared to 0.30% as of June 30, 2023, and 0.35% as of September 30, 2022. During the three months ended September 30, 2023, and 2022, the Company recorded net charge-offs of $24,000 and $457,000, respectively.

Deposits and Composition

Deposits totaled $3.65 billion as of September 30, 2023, an increase of 7.0% from $3.41 billion as of June 30, 2023, and an increase of 22.2% from $2.98 billion as of September 30, 2022. Noninterest-bearing demand deposits decreased from $529.5 million as of June 30, 2023, to $500.2 million as of September 30, 2023. Noninterest-bearing demand deposits represented 13.7% of total deposits as of September 30, 2023, compared to 15.5% of total deposits as of June 30, 2023. As of September 30, 2023, interest-bearing demand deposits increased $165.8 million, or 7.1%, time deposits increased $102.8 million, or 20.5%, and savings accounts decreased $822,000, or 3.1%, from June 30, 2023.

The average cost of deposits was 3.73% for the third quarter of 2023, representing a 45-basis point increase from the second quarter of 2023 and a 242-basis point increase from the third quarter of 2022 due primarily to time deposit growth, interest-bearing demand deposit growth and the increase in rates paid on interest-bearing demand deposits.

Earnings Conference Call

Third Coast has scheduled a conference call to discuss 2023 third quarter results, which will be broadcast live over the Internet, on Thursday, October 26, 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 November 3, 2023, and may be accessed by dialing 201-612-7415 and using passcode 13735410#. 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.

(1) Non-GAAP financial measure. 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
TCBX@dennardlascar.com

SOURCE Third Coast Bancshares