Third Coast Bancshares, Inc. [TCBX] Filings

10-Q 1 tcbx-20240630.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 001-41028

THIRD COAST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Texas	46-2135597
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
20202 Highway 59 North, Suite 190 Humble, Texas	77338
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (281) 446-7000

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common Stock, par value $1.00 per share

    TCBX

    The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2024, the registrant had 13,665,116 shares of common stock, par value $1.00 per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements (unaudited)	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

PART II.	OTHER INFORMATION	60

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
Signatures		62

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning 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,” “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;

•

our geographic concentration in the Greater Houston market, Dallas-Fort Worth market, and Austin-San Antonio market;

•

changes in the economy affecting real estate values and liquidity;

•

changes in value of the collateral securing our loans;

•

credit risk associated with our business;

•

credit risks associated with our real estate and construction lending;

•

the adequacy of our allowance for credit losses;

•

the amount of nonperforming and classified assets that we hold;

•

our borrowers’ ability to repay loans;

•

the risk of fraud related to our asset-based lending and commercial finance products;

•

additional debt or future issuances of new debt securities or preferred stock;

•

our ability to raise additional capital in the future;

•

changes in key management personnel;

•

the accuracy of the valuation techniques we use in evaluating collateral;

•

competition from financial services companies and other companies that offer banking services;

•

systems failures, fraudulent activity, interruptions or data breaches involving our information technology and communications systems of third parties;

•

natural disasters and other catastrophes;

•

changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;

•

the rise of Artificial Intelligence as a commonly used resource in banking;

•

monetary policies and regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

•

the sustainment of an active, liquid market for our common stock;

•

fluctuations in the market price of our common stock; and

•

other factors that are discussed in “Part II – Other Information – Item 1A. Risk Factors.”

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 7, 2024. 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.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets


	June 30,			December 31,
(Dollars in thousands, except share and per share data)	2024			2023
ASSETS	(unaudited)
Cash and cash equivalents:
Cash and due from banks	$	241,809		$	296,926
Federal funds sold		12,088			114,919
Total cash and cash equivalents		253,897			411,845
Interest bearing time deposits in other banks		350			—
Investment securities available-for-sale		286,167			178,087
Loans, net of allowance for credit losses of $38,211 and $37,022 at June 30, 2024 and December 31, 2023, respectively		3,719,948			3,601,766
Accrued interest receivable		27,518			23,120
Premises and equipment, net		27,626			28,554
Bank-owned life insurance		67,030			65,861
Non-marketable equity securities, at cost		16,147			16,041
Deferred tax asset, net		8,972			9,227
Derivative assets		7,799			8,828
Right-of-use asset - operating leases		20,944			21,439
Goodwill and other intangible assets		18,922			19,003
Other assets		18,799			12,303
Total assets	$	4,474,119		$	4,396,074
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing	$	464,498		$	459,553
Interest bearing		3,391,093			3,343,595
Total deposits		3,855,591			3,803,148
Accrued interest payable		5,668			4,794
Derivative liabilities		7,626			10,687
Lease liability - operating leases		21,919			22,280
Other liabilities		30,786			23,763
Line of credit - Senior Debt		36,875			38,875
Note payable - Subordinated Debentures, net		80,656			80,553
Total liabilities		4,039,121			3,984,100
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized
Series A Convertible Non-Cumulative Preferred Stock, $1 par value; 69,400 shares authorized and outstanding at June 30, 2024 and December 31, 2023		69			69
Series B Convertible Perpetual Preferred Stock, $1 par value; 69,400 shares authorized at June 30, 2024 and December 31, 2023		—			—
Common stock, $1 par value; 50,000,000 shares authorized; 13,743,967 and 13,683,127 issued; and 13,665,505 and 13,604,665 outstanding at June 30, 2024 and December 31, 2023, respectively		13,744			13,683
Common stock - non-voting, $1 par value; 3,500,000 shares authorized at June 30, 2024 and December 31, 2023		—			—
Additional paid-in capital		320,496			319,613
Retained earnings		97,583			78,775
Accumulated other comprehensive income		4,205			933
Treasury stock: at cost; 78,462 shares at June 30, 2024 and December 31, 2023		(1,099	)		(1,099	)
Total shareholders' equity		434,998			411,974
Total liabilities and shareholders' equity	$	4,474,119		$	4,396,074

The accompanying notes are an integral part of these consolidated financial statements.

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in thousands, except share and per share data)	2024		2023		2024		2023
Interest income:
Loans, including fees	$	73,103	$	59,295	$	143,774	$	113,206
Investment securities available-for-sale		4,491		2,029		7,584		3,577
Federal funds sold and other		3,631		1,389		8,743		3,309
Total interest income		81,225		62,713		160,101		120,092
Interest expense:
Deposit accounts		40,410		24,936		79,108		47,028
FHLB advances and other borrowings		1,957		3,681		4,056		6,138
Total interest expense		42,367		28,617		83,164		53,166
Net interest income		38,858		34,096		76,937		66,926
Provision for credit losses		1,900		1,400		3,460		2,600
Net interest income after credit loss expense		36,958		32,696		73,477		64,326
Noninterest income:
Service charges and fees		1,515		720		3,020		1,499
Earnings on bank-owned life insurance		587		526		1,169		1,001
Gain on sale of investment securities available-for-sale		123		—		280		97
Gain on sale of SBA loans		—		—		30		—
Derivative fees		28		247		94		246
Other		635		787		638		1,339
Total noninterest income		2,888		2,280		5,231		4,182
Noninterest expense:
Salaries and employee benefits		15,917		15,033		32,419		28,745
Occupancy and equipment expense		3,146		2,852		6,191		5,485
Legal and professional		1,621		1,547		3,006		3,477
Data processing and network expense		1,046		1,261		2,464		2,464
Regulatory assessments		1,005		458		1,985		1,124
Advertising and marketing		406		812		761		1,498
Software purchases and maintenance		828		455		1,645		807
Loan operations		262		302		488		267
Telephone and communications		141		129		275		268
Other		1,257		986		2,309		1,744
Total noninterest expense		25,629		23,835		51,543		45,879
Net income before income tax expense		14,217		11,141		27,165		22,629
Income tax expense		3,421		2,250		6,002		4,495
Net income		10,796		8,891		21,163		18,134
Preferred stock dividends declared		1,184		1,184		2,355		2,355
Net income available to common shareholders	$	9,612	$	7,707	$	18,808	$	15,779
Earnings per common share:
Basic earnings per share	$	0.70	$	0.57	$	1.38	$	1.16
Diluted earnings per share	$	0.63	$	0.53	$	1.25	$	1.08

The accompanying notes are an integral part of these consolidated financial statements.

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in thousands)	2024			2023			2024			2023
Net Income	$	10,796		$	8,891		$	21,163		$	18,134
Other comprehensive income (loss):
Unrealized loss on securities:
Unrealized holding loss arising during the period		(175	)		(1,969	)		(1,257	)		(3,311	)
Reclassification for net gains realized through the sale of securities		(123	)		—			(280	)		—
Income tax benefit		63			413			323			695
Other comprehensive loss on securities		(235	)		(1,556	)		(1,214	)		(2,616	)
Unrealized gain (loss) on derivatives:
Unrealized holding (loss) gain arising during the period		(2,594	)		(1,531	)		1,541			—
Gain on termination of derivative instruments		5,412			5,007			5,412			5,007
Reclassification adjustment for accretion of gain on terminated cash flow hedges recorded in interest expense during the period		(828	)		(563	)		(1,273	)		(769	)
Income tax expense		(419	)		(612	)		(1,194	)		(890	)
Other comprehensive income on derivatives		1,571			2,301			4,486			3,348
Total other comprehensive income		1,336			745			3,272			732
Total comprehensive income	$	12,132		$	9,636		$	24,435		$	18,866

The accompanying notes are an integral part of these consolidated financial statements.

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)


															Accumulated
									Additional						Other
	Preferred Stock				Common Stock				Paid in			Retained			Comprehensive			Treasury
(Dollars in thousands)	Series A		Series B		Voting		Non-Voting		Capital			Earnings			Income (Loss)			Stock			Total
Balance, December 31, 2022	$	69	$	—	$	13,610	$	—	$	318,033		$	53,270		$	(2,103	)	$	(1,099	)	$	381,780
Adoption of ASC 326, allowance for credit loss adjustment, net of tax		—		—		—		—		—			(3,160	)		—			—			(3,160	)
Net income		—		—		—		—		—			18,134			—			—			18,134
Share-based compensation		—		—		—		—		767			—			—			—			767
Warrants exercised		—		—		4		—		43			—			—			—			47
Restricted stock grants		—		—		74		—		(74	)		—			—			—			—
Other comprehensive income, net of tax		—		—		—		—		—			—			732			—			732
Preferred dividends declared - Series A, $33.94 per share		—		—		—		—		—			(2,355	)		—			—			(2,355	)
Balance, June 30, 2023	$	69	$	—	$	13,688	$	—	$	318,769		$	65,889		$	(1,371	)	$	(1,099	)	$	395,945

Balance, December 31, 2023	$	69	$	—	$	13,683	$	—	$	319,613		$	78,775		$	933		$	(1,099	)	$	411,974
Net income		—		—		—		—		—			21,163			—			—			21,163
Share-based compensation		—		—		—		—		788			—			—			—			788
Stock options exercised		—		—		17		—		154			—			—			—			171
Restricted stock grants		—

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