10-Q 1 tcbx-20230930.htm 10-Q 10-Q
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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 September 30, 2023

OR

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 November 2, 2023, the registrant had 13,604,471 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

7

 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

61

Item 4.

Controls and Procedures

61

 

 

 

PART II.

OTHER INFORMATION

62

 

 

 

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

62

Item 3.

Defaults Upon Senior Securities

63

Item 4.

Mine Safety Disclosures

63

Item 5.

Other Information

63

Item 6.

Exhibits

64

Signatures

65

 

 

 

 

 

 

i


 

 

 

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;
monetary policies and regulations of the Board of Governors of the Federal Reserve System;

ii


 

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, 2022 filed with the Securities and Exchange Commission on March 15, 2023. 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

 

 

 

September 30,

 

 

December 31,

 

(Dollars in thousands, except share and per share data)

 

2023

 

 

2022

 

ASSETS

 

(unaudited)

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

Cash and due from banks

 

$

142,122

 

 

$

329,864

 

Federal funds sold

 

 

144,408

 

 

 

2,150

 

Total cash and cash equivalents

 

 

286,530

 

 

 

332,014

 

Investment securities available-for-sale

 

 

201,035

 

 

 

176,067

 

Loans, net of allowance for credit losses of $38,067 and $30,351 at September 30, 2023 and December 31, 2022, respectively

 

 

3,521,886

 

 

 

3,077,200

 

Accrued interest receivable

 

 

22,821

 

 

 

18,340

 

Premises and equipment, net

 

 

29,010

 

 

 

28,662

 

Bank-owned life insurance

 

 

65,303

 

 

 

60,761

 

Non-marketable equity securities, at cost

 

 

15,799

 

 

 

14,618

 

Deferred tax asset, net

 

 

8,335

 

 

 

6,303

 

Derivative assets

 

 

10,889

 

 

 

9,213

 

Right-of-use asset - operating leases

 

 

21,192

 

 

 

17,872

 

Core Deposit Intangible, net

 

 

1,009

 

 

 

1,131

 

Goodwill

 

 

18,034

 

 

 

18,034

 

Other assets

 

 

13,949

 

 

 

12,933

 

Total assets

 

$

4,215,792

 

 

$

3,773,148

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest bearing

 

$

500,187

 

 

$

486,114

 

Interest bearing

 

 

3,146,635

 

 

 

2,750,032

 

Total deposits

 

 

3,646,822

 

 

 

3,236,146

 

Accrued interest payable

 

 

4,318

 

 

 

2,545

 

Derivative liabilities

 

 

10,519

 

 

 

9,221

 

Lease liability - operating leases

 

 

21,958

 

 

 

18,209

 

Other liabilities

 

 

15,467

 

 

 

14,024

 

Line of credit - Senior Debt

 

 

35,875

 

 

 

30,875

 

Note payable - Subordinated Debt, net

 

 

80,502

 

 

 

80,348

 

Total liabilities

 

 

3,815,461

 

 

 

3,391,368

 

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 September 30, 2023 and December 31, 2022, respectively

 

 

69

 

 

 

69

 

Series B Convertible Perpetual Preferred Stock, $1 par value; 69,400 shares authorized at September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Common stock, $1 par value; 50,000,000 shares authorized; 13,678,673 and 13,610,198 issued; and 13,600,211 and 13,531,736 outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

13,679

 

 

 

13,610

 

Common stock - non-voting, $1 par value; 3,500,000 and no shares authorized at September 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

319,134

 

 

 

318,033

 

Retained earnings

 

 

70,283

 

 

 

53,270

 

Accumulated other comprehensive loss

 

 

(1,735

)

 

 

(2,103

)

Treasury stock: at cost; 78,462 shares at September 30, 2023 and December 31, 2022, respectively

 

 

(1,099

)

 

 

(1,099

)

Total shareholders' equity

 

 

400,331

 

 

 

381,780

 

Total liabilities & shareholders' equity

 

$

4,215,792

 

 

$

3,773,148

 

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

2


 

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income

(unaudited)

 

 

 

For the Three Months Ended
September 30,

 

 

For the Nine Months Ended
September 30,

 

(Dollars in thousands, except share and per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

65,380

 

 

$

40,498

 

 

$

178,586

 

 

$

98,344

 

Investment securities available-for-sale

 

 

1,990

 

 

 

1,367

 

 

 

5,567

 

 

 

2,537

 

Federal funds sold and other

 

 

2,015

 

 

 

1,237

 

 

 

5,324

 

 

 

1,914

 

Total interest income

 

 

69,385

 

 

 

43,102

 

 

 

189,477

 

 

 

102,795

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposit accounts

 

 

30,345

 

 

 

9,727

 

 

 

77,373

 

 

 

15,014

 

FHLB advances and other borrowings

 

 

3,772

 

 

 

2,020

 

 

 

9,910

 

 

 

3,478

 

Total interest expense

 

 

34,117

 

 

 

11,747

 

 

 

87,283

 

 

 

18,492

 

Net interest income

 

 

35,268

 

 

 

31,355

 

 

 

102,194

 

 

 

84,303

 

Provision for credit losses

 

 

2,620

 

 

 

2,900

 

 

 

5,220

 

 

 

10,250

 

Net interest income after credit loss expense

 

 

32,648

 

 

 

28,455

 

 

 

96,974

 

 

 

74,053

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fees

 

 

884

 

 

 

772

 

 

 

2,383

 

 

 

2,008

 

Gain on sale of investment securities available-for-sale

 

 

364

 

 

 

 

 

 

461

 

 

 

 

Gain on sale of SBA loans

 

 

114

 

 

 

729

 

 

 

114

 

 

 

827

 

Earnings on bank-owned life insurance

 

 

541

 

 

 

424

 

 

 

1,542

 

 

 

815

 

Derivative fees

 

 

159

 

 

 

313

 

 

 

405

 

 

 

1,142

 

Other

 

 

(196

)

 

 

300

 

 

 

1,143

 

 

 

678

 

Total noninterest income

 

 

1,866

 

 

 

2,538

 

 

 

6,048

 

 

 

5,470

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,353

 

 

 

14,719

 

 

 

46,098

 

 

 

42,037

 

Data processing and network expense

 

 

1,284

 

 

 

1,256

 

 

 

3,748

 

 

 

3,110

 

Occupancy and equipment expense

 

 

2,925

 

 

 

2,232

 

 

 

8,410

 

 

 

5,935

 

Legal and professional

 

 

2,001

 

 

 

1,353

 

 

 

5,478

 

 

 

5,100

 

Loan operations

 

 

272

 

 

 

284

 

 

 

539

 

 

 

844

 

Advertising and marketing

 

 

515

 

 

 

438

 

 

 

2,013

 

 

 

1,332

 

Telephone and communications

 

 

117

 

 

 

122

 

 

 

385

 

 

 

321

 

Software purchases and maintenance

 

 

729

 

 

 

318

 

 

 

1,536

 

 

 

717

 

Regulatory assessments

 

 

532

 

 

 

1,000

 

 

 

1,656

 

 

 

2,601

 

Loss on sale of other real estate owned

 

 

 

 

 

 

 

 

 

 

 

350

 

Other

 

 

1,777

 

 

 

1,006

 

 

 

3,521

 

 

 

3,335

 

Total noninterest expense

 

 

27,505

 

 

 

22,728

 

 

 

73,384

 

 

 

65,682

 

Net income before income tax expense

 

 

7,009

 

 

 

8,265

 

 

 

29,638

 

 

 

13,841

 

Income tax expense

 

 

1,431

 

 

 

1,495

 

 

 

5,926

 

 

 

2,707

 

Net income

 

 

5,578

 

 

 

6,770

 

 

 

23,712

 

 

 

11,134

 

Preferred stock dividends declared

 

 

1,184

 

 

 

 

 

 

3,539

 

 

 

 

Net income available to common shareholders

 

$

4,394

 

 

$

6,770

 

 

$

20,173

 

 

$

11,134

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.32

 

 

$

0.50

 

 

$

1.49

 

 

$

0.83

 

Diluted earnings per share

 

$

0.32

 

 

$

0.49

 

 

$

1.41

 

 

$

0.81

 

 

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

3


 

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

For the Three Months Ended
September 30,

 

 

For the Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net Income

 

$

5,578

 

 

$

6,770

 

 

$

23,712

 

 

$

11,134

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on securities:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) arising during the period

 

 

353

 

 

 

(2,799

)

 

 

(2,861

)

 

 

(6,084

)

Reclassification for net gains realized through the sale of securities

 

 

(364

)

 

 

 

 

 

(461

)

 

 

 

Income tax benefit

 

 

3

 

 

 

588

 

 

 

698

 

 

 

1,278

 

Other comprehensive loss on securities

 

 

(8

)

 

 

(2,211

)

 

 

(2,624

)

 

 

(4,806

)

Unrealized gain (loss) on derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Gain on termination of derivative instruments

 

 

 

 

 

3,025

 

 

 

5,007

 

 

 

3,025

 

Reclassification adjustment for accretion of gain on terminated cash flow hedges recorded in interest expense during the period

 

 

(450

)

 

 

(92

)

 

 

(1,219

)

 

 

(195

)

Income tax benefit (expense)

 

 

94

 

 

 

(616

)

 

 

(796

)

 

 

(594

)

Other comprehensive (loss) income on derivatives

 

 

(356

)

 

 

2,317

 

 

 

2,992

 

 

 

2,236

 

 Total other comprehensive (loss) income

 

 

(364

)

 

 

106

 

 

 

368

 

 

 

(2,570

)

Total comprehensive income

 

$

5,214

 

 

$

6,876

 

 

$

24,080

 

 

$

8,564

 

 

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

4


 

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated