THIRD COAST BANCSHARES, INC. REPORTS SECOND QUARTER 2022 FINANCIAL RESULTS

Strategic Growth Plan Includes Realignment of Production Leadership and Research and Development Initiatives

HUMBLE, Texas, July 27, 2022 /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 2022 second quarter financial results.

Second Quarter 2022 Financial and Operational Highlights

• Loans held for investment grew $301.2 million to $2.75 billion, or 12.3%, over the first quarter of 2022, and a 77.2% increase over the $1.55 billion reported in the second quarter of 2021.
• Deposits reached $2.90 billion, an increase of $311.1 million, or 12.0%, over the first quarter of 2022, and $1.11 billion, or 62.5% over the second quarter of 2021. Noninterest-bearing deposits declined $412.0 million to $519.6 million and now represent 17.9% of total deposits.
• Total assets reached $3.36 billion, a sequential increase of $317.7 million, or 10.4%, over the first quarter of 2022, and $1.34 billion, or 66.8%, more than the $2.01 billion reported in the second quarter of 2021.
• Net income totaled $2.3 million, or $0.16 per diluted common share, in the second quarter of 2022, compared to $2.1 million, or $0.15 per diluted common share, in the first quarter of 2022.
• Book value per share and tangible book value per share⁽¹⁾ increased to $22.43 and $21.00, respectively, at June 30, 2022.
• Opened 14^th location in June 2022 with a de novo branch located in Georgetown, Texas.

"Third Coast is pleased to report another quarter of strong organic growth," stated Bart Caraway, Third Coast's Chairman, President and Chief Executive Officer. "Loans are up $1.20 billion in the last year while our asset quality has improved consistently both on a percentage and an absolute basis. We are fortunate to operate in attractive Texas markets with extraordinary bankers that are focused on serving our clients, driving these financial results.

"Beginning in the second quarter, we refocused our efforts toward our strategic growth plan to further position the Company for success, including the structured realignment of our production leadership and making investments in our future, such as the development of new products and services. As part of our leadership realignment, earlier this week we announced the promotions of Bill Bobbora and Andrew Novarini to lead our Commercial Banking group and Community Banking group, respectively. From a research and development perspective, we incurred additional expenses related to our Fintech and Banking-as-a-Service (BaaS) initiatives. By making these investments, we believe we will be in a much better position to grow deposit and fee income. We are excited about these potential opportunities for the Company.

"In the meantime, we remain committed to our long-term focus of serving our customers, building relationships, cultivating technological evolution, and expanding our markets. Regarding our branch network, we opened our 13^th branch in Ft. Worth, Texas in the first quarter and our 14^th branch in Georgetown, Texas in June. 

"Looking ahead, we believe that our strategic growth plan positions us well to leverage our existing infrastructure. We also believe our teams, particularly those that we have recruited over the past 12 months, are performing at a high level and we expect them to continue to exceed our expectations. I am confident we will continue to improve our financial performance and expand relationships with new and potential clients within the Texas business community," concluded Mr. Caraway.

Loan Portfolio and Composition

During the second quarter of 2022, gross loans increased to $2.75 billion as of June 30, 2022, an increase of 12.3% from $2.45 billion as of March 31, 2022, and an increase of 77.2% from $1.55 billion as of June 30, 2021. PPP loans declined to $8.8 million at June 30, 2022 from $26.7 million at March 31, 2022. Excluding the effect of PPP loan forgiveness, the loan portfolio increased $319.1 million, or 13.2%, from March 31, 2022 to June 30, 2022, or 52.9% annualized. The loan growth was well diversified with Real Estate loans up $116.7 million and Commercial loans up $158.8 million from March 31, 2022.

Asset Quality

Asset quality improved during the second quarter of 2022 with non-performing assets declining $1.4 million, or 11.4%, from the first quarter of 2022. Improvement was primarily the result of the sale of the other real estate owned property. The provision for loan losses recorded for the second quarter of 2022 was $3.4 million, which served to increase the allowance to $26.7 million, or 0.97% of the $2.75 billion in gross loans outstanding as of June 30, 2022. Provision expense for the second quarter of 2022 related primarily to provisioning for new loans.

As of June 30, 2022, the nonperforming loans to loans held for investment ratio remains low at 0.40%, which decreased from 0.44% at March 31, 2022 and 0.73% at June 30, 2021. During the three months ended June 30, 2022 and 2021, charge-offs and recoveries were minimal, representing a net recovery of $4,000 and a net charge-off of $77,000, respectively.

Deposits and Composition

Deposits totaled $2.90 billion as of June 30, 2022, an increase of 12.0% from $2.59 billion as of March 31, 2022, and an increase of 62.5% from $1.78 billion as of June 30, 2021. Noninterest-bearing demand deposits decreased from $931.6 million at March 31, 2022 to $519.6 million at June 30, 2022, and increased $144.7 million, or 38.6%, from June 30, 2021. Noninterest-bearing demand deposits represented 17.9% of total deposits as of June 30, 2022, down from 36.0% of total deposits as of March 31, 2022, and 21.0% of total deposits as of June 30, 2021. Interest-bearing demand deposits as of June 30, 2022 increased $756.9 million, or 56.0%, from March 31, 2022 and savings accounts as of June 30, 2022 increased $3.6 million, or 10.5%, from March 31, 2022. These increases were partially offset by a decrease in time deposits of $37.5 million, or 13.9%.

The average cost of deposits was 0.52% for the second quarter of 2022, representing a 19 basis point increase from the first quarter of 2022 due primarily to the increase in rates paid on interest-bearing demand deposits and the movement of a group of significant customer deposit accounts from noninterest bearing to interest bearing in the second quarter of 2022. The average cost of deposits for the second quarter of 2022 increased 3 basis points from the second quarter of 2021 due primarily to the significant increase in interest-bearing demand deposits and increased interest rates paid on deposits.

Net Interest Margin and Net Interest Income

The net interest margin for the second quarter of 2022 was 3.77%, a decrease of 32 basis points from the first quarter of 2022 and a decrease of 62 basis points from the second quarter of 2021. The yield on loans for the second quarter of 2022 was 4.73% compared to 4.90% at March 31, 2022. The decrease was primarily due to a reduction from the first quarter of 2022 of $310,000 in loan fees and $883,000 in PPP fees.

Net interest income totaled $27.7 million for the second quarter of 2022, an increase of 10.0% from $25.2 million for the first quarter of 2022. Interest income totaled $32.5 million for the second quarter of 2022, an increase of 19.6% from $27.2 million for the first quarter of 2022. Interest and fees on loans increased $4.5 million, or 16.8%, compared to the first quarter of 2022, and increased by $7.6 million, or 32.5%, from the second quarter of 2021.  Interest expense was $4.8 million for the second quarter of 2022, an increase of $2.8 million, or 141.7% from $2.0 million for the first of 2022 and an increase of 75.6% from $2.7 million for the second quarter of 2021. The increase in interest expense is primarily due to interest paid on interest-bearing deposit accounts and interest related to the subordinated debt issued in March 2022.

Noninterest Income and Noninterest Expense

Noninterest income totaled $1.3 million for the second quarter of 2022, compared to $1.7 million for the first quarter of 2022. This decrease was primarily due to a decrease in derivative income of $583,000 in the second quarter of 2022 offset by a $98,000 gain on sale of the guaranteed portion of a SBA loan sold in the second quarter of 2022.  There were no sales of the guaranteed portion of SBA loans in the first quarter of 2022.

Noninterest expense totaled $22.8 million in the second quarter of 2022, an increase of 12.8% from $20.2 million in the first quarter of 2022, which was primarily due to a loss on the sale of other real estate owned of $350,000, a one-time legal settlement of $900,000, and increased salary expense related to additional employees hired in the first and second quarters of 2022. We also incurred additional professional expenses related to potential new products and services and attorney fees and additional FDIC assessment expense as a result of increased rates due to bank growth. The employee headcount increased from 334 as of December 31, 2021 to 353 as of June 30, 2022.

The efficiency ratio was 78.52% in the second quarter of 2022, compared to 75.09% in the first quarter of 2022, and 79.64% in the second quarter of 2021. The slight improvement in the efficiency ratio from the second quarter of 2021 was due to the increase in interest and fees on loans.   

Net Income and Earnings Per Share

Net income totaled $2.3 million for the second quarter of 2022, compared to $2.1 million for the first quarter of 2022. Basic earnings per share and diluted earnings per share increased slightly to $0.17 per share and $0.16 per share, respectively, in the second quarter of 2022 from $0.16 per share and $0.15 per share, respectively, in the first quarter of 2022. 

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(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.

Earnings Conference Call

Third Coast has scheduled a conference call to discuss second quarter 2022 results, which will be broadcast live over the Internet, on Thursday, July 28, 2022, 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 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 August 4, 2022, and may be accessed by dialing 201-612-7415 and using passcode 13731039#. 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 14 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.  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: the impact of COVID-19 on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy; interest rate risk and fluctuations in interest rates; our ability to maintain our largest deposit relationships; our ability to grow or maintain our deposit base; our ability to implement our expansion strategy; changes in key management personnel; credit risk associated with our business; and other market conditions and economic trends generally and in the banking industry. 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, 2021 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 Book Value Per Share and Tangible Common Equity to Tangible Assets Ratio," 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.