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

Record Quarterly Net Income and Net Interest Income

HUMBLE, Texas, Oct. 26, 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 third quarter 2022 financial results.

Third Quarter 2022 Financial and Operational Highlights

• Loans held for investment grew $223.7 million to $2.97 billion as of September 30, 2022, or 8.1%, over the $2.75 billion reported as of June 30, 2022, and increased $1.36 billion, or 84.4%, over the $1.61 billion reported as of September 30, 2021.
• Deposits reached $2.98 billion as of September 30, 2022, an increase of $86.1 million, or 3.0%, over the $2.90 billion reported as of June 30, 2022, and $1.17 billion, or 64.3%, over the $1.82 billion reported as of September 30, 2021. Noninterest-bearing deposits declined $2.3 million to $517.3 million and represent 17.3% of total deposits as of September 30, 2022.
• Total assets reached $3.52 billion as of September 30, 2022, an increase of $158.8 million, or 4.7%, over the $3.36 billion reported as of June 30, 2022, and $1.4 billion, or 68.9%, more than the $2.08 billion reported as of September 30, 2021.
• Net income totaled $6.8 million, or $0.49 per diluted common share, for the third quarter of 2022, compared to $2.3 million, or $0.16 per diluted common share, for the second quarter of 2022.
• Book value per share and tangible book value per share⁽¹⁾ increased to $22.93 and $21.51, respectively, at September 30, 2022 compared to $22.43 and $21.00, respectively, at June 30, 2022.
• Issued 69,400 shares of Series A Convertible Non-Cumulative Preferred Stock and 175,000 warrants to purchase shares of the Company's common stock for gross proceeds of $69.4 million.
• Opened 15^th location in October 2022 with a de novo branch located in the Kingwood area, north of Houston, Texas.

"Third Coast continues to track in the right direction, reporting another quarter of solid organic growth that demonstrates our well-executed strategy to invest in people that perform at a high level," stated Bart Caraway, Third Coast's Chairman, President and Chief Executive Officer. "Record net interest income of $31.4 million, and net income of $6.8 million, resulted from continued operating leverage. Third quarter loans and deposits are up $1.36 billion and $1.17 billion, respectively, over last year.  Our asset quality, a key emphasis for our lending culture, remains strong, representing a significant year-over-year reduction in non-performing assets to 0.29% of total assets. 

"As we approach our first anniversary as a publicly traded company, we are seeing more demand for our financial products that, in step with our strategic growth plan, advance our efforts to increase quality offerings, including investing in research and development to grow deposits and fee income. We intend to continue to enhance our diversified business model and invest in talent at all levels of the organization so that we can be the leading community bank in the markets we serve.

"Our people are critical to our success. Third Coast is committed to serving our customers, building relationships, cultivating technological evolution, and expanding our markets. Regarding our branch network, we recently opened our 15th branch in Kingwood, just north of Houston. Third Coast is focused on providing the highest quality service and financial products to commercial and retail clients through its 15 branches.  I want to thank the expanding Third Coast team once again for their commitment to delivering excellence to our customers and shareholders.

"Looking ahead, we are very excited about the future. Third Coast is poised for growth, especially as we look to bring exciting and beneficial financial products to market. We remain intensely focused on operating performance, which is bolstered by the general health of the Texas economy and improving trends that we are experiencing in our lending portfolio," concluded Mr. Caraway.

Loan Portfolio and Composition

During the third quarter of 2022, gross loans increased to $2.97 billion as of September 30, 2022, an increase of $223.7 million, or 8.1%, from $2.75 billion as of June 30, 2022, and an increase of $1.36 billion, or 84.4%, from $1.61 billion as of September 30, 2021. The loan growth was well diversified with Real Estate loans up $115.0 million and Commercial loans up $114.4 million from June 30, 2022. PPP loans declined to $1.9 million as of September 30, 2022 from $8.8 million as of June 30, 2022.

Asset Quality

Asset quality improved during the third quarter of 2022 with non-performing assets decreasing to $10.3 million as of September 30, 2022, or 44.6%, from $18.6 million as of September 30, 2021 and down slightly from $11.0 million as of June 30, 2022. The provision for loan losses recorded for the third quarter of 2022 was $2.9 million, which served to increase the allowance to $29.1 million, or 0.98% of the $2.97 billion in gross loans outstanding as of September 30, 2022. Provision expense for the third quarter of 2022 related primarily to provisioning for new loans.

As of September 30, 2022, the nonperforming loans to loans held for investment ratio remains low at 0.35%, which decreased from 0.40% as of June 30, 2022 and 1.05% as of September 30, 2021. During the three months ended September 30, 2022 and 2021, net charge-offs were  $457,000 and $146,000 respectively. 

Deposits and Composition

Deposits totaled $2.98 billion as of September 30, 2022, an increase of 3.0% from $2.90 billion as of June 30, 2022, and an increase of 64.3% from $1.82 billion as of September 30, 2021. Noninterest-bearing demand deposits decreased from $519.6 million as of June 30, 2022 to $517.3 million as of September 30, 2022, and increased $152.8 million, or 41.9%, from September 30, 2021. Noninterest-bearing demand deposits represented 17.3% of total deposits as of September 30, 2022, down from 17.9% of total deposits as of June 30, 2022, and 20.1% of total deposits as of September 30, 2021. Interest-bearing demand deposits as of September 30, 2022 increased $120.4 million, or 5.7%, from June 30, 2022. The increase was offset by a decrease in savings accounts of $1.2 million, or 3.1%, from June 30, 2022, and decrease in time deposits of $30.8 million, or 13.3%, from June 30, 2022.

The average cost of deposits was 1.31% for the third quarter of 2022, representing a 79 basis point increase from the second quarter of 2022 due primarily to the increase in rates paid on interest-bearing demand deposits.  The average cost of deposits for the third quarter of 2022 increased 87 basis points from the third quarter of 2021 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 third quarter of 2022 was 3.77% which was unchanged from the second quarter of 2022 and a decrease of 72 basis points from the third quarter of 2021. We recorded excess accretion on purchased loans of $665,000 during the third quarter which increased the net interest margin by approximately 8 basis points. The yield on loans for the third quarter of 2022 was 5.59% compared to 4.73% for the second quarter of 2022. The increase in yield on loans during the third quarter of 2022 was primarily due to increased rates on new loans and an increase of $1.1 million in loan fees during the third quarter. 

Net interest income totaled $31.4 million for the third quarter of 2022, an increase of 13.0% from $27.7 million for the second quarter of 2022. Interest income totaled $43.1 million for the third quarter of 2022, an increase of 32.6% from $32.5 million for the second quarter of 2022. Interest and fees on loans increased $9.3 million, or 30.0%, compared to the second quarter of 2022, and increased $16.6 million, or 69.2%, from the third quarter of 2021.  Interest expense was $11.7 million for the third quarter of 2022, an increase of $7.0 million, or 146.2% from $4.8 million for the second quarter of 2022 and an increase of 390.1% from $2.4 million for the third quarter of 2021. The increase in interest expense was primarily due to interest paid on interest-bearing deposit accounts, FHLB advances and subordinated debt issued in March 2022.

Noninterest Income and Noninterest Expense

Noninterest income totaled $2.5 million for the third quarter of 2022, compared to $1.3 million for the second quarter of 2022, and $964,000 for the third quarter of 2021. This increase was primarily due to $729,000 in gains on the sales of the guaranteed portions of SBA loans sold and increases in derivative income of $190,000, earnings on bank-owned life insurance of $176,000, and service charges and fees of $155,000 in the third quarter of 2022.

Noninterest expense totaled $22.7 million for the third quarter of 2022 down from $22.8 million for the second quarter of 2022 and up from $17.6 million for the third quarter of 2021. The year-over-year increases were attributed to salary expense related to additional employees hired in 2022 and administrative expenses related to opening of three branches in 2022. The employee headcount increased from 334 as of December 31, 2021 to 369 as of September 30, 2022.

The efficiency ratio was 67.06% for the third quarter of 2022, compared to 78.52% for the second quarter of 2022, and 76.81% for the third quarter of 2021. The improvement in the efficiency ratio was primarily due to the increase in interest and fees on loans.   

Net Income and Earnings Per Share

Net income totaled $6.8 million for the third quarter of 2022, compared to $2.3 million for the second quarter of 2022. Basic earnings per share and diluted earnings per share increased to $0.50 per share and $0.49 per share, respectively, in the third quarter of 2022 from $0.17 per share and $0.16 per share, respectively, in the second quarter of 2022. 

Private Placement of $69.4 Million of Convertible Preferred Stock

As previously reported, the Company issued 69,400 shares of Series A Convertible Non-Cumulative Preferred Stock at a purchase price of $1,000 per share for aggregate gross proceeds of $69.4 million on September 30, 2022. In addition, the Company issued 175,000 warrants to purchase shares of the Company's common stock, par value $1.00 per share, in connection with the private placement offering.

Earnings Conference Call

Third Coast has scheduled a conference call to discuss third quarter 2022 results, which will be broadcast live over the Internet, on Thursday, October 27, 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 November 3, 2022, and may be accessed by dialing 201-612-7415 and using passcode 13733542#. 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 15 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," "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, Tangible Common Equity to Tangible Assets Ratio 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.

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