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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, 2021

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, 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 December 17, 2021, the registrant had 13,350,682 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	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
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 and Use of Proceeds	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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 (including, without limitation, the Coronavirus Aid, Relief, and Economic Security Act), and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

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

interest rate risk and fluctuations in interest rates;

our ability to maintain important 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;

the adequacy of our allowance for loan losses;

the amount of nonperforming and classified assets that we hold;

market conditions and economic trends generally and in the banking industry;

our borrowers’ ability to repay loans;

changes in value of the collateral securing our loans;

credit risks associated with our real estate and construction lending;

changes in the economy affecting real estate values and liquidity;

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

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

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

our ability to raise additional capital in the future;

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

natural disasters and other catastrophes;

ii

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 (the "Federal Reserve");

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

fluctuations in the market price of our common stock;

additional debt or future issuances of new debt securities or preferred 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 prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) of the Securities Act on November 9, 2021. 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,
ASSETS	2021			2020
	(unaudited)
Cash and cash equivalents:
Cash and due from banks	$	359,887,612		$	201,269,687
Federal funds sold		695,916			2,290,626
Total cash and cash equivalents		360,583,528			203,560,313
Interest bearing time deposits in other banks		131,461			129,402
Investment securities available for sale		26,430,952			25,595,317
Loans held for sale		—			2,345,550
Loans, net of allowance for loan loss of $15,571,366 and $11,979,492 at September 30, 2021 and    December 31, 2020, respectively		1,596,822,985			1,544,112,396
Accrued interest receivable		10,238,198			13,675,906
Premises and equipment, net		18,364,409			15,155,699
Other real estate owned		1,676,250			3,367,207
Bank-owned life insurance		26,381,727			25,960,632
Non-marketable equity securities, at cost		10,904,804			4,406,654
Deferred tax asset, net		4,455,981			4,039,009
Core Deposit Intangible, net		1,332,377			1,453,502
Goodwill		18,033,880			18,033,880
Other assets		6,814,027			5,457,795
Total assets	$	2,082,170,579		$	1,867,293,262
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing	$	364,417,901		$	327,360,814
Interest bearing		1,451,532,665			1,306,470,103
Total deposits		1,815,950,566			1,633,830,917
Accrued interest payable		476,994			1,215,170
Other liabilities		8,291,107			6,654,470
FHLB advances		50,250,000			70,000,000
Note payable - Senior Debt		1,000,000			20,875,000
Note payable - Subordinated Debt		—			13,000,000
Total liabilities		1,875,968,667			1,745,575,557
Commitments and contingencies - ESOP-owned shares		2,059,940			1,301,502
Shareholders' equity:
Common stock, $1 par value; 50,000,000 shares authorized; 9,387,354 and 6,350,184 issued; and 9,313,929 and 6,276,759 outstanding at September 30, 2021 and December 31, 2020, respectively		9,387,354			6,350,184
Additional paid-in capital		160,724,828			91,461,923
Retained earnings		35,674,773			24,605,020
Accumulated other comprehensive income		1,393,819			279,440
Treasury stock: at cost; 73,425 shares at September 30, 2021 and December 31, 2020		(978,862	)		(978,862	)
		206,201,912			121,717,705
Less: ESOP-owned shares		2,059,940			1,301,502
Total shareholders' equity		204,141,972			120,416,203
Total liabilities & shareholders' equity	$	2,082,170,579		$	1,867,293,262

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

2

THIRD COAST BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Income

(unaudited)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2021		2020		2021		2020
Interest income:
Loans, including fees	$	23,939,803	$	19,075,414	$	72,660,409	$	58,628,395
Investment securities available-for-sale		264,809		35,695		777,891		67,886
Federal funds sold and deposits in other banks		194,639		130,910		516,885		690,368
Total interest income		24,399,251		19,242,019		73,955,185		59,386,649
Interest expense:
Deposit accounts		2,023,356		3,005,335		6,613,095		9,685,540
FHLB advances and notes payable		373,562		538,918		1,408,382		1,492,341
Total interest expense		2,396,918		3,544,253		8,021,477		11,177,881
Net interest income		22,002,333		15,697,766		65,933,708		48,208,768
Provision for loan losses		2,323,000		—		3,823,000		2,550,000
Net interest income after provision for loan losses		19,679,333		15,697,766		62,110,708		45,658,768
Noninterest income:
Services charges and fees		558,793		442,675		1,801,100		1,202,208
Gain on sales of SBA loans		174,664		—		174,664		266,422
Gain on disposal of fixed assets		—		—		—		8,890
Other		230,520		190,485		847,729		625,358
Total noninterest income		963,977		633,160		2,823,493		2,102,878
Noninterest expense:
Salaries and employee benefits		12,138,027		6,964,626		34,612,913		22,136,129
Data processing and network expense		844,248		1,064,709		2,274,442		2,495,675
Occupancy and equipment expense		1,419,484		1,098,155		3,810,160		3,022,406
Legal and professional		1,164,168		359,150		3,843,340		3,047,946
Loan operations and other real estate owned expense		495,249		205,603		1,688,350		1,161,051
Advertising and marketing		422,032		350,937		1,231,924		906,412
Telephone and communications		119,181		169,299		479,885		446,328
Software purchases and maintenance		260,808		123,423		603,619		297,900
Regulatory assessments		252,333		336,404		594,988		814,152
Loss on sale of other real estate owned		—		—		344,049		—
Other		525,249		426,094		1,454,951		1,306,675
Total noninterest expense		17,640,779		11,098,400		50,938,621		35,634,674
Net income before income tax expense		3,002,531		5,232,526		13,995,580		12,126,972
Income tax expense		617,287		1,098,830		2,925,827		2,546,664
Net income	$	2,385,244	$	4,133,696	$	11,069,753	$	9,580,308
Earnings per common share:
Basic earnings per share	$	0.29	$	0.66	$	1.60	$	1.54
Diluted earnings per share	$	0.28	$	0.65	$	1.55	$	1.51

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)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2021			2020			2021			2020
Net Income	$	2,385,244		$	4,133,696		$	11,069,753		$	9,580,308
Other comprehensive income:
Unrealized gain on securities:
Unrealized holding gains arising during the period		497,698			198,542			808,847			246,152
Income tax expense		(104,517	)		(41,694	)		(169,858	)		(51,692	)
Other comprehensive income on securities		393,181			156,848			638,989			194,460
Unrealized gain (loss) on derivatives:
Unrealized holding losses arising during the period		—			—			(215,645	)		—
Reclassification adjustment for accretion of derivative termination fee		(52,404	)		—			817,405			—
Income tax (expense) benefit		11,004			—			(126,370	)		—
Other comprehensive income (loss) on derivatives		(41,400	)		—			475,390			—
Total other comprehensive income		351,781			156,848			1,114,379			194,460
Total comprehensive income	$	2,737,025		$	4,290,544		$	12,184,132		$	9,774,768

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		Less:
	Additional		Other		ESOP-
Common	Paid in	Retained	Comprehensive	Treasury