Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Annual Report on Form 10-K (this “Form 10-K”). Unless we state otherwise or the context otherwise requires, references in this Form 10-K to “we,” “our,” “us,” and the “Company” refer to Third Coast Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries, references in this Form 10-K to the “Bank” refer to Third Coast Bank, a Texas banking association and our wholly owned bank subsidiary, and references in this Form 10-K to “TCCC” refer to Third Coast Commercial Capital, Inc., a Texas corporation and wholly owned subsidiary of the Bank.
The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements” and the risk factors and other cautionary statements described under the heading “Risk Factors” included in Item 1A of this Form 10-K. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We are a bank holding company headquartered in Humble, Texas and operated through our wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiary, TCCC. We focus on providing commercial banking solutions to small- and medium-sized businesses and professionals with operations in our markets. Our market expertise, coupled with a deep understanding of our customers’ needs, allows us to deliver tailored financial products and services. Following the completion of our merger with Keystone Bancshares, Inc., a Texas corporation (“Keystone”), discussed below, we currently operate twenty-two branches, with ten branches in the Greater Houston market, three branches in the Dallas-Fort Worth market, seven branches in the Austin-San Antonio market, one branch in Ballinger, Texas, and one branch in Detroit, Texas. As of December 31, 2025, we had, on a consolidated basis, total assets of $5.34 billion, total loans of $4.39 billion, total deposits of $4.63 billion and total shareholders’ equity of $531.0 million.
As a bank holding company that operates through one segment, community banking, we generate most of our revenue from interest on loans, and customer service and loan fees. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and interest-bearing time deposits in other banks, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between average rates earned on interest-earning assets and average rates paid on interest-bearing liabilities.
Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing liabilities and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas.
Keystone Merger
On February 1, 2026, we completed our merger with Keystone, the parent company of Keystone Bank, SSB (“Keystone Bank”), a Texas state savings bank, pursuant to the terms of the Agreement and Plan of Reorganization, dated as of October 22, 2025, by and among the Company, Arch Merger Sub, Inc. (“Merger Sub”), a Texas corporation and a wholly owned subsidiary of the Company, and Keystone (the “Merger Agreement”). Pursuant to the Merger Agreement, on February 1, 2026, Merger Sub merged with and into Keystone (the “Merger”), with Keystone surviving as a wholly owned subsidiary of the Company. Immediately following the Merger, Keystone merged with and into the Company, with the Company surviving the merger (the “Second Step Merger”). Immediately following the Second Step Merger, Keystone Bank merged with and into the Bank, with the Bank surviving the merger. The total aggregate consideration payable in the Merger was approximately 2.6 million shares of our common stock and $20 million in cash.
Registration of Securities Issued in Private Placement
The Company filed a Registration Statement on Form S-3 with the SEC on September 25, 2024 registering the resale from time to time by the securityholders named therein of the shares of Series A Preferred Stock and warrants to purchase an aggregate of 175,000 shares of the Company's common stock (or, at the election of the warrant holder in accordance with the terms of the warrant agreement, Series B Preferred Stock or non-voting common stock of the Company) (the “Preferred Warrants”)), issued to such securityholders in the private placement completed on September 30, 2022 and the securities issuable upon conversion of shares of
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Series A Preferred Stock, Series B Preferred Stock or non-voting common stock, or upon exercise of the Preferred Warrants. The Registration Statement was declared effective by the SEC on October 4, 2024.
Conversion to State Bank
On March 13, 2024, the Bank completed its conversion from a Texas state savings bank to a Texas banking association. As a result of the conversion, the TDB is the Bank’s primary state regulator. The Bank remains as a member of the Federal Reserve System, and the Federal Reserve is the Bank’s primary federal regulator. The Federal Reserve also continues to be the Company’s primary federal regulator.
Results of Operations
This section provides a comparative discussion of the Company’s results of operations for the two-year period ended December 31, 2025, unless otherwise specified. See “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of 2024 versus 2023 results.
Our results of operations depend substantially on net interest income and noninterest income. Other factors contributing to our results of operations include our level of our noninterest expenses, such as salaries and employee benefits, occupancy and equipment and other miscellaneous operating expenses. See the analysis of the material fluctuations in the related discussions that follow.
For the Year Ended December 31, For the Year Ended December 31,
Net Interest Income
Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.
Year ended December 31, 2025 vs. Year ended December 31, 2024
Net interest income increased $34.5 million, or 21.4%, during the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to increased interest income from loan growth, a portion of which loans were securitized, and the purchase of associated securities resulted in an increase in investment yields, and decreased rates paid on interest-bearing deposits. Average loans were $4.12 billion for the year ended December 31, 2025, compared to $3.79 billion for the year ended December 31, 2024, with the increase primarily due to loan growth in commercial and industrial loans. Average yield on loans was 7.68% for the year ended December 31, 2025, compared to 7.80% for the year ended December 31, 2024. Interest expense related to interest bearing deposit accounts was $150.3 million and $159.7 million for the years ended December 31, 2025 and 2024, respectively. Average interest-bearing deposits were $3.83 billion for the year ended December 31, 2025, compared to $3.46 billion for the year ended December 31, 2024. The average cost of interest-bearing deposits was 3.93% for the year ended December 31, 2025 and 4.62% for the year ended December 31, 2024. For the year ended December 31, 2025, net interest margin and net interest spread were 4.06% and 3.36%, respectively, compared to 3.67% and 2.81%, respectively, for the year ended December 31, 2024.
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The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods.
For the Year Ended December 31,
Assets
Interest-earnings assets:
Investment securities held-to-maturity 130,689 7,170 5.49 % — — — — — —
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
(1)
Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
(2)
Net interest margin is equal to net interest income divided by average interest-earning assets.
(3)
Interest earned/paid includes accretion of deferred loan fees, premiums and discounts. Interest income on loans includes loan fees and discount accretion of $13.4 million, $10.7 million, and $8.8 million for the years ended December 31, 2025, 2024, and 2023, respectively.
The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.
(Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
Interest-earning assets:
Investment securities held-to-maturity 7,170 — 7,170 — — —
Interest-bearing liabilities:
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Provision for Credit Losses
Provision for credit losses is determined by management as the amount to be added to the allowance for credit losses account for various types of financial instruments, including loans, securities and off-balance sheet credit exposures, to bring the allowances to a level which, in management's best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. Prior to the January 1, 2023 adoption of ASC 326, the provision for credit losses was an expense we used to maintain an allowance for credit losses for loans at a level which was deemed appropriate by management to absorb known and inherent losses on existing loans.
The provision for credit losses for the year ended December 31, 2025 was $7.6 million, compared to $5.7 million for the year ended December 31, 2024. The provision for credit losses for the year ended December 31, 2025 related primarily to provisioning for new loans and commitments. No provision for credit losses for securities was recorded for the years ended December 31, 2025 and 2024.
As of December 31, 2025, the allowance for credit losses for loans totaled $43.9 million, or 1.00% of total loans, compared to $40.3 million, or 1.02% of total loans, as of December 31, 2024. At December 31, 2025 and 2024, the allowance for credit losses for off-balance sheet commitments was $1.8 million and $1.4 million, respectively. No allowance for credit losses for securities was recorded as of December 31, 2025 and 2024.
See the sections captioned “Allowance for Credit Losses” and “Securities” elsewhere in this discussion for additional information regarding the provision for credit losses related to loans, off-balance sheet credit exposures and securities.
Noninterest Income
Our primary sources of recurring noninterest income are service charges and fees, earnings from bank-owned life insurance (“BOLI”), gains from the sale of securities and SBA loans, derivative fees, and our investment in the Small Business Investment Company.
The following table presents, for the periods indicated, the major categories of noninterest income:
For the Year Ended December 31, For the Year Ended December 31,
Noninterest Income:
Year ended December 31, 2025 vs. Year ended December 31, 2024
The increase in noninterest income of $3.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to increased service charges and fees and increased earnings on BOLI, offset by losses on the sales of investment securities and a decrease in Small Business Investment income. In addition, the Company recognized $610,000 in losses on the sales of investment securities during the year ended December 31, 2025, compared to losses of $4,000 recognized during the year ended December 31, 2024.
Noninterest Expense
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, legal and professional fees, data processing and network expenses, regulatory fees, including FDIC assessments, advertising and marketing expenses, and loan operations related expenses.
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The following table presents, for the periods indicated, the major categories of noninterest expense:
For the Year Ended December 31, For the Year Ended December 31,
Noninterest Expense:
Other:
Year ended December 31, 2025 vs. Year ended December 31, 2024
The increase in noninterest expense of $14.2 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to increased salaries and employee benefit expenses and increased legal and professional fees.
Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $77.2 million for the year ended December 31, 2025, an increase of $12.1 million, or 18.5%, compared to $65.1 million for the same period in 2024. The increase was primarily due to increased salary expense resulting from new hires, increased bonus expense and a reduction in salary expense deferral related to loan fundings during the first half of 2025. For the year ended December 31, 2025, the average number of employees was 390, compared to an average number of employees of 363 for the year ended December 31, 2024.
Legal and professional fees were $7.5 million and $5.6 million for the years ended December 31, 2025 and 2024, respectively. The increase was primarily due to merger-related expenses during the fourth quarter of 2025 and the securitization of loans during the second quarter of 2025.
Income Tax Expense
The amount of income tax expense we incur is impacted by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense and effective tax rates for the periods shown below were as follows:
Year Ended December 31,
Year ended December 31, 2025 vs. Year ended December 31, 2024
For the years ended December 31, 2025 and 2024, income tax expense totaled $16.5 million and $13.7 million, respectively. Our effective tax rates were at 19.9% and 22.3% for the years ended December 31, 2025 and 2024, respectively. The decrease in effective tax rate was primarily due to tax credit purchased in 2025.
Financial Condition
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Total assets were $5.34 billion as of December 31, 2025, compared to $4.94 billion as of December 31, 2024. The increase of $398.3 million, or 8.1%, was primarily due to organic loan growth and investment security and BOLI purchases offset by a decrease in cash and cash equivalents resulting from a decrease in noninterest bearing deposits.
Loan Portfolio
Our primary source of income is derived through interest earned on loans to small- to medium-sized businesses, commercial companies, professionals and individuals located in our primary market areas. A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning assets.
As of December 31, 2025, total loans were $4.39 billion, an increase of $428.3 million, or 10.8%, compared to $3.97 billion as of December 31, 2024. Commercial and industrial loans accounted for most of the loan growth for the year ended December 31, 2025. Total loans as a percentage of deposits were 95.0% and 92.0% as of December 31, 2025 and 2024, respectively. Total loans as a percentage of assets were 82.3% and 80.3% as of December 31, 2025 and 2024, respectively.
The following table summarizes our loan portfolio by type of loan as of the dates indicated:
As of December 31,
(Dollars in thousands) Amount Percent Amount Percent
Real estate:
Commercial real estate:
Commercial Real Estate Loans. Commercial real estate loans are underwritten primarily based on cash flows of the borrower and, secondarily, the value of the underlying collateral. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the portfolio are located primarily throughout our markets and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.
Owner occupied commercial real estate loans are a key component of our lending strategy to owner-operated businesses, representing a large percentage of our total commercial real estate loans. Owner occupied commercial real estate loans decreased $13.4 million, or 3.0%, to $434.7 million as of December 31, 2025 from $448.1 million as of December 31, 2024.
Non-owner occupied commercial real estate loans are loans for income producing properties and are generally for retail strip centers, office buildings, self-storage facilities, and multi and single tenant office warehouses, all within our markets. Non-owner occupied commercial real estate loans increased $58.3 million, or 8.9%, to $710.4 million as of December 31, 2025 from $652.1 million as of December 31, 2024.
The following table summarizes our commercial real estate loans by type of property securing the loans:
(Dollars in thousands) Amount Average Loan Size Percentage of Total
Commercial real estate loans by category:
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Residential Real Estate Loans. Residential real estate loans consists of 1-4 family residential loans and multi-family residential loans. Our 1-4 family residential loan portfolio is comprised of owner-occupied and investor owned loans secured by 1-4 family homes. Our multi-family residential loan portfolio is comprised of loans secured by properties deemed multi-family, which includes apartment buildings. Our current multifamily loans are to operators who we believe are seasoned and successful and possess quality alternative repayment sources. Residential real estate loans decreased $3.3 million, or 1.0%, to $333.4 million as of December 31, 2025 from $336.7 million as of December 31, 2024.
Construction, Development and Other Loans. Construction and development loans are comprised of loans used to fund construction, land acquisition and land development. The properties securing the portfolio are primarily in our Texas markets and are generally diverse in terms of type. Our builder finance group provides traditional homebuilder lines secured by lots and single-family homes, and land acquisition and development loans. This group also finances bond anticipation notes and lines of credit to large national institutional tier-one funds that invest equity in various real estate assets. Construction, development and other loans decreased $48.0 million, or 5.5%, to $823.4 million as of December 31, 2025 from $871.4 million as of December 31, 2024.
Commercial and Industrial Loans. Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and effectively. These loans are primarily made based on the borrower's ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees. Our commercial and industrial loan portfolio consists of loans principally to retail trade, service, and manufacturing firms located in our market areas.
In addition, the commercial and industrial loan category includes factored receivables. TCCC provides working capital solutions for small- to medium-sized businesses throughout the United States. TCCC provides working capital financing through the purchase of accounts receivables. Our factored receivables portfolio consists primarily of customers in the transportation, energy services and service industries. At December 31, 2025 and 2024, outstanding factored receivables were $26.7 million and $36.8 million, respectively.
Commercial and industrial loans increased $409.2 million, or 27.3%, to $1.91 billion as of December 31, 2025 from $1.50 billion as of December 31, 2024. The increase was primarily a result of increased productivity of existing lenders in response to market demand.
Other Loan Categories. Other categories of loans included in our loan portfolio include farmland loans, lease financing, Bond Anticipation Notes (BANs), consumer loans, and agricultural loans made to farmers and ranchers relating to their operations. None of these categories of loans represents a material portion of our total loan portfolio.
The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of the date indicated are summarized in the following table:
Real estate:
Commercial real estate:
Nonperforming Assets
Nonperforming assets include nonaccrual loans, loans that are accruing over 90 days past due, restructured loans - accruing, and foreclosed assets. Effective January 1, 2023, the Company adopted the provisions of ASU 2022-02, which discontinued the recognition and measurement guidance previously required on troubled debt restructurings. Therefore, restructure loans included in nonperforming assets as of December 31, 2025 exclude any loan modifications that are performing but would have previously required disclosure as troubled debt restructurings. Generally, loans are placed on nonaccrual status when they become more than 90 days past due and/or collection of principal or interest is in doubt.
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The following table presents information regarding nonperforming assets at the dates indicated:
As of December 31,
Other real estate owned and repossessed assets 8,388 862
Ratio of nonaccrual loans to total loans 0.23 % 0.67 %
Ratio of nonperforming loans to total loans 0.49 % 0.70 %
Ratio of nonperforming loans to total assets 0.40 % 0.57 %
Ratio of nonperforming assets to total assets 0.56 % 0.58 %
Ratio of nonperforming loans to total loans plus OREO 0.49 % 0.70 %
Ratio of allowance for credit losses to nonaccrual loans 434.28 % 150.54 %
(1)
Restructured loans-nonaccrual are included in nonaccrual loans.
We had $29.9 million in nonperforming assets as of December 31, 2025, compared to $28.8 million as of December 31, 2024. As of December 31, 2025, the nonperforming assets to total assets was 0.56%, compared to 0.58% as of December 31, 2024.
The following table summarizes our nonaccrual loans by category as of the dates indicated:
As of December 31,
Nonaccrual loans by category:
Real estate:
Commercial real estate
Non-farm non-residential owner occupied $ 1,235 $ 10,433
Non-farm non-residential non-owner occupied 99 —
Construction, development and other — 400
Risk Gradings
As part of the on-going monitoring of the credit quality of the Company's loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks risk gradings as indicated below that are used as credit quality indicators.
The following table summarizes the internal ratings of our loans as of the dates indicated:
(Dollars in thousands) Pass SpecialMention Substandard Doubtful Total
Real estate:
Commercial real estate:
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(Dollars in thousands) Pass SpecialMention Substandard Doubtful Total
Real estate:
Commercial real estate:
Non-farm non-residential non-owner occupied 652,119 — — — 652,119
Allowance for Credit Losses on Loans
In accordance with ASC 326 which the Company adopted January 1, 2023, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on current expected credit losses. The amount of the allowance for credit losses represents management's best estimate of current expected credit losses on the Company's loans considering available information, from internal and external sources, relevant to assessing the exposure to credit loss over the contractual term of the loan. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance for credit losses is dependent upon a variety of factors beyond our control, including the performance of our loan portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. On January 1, 2023, we recorded an increase of $4.0 million to the allowance for credit losses for the cumulative effect of adopting ASC 326 for our loan portfolio. For additional information on adoption of ASC 326, see “—Critical Accounting Policies—Allowance for Credit Losses” below and “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Nature of Operations and Summary of Significant Accounting Policies” and “—Note 3—Loans and Allowance for Credit Losses.”
Prior to the adoption of ASC 326, we maintained an allowance for credit losses that represented management’s best estimate of the loan losses and risks inherent in our loan portfolio. The amount of the allowance for credit losses was not an indicator that charge-offs in future periods would necessarily occur in those amounts. In determining the allowance for credit losses, we estimated losses on specific loans, or groups of loans, where the probable loss could be identified and reasonably determined. The balance of the allowance for credit losses was based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature and volume of our loan portfolio, overall portfolio quality, industry or borrower concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates, among other factors.
As of December 31, 2025, the allowance for credit losses on loans totaled $43.9 million, or 1.00% of total loans. As of December 31, 2024, the allowance for credit losses on loans totaled $40.3 million, or 1.02% of total loans. The increase in our allowance for credit losses on loans of $3.6 million, or 9.0%, was primarily due to the $7.2 million provision for credit losses on loans recorded for the year ended December 31, 2025, offset by net charge-offs of $3.6 million for the year ended December 31, 2025.
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The following tables present as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
For Year Ended December 31,
Allowance for credit loss at beginning of period $ 40,304 $ 37,022
Provision for credit loss on loans 7,246 6,675
Charge-offs:
Real estate:
Commercial real estate:
Non-farm non-residential non-owner occupied — (598 )
Commercial and industrial (4,104 ) (3,651 )
Consumer (44 ) —
Municipal and other — (67 )
Recoveries:
Commercial real estate:
Commercial real estate:
Non-farm non-residential non-owner occupied 350 —
Commercial and industrial 197 911
Consumer — 1
Municipal and other — 11
Allowance for credit losses at end of period $ 43,949 $ 40,304
Ratio of allowance for credit loss to total loans 1.00 % 1.02 %
Ratio of net charge-offs to average loans 0.09 % 0.09 %
The allowance for credit losses by loan category as of the dates indicated was as follows:
As of December 31,
Real estate:
Commercial real estate:
Non-farm non-residential owner occupied $ 2,337 9.9 % $ 3,015 11.3 %
Securities
Our investment portfolio consists of state and municipal securities, mortgage-backed securities, agency collateralized mortgage obligations, U.S. treasury bonds, and corporate bonds classified as available for sale. The carrying value of such securities is adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Management assesses securities in its investment portfolio for impairment on a quarterly basis or when events or circumstances suggest that the carrying amount of an investment may be impaired. In accordance with ASC 326, available-for-sale securities are evaluated as of each reporting date when the fair value is less than amortized cost, and credit losses are to be calculated individually using a discounted cash flow method through which management compares the present value of the expected cash flows with the amortized costs. An allowance for credit losses is established to reflect the credit loss component of the decline in fair value.
Factors management considers in assessing whether a discounted cash flow method evaluation is needed for a security whose fair value is less than amortized costs include: (1) management will assess whether it intends to sell, or if it is more likely than not it will be required to sell, the security before recovery of the amortized cost basis; (2) the length of time (duration) and the extent (severity) to which the market value has been less than costs; (3) the financial condition and near-term prospects of the issuer,
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including any specific events which may influence the operations of the issuer, such as changes in technology that impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; and (4) changes in the rating of the security by a rating agency. Based on management's analysis, an allowance for credit losses for the security portfolio was not deemed to be needed as of December 31, 2025.
The following table summarizes the amortized cost and estimated fair value of our investment securities available-for-sale as of the dates shown:
As of December 31,
Investment securities available for sale:
As of December 31, 2025, the carrying amount of the available-for-sale security portfolio was $383.2 million, compared to $384.0 million as of December 31, 2024, a decrease of $833,000, or 0.2%. The decrease relates primarily to net purchases of $5.15 billion in agencies, municipal securities, mortgage-back securities and corporate bonds offset by maturities, calls and paydowns of $5.17 billion for the year ended December 31, 2025. Investment securities available-for-sale represented 7.2% and 7.8% of total assets as of December 31, 2025 and 2024, respectively.
The mortgage-backed securities held include agency collateralized mortgage obligations, Fannie Mae, Freddie Mac, and Ginnie Mae securities. We do not hold any preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A or second lien elements in our investment portfolio. As of December 31, 2025 and 2024, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.
The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. The contractual maturities of the mortgage-backed securities held range from 2026 to 2065 and are not a reliable indicator of the expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The terms of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of the security is typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of the security. Therefore, schedules of maturities for mortgage-backed securities have been excluded from this disclosure.
Securitization of Commercial Real Estate Loans
During April and June 2025, the Company completed two securitizations totaling $250 million of revolving commercial real estate loans secured by interests in 1-4 family residential dwellings located throughout the United States. In connection with the transactions, the Company purchased Class A-1 asset backed notes, Series 2025-1, for a total of $78 million on April 1, 2025; and Class A-1 asset backed notes, Series 2025-2 for a total of $127.5 million on June 3, 2025. The Company is not affiliated with the issuer of the notes. Further information regarding the securitization of commercial real estate loans is presented in Note 3—Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.
The Class A-1 Notes are classified as held-to-maturity investments. The following table summarizes the carrying values and approximate fair values of our investment securities held-to-maturity as of the dates shown:
As of December 31,
Investment securities held-to-maturity:
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The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at December 31, 2025, by contractual maturity, are shown below:
Securities Available-for-Sale Securities Held-to-Maturity
Due in one year or less $ — $ — $ — $ —
The weighted average life of our investment portfolio was 3.99 years and 4.79 years as of December 31, 2025 and 2024, respectively.
Deposits
Total deposits as of December 31, 2025 were $4.63 billion, an increase of $316.4 million, or 7.3%, compared to $4.31 billion as of December 31, 2024. The increase was primarily due to growth in our national wholesale deposits through our core, fiduciary and institutional deposit programs, continued growth in our primary market areas, and the increase in commercial lending relationships for which we also seek deposit balances.
Noninterest-bearing deposits as of December 31, 2025 were $495.0 million, a decrease of $107.1 million, or 17.8%, compared to $602.1 million as of December 31, 2024. Total interest-bearing account balances as of December 31, 2025 were $4.13 billion, an increase of $423.5 million, or 11.4%, from $3.71 billion as of December 31, 2024.
The components of deposits as of the dates shown below were as follows:
As of December 31,
(Dollars in thousands) Amount Percent Amount Percent
The following table sets forth the Company’s estimated uninsured time deposits by time remaining until maturity as of the dates indicated:
As of December 31,
(Dollars in thousands) 2025
Over three months through six months 128,310
Over six months through twelve months 145,233
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The estimated amount of uninsured deposits at December 31, 2025 was $1.32 billion.
The following table presents the average balances and average rates paid on deposits for the periods indicated:
Year Ended December 31,
(Dollars in thousands) AverageBalance AverageRate AverageBalance AverageRate
The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2025 and 2024 was 10.5% and 11.7%, respectively.
Borrowings
We have the ability to utilize advances from the FHLB and other borrowings to supplement deposits used to fund our lending and investment activities.
As of December 31,
FHLB borrowings $ — $ —
Federal Home Loan Bank (FHLB) Advances. The FHLB allows us to borrow on a blanket floating lien status collateralized by FHLB stocks and real estate loans. As of December 31, 2025 and 2024, total borrowing capacity available under this arrangement was $499.5 million and $623.7 million, respectively. The Company had no FHLB advances outstanding at December 31, 2025 and 2024. Our cost of FHLB advances was 4.41% for the year ended December 31, 2025 and 5.25% for the year ended December 31, 2024. In addition, letters of credit with the FHLB in the amount of $592.0 million and $535.8 million were outstanding at December 31, 2025 and 2024, respectively. The letters of credit are used to collateralize public fund deposit accounts in excess of FDIC insurance limits and have expirations ranging from January 2026 through January 2027 as of December 31, 2025.
Line of Credit - Senior Debt. The Company has a $55.0 million revolving line of credit facility which was modified effective March 12, 2024, whereby the facility was increased by $5.0 million and the note rate was decreased to The Wall Street Journal US Prime Rate, as such changes from time to time, less 0.625%, with a floor rate of 5.00% per annum. Interest is payable quarterly on the 10th day of March, June, September and December through maturity date of March 10, 2026. All principal and unpaid interest is due at maturity. The note is secured by 100% of the outstanding stock of the Bank and is senior in rights to the subordinated debt described below. Prior to the modification, the $50.0 million facility was due on September 10, 2024, and bore interest at The Wall Street Journal US Prime Rate, as such changes from time to time, plus 0.50%, with a floor rate of 5.00% per annum. At December 31, 2025 and 2024, the outstanding balance was $37.9 million and $30.9 million, respectively.
Note Payable - Subordinated Debt. On March 31, 2022, the Company issued and sold $82.3 million in aggregate principal amount of its 5.500% Fixed-to-Floating Rate Subordinated Notes due 2032. As of December 31, 2025, the outstanding balance was $81.0 million, net of $1.3 million in unamortized debt issuance costs. For additional information on our Note Payable - Subordinated Debt, see Note 7—FHLB Advances and Other Borrowings in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.
Our cost of notes payable was 6.13% and 6.55% for the years ended December 31, 2025 and 2024, respectively.
Federal Reserve Borrower-in-Custody (BIC) Loan Pledge Arrangement. In June 2023, the Federal Reserve Bank approved the Company to begin pledging, on a blanket floating lien status, its commercial and industrial loans under a Borrower-in-Custody arrangement. The arrangement provides the Company with the ability to secure collateralized contingency funding from the Discount Window of the Federal Reserve Bank of Dallas. As of December 31, 2025 and 2024, total borrowing capacity under this arrangement was $1.5 billion. There were no advances outstanding at December 31, 2025 and 2024.
Federal Funds Lines of Credit. At December 31, 2025 and 2024, the Company had federal funds lines of credit with commercial banks that provide for availability to borrow up to an aggregate of $36.5 million. The Company had no advances outstanding under these lines at December 31, 2025 and 2024.
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Liquidity and Capital Resources
Liquidity
Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.
For the year ended December 31, 2025 and 2024, liquidity needs were primarily met by core deposits, loan maturities, amortizing loan portfolios, brokered deposits, and borrowings.
At December 31, 2025, the Company had borrowing capacity available under FHLB advances of $499.5 million, line of credit - senior debt of $17.1 million, the Federal Reserve Bank of Dallas Discount Window of $1.5 billion, and federal funds lines of credit of $36.5 million. At December 31, 2024, the Company had borrowing capacity available under FHLB advances of $623.7 million, line of credit - senior debt of $24.1 million, the Federal Reserve Bank of Dallas Discount Window of $1.5 billion, and federal funds lines of credit of $36.5 million.
The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods indicated. Average assets were $4.98 billion for the year ended December 31, 2025 and $4.54 billion for the year ended December 31, 2024.
For the Year Ended December 31,
Sources of Funds:
Deposits:
Noninterest-bearing 9.0 % 10.1 %
FHLB advances 0.7 % 0.1 %
Notes payable 2.3 % 2.6 %
Other liabilities 1.1 % 1.3 %
Shareholders’ equity, including ESOP-owned shares 10.0 % 9.7 %
Uses of Funds:
Investment securities available-for-sale 8.0 % 6.3 %
Investment securities held-to-maturity 2.6 % 0.0 %
Federal funds sold and other interest-earning assets 3.2 % 6.9 %
Other noninterest-earning assets 4.2 % 4.3 %
Average noninterest-bearing deposits to average deposits 10.5 % 11.7 %
Average total loans to average deposits 96.4 % 96.6 %
Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.
As of December 31, 2025, we had $1.69 billion in outstanding commitments to extend credit and $97.0 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2024, we had $1.57 billion in outstanding commitments to extend credit and $14.0 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of December 31, 2025 and 2024, we had no exposure to future cash requirements associated with known uncertainties or capital expenditure of a material nature. As of December 31, 2025, we had cash and cash equivalents of $181.2 million, compared to $421.2 million as of December 31, 2024.
Capital Resources
Total shareholders’ equity increased to $531.0 million as of December 31, 2025, compared to $460.7 million as of December 31, 2024, an increase of $70.3 million, or 15.3%. This increase was primarily the result of the $66.3 million in net income and $6.4 million, net of tax, in other comprehensive income, offset by the $4.8 million of dividends declared on the Series A Preferred Stock.
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. We are required to comply with certain risk-based capital adequacy guidelines issued by the Federal Reserve and the FDIC.
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As of December 31, 2025 and 2024, the Bank was in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
The following table presents the regulatory capital ratios for the Company and Bank as of the dates indicated.
Actual December 31,
Third Coast Bancshares, Inc.
Tier 1 leverage capital (to average assets) 9.65% 9.12% 4.00% 4.00% N/A
Tier 1 capital (to risk weighted assets) 9.97% 9.90% 6.00% 8.50% N/A
Third Coast Bank
Use of Derivatives to Manage Interest Rate and Other Risks
In the ordinary course of business, we enter into derivative transactions to manage various risks and to accommodate the business requirements of our customers.
Cash Flow Hedges
On April 4, 2025, we entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $100 million which was scheduled to mature on April 4, 2030. The facility was discontinued on April 9, 2025, and a gain of $1.1 million was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, as a reduction of interest expense through maturity date of the contract.
On October 31, 2024, we entered into a ten year and four-month receive-fixed interest rate swap agreement with a notional amount of $100 million which was scheduled to mature on April 30, 2035. The facility was discontinued on March 4, 2025, and a gain of $456,000 was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, as a reduction of interest expense through maturity date of the contract.
On September 4, 2024, we entered into a five-year pay-fixed interest rate swap agreement which was scheduled to mature on September 4, 2029. The facility was discontinued on October 4, 2024, and a gain of $755,000 was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, into interest expense through the maturity date of the contract.
During December 2023, we entered into two five-year pay-fixed interest rate swap agreements with notional amounts of $100 million each. The facilities, which were scheduled to mature on December 6, 2028 and December 21, 2028, were discontinued on April 10, 2024, and a combined gain of $5.4 million was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, into interest expense through the maturity date of the contracts.
During March 2023, we entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $200 million. The facility, which was scheduled to mature on March 31, 2028, was discontinued on May 26, 2023, and a gain of $5.0 million was recognized by the Company. The gain is being accreted from other comprehensive income (loss), net of deferred taxes, into interest expense through the maturity date of the contract.
For the years ended December 31, 2025 and 2024, approximately $2.5 million and $2.3 million, respectively, was reclassified out of accumulated other comprehensive income and recognized as a reduction of interest expense on discontinued hedges.
Fair Value Hedges
We also offer certain interest rate swap products directly to our qualified commercial banking customers. These financial instruments are not designated as hedging instruments. The interest rate swap derivative positions relate to transactions in which we enter into an interest rate swap with a customer, while at the same time entering into an offsetting interest rate swap with another financial institution. An interest rate swap transaction allows customers to effectively convert a variable rate loan to a fixed rate. In connection with each swap, we agree to pay interest on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.
Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and would not significantly impact our operating results except in certain situations where there is a significant
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deterioration in the customer’s credit worthiness or that of the counterparties. At December 31, 2025, no such deterioration was determined by management.
We also offer one-way interest rate swap products to our customers. Under this type of arrangement, we extend a conventional fixed-rate loan to the borrower and then subsequently hedge the interest rate risk of that loan by entering into a swap for our own balance sheet to convert the fixed-rate loan to a synthetic floating rate asset. These types of swaps lock in our spread over our cost of funds for the life of the loan.
For some of our loan participation facilities, we enter into Risk Participation Agreements with other banks in order to hedge or share a portion of the risk of borrower default related to the interest rate swap on a participated loan.
All derivatives are carried at fair value in either other assets or other liabilities in the accompanying consolidated balance sheets. At December 31, 2025, the Company's derivative assets and liabilities totaled $2.5 million and $3.1 million, respectively.
For additional information regarding derivatives, see Note 17—Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.
Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a decrease in current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the Bank's ALCO, in accordance with policies approved by the Bank’s board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.
We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. The average life of our non-maturity deposit accounts are updated annually and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
On a monthly basis, we run simulation models including a static balance sheet. The models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rate changes over a 12-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. In addition to the monthly reports, we also run various scenarios based on market trends and management analysis needs. These special reports include stress test reports, reports to test the deposit decay rates and growth reports based on budget. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 25.0% for a 200 basis point shift and 35.0% for a 300 basis point shift.
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The following tables summarize the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
As of December 31,
Base — — — —
The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis.
Critical Accounting Policies
Our financial reporting and accounting policies conform to GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in Note 1—Nature of Operations and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included elsewhere in this Form 10-K. We believe that of our accounting policies, the following may involve a higher degree of judgment and complexity:
Allowance for Credit Losses. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The provision for credit losses related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated current expected credit losses in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations.
Transfers of Financial Assets. Management accounts for the transfers of financial assets as sales when control over the assets has been surrendered. Control is surrendered when the assets have been isolated, a transferee obtains the right to pledge or exchange the transferred assets and there is no agreement to repurchase the assets before their maturity. Management believes the loan participations sold subject to this guidance met the condition to be treated as a sale.
Goodwill and Core Deposit Intangibles. Goodwill represents the excess of cost over fair value of net assets acquired in a business combination. Goodwill is not amortized and is evaluated for impairment at least annually and on an interim basis if an event triggering impairment may have occurred.
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Core deposit intangibles are acquired customer relationships arising from bank acquisitions and are amortized on a straight-line basis over their estimated useful life. Core deposit intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount of assets may not be recoverable from future undiscounted cash flows.
Emerging Growth Company
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act. As an emerging growth company, the Company has taken advantage of reduced reporting and other requirements that are otherwise generally applicable to public companies. Emerging growth companies are:
•
exempt from the requirement to obtain an attestation and report from the Company’s auditors on management’s assessment of internal control over financial reporting under the Sarbanes-Oxley Act of 2002;
•
permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the Financial Accounting Standards Board or by the SEC;
•
permitted to provide less extensive disclosure about the Company’s executive compensation arrangements; and
•
not required to give shareholders nonbinding advisory votes on executive compensation or golden parachute arrangements.
The Company will lose its emerging growth company status upon the earliest of : (i) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues; (ii) the date on which the Company becomes a “large accelerated filer” (the fiscal year end on which the total market value of the Company's common equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which the Company issues more than $1.0 billion of non-convertible debt over a three-year period; or (iv) December 31, 2026, which is the end of the fiscal year in which the fifth anniversary of the Company's initial public offering occurs.
Recently Issued Accounting Pronouncements
See “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Nature of Operations and Summary of Significant Accounting Policies.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Sensitivity and Market Risk” for a discussion of how the Company manages market risk.
Item 8. Financial Statements and Supplementary Data.
The Company's financial statements and accompanying notes are included in Part IV—Item 15. Exhibits and Financial Statement Schedules.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Company’s Chairman, President and Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule l3a-l5(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2025. Based on this evaluation, the Company’s Chairman, President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2025.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified during the quarter ended December 31, 2025 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Report on Management's Assessment of Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control system is a process designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with
GAAP. All internal control systems, no matter how well designed, have inherent limitations and can only provide reasonable assurance with respect to financial reporting.
As of December 31, 2025, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission in 2013. This assessment included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to meet the reporting requirements of Section 112 of the FDICIA. Management’s assessment determined that the Company maintained effective internal control over financial reporting as of December 31, 2025.
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for an emerging growth company.
Item 9B. Other Information.
During the three months ended December 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to our Definitive Proxy Statement for the 2026 Annual Meeting of Shareholders to be filed with the SEC within 120 days after our fiscal year end (the “Proxy Statement”).
In accordance with Item 406 of Regulation S-K, we have adopted a code of business conduct and ethics that applies to Company executives, directors and employees. The code of business conduct and ethics is posted on our website at www.thirdcoast.bankunder “Investors.” Within the time period required by the SEC, we will post on our website any amendment to the code of ethics and any waiver applicable to our principal executive officer, principal financial officer, and principal accounting officer or controller.
We have adopted insider trading policies and procedures governing the purchase, sale and other dispositions of our securities
by our directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and
regulations, and applicable listing standards of the New York Stock Exchange. Our Insider Trading Policy is filed as Exhibit 19.1 to
this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after our fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after our fiscal year end.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after our fiscal year end.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days after our fiscal year end.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
All supplemental schedules to the consolidated financial statements have been omitted as inapplicable or because the required information is included in the Company’s consolidated financial statements or the notes thereto included in this Annual Report on Form 10-K.
Exhibit Index
ExhibitNumber Description
4.2* Description of Registrant's Securities.
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69
19.1* Third Coast Bancshares, Inc. Insider Trading Policy.
21.1* Subsidiaries of Third Coast Bancshares, Inc.
23.1* Consent of Whitley Penn LLP.
24.1* Powers of attorney (included on signature page).
97.1* Third Coast Bancshares, Inc. Compensation Recovery Policy.
101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
* Filed herewith.
** These exhibits are furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
† Indicates a management contract or compensatory plan.
# Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Third Coast Bancshares, Inc.
Date: March 4, 2026 By: /s/ Bart O. Caraway
Bart O. Caraway
Chairman, President and Chief Executive Officer
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POWER OF ATTORNEY
Each person whose signature appears below appoints Bart O. Caraway and R. John McWhorter, and each of them, any of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date
Bart O. Caraway (Principal Executive Officer)
/s/ R. John McWhorter Chief Financial Officer March 4, 2026
R. John McWhorter (Principal Financial and Accounting Officer)
/s/ Carolyn Bailey Director March 4, 2026
Carolyn Bailey
/s/ Martin Basaldua Director March 4, 2026
Martin Basaldua
/s/ Dennis Bonnen Director March 4, 2026
Dennis Bonnen
/s/ Greg Bonnen Director March 4, 2026
Greg Bonnen
/s/ W. Donald Brunson Director March 4, 2026
W. Donald Brunson
/s/ Lynn Chang Eisenhart Director March 4, 2026
Lynn Chang Eisenhart
/s/ Troy A. Glander Director March 4, 2026
Troy A. Glander
/s/ Clint Greenleaf Director March 4, 2026
Clint Greenleaf
/s/ Shelton J. McDonald Director March 4, 2026
Shelton J. McDonald
/s/David Phelps Director March 4, 2026
David Phelps
/s/ Tony Scavuzzo Director March 4, 2026
Tony Scavuzzo
/s/ Mary Brennan Stich Director March 4, 2026
Mary Brennan Stich
/s/ Joseph L. Stunja Director March 4, 2026
Joseph L. Stunja
/s/ Reagan Swinbank Director March 4, 2026
Reagan Swinbank
/s/ Jeffrey A. Wilkinson Director March 4, 2026
Jeffrey A. Wilkinson
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 726) F-2
Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 F-3
Notes to Consolidated Financial Statements F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Third Coast Bancshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Third Coast Bancshares, Inc. (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Whitley Penn LLP
We have served as the Company’s auditor since 2009.
Plano, Texas
March 4, 2026
F-2
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
(Dollars in thousands, except share and per share data) 2025 2024
ASSETS
Cash and cash equivalents:
Interest-bearing time deposits in other banks 267 356
Investment securities held-to-maturity 192,008 —
Non-marketable equity securities, at cost 16,424 15,980
Right-of-use asset - operating leases 17,066 19,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Note payable - Subordinated Debentures, net 80,965 80,759
Commitments and contingent liabilities - See Notes 10 and 19
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized
Accumulated other comprehensive income 10,920 4,508
The accompanying notes are an integral part of these consolidated financial statements.
F-3
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended December 31,
(Dollars in thousands, except share and per share data) 2025 2024 2023
Interest income:
Investment securities held-to-maturity 7,170 — —
Interest expense:
Noninterest income:
(Loss) gain on sale of investment securities available-for-sale (610 ) (4 ) 482
Gain on sales of SBA loans 74 30 440
Noninterest expense:
Loan operations and other real estate owned expense 1,134 904 673
Earnings per common share:
Diluted earnings per share $ 3.79 $ 2.78 $ 1.98
The accompanying notes are an integral part of these consolidated financial statements.
F-4
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended December 31,
Other comprehensive income:
Unrealized gain on securities:
Unrealized holding gain arising during the period 7,034 1,928 2,529
Other comprehensive income on securities, net of tax 6,039 1,526 1,617
Unrealized gain on derivatives:
Unrealized holding gain (loss) arising during the period 2,161 (620 ) (1,541 )
Gain on termination of derivative instruments 1,506 6,167 5,007
Other comprehensive income on derivatives, net of tax 373 2,049 1,419
The accompanying notes are an integral part of these consolidated financial statements.
F-5
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Additional Other
Preferred Stock Common Stock Paid in Retained Comprehensive Treasury
Share-based compensation — — — — 1,628 — — — 1,628
Warrants exercised — — 4 — 43 — — — 47
Stock options exercised — — 1 — (1 ) — — — —
Restricted stock grants — — 81 — (81 ) — — — —
Other comprehensive income, net of tax — — — — — — 3,036 — 3,036
Share-based compensation — — — — 1,699 — — — 1,699
Stock options exercised — — 117 — 539 — — — 656
Restricted stock grants — — 50 — (50 ) — — — —
Other comprehensive income, net of tax — — — — — — 3,575 — 3,575
Share-based compensation — — — — 1,608 — — — 1,608
Stock options exercised — — 75 — 704 — — — 779
Restricted stock grants — — 57 — (57 ) — — — —
Other comprehensive income, net of tax — — — — — — 6,412 — 6,412
The accompanying notes are an integral part of these consolidated financial statements.
F-6
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
Cash flows from operating activities:
Loss (gain) on sale of investment securities available-for-sale 610 4 (482 )
Gain on sale of SBA loans (74 ) (30 ) (440 )
(Write-up) write-down of other real estate owned (219 ) 57 —
Write-down of fixed assets 9 — —
Accretion of discount on securities, net (2,358 ) (1,229 ) (409 )
Accretion of gain on terminated cash flow hedges (3,193 ) (2,954 ) (1,670 )
Accretion of SBA Paycheck Protection Program fees — — (23 )
Amortization of subordinated debt origination costs 206 206 205
Earnings on bank-owned life insurance (3,017 ) (2,480 ) (2,101 )
Net change in operating leases 27 196 504
Net change in derivative assets and liabilities 579 (298 ) 310
Changes in operating assets and liabilities:
Accrued interest receivable and other assets (20,653 ) (7,647 ) (4,388 )
Accrued interest payable and other liabilities 12,355 504 9,576
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits in other banks 89 (356 ) —
Net (purchase) sale of non-marketable equity securities (444 ) 61 (1,423 )
Investment securities available-for-sale activity:
Purchases of investment securities held-to-maturity (192,074 ) — —
Proceeds from termination of derivative instruments 1,506 6,167 5,007
Net additions to bank premises and equipment (2,681 ) (1,766 ) (3,437 )
Proceeds from sales of foreclosed assets 655 — —
Purchase of bank owned life insurance (4,999 ) — (3,000 )
Cash flows from financing activities:
Registration costs for securities issued in private placement — (65 ) —
Proceeds from stock warrants exercised — — 47
Proceeds from stock options exercised 779 656 —
Dividends paid on Series A preferred stock (4,750 ) (4,749 ) (4,736 )
The accompanying notes are an integral part of these consolidated financial statements.
F-7
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
Supplemental Disclosures of Cash Flow Information:
Cash paid for state income taxes, net of refunds $ 821 $ 597 $ —
Supplemental Disclosure of Noncash Investing and Financing Activities:
Loans transferred to other real estate owned, net $ 7,962 $ 919 $ —
The accompanying notes are an integral part of these consolidated financial statements.
F-8
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
1.
Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Third Coast Bancshares, Inc. (“Bancshares”), through its subsidiary, Third Coast Bank, a Texas banking association (the “Bank”), and the Bank’s subsidiary, Third Coast Commercial Capital, Inc. (“TCCC”), (collectively known as the “Company,” “we,” “us” or “our”), provide general consumer and commercial banking services through 19 branch offices located in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets. Branch locations include: Humble, Kingwood, The Woodlands, Houston-Memorial City, Beaumont, Port Arthur-Mid County, Houston-Galleria, Conroe, Pearland, Lake Jackson, Dallas, Fort Worth, Plano, Detroit, La Vernia, Nixon, Austin, Georgetown and San Antonio. The Bank is engaged in traditional community banking activities, which include commercial and retail lending, deposit gathering, and investment and liquidity management activities. The Bank’s primary deposit products are demand deposits, money market accounts and certificates of deposit; its primary lending products are commercial business and real estate, residential construction, real estate mortgage and consumer loans. TCCC engages in accounts receivable factoring activities. The Company is subject to the regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), reporting practices prescribed by the banking industry, and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments that were recurring in nature and considered necessary have been included for fair presentation of the Company’s financial position and results of operations.
The accompanying consolidated financial statements include the accounts of Bancshares, the Bank, and TCCC. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and of the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are included in the financial statements include the allowance for credit losses, the valuation of goodwill and other intangible assets and the fair value of financial instruments.
Cash and Cash Equivalents
Cash and cash equivalents include cash, deposits with other financial institutions that have initial maturities of less than 90 days when acquired by the Company and federal funds sold.
Interest Bearing Time Deposits in Other Banks
Interest bearing time deposits in other banks are carried at cost and generally mature between 90 days to one year from purchase date.
Investment Securities Available-For-Sale
Investment securities available-for-sale consist of bonds, notes, and debentures that are not classified as trading securities or held-to-maturity securities. Investment securities available-for-sale are held for indefinite periods of time and carried at fair value, with the unrealized holding gains and losses reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of investment securities at the time of purchase.
Investment Securities Held-to-Maturity
Held-to-maturity securities consist of Class A-1 asset-backed notes and represent securities for which we have the positive intent and ability to hold until maturity. They are reported at cost, adjusted for amortization of premiums and accretion of discounts on the consolidated balance sheets.
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned income and an allowance for credit losses (“ACL”). Interest on loans is recognized using the effective interest method and includes amortization of deferred loan origination fees and costs over the life of the loans.
The accrual of interest on loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all
F-9
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
previously accrued and unpaid interest is reversed. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. A loan is placed back on accrual status when both principal and interest are current, and it is probable that the Company will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.
From time to time, the Company modifies its loan agreement with a borrower. The loan refinancing and restructuring guidance is considered for each loan modified to determine whether a modification results in a new loan or a continuation of an existing loan. In some cases, the loan may be considered restructured if the borrower is experiencing financial difficulties and the loan has been modified. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things.
The Company has certain lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing, and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.
Real estate loans are also subject to underwriting standards and processes similar to commercial and agricultural loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location primarily throughout the Greater Houston, Dallas, and Austin-San Antonio metropolitan areas. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry. Generally, real estate loans are owner occupied which further reduces the Company’s risk.
Agricultural loans are subject to underwriting standards and processes similar to commercial loans. Agricultural loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most agricultural loans are secured by the agriculture related assets being financed, such as farmland, cattle, or equipment, and include personal guarantees.
The Company utilizes methodical credit standards and analysis to supplement its policies and procedures in underwriting consumer loans. The Company’s loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes the Company’s risk.
Allowance for Credit Losses
As further discussed below, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2023. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaced the previous “incurred loss” model for measuring credit losses, which encompassed allowances for current known and inherent losses within the portfolio, with an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The new current expected credit loss (“CECL”) model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.
Allowance For Credit Losses - Available-for-Sale Securities: For available-for-sale securities in an unrealized loss position, we first assess whether (i) we intend to sell or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists,
F-10
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our statement of income as a component of provision for credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. Further information regarding our policies and methodology used to estimate the allowance for credit losses on available-for-sale securities is presented in Note 2 – Investment Securities Available-for-Sale.
Allowance for Credit Losses - Held-to-Maturity Securities: The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management’s best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Since all the held-to-maturity securities are non-rated asset-backed securities in which the Bank's loans are the underlying collateral, management considers the financial condition of those underlying loans and whether they continue to make timely payments under the contractual terms of the loan agreements. Further information regarding these loan sales and asset-backed securities purchased is presented in Note 2 - Investment Securities, and Note 3 - Loans and Allowance for Credit Losses. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses.
Allowance for Credit Losses - Loans: The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present management's best estimate of the net amount expected to be collected. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our statement of income as a component of provision for credit loss expense. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Further information regarding our policies and methodology used to estimate the allowance for credit losses on loans is presented in Note 3 – Loans and Allowance for Credit Losses.
Allowance For Credit Losses - Off-Balance Sheet Credit Exposures: The allowance for credit losses on off-balance sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our consolidated statements of income as a component of provision for credit loss expense. Further information regarding our policies and methodology used to estimate the allowance for credit losses on off-balance sheet credit exposures is presented in Note 10 – Financial Instruments with Off-Balance Sheet Risk.
Servicing Assets
Certain Small Business Administration (“SBA”) loans are originated and intended for sale in the secondary market. They are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Gains or losses recognized upon the sale of loans are determined on a specific identification basis and are included in non-interest income. SBA loan transfers are accounted for as sales when control over the loan has been surrendered. Control over such loans is deemed to be surrendered when (i) the assets have been isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
The Company applies guidance issued by the Financial Accounting Standards Board (the "FASB") that clarifies the accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities, in which, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. To calculate the gain or loss on sale of loans, the Company’s investment in the loan is allocated among the retained portion of the loan, the servicing retained, the interest-only strip and the sold portion of the loan, based on the relative fair value of each portion. The gain or loss on the sold portion of the loan is recognized
F-11
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
based on the difference between the sale proceeds and the allocated investment. As a result of the relative fair value allocation, the carrying value of the retained portion is discounted, with the discount accreted to interest income over the life of the loan.
Servicing assets are amortized over an estimated life using a method that is in proportion to the estimated future servicing income. In the event future prepayments exceed management’s estimates and future cash flows are inadequate to cover the servicing asset, additional amortization would be recognized. The portion of servicing fees in excess of the contracted servicing fees is reflected as interest-only strips receivable, which are classified as available for sale and are carried at fair value. At December 31, 2025 and 2024, the Company was servicing loans previously sold of approximately $13.4 million and $17.2 million, respectively. The related servicing assets receivable were not material to the consolidated financial statements at December 31, 2025 and 2024.
Premises and Equipment
Buildings, leasehold improvements, furniture and fixtures, automobiles and equipment are carried at cost, less accumulated depreciation, computed principally by the straight-line method based on the estimated useful lives of the related asset. Land is not depreciated. Major replacements and betterments are capitalized while maintenance and repairs are charged to expense when incurred. Gains or losses on dispositions are reflected in income as incurred. A small portion of building's floor space is currently leased out to tenants and recognized in income when earned.
Operating Leases
The Company leases certain office space, stand-alone buildings and equipment which are recognized as operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets. Lease liabilities represent the Company's liability to make lease payments under these leases on a discounted basis and are amortized on a straight-line basis over the lease term for each related lease agreement. Right-of-use assets represent the Company's right to use, or control the use of, leased assets for their lease term and are amortized over the lease term of the related lease agreement. The Company does not recognize short-term operating leases on the consolidated balance sheets. A short-term lease has a term of 12 months or less and does not have a purchase option that is likely to be exercised.
Other Real Estate Owned
Other real estate owned (“OREO") represents properties acquired through or in lieu of loan foreclosure and are initially recorded at fair value less estimated costs to sell. OREO properties are reflected in other assets on the accompanying consolidated balance sheets. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for credit losses. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent adjustments to the value are expensed. Operating and holding expenses of such properties, net of related income, are included in loan operations and other real estate owned expense on the accompanying consolidated statements of income. Gains or losses on dispositions are reflected in income as incurred.
Bank-Owned Life Insurance