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
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,
(Dollars in thousands)
Increase
(Decrease)
Increase
(Decrease)
Interest income
Interest expense
Net interest income
Provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
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.
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,
(Dollars in thousands)
Average
Outstanding
Balance
Interest
Earned/
Paid (3)
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Earned/
Paid (3)
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Earned/
Paid (3)
Average
Yield/
Rate
Assets
Interest-earnings assets:
Loans, gross
Investment securities available-for-sale
Investment securities held-to-maturity
Federal funds sold and other interest-
earning assets
Total interest-earning assets
Less allowance for credit losses
Total interest-earning assets, net of
allowance
Noninterest-earning assets
Total assets
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits
Notes payable
FHLB advances
Total interest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Total liabilities
Shareholders’ equity, including ESOP
owned shares
Total liabilities and shareholders’ equity
Net interest income
Net interest spread (1)
Net interest margin (2)
Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
Net interest margin is equal to net interest income divided by average interest-earning assets.
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.
For the Year Ended
December 31, 2025 compared to 2024
For the Year Ended
December 31, 2024 compared to 2023
Increase (Decrease)
Due to Changes In
Total
Increase
Increase (Decrease)
Due to Changes In
Total
Increase
(Dollars in thousands)
Volume
Rate
(Decrease)
Volume
Rate
(Decrease)
Interest-earning assets:
Loans, gross
Investment securities available-for-sale
Investment securities held-to-maturity
Federal funds sold and other interest-earning assets
Total increase (decrease) in interest income
Interest-bearing liabilities:
Interest-bearing deposits
Notes payable
FHLB advances
Total increase (decrease) in interest expense
Increase in net interest income
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,
(Dollars in thousands)
Increase (Decrease)
Increase (Decrease)
Noninterest Income:
Service charges and fees
Earnings on bank-owned life insurance
(Loss) gain on sale of investment securities available-for-sale
Gain on sale of SBA loans
Other
Total 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.
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,
(Dollars in thousands)
Increase
(Decrease)
Increase
(Decrease)
Noninterest Expense:
Salaries and employee benefits
Net occupancy and equipment expenses
Other:
Legal and professional fees
Data processing and network expenses
Regulatory assessments
Advertising and marketing expenses
Software purchases and maintenance
Loan operations and other real estate owned expense
Telephone and communications
Other expenses
Total noninterest expense
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,
(Dollars in thousands)
Income tax expense
Effective tax rate
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
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:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Farmland
Commercial and industrial
Consumer
Municipal and other
Total loans
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:
As of December 31, 2025
(Dollars in thousands)
Amount
Average Loan Size
Percentage of Total
Commercial real estate loans by category:
Warehouse/Industrial
Retail
Office
Mini Warehouse/Self Storage
Medical Office
Restaurant / Bar
Sports/Entertainment
Convenience Store/Gas Station
Healthcare Other
Hotel/Motel
Other
Total commercial real estate loans
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:
As of December 31, 2025
(Dollars in thousands)
One Year
or Less
One Through
Five Years
Five Years Through Fifteen Years
After Fifteen Years
Total
Real estate:
Commercial real estate:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Farmland
Commercial and industrial
Consumer
Municipal and other
Total loans
Amounts with fixed rates
Amounts with floating rates
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.
The following table presents information regarding nonperforming assets at the dates indicated:
As of December 31,
(Dollars in thousands)
Nonaccrual loans (1)
Loans > 90 days and still accruing
Total nonperforming loans
Other real estate owned and repossessed assets
Total nonperforming assets
Ratio of nonaccrual loans to total loans
Ratio of nonperforming loans to total loans
Ratio of nonperforming loans to total assets
Ratio of nonperforming assets to total assets
Ratio of nonperforming loans to total loans plus OREO
Ratio of allowance for credit losses to nonaccrual loans
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,
(Dollars in thousands)
Nonaccrual loans by category:
Real estate:
Commercial real estate
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Commercial and industrial
Total nonaccrual loans
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:
As of December 31, 2025
(Dollars in thousands)
Pass
Special
Mention
Substandard
Doubtful
Total
Real estate:
Commercial real estate:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Farmland
Commercial and industrial
Consumer
Municipal and other
Gross loans
As of December 31, 2024
(Dollars in thousands)
Pass
Special
Mention
Substandard
Doubtful
Total
Real estate:
Commercial real estate:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Farmland
Commercial and industrial
Consumer
Municipal and other
Gross loans
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.
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,
(Dollars in thousands)
Allowance for credit loss at beginning of period
Provision for credit loss on loans
Charge-offs:
Real estate:
Commercial real estate:
Non-farm non-residential non-owner occupied
Commercial and industrial
Consumer
Municipal and other
Total charge-offs
Recoveries:
Commercial real estate:
Commercial real estate:
Non-farm non-residential
non-owner occupied
Commercial and industrial
Consumer
Municipal and other
Total recoveries
Net charge-offs
Allowance for credit losses at end of period
Ratio of allowance for credit loss to total loans
Ratio of net charge-offs to average loans
The allowance for credit losses by loan category as of the dates indicated was as follows:
As of December 31,
(Dollars in thousands)
Amount
% Loans in Each Category
Amount
% Loans in Each Category
Real estate:
Commercial real estate:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development and other
Farmland
Commercial and industrial
Consumer
Municipal and other
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,
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,
(Dollars in thousands)
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Investment securities available for sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage
obligations
Corporate bonds
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,
(Dollars in thousands)
Carrying Value
Estimated
Fair Value
Carrying Value
Estimated
Fair Value
Investment securities held-to-maturity:
Asset-backed securities
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:
As of December 31, 2025
Securities Available-for-Sale
Securities Held-to-Maturity
(Dollars in thousands)
Amortized Cost
Estimated Fair Value
Amortized Cost
Estimated Fair Value
Due in one year or less
Due from one year to five years
Due from five years to ten years
Over ten years
Mortgage-backed securities and collateralized mortgage obligations
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
Noninterest-bearing demand deposits
Interest-bearing deposits
Savings
Time deposits
Total deposits
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)
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
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)
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Noninterest-bearing deposits
Interest-bearing demand deposits
Savings
Time deposits
Total interest-bearing deposits
Total deposits
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,
(Dollars in thousands)
FHLB borrowings
Line of Credit - Senior Debt
Note Payable - Subordinated Debt
Total 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 10 th 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.
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
Interest-bearing
FHLB advances
Notes payable
Other liabilities
Shareholders’ equity, including ESOP-owned shares
Total
Uses of Funds:
Loans, net
Investment securities available-for-sale
Investment securities held-to-maturity
Federal funds sold and other interest-earning assets
Other noninterest-earning assets
Total
Average noninterest-bearing deposits to average deposits
Average total loans to average deposits
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.
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,
Minimum Capital Requirement
Minimum Capital Requirement with Capital Buffer
Minimum To Be Well Capitalized
Third Coast Bancshares, Inc.
Tier 1 leverage capital (to average assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Total capital (to risk weighted assets)
Third Coast Bank
Tier 1 leverage capital (to average assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Total capital (to risk weighted assets)
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
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.
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,
Change in Interest Rates
(Basis Points)
Percent Change in Net Interest Income
Percent Change in Fair Value of Equity
Percent Change in Net Interest Income
Percent Change in Fair Value of Equity
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.
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.”
Ite m 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.
Ite m 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.
It em 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
I tem 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.
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.
It em 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.
It em 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
It em 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.bank under “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.
It em 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.
It em 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.
It em 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.
Ite m 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.
PART IV
It em 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.
E xhibit Index
Exhibit
Number
Description
Agreement and Plan of Reorganization, dated as of October 22, 2025, by and among Third Coast Bancshares, Inc., Arch Merger Sub, Inc., and Keystone Bancshares, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2025). #
First Amended and Restated Certificate of Formation of Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form S-1 filed with the SEC on October 15, 2021).
First Amended and Restated Bylaws of Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Certificate of Designation, Preferences and Rights of Series A Convertible Non-Cumulative Preferred Stock of Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2022).
Certificate of Designation, Preferences and Rights of Series B Convertible Perpetual Preferred Stock of Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2022).
Certificate of Amendment to Certificate of Formation of Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on May 26, 2023).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Description of Registrant's Securities.
Indenture, dated as of March 31, 2022, by and between Third Coast Bancshares, Inc. and UMB Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2022).
Form of 5.500% Fixed-to-Floating Rate Subordinated Note due 2032 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2022).
Form of Warrant Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2022).
Third Coast Bancshares, Inc. 2013 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Third Coast Bancshares, Inc. 2017 Director Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Third Coast Bancshares, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Indemnification Agreement between Third Coast Bancshares, Inc. and its directors and certain officers (incorporated by reference to Exhibit 10.4 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Loan Agreement, dated March 10, 2021, by and between American National Bank & Trust and Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 10.5 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Subordinated Note Purchase Agreement, by and among Third Coast Bancshares, Inc. and the several purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2022).#
Form of Registration Rights Agreement, by and among Third Coast Bancshares, Inc. and the several purchasers thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2022).
Lease of 229 Dowlen Road, as amended (incorporated by reference to Exhibit 10.8 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Confidential Separation Agreement and General Release, dated June 30, 2022, by and between Third Coast Bancshares, Inc., Third Coast Bank, SSB, and Donald Legato (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2022).
Employment Agreement between Third Coast Bank, SSB and John McWhorter (incorporated by reference to Exhibit 10.11 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Employment Agreement between Third Coast Bancshares, Inc., Third Coast Bank, SSB and Bart Caraway (incorporated by reference to Exhibit 10.12 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Employment Agreement between Third Coast Bank, SSB and Audrey Duncan (incorporated by reference to Exhibit 10.13 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Salary Continuation Agreement between Third Coast Bank, SSB and John McWhorter (incorporated by reference to Exhibit 10.15 to the Company's Form S-1 filed with the SEC on October 15, 2021 ).
Salary Continuation Agreement between Third Coast Bank, SSB and Bart Caraway (incorporated by reference to Exhibit 10.16 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Salary Continuation Agreement between Third Coast Bank, SSB and Audrey Duncan (incorporated by reference to Exhibit 10.17 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Separation Agreement between Heritage Bank and Dennis Bonnen (incorporated by reference to Exhibit 10.18 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Stock Option Agreement under the Third Coast Bancshares, Inc. 2017 Director Stock Option Plan (incorporated by reference to Exhibit 10.20 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Stock Option Award Grant Notice and Stock Option Award Agreement under the Third Coast Bancshares, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.21 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Notice of Grant of Restricted Stock and Restricted Stock Award Agreement for Non-Employee Directors under the Third Coast Bancshares, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.22 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Notice of Grant of Restricted Stock and Restricted Stock Award Agreement for Officers under the Third Coast Bancshares, Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.23 to the Company's Form S-1 filed with the SEC on October 15, 2021).
Form of Investment Agreement, dated September 8, 2022, by and among Third Coast Bancshares, Inc. and the several purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2022).#
Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2022).
Form of Voting Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2022).
Form of Letter Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2022).
Renewal, Extension and Modification of Loan, effective September 10, 2022, by and among Third Coast Bancshares, Inc. and American National Bank & Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 14, 2022).
Form of Letter Agreement, dated September 30, 2022, by and among Third Coast Bancshares, Inc. and the several purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2022).
Consulting Agreement, dated as of January 1, 2023, by and between Third Coast Bancshares, Inc. and Dennis Bonnen (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K filed with the SEC on March 15, 2023).
Employment Agreement, dated as of April 20, 2023, by and between Bill Bobbora and Third Coast Bank, SSB (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 8, 2023).
Salary Continuation Agreement, dated as of April 20, 2023, by and between Third Coast Bank, SSB and Bill Bobbora (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 8, 2023).
Amendment to Employment Agreement, dated as of March 15, 2024, by and between Third Coast Bank and R. John McWhorter (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 15, 2024).
Renewal, Extension and Modification of Loan, effective March 12, 2024, by and among Third Coast Bancshares, Inc. and American National Bank & Trust (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on April 24, 2024).
Change of Control Bonus Agreement, dated as of December 2, 2024, by and between Third Coast Bank and Liz Eber (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K filed with the SEC on March 5, 2025).
Separation Agreement and Release, dated December 1, 2025, between Third Coast Bank and Vicki Alexander (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on December 5, 2025).
Form of Keystone Voting Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2025).
Form of Keystone Director Support Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2025).
Employment Agreement, dated as of October 22, 2025, by and between Jeff Wilkinson, Third Coast Bank, Keystone Bank, SSB, and Third Coast Bancshares, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026).
First Amendment to Salary Continuation Agreement, dated as of May 4, 2025, by and between Third Coast Bank and Bart Caraway (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2025).
First Amendment to Salary Continuation Agreement, dated as of May 4, 2025, by and between Third Coast Bank and John McWhorter (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2025).
Amended and Restated Change of Control Bonus Agreement, dated as of May 4, 2025, by and between Third Coast Bank and Liz Eber (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2025).
Salary Continuation Agreement, dated as of May 5, 2025, by and between Third Coast Bank and Liz Eber (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2025).
Salary Continuation Agreement, dated as of May 5, 2025, by and between Third Coast Bank and Vicki Alexander (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2025).
Third Coast Bancshares, Inc. Insider Trading Policy.
Subsidiaries of Third Coast Bancshares, Inc.
Consent of Whitley Penn LLP.
Powers of attorney (included on signature page).
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Third Coast Bancshares, Inc. Compensation Recovery Policy.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.
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.
SIG NATURES
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
/s/ Bart O. Caraway
Bart O. Caraway
Chairman, President and Chief Executive Officer
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
/s/ Bart O. Caraway
Chairman, President and Chief Executive Officer
March 4, 2026
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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 726 )
Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024
Consolidated Statements of Income for the Years Ended December 31, 2025, December 31, 2024 and December 31, 2023
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, December 31, 2024 and December 31, 2023
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2025, December 31, 2024 and December 31, 2023
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, December 31, 2024 and December 31, 2023
Notes to Consolidated Financial Statements
Report of Independent Regist ered 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
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
(Dollars in thousands, except share and per share data)
ASSETS
Cash and cash equivalents:
Cash and due from banks
Federal funds sold
Total cash and cash equivalents
Interest-bearing time deposits in other banks
Investment securities available-for-sale
Investment securities held-to-maturity
Loans, net of allowance for credit losses of $ 43,949 and $ 40,304 at December 31, 2025 and 2024, respectively
Accrued interest receivable
Premises and equipment, net
Other real estate owned
Bank-owned life insurance
Non-marketable equity securities, at cost
Deferred tax asset, net
Derivative assets
Right-of-use asset - operating leases
Goodwill and other intangible assets
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Accrued interest payable
Derivative liabilities
Lease liability - operating leases
Other liabilities
Line of credit - Senior Debt
Note payable - Subordinated Debentures, net
Total liabilities
Commitments and contingent liabilities - See Notes 10 and 19
Shareholders' equity:
Preferred stock, $ 1 par value; 1,000,000 shares authorized
Series A Convertible Non-Cumulative Preferred Stock, $ 1 par value; 69,400 shares authorized and outstanding at December 31, 2025 and 2024, respectively
Series B Convertible Perpetual Preferred Stock, $ 1 par value; 69,400 shares authorized at December 31, 2025 and 2024, respectively
Common stock, $ 1 par value; 50,000,000 shares authorized; 13,969,517 and 13,848,242 issued; and 13,891,055 and 13,769,780 outstanding at December 31, 2025 and 2024, respectively
Common stock - non-voting, $ 1 par value; 3,500,000 shares authorized at December 31, 2025 and 2024, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock: at cost; 78,462 shares at December 31, 2025 and 2024, respectively
Total shareholders' equity
Total liabilities & shareholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
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)
Interest income:
Loans, including fees
Investment securities available-for-sale
Investment securities held-to-maturity
Federal funds sold and other
Total interest income
Interest expense:
Deposit accounts
FHLB advances and other borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income:
Services charges and fees
Earnings on bank-owned life insurance
(Loss) gain on sale of investment securities available-for-sale
Gain on sales of SBA loans
Other
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Occupancy and equipment expense
Legal and professional
Data processing and network expense
Regulatory assessments
Advertising and marketing
Software purchases and maintenance
Loan operations and other real estate owned expense
Telephone and communications
Other
Total noninterest expense
Net income before income tax expense
Income tax expense
Net income
Preferred stock dividends declared
Net income available to common shareholders
Earnings per common share:
Basic earnings per share
Diluted earnings per share
The accompanying notes are an integral part of these consolidated financial statements.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Com prehensive Income
For the Years Ended December 31,
(Dollars in thousands)
Net income
Other comprehensive income:
Unrealized gain on securities:
Unrealized holding gain arising during the period
Reclassification for net losses (gains) realized through the sales of securities included in net income
Tax effect
Other comprehensive income on securities, net of tax
Unrealized gain on derivatives:
Unrealized holding gain (loss) arising during the period
Gain on termination of derivative instruments
Reclassification adjustment for accretion of gain on terminated cash flow hedges recorded in interest expense during the period
Tax effect
Other comprehensive income on derivatives, net of tax
Total other comprehensive income
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
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
(Dollars in thousands)
Series A
Series B
Voting
Non-Voting
Capital
Earnings
Income (Loss)
Stock
Total
Balance, January 1, 2023
Adoption of ASC 326, allowance for credit loss adjustment, net of tax
Net income
Share-based compensation
Warrants exercised
Stock options exercised
Restricted stock grants
Restricted stock forfeited or withheld to satisfy tax obligations
Other comprehensive income, net of tax
Preferred dividends declared -
Series A, $ 68.25 per share
Balance, December 31, 2023
Net income
Share-based compensation
Stock options exercised
Registration costs for securities issued in private placement
Restricted stock grants
Restricted stock forfeited or withheld to satisfy tax obligations
Other comprehensive income, net of tax
Preferred dividends declared -
Series A, $ 68.44 per share
Balance, December 31, 2024
Net income
Share-based compensation
Stock options exercised
Restricted stock grants
Restricted stock forfeited or withheld to satisfy tax obligations
Other comprehensive income, net of tax
Preferred dividends declared -
Series A, $ 68.44 per share
Balance, December 31, 2025
The accompanying notes are an integral part of these consolidated financial statements.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Changes in deferred tax, net
Share based compensation expense
Loss (gain) on sale of investment securities available-for-sale
Gain on sale of SBA loans
(Write-up) write-down of other real estate owned
Write-down of fixed assets
Accretion of discount on securities, net
Accretion of gain on terminated cash flow hedges
Accretion of SBA Paycheck Protection Program fees
Accretion of loan fees
Amortization of subordinated debt origination costs
Depreciation and amortization
Earnings on bank-owned life insurance
Net change in operating leases
Net change in derivative assets and liabilities
Changes in operating assets and liabilities:
Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits in other banks
Net (purchase) sale of non-marketable equity securities
Investment securities available-for-sale activity:
Purchases
Sales
Maturities, calls and principal paydowns
Purchases of investment securities held-to-maturity
Proceeds from termination of derivative instruments
Net originations on loans held for investment
Net additions to bank premises and equipment
Proceeds from sales of foreclosed assets
Purchase of bank owned life insurance
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net proceeds from (repayment of) line of credit - senior debt
Registration costs for securities issued in private placement
Proceeds from stock warrants exercised
Forfeiture of restricted stock grants withheld to satisfy tax obligations
Proceeds from stock options exercised
Dividends paid on Series A preferred stock
Net cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
Cash paid for federal income taxes
Cash paid for state income taxes, net of refunds
Supplemental Disclosure of Noncash Investing and Financing Activities:
Loans transferred to other real estate owned, net
Right of use lease assets obtained in exchange for operating lease liabilities
Reclassification of investment securities from held-to-maturity to available-for-sale
The accompanying notes are an integral part of these consolidated financial statements.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Nature of Operations and Sum mary 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 throu gh 19 br anch 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, ne t 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
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,
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
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
The Company has purchased life insurance policies on certain employees. These bank-owned life insurance (“BOLI”) policies are recorded in the accompanying consolidated balance sheets at their cash surrender values. Income from these policies and changes in the cash surrender values are reported in the accompanying consolidated statements of income.
Non-Marketable Securities
The Company has restricted non-marketable securities which represent investments in Federal Home Loan Bank (“FHLB”) stock, Federal Reserve Bank (“FRB”) stock and Texas Independent Bank (“TIB”) stock. These investments are not readily marketable and are carried at cost, which approximates fair value. As a member of the FHLB, FRB and TIB systems, the Company is required to maintain minimum level of investments in stock, based on the level of borrowings and other factors. Both cash and stock dividends are reported as income.
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.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Core deposit intangibles are acquired customer relationships arising from bank acquisitions and are amortized on a straight-line basis over their estimated useful life of ten years . 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.
Derivative Financial Instruments
Derivatives are recorded on our consolidated balance sheets as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of the derivatives and whether the derivatives qualify for hedge accounting. At inception of the derivative, we designate the derivative as one of two types based on our intention and belief as to the likely effectiveness as a hedge. These two types are (1) a hedge of the fair value of a recognized asset or liability (“Fair Value Hedge”), and (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“Cash Flow Hedge”).
For certain Fair Value Hedges, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in noninterest income or expense in our consolidated statements of income. Fair Value Hedge instruments offered by the Company which are included in noninterest income or expense include pass-through interest rate swap products to qualified commercial banking customers. Under this type of contract, the Company enters into an interest rate swap contract with a customer, while at the same time entering into an offsetting interest rate swap contract with a financial institution counterparty. Changes in the fair value of the underlying derivatives are designed to offset each other so they would not significantly impact the Company's operating results.
The Company also enters into Risk Participation Agreements (“RPAs”) with other banks, primarily to share a portion of the risk of borrower default related to the interest rate swap on certain participated loans. Gains or losses on these types of derivatives are also included in noninterest income in our consolidated statements of income.
A one-way interest rate swap is another type of Fair Value Hedge instrument offered to our customers. Under this type of arrangement, the Company extends a conventional fixed-rate loan to the borrower and then subsequently hedges the interest rate risk of that loan by entering into a swap for its own balance sheet to convert the fixed-rate loan to a synthetic floating rate asset. These types of swaps lock in the Company's spread over its cost of funds for the life of the loan. The gain or loss on this type of derivative is included in interest income in our consolidated statements of income.
For a Cash Flow Hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Cash Flow Hedge instruments include pay-fixed interest rate swap agreements with a financial institution counterparty.
Net cash settlements on cash flow hedges are recorded in interest expense in the consolidated statements of income. Net cash settlements on one-way swap derivatives are recorded in interest income in the consolidated statements of income. Net cash settlements on pass-through interest rate swaps and RPAs are reported in noninterest income in the consolidated statements of income. Cash flows on hedges are classified in the cash flow statement the same as the items being hedged.
When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains and/or losses accumulated in other comprehensive income are amortized into earnings over the same period which the hedged transaction will affect earnings.
We formally document the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking Cash Flow Hedges to specific assets and liabilities on the consolidated balance sheets or to forecasted transactions.
Comprehensive Income
Comprehensive income includes all changes in shareholders’ equity during a period, except those resulting from transactions with shareholders. Other than net income, comprehensive income includes the net effect of changes in the fair value of securities available-for-sale and certain derivative instruments designated as cash flow hedges.
Revenues from Contracts with Customers
The Company’s revenues from services such as deposit related fees, wire transfer fees, interchange fees on debit cards, ATM fees, and merchant fee income are presented within the service charges and fees category in the accompanying consolidated statements of income and are recognized as revenue as the Company satisfies its obligation to the customer.
Advertising and Marketing Expenses
Advertising and marketing costs are expensed as incurred and consist of the Company’s expenditures for advertising in its local market areas, market research, and business development costs including, but not limited to, promotional activities and client relationship management. For the years ended December 31, 2025, 2024, and 2023, advertising and marketing expenses were $ 2.1 million , $ 1.7
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
million , and $ 2.6 million , respectively, and are included within noninterest expense in the accompanying consolidated statements of income.
Income Taxes
The Company files a consolidated income tax return with its subsidiary at the federal level and with multiple states at the state level. Both federal and state income tax expense or benefit is allocated on a separate return basis.
Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to 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.
Purchased federal income tax credits are recorded in accordance with ASC Topic 740, “Income Taxes."
Share-Based Compensation
Compensation expense for stock options is based on the fair value of the award on the measurement date, which, for the Company, is the date of the grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model.
Basic and Diluted Earnings Per Common Share
Earnings per common share is computed in accordance with ASC Topic 260, “Earnings Per Share.” Basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per common share is computed by using the net earnings allocated to common stock plus dividends on dilutive convertible preferred stock, divided by the sum of 1) the weighted-average number of shares determined for the basic earnings per common share computation, 2) the dilutive effect of stock compensation using the treasury stock method, and 3) the dilutive effect of convertible preferred stock using the if-converted method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 16 – Earnings Per Common Share.
Reclassification
Certain amounts in prior period consolidated financial statements may have been reclassified to conform to current period presentation. During 2025, the Company reclassified software amortization costs for fiscal years 2024 and 2023 from occupancy and equipment expense to software purchases and maintenance on the consolidated statements of income. These reclassifications are not significant and have no effect on net income, total assets or shareholders’ equity.
Segment Reporting
The Company has one reportable segment as a financial institution. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each activity of the Company supports the others. For example, lending is dependent upon the ability of the company to fund itself with deposits and borrowings while managing interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Bank as one segment or unit. The Company’s senior executive management functions as its chief operating decision-maker (“CODM”) and uses the consolidated results to make operating and strategic decisions.
The Company has determined that all of its banking divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured whereby banking divisions and subsidiaries serve a similar base of primarily commercial clients utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the CODM.
The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The accounting policies used to measure the profit and loss of the segment are the same as for those described in the summary of significant accounting policies described in Note 1 of the consolidated financial statements. The CODM is regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The Company's most significant reported source of income and expense are interest income and interest expense (See Consolidated Statements of Income). The remaining significant segment income and expenses are described in the consolidated statements of income.
Accounting Standard: ASU 2016-13 - Current Expected Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. ASU 2016-13 is intended to replace the incurred loss model for loans and other financial assets with an expected loss model, which is known as the current expected credit loss, or CECL, model. The change is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. ASC 326 also made changes to the accounting for available-for-sale debt securities, specifically requiring credit losses for available-for-sale debt securities to be presented as an allowance rather than a write-down on available-for-sale debt securities.
The Company adopted ASC 326 using the modified retrospective method for financial instruments measured at amortized cost and off-balance sheet credit exposure which requires reporting periods beginning after January 1, 2023 to be presented under ASC 326 guidance while prior period amounts to continue to be reported in accordance with previously applicable inherent risk methodology. Effective January 1, 2023, the Company adopted the standard and recorded an increase in the allowance for credit losses of $ 4.0 million and a net after-tax adjustment to retained earnings of $ 3.2 million for the cumulative effect of adopting ASC 326 for its loan portfolio.
The following table illustrates the impact of ASC 326 on the allowance for credit losses by loan category at the January 1, 2023 adoption date:
January 1, 2023
(Dollars in thousands)
Post-ASC 326 Adoption
Pre-ASC 326 Adoption
Impact of ASC 326 Adoption
Real estate loans:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
Accounting Standard: ASU 2022-02 - Troubled Debt Restructurings and Vintage Disclosures
On January 1, 2023 , the Company adopted ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” The amendments in this update eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, “Receivables-Troubled Debt Restructurings by Creditors,” while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan.
The amendments of this update also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” Gross write-off information must be included in the vintage disclosures and include the amortized cost basis of the financing receivable by credit-quality indicator and the class of the financing receivable by year or origination. See Note 3 - Loans and Allowance for Credit Losses for the vintage disclosures.
ASU 2023-09 - Income Taxes (Topic 720), Improvements to Income Tax Disclosures
The Company adopted ASU 2023-09, “Income Taxes (Topic 720), Improvements to Income Tax Disclosures,” effective January 1, 2025. The standard requires entities to consistently categorize, on a more disaggregated basis between eight specific categories, information about a reporting entity's effective tax rate reconciliation. Additionally, income taxes paid, net of refunds, must be further disaggregated by federal, state and foreign taxes. The Company has elected to apply the amendments prospectively. Prior period disclosures are presented using pre-ASU standards.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Recently Issued Accounting Standards - Not Yet Adopted
On November 12, 2025, the FASB issued ASU 2025-08, “Financial Instruments - Credit Losses (Topic 326): Purchased Loans,” which amends the guidance in ASC Topic 326 on the accounting for certain purchased loans. Under the ASU, entities must account for acquired loans (excluding credit cards) that meet certain criteria at acquisition (“purchased seasoned loans”) by recognizing them at their purchase price plus an allowance for expected credit losses (the “gross-up approach”). The ASU's amendments align the accounting for purchased credit loans (“PCL”) with the treatment of financial assets purchased with more-than-insignificant credit deterioration since origination (“PCD assets” ). The standard eliminates the day one credit loss, double count issue in a business combination or asset acquisition for non-PCD assets, and is effective for annual reporting periods beginning after December 15, 2026. Early adoption is permitted. The Company intends to early adopt the standard during 2026.
Investment Securities Available-for-Sale and Held-to-Maturity
Investment securities have been classified in the consolidated balance sheets according to management’s intent. Securities available-for sale represent those securities not classified as equity or held-to-maturity and are reported at fair value with unrealized gains and losses, net of applicable income taxes, reported in other comprehensive income. Securities held-to-maturity represent those securities for which we have the positive intent and ability to hold until maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts.
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 and held-to-maturity 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, 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.
The carrying amount of securities and their approximate fair values as of December 31, 2025 and 2024 are as follows:
(Dollars in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
December 31, 2025
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
(Dollars in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
December 31, 2024
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Securitization of Commercial Real Estate Loans
During the second quarter of 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.
The Class A-1 notes are classified as held-to-maturity investments. At December 31, 2025, the carrying amounts and approximate fair values are as follows:
(Dollars in thousands)
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
December 31, 2025
Securities held-to-maturity:
Asset-backed securities
There were no outstanding securities held-to-maturity as of December 31, 2024.
Mortgage-backed securities are typically issued with stated principal amounts and are backed by pools of mortgages that have loans with varying maturities. The characteristics of the underlying pool of mortgages, such as prepayment risk, are passed on to the certificate holder. Accordingly, the term of mortgage-backed securities approximates the term of the underlying mortgages and can vary significantly due to prepayments. Therefore, schedules of maturities for mortgage-backed securities have been excluded from the below disclosure.
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.
December 31, 2025
December 31, 2025
Securities Available-for-Sale
Securities Held-to-Maturity
(Dollars in thousands)
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Due in one year or less
Due from one year to five years
Due from five to ten years
Over ten years
Mortgage-backed securities and collateralized mortgage obligations
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following table summarizes securities with unrealized losses at December 31, 2025 and 2024, aggregated by investment category, major security type and length of time in a continuous unrealized loss position:
Less Than 12 Months
Greater Than 12 Months
Total
(Dollars in thousands)
Unrealized
Loss
Estimated
Fair Value
Unrealized
Loss
Estimated
Fair Value
Unrealized
Loss
Estimated
Fair Value
December 31, 2025
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
Securities held-to-maturity:
Asset-backed securities
December 31, 2024
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
There wer e 39 i nvestments in an unrealized loss position at December 31, 2025 , and 73 investments in an unrealized loss position at December 31, 2024. As of December 31, 2025 and 2024 , no allowance for credit losses has been recognized on available-for-sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available-for-sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. In addition, a portion of our investments are guaranteed by the U.S. Government, Treasury, or municipalities. Furthermore, management does not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
There were no securities pledged as collateral as of December 31, 2025 and 2024.
The following table summarizes proceeds received from the sale of securities and their related gross gains and losses for the years ended December 31, 2025, 2024, and 2023, respectively:
For the Years Ended December 31,
(Dollars in thousands)
Securities available-for-sale:
Proceeds from sales
Gross gain
Gross loss
Net (loss) gain
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Lo ans and Allowance for Credit Losses
Loans in the accompanying consolidated balance sheets consisted of the following:
December 31,
(Dollars in thousands)
Real estate loans:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
Allowance for credit losses
Loans, net
Total loans are presented net of unaccreted discounts and net deferred fees totaling $ 22.0 million and $ 16.6 million at December 31, 2025 and 2024, respectively.
Non-accrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. As mentioned in Note 1, 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.
Non-accrual loans, non-accrual loans without a specific ACL, and accruing loans past due 90 days or more segregated by class of loans were as follows:
December 31, 2025
December 31, 2024
(Dollars in thousands)
Non-accrual
Non-accrual loans with no ACL
Accruing loans
past due 90
days or more
Non-accrual
Non-accrual loans with no ACL
Accruing loans
past due 90
days or more
Real estate loans:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development & other
Commercial & industrial
If non-accrual loans had continued to accrue interest in accordance with their original terms, approximately $ 929,000 , $ 2.0 million , and $ 1.1 million of interest income would have been recognized during the years ended December 31, 2025, 2024, and 2023, respectively.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
An age analysis of past due loans, segregated by class of loans, were as follows:
(Dollars in thousands)
days
days
90 days
or more
Total
past due
Total
current
Total
loans
December 31, 2025
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction,
development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
(Dollars in thousands)
days
days
90 days
or more
Total
past due
Total
current
Total
loans
December 31, 2024
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction,
development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
Loan Modifications to Borrowers Experiencing Financial Difficulty
Under ASU 2022-02, a loan is considered modified if the borrower is experiencing financial difficulties and the loan has been modified. Modifications may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses.
For the year ended December 31, 2025 , the table below summarizes loans that were modified for borrowers experiencing financial difficulty. No loans were modified for borrowers experiencing financial difficulty for the year ended December 31, 2024.
Loan modifications
(Dollars in thousands)
Number
loans
Post-
restructured
recorded
investment
Total Class of Financing Receivable
Principal Forgiveness
Adjusted
interest
rate
Payment
deferral
Combined
rate and
payment
deferral
December 31, 2025
Commercial & industrial
On an ongoing basis, the performance of modified loans for borrowers experiencing financial difficulty is monitored for subsequent payment default. Payment default is recognized when the borrower is 90 days or more past due. As of December 31, 2025 and 2024 , there were no modified loans in the previous twelve-month periods that were in default.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Significant Loan Sales
Securitization of a $ 100 Million Commercial Real Estate Loan Transaction
On April 1, 2025, the Bank entered into a $ 100 million securitization transaction of a revolving commercial real estate loan (the “April Mortgage Loan”) secured by interests in 1-4 family residential dwellings located in the state of Texas.
The Bank created participation interests in the April Mortgage Loan pursuant to a Participation Agreement, dated as of April 1, 2025, by and between the Bank, as initial Participation A-1 holder, the Bank, as initial Participation A-2 holder, and the Bank, as initial Participation A-3 holder. The Bank subsequently sold Participation A-1 to EJF CRT 2025-1 Depositor LLC (the “Depositor”), who subsequently sold Participation A-1 to EJF CRT 2025-1 LLC (the “Issuer”). The Bank retained Participation A-2 and Participation A-3.
The Issuer pledged Participation A-1, representing the Issuer's pro rata economic interest in the April Mortgage Loan, to U.S. Bank Trust Company, National Association (the “Indenture Trustee”), pursuant to an Indenture, dated as of April 1, 2025 (the “Indenture”), by and between the Issuer, the Indenture Trustee, the Bank, as servicer, and U.S. Bank National Association, as securities intermediary, and issued its Asset-Backed Notes, Series 2025-1, consisting of Class A-1 Notes and Class M-1 Notes. The Issuer sold the Class A-1 Notes to the Bank and certain of the Class M-1 Notes to affiliates of the Depositor on April 1, 2025.
Securitization of a $ 150 Million Commercial Real Estate Loan Transaction
On June 3, 2025, the Bank entered into a $ 150 million securitization transaction of certain commercial real estate loans (the “June Mortgage Loans”) originated by the Bank.
The Bank created participation interests in the June Mortgage Loans pursuant to Participation Agreements, dated as of June 3, 2025, by and between the Bank, as initial Participation A-1 holder, the Bank, as initial Participation A-2 holder, and the Bank, as initial Participation A-3 holder. The Bank subsequently sold Participation A-1 to EJF CRT 2025-2 Depositor LLC (the “Depositor”), who subsequently sold Participation A-1 to EJF CRT 2025-2 LLC (the “Issuer”). The Bank retained participation interests not sold to the Depositor.
The Issuer pledged Participation A-1, representing the Issuer's pro rata economic interest in the June Mortgage Loans, to U.S. Bank Trust Company, National Association (the “Indenture Trustee”), pursuant to an Indenture, dated as of June 3, 2025 (the “Indenture”), by and between the Issuer, the Indenture Trustee, the Bank, as servicer, and U.S. Bank National Association, as securities intermediary, and issued its Asset-Backed Notes, Series 2025-2, consisting of Class A-1 Notes and Class M-1 Notes. The Issuer sold the Class A-1 Notes to the Bank and certain of the Class M-1 Notes to affiliates of the Depositor on June 3, 2025.
The transfer of loans was accounted for as a sale of participation interests for financial reporting purposes. No gains or losses were recognized in connection with the transactions.
Credit Quality Indicators
Credit Quality Indicators. From a credit risk standpoint, the Company classifies its loans in one of six categories: (i) pass, (ii) special mention, (iii) substandard, (iv) purchased credit deteriorated (“PCD”), (v) doubtful, or (vi) loss.
The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. The Company’s methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
(i) The Company has several pass credit grades that are assigned to loans based on varying levels of credits, ranging from credits that are secured by cash or marketable securities, to watch credits that have all the characteristics of an acceptable credit risk but warrant more than the normal level of supervision.
(ii) Special mention loans are loans that still show sufficient cash flow to service their debt but show a declining financial trend with potential cash flow shortages if trends continue. This category should be treated as a temporary grade. If cash flow deteriorates further to become negative, then a substandard grade should be given. If cash flow trends begin to improve then an upgrade back to pass would be justified. Nonfinancial reasons for rating a credit special mention include management problems, pending litigation, an ineffective loan agreement or other material structure weakness.
(iii) A substandard loan has material weakness in the primary repayment source such as insufficient cash flow from operations to service the debt. However, other weaknesses such as limited paying capacity of the obligor or the collateral pledged could justify a substandard grade. Substandard loans must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
(iv) Credits purchased from third parties are recorded at their estimated fair value at the acquisition date and are classified as PCD loans if the loans reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments.
(v) A loan classified as doubtful has all the weaknesses of a substandard loan with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, non-accrual status is required on doubtful loans.
(vi) Loans classified as loss are considered uncollectible and of such little value that their continuance as banking assets are not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. With loans classified as loss, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified as loss, there is little prospect of collecting either its principal or interest. When access to collateral, rather than the value of the collateral, is a problem, a less severe classification may be appropriate. However, the Company does not maintain an asset on the balance sheet if realizing its value would require long-term litigation or other lengthy recovery efforts. Losses are to be recorded in the period an obligation becomes uncollectible.
The following tables summarize the Company’s internal ratings of its loans at December 31, 2025 and 2024:
(Dollars in thousands)
Pass
Special
Mention
Substandard
Doubtful
Total
December 31, 2025
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction,
development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
December 31, 2024
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction,
development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following tables summarize the Company's loans by risk grades, loan class and vintage, at December 31, 2025 and 2024:
Term Loans Amortized Cost Basis by Origination Year
Revolving Loans Amortized
(Dollars in thousands)
Prior Years
Cost Basis
Total
December 31, 2025
Real estate loans:
Non-farm non-residential
owner occupied
Pass
Special Mention
Substandard
Total Non-farm non-residential owner-occupied
Non-farm non-residential
non-owner occupied
Pass
Special Mention
Substandard
Total Non-farm non-residential non owner-occupied
Residential
Pass
Substandard
Total Residential
Construction, development & other
Pass
Substandard
Total Construction, development & other
Farmland
Pass
Special Mention
Total Farmland
Commercial & industrial
Pass
Special Mention
Substandard
Total Commercial & industrial
Consumer
Pass
Special Mention
Total Consumer
Municipal and other
Pass
Total Municipal and other
Total Loans
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Term Loans Amortized Cost Basis by Origination Year
Revolving Loans Amortized
(Dollars in thousands)
Prior Years
Cost Basis
Total
December 31, 2024
Real estate loans:
Non-farm non-residential
owner occupied
Pass
Special Mention
Substandard
Total Non-farm non-residential owner-occupied
Non-farm non-residential
non-owner occupied
Pass
Total Non-farm non-residential non owner-occupied
Residential
Pass
Special Mention
Substandard
Total Residential
Construction, development & other
Pass
Special Mention
Substandard
Total Construction, development & other
Farmland
Pass
Total Farmland
Commercial & industrial
Pass
Special Mention
Substandard
Doubtful
Total Commercial & industrial
Consumer
Pass
Total Consumer
Municipal and other
Pass
Total Municipal and other
Total Loans
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following tables summarize the Company's gross charge-offs by origination year and loan class for the years ended December 31, 2025 and 2024.
Gross Charge-offs by Origination Year
Revolving Loans Amortized
(Dollars in thousands)
Prior Years
Cost Basis
Total
December 31, 2025
Real estate loans:
Commercial & industrial
Municipal and other
Total Charge-Offs
Gross Charge-offs by Origination Year
Revolving Loans Amortized
(Dollars in thousands)
Prior Years
Cost Basis
Total
December 31, 2024
Real estate loans:
Non-farm non-residential
non-owner occupied
Commercial & industrial
Municipal and other
Total Charge-Offs
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. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a loan to an individual borrower that is experiencing financial difficulty will be modified or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts, including U.S. Unemployment, GDP and Case-Shiller U.S National Home Price Index. 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.
Credit loss expense 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.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, we use loan call report codes to identify the pools of loans with similar risk characteristics. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.
We have elected to use the discounted cash flow (“DCF”) method for estimating accumulated credit losses for all loans except for consumer loans and leases. The DCF method allows for an effective incorporation of reasonable and supportable forecasts that can be applied in a consistent and objective manner. The method also aligns well with other calculations outside the accumulated credit loss estimations which mitigate model risk in other areas such as fair value or exit price notion calculations, interest rate risk calculations, profitability analysis, asset-liability management, and other forms of cash flow analysis. We have elected to use the weighted-average remaining maturity (“WARM”) method for consumer loans and leases. The long-term average loss rate is calculated and applied on a
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
quarterly basis for the remaining life of the pool. Adjustments for economic expectations are made in the qualitative portion of the calculation. The long-term average loss rate is derived using peer data derived from the call report.
There may be certain financial assets for which the expectation of credit loss is zero after evaluating historical loss information, making necessary adjustments for current conditions and reasonable and supportable forecasts, and considering any collateral or guarantee arrangements that are not free-standing contracts. A loan that is fully secured by cash or cash equivalents, such as certificates of deposit issued by the lending institution, would likely have zero credit loss expectations. Similarly, the guaranteed portion of an SBA loan or security purchased on the secondary market through the SBA’s fiscal and transfer agent would likely have zero credit loss expectations because these financial assets are unconditionally guaranteed by the U.S. government. Currently, the Company deducts the SBA guaranteed portion of financial assets from the individual asset balance.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factors (“Q-Factor”) and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature and volume of the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The fair value of real estate collateral supporting collateral dependent loans is evaluated using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. The fair value of collateral supporting collateral dependent construction loans is based on an “as is” valuation.
The following tables detail the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2025, 2024, and 2023:
For the Year Ended December 31, 2025
(Dollars in thousands)
Beginning
balance
Provision (reversal) for credit losses on loans
Charge-offs
Recoveries
Ending
balance
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction, development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
For the Year Ended December 31, 2024
(Dollars in thousands)
Beginning
balance
Provision (reversal) for credit losses on loans
Charge-offs
Recoveries
Ending
balance
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction, development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
For the Year Ended December 31, 2023
(Dollars in thousands)
Beginning
balance
CECL adoption adjustment
Provision (reversal) for
credit losses on loans
Charge-offs
Recoveries
Ending
balance
Real estate loans:
Non-farm non-residential
owner occupied
Non-farm non-residential
non-owner occupied
Residential
Construction, development & other
Farmland
Commercial & industrial
Consumer
Municipal and other
Management believes the allowance for credit losses is adequate to cover expected credit losses on loans at December 31, 2025, 2024, and 2023.
Collateral Dependent Loans
A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral dependent loans are secured by real estate assets, accounts receivable, inventory and equipment. For a collateral dependent loan, the Company's evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs. The valuation is compared to the remaining outstanding principal balance of the loan and any loss is included in the allowance for credit losses on loans as a specific valuation.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following tables present the amortized cost basis of collateral dependent loans which have been assessed individually for credit losses:
(Dollars in thousands)
Real Estate
Business Assets
Other
Total
December 31, 2025
Real estate loans:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Commercial & industrial
(Dollars in thousands)
Real Estate
Business Assets
Other
Total
December 31, 2024
Real estate loans:
Non-farm non-residential owner occupied
Non-farm non-residential non-owner occupied
Residential
Construction, development & other
Commercial & industrial
Premises and Equipment
Premises and equipment in the accompanying consolidated balance sheets consisted of the following:
Estimated
December 31,
(Dollars in thousands)
Useful Life
Building and building improvements
30 - 40 years
and 5 - 40 years
Land
Equipment
3 - 5 years
Leasehold improvements
3 - 12 years
Furniture and fixtures
5 - 10 years
Automobiles
5 years
Construction in process
Accumulated depreciation
Depreciation expense for the years ended December 31, 2025, 2024, and 2023 amounted to $ 4.1 million , $ 4.1 million , and $ 3.5 million , respectively. Depreciation expense is included in occupancy and equipment expense in the accompanying consolidated statements of income.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Deposits
Deposits in the accompanying consolidated balance sheets consisted of the following:
December 31,
(Dollars in thousands)
Transaction accounts:
Noninterest bearing demand accounts
Interest bearing demand accounts
Savings
Total transaction accounts
Time deposits
Total deposits
The aggregate amount of time deposits in denominations of $250,000 or more totaled $ 548.9 million and $ 378.5 million as of December 31, 2025 and 2024, respectively.
Scheduled maturities of time deposits at December 31, 2025 are as follows:
(Dollars in thousands)
Maturities by Year
Thereafter
At December 31, 2025 and 2024, the aggregate amount of demand deposit overdrafts that were reclassified as loans was approximately $ 286,000 and $ 256,000 , respectively.
Income Taxes
During the years ended December 31, 2025, 2024, and 2023, the Company recorded income tax provision expense of $ 16.5 million , $ 13.7 million , and $ 8.2 million , reflecting an effective tax rate of 19.9 % , 22.3 % , and 19.7 % , respectively. The effective tax rate for the year ended December 31, 2024, was greater than the statutory tax rate of 21 % due to the prospective reclassification of state income tax expense from noninterest expense beginning in April 2024.
Purchased income tax credits are recorded in accordance with ASC Topic 740, “Income Taxes” . During December 2025, the Company purchased $ 15.0 million in federal income tax credits and recognized a $ 900,000 purchase price discount as a reduction of income tax expense in the accompanying consolidated statements of income. The tax asset is expected to reduce current income tax obligations and is reported within other assets in the accompanying consolidated balance sheets.
The provision for income taxes consisted of the following:
For the Years Ended December 31,
(Dollars in thousands)
Current income tax expense
Federal
State
Deferred income tax expense (benefit)
Federal
Income tax expense as reported
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The Company adopted ASU 2023-09, “Income Taxes (Topic 720), Improvements to Income Tax Disclosures,” effective January 1, 2025 and elected to apply the amendments prospectively. The standard requires entities to consistently categorize, on a more disaggregated basis between eight specific categories, information about a reporting entity’s effective tax rate reconciliation.
The following table is a reconciliation of reported income tax expense to the amount computed by the Company's statutory tax rate of 21 % to income before income taxes for the year ended December 31, 2025, presented in accordance with ASU 2023-09:
December 31, 2025
(Dollars in thousands)
Amount
Percent
Pretax income
Federal income tax expense computed at statutory rate
State income taxes, net of federal benefit (1)
Tax credits - purchase program benefit
Purchase price - tax credits
Nontaxable or nondeductible items (2)
Other adjustments
Effective tax rate
(1) State taxes in Florida, Texas, Georgia, and Colorado made up the majority (greater than 50%) of the tax effects in this category.
(2) No specific item exceeds 5% of income tax expense.
The following table is a reconciliation of reported income tax expense to the amount computed by the Company’ s statutory income tax rate of 21 % to income before income taxes for the years ended December 31, 2024 and 2023, respectively, presented in accordance with the standards in effect prior to the adoption of ASU 2023-09:
December 31,
(Dollars in thousands)
Amount
Percent
Amount
Percent
Federal income tax expense computed at statutory rate
State income taxes, net of federal benefit (1)
Nontaxable or nondeductible items:
Share-based compensation
Bank-owned life insurance
Non-deductible meals, entertainment, and dues
Tax-exempt income
Section 291 depreciation recapture
162 M disallowed compensation
Other, net
Income tax expense as reported
(1) State taxes in Florida, Colorado and Illinois mad e up the majority (greater than 50%) of the tax effects in this category.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
A summary of deferred taxes is presented below:
December 31,
(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses
Accrued expenses
Stock options and restricted stock
Phantom stock
Loan purchase mark-to-market
Deferred loan origination fees
Net unrealized loss on investment securities available-for-sale
Non-accrual interest
Tax credit purchase carryover
Other
Total deferred tax assets
Deferred tax liabilities:
Premises and equipment
Goodwill and core deposit intangibles
Investments
Net unrealized gain on investment securities available-for-sale
Unrealized gain on derivatives
Prepaid expenses and other
Total deferred tax liabilities
Net deferred tax asset
GAAP prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the consolidated financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of cumulative benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. GAAP also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.
FHLB Advances and Other Borrowings
FHLB Borrowings
The FHLB allows the Company to borrow on a blanket floating lien status collateralized by FHLB stock 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 , respective ly. The Company had no FHLB advances outstanding at December 31, 2025 and 2024. Letters of credit with the FHLB in the amount of $ 592.0 million were issued at December 31, 2025. 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 .
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 10 th 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.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Note Payable - Subordinated Debt
On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements (the “Note Purchase Agreements”) with certain qualified institutional buyers and institutional accredited investors (the “Purchasers”) pursuant to which the Company issued and sold $ 82.3 million in aggregate principal amount of its 5.500 % Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Notes”) in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and Regulation D thereunder. The Notes were issued by the Company to the Purchasers at a price equal to 100 % of their face amount. The Note Purchase Agreements contain certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.
The Notes were issued under an Indenture, dated as of March 31, 2022 (the “Indenture”), by and between the Company and UMB Bank, N.A., as trustee. The Notes will mature on April 1, 2032 . From and including March 31, 2022, to, but excluding, April 1, 2027 or the date of early redemption, the Company will pay interest on the Notes semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2022 , at a fixed interest rate of 5.500 % per annum. From and including April 1, 2027, to, but excluding, the maturity date or the date of early redemption (the “Floating Rate Period”), the Company will pay interest on the Notes at a floating interest rate. The floating interest rate will be reset quarterly, and the interest rate for any Floating Rate Period shall be equal to the then-current Three-Month Term Secured Overnight Financing Rate (“SOFR”) plus 315 basis points for each quarterly interest period during the Floating Rate Period. Interest payable on the Notes during the Floating Rate Period will be paid quarterly in arrears on January 1, April 1, July 1 and October 1, of each year, commencing on July 1, 2027. Notwithstanding the foregoing, in the event that Three-Month Term SOFR is less than zero, then Three-Month Term SOFR rate shall be deemed to be zero.
On March 31, 2022, in connection with the issuance and sale of the Notes, the Company entered into Registration Rights Agreements with the Purchasers. Under the terms of the Registration Rights Agreements, the Company agreed to take certain actions to provide for the exchange of the Notes for subordinated notes that are registered under the Securities Act and have substantially the same terms as the Notes. The exchange offer under the Registration Rights Agreement was completed on July 19, 2022.
The Company may, at its option, redeem the Notes (i) in whole or in part beginning with the interest payment date on April 1, 2027 , and on any interest payment date thereafter, or (ii) in whole, but not in part, upon the occurrence of a “Tier 2 Capital Event,” a “Tax Event,” or “Investment Company Event”. The redemption price for any redemption is 100 % of the principal amount of the Notes, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any redemption of the Notes will be subject to the receipt of the approval of the Federal Reserve to the extent then required under applicable laws or regulations, including capital adequacy rules or regulations.
There is no right of acceleration of maturity of the Notes in the case of default in the payment of principal of, or interest on, the Notes or in the performance of any other obligation of the Company under the Notes or the Indenture. The Indenture provides that holders of the Notes may accelerate payment of indebtedness only upon the Company’s bankruptcy, insolvency, reorganization, receivership or other similar proceedings.
The Notes are general unsecured, subordinated obligations of the Company and rank junior to all of its existing and future Senior Indebtedness (as defined in the Indenture), including all of its general creditors. The Notes will be equal in right of payment with any of the Company’s existing and future subordinated indebtedness and will be senior to the Company’s obligations relating to any junior subordinated debt securities. In addition, the Notes are effectively subordinated to all secured indebtedness of the Company, including without limitation, the Bank’s liabilities to depositors in connection with deposits in the Bank, to the extent of the value of the collateral securing such indebtedness.
In connection with the above offering, the Company incurred approximatel y $ 2.1 million in debt issuance costs which will be amortized to interest expense on a straight-line basis over the ten-year life of the note. At December 31, 2025 and 2024, the Company had $ 82.3 million in outstanding principal, and $ 1.3 million and $ 1.5 million , respectively, in unamortized debt issuance costs.
Federal Reserve Borrower-in-Custody (BIC) Loan Pledge Arrangement
During 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 Federal Reserve Bank's Discount Window by pledging its commercial and industrial loans on a blanket floating lien status. As of December 31, 2025 and 2024, total borrowing capacity under this arrangement was $ 1.5 billion . The Company had no advances outstanding under these lines as of December 31, 2025 or 2024.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
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 .
Stock Options and Warrants
2013 Stock Option Plan
Upon shareholder approval in 2008, the Bank adopted the 2008 Stock Option Plan. In 2013, upon formation of Third Coast Bancshares, Inc., the Company adopted the 2013 Stock Option Plan (the “2013 Plan”). All outstanding options from the 2008 Stock Option Plan were grandfathered into the 2013 Plan. The 2013 Plan permits the grant of stock options for up to 500,000 shares of common stock from time to time during the term of the plan, subject to adjustment upon changes in capitalization. Under the 2013 Plan, the Bank may grant either incentive stock options or nonqualified stock options to eligible directors, executive officers, key employees and non-employee shareholders of the Bank. At December 31, 2025 , there were no shares remaining available for grant for future awards as all outstanding options under the 2013 Plan were grandfathered into the 2019 Omnibus Incentive Plan (see 2019 Omnibus Incentive Plan). Awards outstanding under the 2013 Plan remain in full force and effect, according to their respective terms.
2019 Omnibus Incentive Plan
On May 29, 2019, the Company’s shareholders approved the Third Coast Bancshares, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”), which was previously approved by the Company’s board of directors. Under the 2019 Plan, the Company may issue stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, other stock-based awards, cash awards, and dividend equivalents. On May 20, 2021, the Company’s shareholders approved an amendment to the 2019 Plan such that the maximum number of shares reserved for issuance under the 2019 Plan was increased by an additional 500,000 shares. The maximum aggregate number of shares of common stock that may be issued under the 2019 Plan is equal to the sum of (i) 800,000 shares of common stock, (ii) the total number of shares remaining available for new awards under the 2013 Plan as of May 29, 2019, which was 152,750 shares of common stock, and (iii) any shares subject to outstanding stock options issued under the 2013 Plan to the extent that (A) any such award is forfeited or otherwise terminates or is cancelled without the delivery of shares of common stock, or (B) shares of common stock are withheld from any such award to satisfy any tax or withholding obligation, in which case the shares of common stock covered by such forfeited, terminated or cancelled award or which are equal to the number of shares of common stock withheld, will become available for issuance under the 2019 Plan. At December 31, 2025, there were 90,123 shares remaining available for grant for future awards under the 2019 Plan.
2017 Non-Employee Director Stock Option Plan
In December 2017, the Bank adopted the 2017 Non-Employee Director Stock Option Plan (the “Director Plan”). The Director Plan originally authorized the grant of stock options for up to 100,000 shares of common stock to non-employee directors of the Company pursuant to the terms of the Director Plan. During July 2018, the Company's board of directors approved the grant of stock options for 50,000 additional shares of common stock under the Director Plan, such that the Director Plan permitted the grant of stock options for up to 150,000 shares of common stock. On January 1, 2021, the Director Plan was amended and subsequently approved by the Company’s board of directors such that the aggregate number of shares of common stock to be issued pursuant to options shall not exceed 187,000 shares. Options are generally granted with an exercise price equal to the market price of the Company’s stock at the date of the grant. Option awards generally vest based on five years of continuous service and have 10-year contractual terms for non-controlling participants as defined by the Director Plan. Other grant terms can vary for controlling participants as defined by the Director Plan. At December 31, 2025, there were 13,806 sha res remaining available for grant for future awards under the Director Plan.
Stock Options
During the year ended December 31, 2025 , the Company granted stock options under the 2019 Plan to certain directors, executive officers and other key employees of the Company. These options vest ratably over 5 years and have a 10 year contractual term. Options granted during the year ended December 31, 2025 were granted with an exercise price ranging from $ 30.31 to $ 35.40 . Options granted during the year ended December 31, 2024 were granted with an exercise price ranging from $ 19.38 to $ 25.67 .
The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for the options granted during the year ended December 31, 2025: risk-free interest rate ranging from 4.06 % to 4.47 % ; dividend yield of 0.00 % ; estimated volatility ranging from 24.25 % to 24.82 % ; and expected lives of options of 7.5 y ears. The following assumptions were used for options granted during the year ended December 31, 2024: risk-free interest rate ranging from 3.75 % to 4.64 % ; dividend yield of 0.00 % ; estimated volatility ranging from 23.42 % to 24.16 % ; and expected lives of options of 7.5 y ears. The following assumptions were used for options granted during the year ended December 31, 2023: risk-free interest rate ranging from
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
3.42 % to 4.75 % ; dividend yield of 0.00 % ; estimated volatility ranging from 17.81 % to 22.70 % ; and expected lives of options of 7.5 years. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer group averages.
For the years ended December 31, 2025, 2024, and 2023, the Company recognized stock-based compensation expense of approximately $ 516,000 , $ 544,000 , and $ 472,000 , respectively, associated with stock options. As of December 31, 2025, there was approximately $ 681,000 of unrecognized compensation costs related to non-vested stock options which are expected to be recognized over a weighted average remaining period of 4.99 y ears. Forfeitures are recognized as they occur.
A summary of stock option activity for years ended December 31, 2025 and 2024 is presented below:
December 31,
Shares
Underlying
Options
Weighted
Average
Exercise Price
Shares
Underlying
Options
Weighted
Average
Exercise Price
Outstanding at beginning of period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of period
Options exercisable at end of period
Weighted-average grant date fair value of options
granted during the period
Shares issued in connection with stock compensation awards are issued from available authorized shares.
The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $ 15.7 million and $ 12.6 million , respectively, at December 31, 2025. The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $ 14.3 million and $ 9.9 million , respectively, at December 31, 2024.
The intrinsic value of stock options exercised during the years ended December 31, 2025, 2024, and 2023 was approximately $ 1.9 million , $ 2.6 million , and $ 2,000 , respectively.
A summary of the activity in the Company’s nonvested shares is as follows:
December 31,
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested at January 1,
Granted during the period
Vested during the period
Forfeited during the period
Nonvested at end of period
For the year ended December 31, 2023, the weighted-average grant date fair value of options granted and vested during the period was $ 5.00 and $ 2.90 , respectively.
Warrants
In connection with the preferred stock private placement on September 30, 2022, the Company issued 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 Convertible Perpetual Preferred Stock, par value $ 1.00 per share ("Series B Preferred Stock"), or non-voting common stock, par value $ 1.00 per share ("Non-Voting Common Stock"), of the Company) (the “Preferred Warrants”) to certain investors. The Preferred Warrants have an exercise price of $ 22.50 per share, are fully vested, and are exercisable over a seven-year period that expires on September 30, 2029 . The fair value of the warrants was approximately $ 380,000 on grant date and is included in
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
additional paid in capital. The weighted average remaining contractual life of these outstanding Preferred Warrants was 3.75 years as of December 31, 2025.
A summary of the Company’s stock warrant activity is presented below:
December 31,
Shares
Underlying
Warrants
Weighted
Average
Exercise
Price
Shares
Underlying
Warrants
Weighted
Average
Exercise
Price
Outstanding at beginning of period
Outstanding at end of period
Exercisable at end of period
Restricted Stock Awards
The Company granted restricted stock awards (“RSAs”) to certain directors, executive officers and employees of the Company. Restricted stock is common stock with certain restrictions that relate to trading and the possibility of forfeiture. Holders of restricted stock have full voting rights. Generally, the awards vest ratably over a two -to- four year period but vesting periods may vary. The RSAs have a 10-year contractual term.
A summary of the activity for non-vested RSAs for the years ended December 31, 2025 and 2024 is presented below:
December 31,
Shares
Weighted
Average
Grant Date
Fair Value
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested at beginning of period
Granted during the period
Vested during the period
Forfeited during the period
Nonvested at the end of period
Compensation expense for RSAs is recorded over the vesting period and is determined based on the number of restricted shares granted and the market price of our common stock at issue date. The Company recognized stock-based compensation expense associated with RSAs of approximately $ 1.1 million , $ 1.2 million , and $ 1.1 million during the years ended December 31, 2025, 2024, and 2023, respectively. As of December 31, 2025, there was $ 1.9 million of total unrecognized compensation cost related to non-vested RSAs which is expected to be recognized over a weighted average remaining period of 6.21 yea rs.
Leases
Operating Leases
The Company leases certain office space, stand-alone buildings and equipment which are recognized as operating lease right-of-use (“ROU”) assets and operating lease liabilities and are included in the consolidated balance sheets. Lease liabilities represent the Company's liability to make lease payments under these leases, on a discounted basis. For leases with renewal options available, the Company evaluates each lease to determine if exercise of the renewal option is reasonably certain. As of December 31, 2025, the Company's operating lease ROU asset and operating lease liability totaled $ 17.1 million and $ 18.1 million , respectively.
In order to calculate its ROU assets and lease liabilities, ASC Topic 842 requires the Company to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, the Company is required to use its incremental borrowing rate, which is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. The Company was unable to determine the implicit interest rate in any of the leases and therefore used its incremental borrowing rate.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
As of December 31, 2025 and 2024, the weighted-average discount rate for the Company's operating leases was 4.75 % and 4.73 %, respectively, and the weigh ted-average remaining term of the leases was 6.81 years and 7.78 years, respectively. The Company's lease terms range from less than one year to one hundred forty-four months .
For the years ended December 31, 2025 and 2024, operating lease cash flows (fixed payments) were approximately $ 3.3 million and $ 3.1 million respectively.
Lease costs for the years ended December 31, 2025, 2024, and 2023 were as follows and are included in occupancy and equipment expense on the consolidated statements of income:
For the Years Ended December 31,
(Dollars in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
A schedule of the Company's lease liabilities by contractual maturity for operating leases with initial or remaining terms in excess of one year for each year through 2030 and thereafter is presented below:
(Dollars in thousands)
December 31, 2025
Thereafter
Total undiscounted lease liability
Less: Discount on cash flows
Total operating lease liability
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded lines of credit, commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. The Company generally uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The following financial instruments were outstanding whose contract amounts represent credit risk:
December 31,
(Dollars in thousands)
Commitments to extend credit
Standby letters of credit
Total
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank's policy for obtaining collateral and the nature of such collateral is essentially the same as that involved in making commitments to extend credit.
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. Off-balance sheet credit exposures primarily consist of amounts available under outstanding lines of credit and letters of credit detailed in the table above, less those obligations which the Company has the unconditional right to cancel. No allowance is recognized if the issuer has an unconditional right to cancel the obligation. The amount of the allowance represents management's best estimate of expected credit losses on commitments expected to be funded over the contractual life of the commitment. The allowance for credit losses related to off-balance sheet exposures is recorded in other liabilities on the consolidated balance sheets.
The following table details the activity in the allowance for credit losses on off-balance sheet commitments for the years ended December 31, 2025, 2024, and 2023:
December 31,
(Dollars in thousands)
Balance at beginning of period
Provision for (reversal of) credit losses on off-balance sheet commitments
Total allowance for credit losses - off balance sheet commitments
Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
GAAP requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in level 1 that are observable for the asset and liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds and mortgage-backed securities.
Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Financial assets and financial liabilities measured at fair value on a recurring and nonrecurring basis include the following:
Investment Securities Available-for-sale . Investment securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the bond’s terms and conditions, among other things.
Investment Securities Held-to-Maturity . Investment securities classified as held-to-maturity are reported at cost, adjusted for amortization of premiums and discounts. Fair value estimates are determined using Level 3 inputs.
Collateral Dependent Loans Evaluated Individually for Expected Credit Losses . Individually evaluated loans are reported at the estimated fair value of the underlying collateral. Collateral values are estimated using Level 2 inputs based on observable market data or independent appraisals using Level 3 inputs.
Derivative Instruments . The estimated fair value of interest rate derivative positions are obtained from a pricing service that provides the swaps’ unwind value using Level 2 inputs.
There were no transfers between levels during the year ended December 31, 2025 or 2024.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value as of December 31, 2025 and 2024:
Fair Value Measurements Using
(Dollars in thousands)
Level 1 Inputs
Level 2 Inputs
Level 3 Inputs
Total Fair Value
At December 31, 2025
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
Total investment securities available-for-sale
Derivative assets:
Pass-through interest rate swaps
Risk participation agreements
Pay-fixed interest rate swaps
Total derivative assets
Derivative liabilities:
Interest rate swaps
Risk participation agreements
Pay-fixed interest rate swaps
Total derivative liabilities
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Fair Value Measurements Using
(Dollars in thousands)
Level 1 Inputs
Level 2 Inputs
Level 3 Inputs
Total Fair Value
At December 31, 2024
Securities available-for-sale:
U.S. government and agency securities
State and municipal securities
Mortgage-backed securities and collateralized mortgage obligations
Corporate bonds
Total investment securities available-for-sale
Derivative assets:
Pass-through interest rate swaps
Risk participation agreements
Pay-fixed interest rate swaps
Total derivative assets
Derivative liabilities:
Cash flow hedges
Interest rate swaps
Risk participation agreements
Pay-fixed interest rate swaps
Total derivative liabilities
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following at December 31, 2025 and 2024:
Collateral Dependent Loans Evaluated Individually for Expected Credit Losses. At December 31, 2025, collateral dependent loans with a specific valuation allowance had carrying values of $ 458,000 and specific valuation allowances totaling $ 78,000 resulting in a net fair value of $ 380,000 based on Level 3 inputs. At December 31, 2024, collateral dependent loans with a specific valuation allowance had carrying values of $ 12.7 million and specific valuation allowances totaling $ 1.7 million resulting in a net fair value of $ 11.0 million based on Level 3 inputs.
The following table presents the significant unobservable inputs (Level 3) used in the valuation of assets measured at fair value on a nonrecurring basis:
Financial Instrument
Unobservable Inputs
Valuation Method
Discount Range
Typical Discount
Collateral dependent loans
Discount to fair value
Appraisal value, as adjusted
Inventory
Accounts receivables
Equipment
Other real estate owned
Discount to fair value
Appraisal value, as adjusted
Non-financial assets measured at fair value on a non-recurring basis may include certain foreclosed assets which, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial recognition, are remeasured at fair value through a write-down included in current earnings. The fair value of a foreclosed asset is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. Foreclosed assets include other real estate owned and are included in other assets on the consolidated balance sheets.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following table presents the activity for other real estate owned assets that were remeasured and recorded at fair value at December 31, 2025 and 2024:
December 31,
(Dollars in thousands)
Balance at beginning of period, net of valuation allowance
Loans transferred to other real estate owned
Sales of other real estate owned
Less: charge-offs recognized in the allowance for credit losses
Less: (write-up) write-down included in other noninterest expense
Fair value of foreclosed assets remeasured at initial recognition
For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments as defined. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market rates for similar assets and liabilities. Financial instrument assets with variable rates and financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value. The carrying value and the estimated fair value of the Company’s contractual off-balance sheet unfunded lines of credit, loan commitments and letters of credit are generally priced at market at the time of funding.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The estimated fair values and carrying values of all financial instruments under current authoritative guidance, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value are as follows:
December 31, 2025
December 31, 2024
(Dollars in thousands)
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Financial assets
Level 2 inputs
Cash and cash equivalents
Interest-bearing time deposits in other banks
Securities available-for-sale
Non-marketable securities
Accrued interest receivable
Bank-owned life insurance
Derivative assets
Level 3 inputs
Securities held-to-maturity
Loans, net
Financial liabilities
Level 2 inputs
Deposits
Accrued interest payable
Note payable and line of credit
Derivative liabilities
Significant Group Concentrations of Credit Risk
The Company’s principal business activities are with customers primarily located within Texas. Such customers are normally also depositors of the Company. In addition, the Company employs a national wholesale deposit strategy to attract and maintain large, relatively low-cost stable deposits through a number of core, fiduciary and institutional deposit programs.
The distribution of commitments to extend credit approximates the distribution of loans outstanding. The contractual amounts of credit related financial instruments such as commitments to extend credit and credit card arrangements represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless.
At December 31, 2025 and 2024, the Company had federal funds sold aggregating approximately $ 6.0 million and $ 50.0 million , respectively, which represents concentrations of credit risk. The Company also maintains deposit balances with other financial institutions that exceed FDIC coverage and also represent credit risk. These balances were approximately $ 43.4 million and $ 270.9 million , respectively, at December 31, 2025 and 2024. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
At December 31, 2025 and 2024, the Company had $ 281.3 million and $ 392.1 million , respectively, in outstanding notional derivative balances with a financial institution counterparty. The derivative positions represent credit risk.
Employee Benefit Plans
In 2009, the Company adopted the Third Coast Bank, SSB 401(k) Plan covering substantially all employees. Employees may elect to defer a percentage of their compensation subject to certain limits based on federal tax laws. The Company may make a discretionary match of employees’ contributions based on a percentage of salary contributed by participants.
Effective July 1, 2022, the Company amended the Third Coast Bank, SSB 401(k) Plan and merged that plan into the Third Coast Bank, SSB Employee Stock Ownership Plan (the “Merged Plan”). In connection with this amendment and plan merger on July 1, 2022, the Company registered an aggregate of 400,000 shares of the Company's common stock, par value $ 1.00 per share, for issuance to the Merged Plan in connection with elections by participants to allocate a portion of their plan account balances (up to the limits prescribed under the Merged Plan) to the Company stock fund investment option. The number of shares held by the ESOP immediately prior to
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
the plan merger was 149,461 shares. Under the Merged Plan, discretionary contributions made by the Company will be invested at the direction of the plan participant, in accordance with participant plan elections.
For the years ended December 31, 2025, 2024, and 2023, Company contributions to the Merged Plan were approximately $ 1.7 million , $ 1.5 million , and $ 1.5 million , respectively. Administrative expenses related to the Merged Plan for the same twelve month periods totaled approximately $ 93,000 , $ 74,000 , and $ 53,000 , respectively. The costs are included in salaries and employee benefits in the accompanying consolidated statements of income.
Phantom Stock Appreciation Plan
On May 3, 2023, the Board of Directors approved the Third Coast Bancshares, Inc. Phantom Stock Appreciation Plan (the “Phantom Stock Plan”). Under the Phantom Stock Plan, participants are granted phantom stock units (“PSUs”) which vest ratably over a three-year period. The PSU confers to the participant the benefits of owning stock without the actual ownership or transfer of shares. Each stock unit entitles the participant to receive, upon vesting of each PSU, an amount equal to the sum of (a) the opening value and (b) the bonus amounts applicable to each PSU, as calculated pursuant to the terms of the Phantom Stock Plan and the Award Agreement. Settlement is payable to participants within 30 days of the vesting date.
The Phantom Stock Plan is an unfunded plan whereby benefits are paid by the Company from its general assets, and participants have the rights of a general, unsecured creditor against the Company for any payments due hereunder. If a participant ceases, for any reason other than death or disability, to be a service provider, then the participant forfeits all rights to his or her outstanding PSUs. If the participant ceases to be a service provider due to the participant’s death or disability, then all unvested PSUs become fully vested on the date the participant ceases to be a service provider. For the years ended December 31, 2025, 2024, and 2023, the Company had expensed $ 872,000 , $ 702,000 , and $ 378,000 , respectively, in deferred compensation related to the Phantom Stock Plan. The costs are included in salaries and employee benefits in the accompanying consolidated statements of income.
Related Party Transactions
During the normal course of business, the Company may enter into transactions with significant stockholders, directors and principal officers and their affiliates (collectively referred to herein as “related parties”). It is the Company’s policy that all such transactions are on substantially the same terms as those prevailing at the time for comparable transactions with third parties. At December 31, 2025 and 2024, the aggregate amount of loans to related parties was approximately $ 9.3 million and $ 1.5 million , respectively. During the year ended December 31, 2025, loan originations to related parties totaled $ 9.3 million and repayments from related party loans totaled $ 1.5 million . Related party unfunded commitments at December 31, 2025 and 2024, were $ 2.2 million and $ 430,000 , respectively. Deposits received from related parties at December 31, 2025 and 2024, totaled approximately $ 21.5 million and $ 18.9 million , respectively.
Shareholders’ Equity and Regulatory Matters
Transfer of Listing on Stock Market Exchange
On September 22, 2025, the Company, acting pursuant to authorization from its Board of Directors, provided written notice to The Nasdaq Stock Market LLC (“Nasdaq”) of its intention to voluntarily withdraw the principal listing of its common stock, par value $1.00 per share (“Common Stock”), from Nasdaq and transfer the listing of its Common Stock to the New York Stock Exchange (the “NYSE”) and to NYSE Texas. The listing and trading of the Common Stock on Nasdaq ended at market close on October 3, 2025, and trading commenced on the NYSE and NYSE Texas at market open on October 6, 2025.
The Common Stock is authorized for dual listing on NYSE and NYSE Texas, where it continues to trade under the stock symbol “TCBX.”
Share Repurchase Program
On June 17, 2025, the Company's Board of Directors authorized a new share repurchase program (the “Repurchase Program”) under which the Company may repurchase up to $ 30 million of its common stock through May 22, 2026. Non-objection from the Federal Reserve Bank of Dallas related to the Repurchase Program was received on June 16, 2025. As of December 31, 2025, no shares were repurchased under the Repurchase Program.
Under the Repurchase Program, the Company may periodically buy its shares through open market transactions at current market
prices, privately negotiated deals, block trades, or other methods compliant with federal securities laws. The Repurchase Program can
be extended, modified, amended, suspended, or halted at any time by the Company's Board of Directors and does not obligate the
Company to repurchase its common stock.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Amendment to Certificate of Formation
On May 25, 2023, the shareholders of the Company approved the amendment and restatement (the “Amendment”) of Article VI of the Company's first amended and restated certificate of formation to authorize a new class of Non-Voting Common Stock. Under the terms of the Amendment, the Company is authorized to issue 54,500,000 shares of capital stock, consisting of 50,000,000 shares of common stock, par value $ 1.00 per share, 3,500,000 shares of Non-Voting Common Stock, and 1,000,000 shares of preferred stock, par value $ 1.00 per share. The shares of capital stock may be issued as authorized by the board of directors of the Company without the approval of its shareholders, except as otherwise provided by governing law, rule or regulation or as set forth in the certificate of formation, as amended. The Amendment became effective upon the filing of the Certificate of Amendment to the Certificate of Formation of the Company with the Secretary of State of the State of Texas on May 25, 2023.
Preferred Stock
On September 30, 2022, the Company adopted resolutions creating Series A Convertible Non-Cumulative Preferred Stock (“Series A Preferred Stock”) and Series B Preferred Stock, with 69,400 shares authorized for each series. Series A Preferred Stock is convertible into: (i) shares of common stock, subject to a cap with respect to each purchasers equal to 9.9 % of the total outstanding shares of common stock (or any class of voting securities of the Company) (the “Regulatory Cap”), and once the Regulatory Cap has been reached, (ii) shares of Series B Preferred stock, and (iii) Non-Voting Common Stock. The Regulatory Cap will be calculated in accordance with the Federal Reserve regulations and such calculation will include, as applicable, the ownership of any person to whom a holder of Series A Preferred Stock transfers capital stock of the Company and any person to whom such person transfers capital stock of the Company, in each case, other than transferees in a transfer of the type identified in the Federal Reserve Regulations at 12 C.F.R. § 225.9(a)(3)(ii), or any successor provision. The Certificate of Designation, Preferences and Rights of Series A Convertible Non-Cumulative Preferred Stock of Third Coast Bancshares, Inc. (the “Series A Certificate of Designation”) also contains an ownership cap, with respect to an initial acquirer of Series A Preferred Stock pursuant to the Investment Agreement, dated September 8, 2022, by and among the Company and the several purchasers thereto, all affiliates, and certain direct and indirect transferees, of one-third of the total equity of the Company calculated in accordance with the Federal Reserve Regulations at 12 C.F.R. § 225.34 (“Total Equity Limitations”).
Subject to the terms and conditions set forth in the Series A Certificate of Designation, the Regulatory Cap and the Total Equity Limitation, the Series A Preferred Stock is convertible into common stock and Non-Voting Common Stock at a rate equal to its liquidation preference of $ 1,000 per share divided by the conversion price of $ 22.50 . The Series A Preferred Stock that is converted into Series B Preferred Stock shall convert at a rate of one share of Series B Preferred Stock for one share of Series A Preferred Stock. The conversion price is subject to adjustment in accordance with the terms of the Series A Certificate of Designation in connection with certain customary events, including, without limitation, certain dividends, distributions, subdivisions, splits, combinations, and tender or exchange offers.
Preferred Stock - Private Placement
On September 30, 2022, the Company completed a private placement of (i) 69,400 shares of Series A Preferred Stock with a liquidation preference of $ 1,000 per share, and (ii) the Preferred Warrants at an exercise price equal to $ 22.50 per share, for aggregate gross proceeds of $ 69.4 million before deducting plac ement fees and offering expenses. Aggregate net proceeds were $ 66.2 million after deducting placement fees and offering expenses of $ 3.2 mill ion.
The securities sold in the private placement were sold only to accredited investors and were issued without registration under the Securities Act, in reliance upon the exemption provided under Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder as securities offered and sold only to accredited investors (as defined in Rule 501(a) of Regulation D under the Securities Act) in a transaction not involving any public offering. Officers and directors of the Company purchased $ 2.7 million of the Series A Preferred Stock.
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 Preferred Warrants issued to such securityholders in the private placement completed on September 30, 2022 and the securities issuable upon conversion of shares of 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.
Regulatory Matters
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 Texas Department of Banking (“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 continues to be the Company’s primary federal regulator.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I capital, and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2025 and 2024, the Company and Bank meet all capital adequacy requirements to which it is subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the tables below. As shown below, the Bank’s capital ratios exceed the regulatory definition of well capitalized as of December 31, 2025 and 2024. Based upon the information in its most recently filed call report, the Bank continues to meet the capital ratios necessary to be well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since December 31, 2025, that management believes have changed the Bank’s category.
A comparison of actual capital amounts and ratios to required capital amounts and ratios for the Company and Bank are presented in the following table. Capital levels required to be well capitalized are based upon prompt corrective action regulations.
Actual
For Capital Adequacy
Purposes
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
THIRD COAST BANCSHARES, INC. (Consolidated)
As of December 31, 2025
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
Common equity tier 1 (to risk weighted assets)
As of December 31, 2024
Total capital (to risk weighted assets)
Tier I capital (to risk weighted assets)
Tier I capital (to average assets)
Common equity tier 1 (to risk weighted assets)
THIRD COAST BANK
As of December 31, 2025
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
Common equity tier 1 (to risk weighted assets)
As of December 31, 2024
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
Common equity tier 1 (to risk weighted assets)
Earnings Per Common Share
Basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period. Diluted earnings per common share is computed by using the net earnings allocated to common stock plus dividends on dilutive convertible preferred stock, divided by the sum of 1) the weighted-average number of shares determined for the basic earnings per common share computation, 2) the dilutive effect of stock compensation using the treasury stock method, and 3) the dilutive effect of convertible preferred stock using the if-converted method.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
The following table presents a reconciliation of net income available to common shareholders and the number of shares used in the calculation of basic and diluted earnings per common share shown on the consolidated statements of income:
For the Years Ended December 31,
(Dollars in thousands, except share and per share data)
Net income
Less: dividends declared, Preferred Series A stock
Net income available to common shareholders
Weighted-average shares outstanding for basic earnings per common share
Dilutive effect of stock compensation and other dilutive securities
Dilutive effect of Preferred Series A stock
Weighted-average shares outstanding for diluted earnings per common share
Basic earnings per share
Diluted earnings per share
Derivative Financial Instruments
Cash Flow Hedges
On April 4, 2025, the Company 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, the Company 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, the Company 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, the Company 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, the Company 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, net of deferred taxes, into interest expense through the maturity date of the contract.
For the years ended December 31, 2025, 2024, and 2023, approximately $ 3.2 million , $ 3.0 million , and $ 1.7 million , respectively, was reclassified out of accumulated other comprehensive income and recognized as a reduction of interest expense on discontinued hedges. At December 31, 2025, the Company expected $ 2.5 million of the unrealized gain to be reclassified as a reduction of interest expense during 2026.
Fair Value Hedges
The Company offers certain interest rate swap products directly to its qualified commercial banking customers. These financial instruments are not designated as hedging instruments. The interest rate swap derivative positions relate to transactions in which the Company enters 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, the Company agrees 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, the Company agrees to pay another financial
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.
Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and would not significantly impact the Company’s operating results except in certain situations where there is a significant deterioration in the customer’s credit worthiness or that of the counterparties. At December 31, 2025, no such deterioration was determined by management.
The Company also offers one-way interest rate swap products to its customers. Under this type of arrangement, the Company extends a conventional fixed-rate loan to the borrower and then subsequently hedges the interest rate risk of that loan by entering into a swap for its own balance sheet to convert the fixed-rate loan to a synthetic floating rate asset. These types of swaps lock in the Company's spread over its cost of funds for the life of the loan.
For some of its loan participation facilities, the Company enters into RPAs 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 derivative assets or derivative liabilities in the accompanying consolidated balance sheets. At December 31, 2025, the Company's derivative assets and liabilities each totaled $ 2.5 million and $ 3.1 million , respectively.
The following tables provide the outstanding notional balances and fair values of outstanding derivative positions at December 31, 2025 and 2024.
(Dollars in thousands)
Outstanding
Notional
Balance
Asset
Derivative
Fair Value
Liability
Derivative
Fair Value
Pay
Rate (1)
Receive
Rate (1)
Remaining
Term (2)
December 31, 2025
Fair value hedges:
Risk participation agreements purchased
Risk participation agreements sold
Commercial loan one-way interest rate swaps
Commercial loan pass-through interest rate swaps:
Loan customer counterparty
Financial institution counterparty
Total fair value hedges
Total derivatives
December 31, 2024
Cash flow hedges:
Pay-fixed interest rate swap
USD Fed
Funds-H. 15
Total cash flow hedges
Fair value hedges:
Risk participation agreements purchased
Risk participation agreements sold
Commercial loan one-way interest rate swaps
Commercial loan pass-through interest rate swaps:
Loan customer counterparty
Financial institution counterparty
Total fair value hedges
Total derivatives
(1) Weighted average rate.
(2) Weighted average life (in years).
Goodwill and Core Deposit Intangibles, Net
Goodwill and other intangible assets were $ 18.7 million and $ 18.8 million as of December 31, 2025 and 2024, respectively.
Amortization expense of the core deposit intangible (“CDI”) was approximately $ 162,000 for each of the years ended December 31, 2025, 2024, and 2023. The remaining weighted average life is 4 years at December 31, 2025.
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Scheduled amortization of CDI at December 31, 2025 are as follows:
(Dollars in thousands)
CDI
Amortization
Contingencies
Litigation
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, all liability resulting from such proceedings is not considered material and has been accounted for in the consolidated financial statements.
Parent Company Financial Statements
The following balance sheets, statements of income and statements of cash flows for Third Coast Bancshares, Inc. should be read in conjunction with the consolidated financial statements and the notes thereto.
Condensed Balance Sheets of the Company (Parent company only) for the periods presented are as follows:
(Dollars in thousands)
December 31,
ASSETS
Cash and cash equivalents
Investment in subsidiary
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Other borrowings
Other liabilities
Total liabilities
Shareholders' equity:
Series A Convertible Non-Cumulative Preferred Stock
Series B Convertible Perpetual Preferred Stock
Common stock
Common stock - non-voting
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock: at cost
Total shareholders' equity
Total liabilities & shareholders' equity
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Condensed Statements of Income and Comprehensive Income of the Company (Parent company only) for the periods are as follows:
For the Years Ended December 31,
(Dollars in thousands)
Interest income:
Dividends from subsidiary
Total interest income
Interest expense:
Interest on notes payable
Total interest expense
Net interest (expense) income
Noninterest expense:
Legal and professional
Other
Total noninterest expense
Net (loss) income before income tax expense and equity in undistributed earnings of subsidiaries
Income tax benefit
Net (loss) income before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings of subsidiaries
Net income
Comprehensive income
Condensed Statements of Cash Flows of the Company (Parent company only) for the periods presented are as follows:
For the Years Ended December 31,
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed net income of subsidiaries
Amortization of subordinated debt origination costs
Net change in other assets
Net change in other liabilities
Net cash (used in) from operating activities
Cash flows from investing activities:
Capital investment in subsidiary
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from (repayment of) line of credit - senior debt
Registration costs for securities issued in private placement
Dividends paid on Series A preferred stock
Proceeds from stock warrants exercised
Proceeds from stock options exercised
Net cash provided by (used in) financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
THIRD COAST BANCSHARES, INC. AND SUBSIDIARY
Notes to consolidated Financial Statements
December 31, 2025 and 2024
Subsequent Events - Completion of Business Combination
On February 1, 2026, Third Coast Bancshares, Inc. (the “Company”), a Texas corporation and the parent company of Third Coast Bank, a Texas banking association, completed its merger with Keystone Bancshares, Inc. (“Keystone”), a Texas corporation and 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 Third Coast Bank, with Third Coast Bank surviving the merger.
At the effective time of the Merger, each outstanding share of Keystone common stock was converted into the right to receive the following: (a) for each share of Keystone common stock with respect to which such holder made a cash election in accordance with the terms of the Merger Agreement, (i) approximately $ 12.60 in cash and (ii) 0.13540 shares of common stock, par value $ 1.00 per share, of the Company; and (b) for each share of Keystone common stock that was not a cash election share, 0.45925 shares (the “exchange ratio”) of Company common stock. No fractional shares of Company common stock were issued in connection with the Merger. Holders of Keystone common stock who would otherwise have been entitled to a fraction of a share of Company common stock upon the completion of the Merger instead received, for the fraction of a share, an amount in cash determined by multiplying the fractional share by $ 38.90 .
At the effective time of the Merger, outstanding Keystone equity awards were treated as follows:
Keystone Options: Each outstanding and unexercised option, whether vested or unvested, was converted into an option to purchase Company common stock, with the number of shares of Third Coast common stock subject to each such converted stock option and the exercise price of each such converted stock option adjusted based on the exchange ratio pursuant to the Merger Agreement.
Keystone Restricted Stock Units and Restricted Stock: Outstanding restricted stock units became fully vested and were converted into the right to receive 0.45925 shares of Third Coast common stock for each share of Keystone common stock earned upon such vesting pursuant to the terms of such restricted stock units. Outstanding restricted stock awards became fully vested and were converted into the right to receive 0.45925 shares of Company common stock for each share of Keystone common stock subject to such restricted stock awards.
The total aggregate consideration payable in the Merger was approximately 2.6 million shares of Company common stock and $ 20 million in cash. The issuance of shares of Company common stock in connection with the Merger was registered under the Securities Act of 1933, pursuant to a registration statement filed by the Company with the SEC which was declared effective on December 19, 2025.
The Merger expanded the Company's presence in Texas by adding two branches in the Austin market, one branch in Ballinger, Texas, and one loan production office in Bastrop, Texas. As of the effective time of the Merger, the combined Company had 22 branches with approximate ly $ 6.0 billion in assets, prior to any purchase accounting adjustments.
The Company will account for the Keystone acquisition as a business combination under the acquisition method of accounting and will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. The Company has not yet completed the purchase accounting due to the timing of the Merger, and it continues to evaluate the estimated fair values of the assets acquired and the liabilities assumed. Accordingly, the fair value of the assets and liabilities acquired, including goodwill and other intangible assets, is not yet available.
