10-Q: Third Coast Bancshares Q3 2025 Earnings Surge Amid Strategic Merger

Sentiment:

Quarterly Report 4 November 2025 4:31 PM

📋All filings for Third Coast Bancshares, INC

Third Coast Bancshares reports strong financial performance for Q3 and the first nine months of 2025, driven by significant net interest income growth, and announces a definitive merger agreement with Keystone Bancshares, Inc.

Capital raiseOn September 30, 2022, the company completed a private placement of 69,400 shares of Series A Convertible Non-Cumulative Preferred Stock and Preferred Warrants, generating aggregate gross proceeds of $69.4 million.The proposed merger with Keystone Bancshares, Inc. involves the issuance of the company's common stock to Keystone shareholders, with an aggregate cash consideration not exceeding $20 million.

Better than expectedNet income for the nine months ended September 30, 2025, increased by 42.6% compared to the prior year period.Basic earnings per common share increased by 45.3% for the nine months ended September 30, 2025.Net interest income grew by 21.9% for the nine months ended September 30, 2025, driven by loan growth and improved investment yields, alongside decreased rates paid on interest-bearing deposits.

Summary

Net income for the nine months ended September 30, 2025, increased by 42.6% to $48.39 million, up from $33.94 million in the prior year period.
Basic earnings per common share rose to $3.24 for the nine months ended September 30, 2025, compared to $2.23 for the same period in 2024.
Net interest income increased by 21.9% to $143.02 million for the nine months ended September 30, 2025, from $117.32 million in the prior year.
Total assets grew to $5.06 billion as of September 30, 2025, an increase of $119.4 million from $4.94 billion at December 31, 2024.
Total loans, net of allowance for credit losses, increased by 5.0% to $4.12 billion as of September 30, 2025, from $3.93 billion at December 31, 2024.
Total deposits increased by 1.4% to $4.37 billion as of September 30, 2025, from $4.31 billion at December 31, 2024.
The company entered into a definitive merger agreement with Keystone Bancshares, Inc., expected to close in Q1 2026, with Keystone shareholders receiving common stock or cash consideration.
The allowance for credit losses for loans totaled $42.56 million, or 1.02% of total loans, as of September 30, 2025, consistent with 1.02% at December 31, 2024.
Nonperforming assets increased to $30.13 million as of September 30, 2025, from $28.81 million at December 31, 2024.

Sentiment

Score: 8

Explanation: The company demonstrated strong financial performance with significant increases in net income and net interest income. The strategic merger announcement with Keystone Bancshares, Inc. signals positive growth and expansion. While there was a decrease in noninterest-bearing deposits and cash, overall asset and loan growth, coupled with robust capital ratios, indicates a healthy and forward-looking position.

Positives

Net income for the nine months ended September 30, 2025, increased significantly by 42.6% to $48.39 million.
Basic earnings per common share grew by 45.3% to $3.24 for the nine months ended September 30, 2025.
Net interest income saw a substantial increase of 21.9% to $143.02 million for the nine months ended September 30, 2025.
Total assets increased by $119.4 million to $5.06 billion, indicating continued growth.
Total loans, net of allowance for credit losses, grew by 5.0% to $4.12 billion, primarily driven by commercial and industrial loans.
Service charges and fees increased by 40.2% to $7.24 million for the nine months ended September 30, 2025.
Earnings on bank-owned life insurance increased by 21.3% to $2.21 million for the nine months ended September 30, 2025.
The company maintains strong capital ratios, exceeding regulatory 'well capitalized' thresholds, with a Total Capital Ratio of 12.90% and Tier 1 Capital Ratio of 10.25% at September 30, 2025.
The strategic merger agreement with Keystone Bancshares, Inc. is expected to enhance market presence and operational scale.
The company completed two securitizations totaling $250 million of revolving commercial real estate loans during Q2 2025, demonstrating active portfolio management.

Negatives

Noninterest-bearing deposits decreased by 25.3% to $450.01 million as of September 30, 2025, from $602.08 million at December 31, 2024.
Cash and cash equivalents decreased significantly to $123.01 million as of September 30, 2025, from $421.20 million at December 31, 2024.
Noninterest expense increased by 11.3% to $85.85 million for the nine months ended September 30, 2025, primarily due to higher salaries and employee benefits.
Nonperforming assets increased to $30.13 million as of September 30, 2025, from $28.81 million at December 31, 2024.
The ratio of nonaccrual loans to total loans increased from 0.26% to 0.67% from December 31, 2024, to September 30, 2025.

Risks

Interest rate risk and fluctuations in interest rates could adversely affect financial performance.
Market conditions and economic trends generally and in the banking industry could impact operations.
Ability to maintain important deposit relationships and grow or maintain the deposit base is crucial.
The company's expansion strategy may not be successfully implemented.
Geographic concentration in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets exposes the company to regional economic downturns.
Changes in the economy affecting real estate values and liquidity, as well as changes in the value of collateral securing loans, pose credit risks.
Credit risk is associated with the business, particularly real estate and construction lending.
Prepayment risks are associated with commercial real estate loans.
Liquidity risks exist in the securitization market and operational risks related to the administration of securitized assets.
The adequacy of the allowance for credit losses is subject to estimates and assumptions.
The amount of nonperforming and classified assets held could increase.
Borrowers' ability to repay loans may deteriorate.
Risk of fraud related to asset-based lending and commercial finance products.
Additional debt or future issuances of new debt securities or preferred stock could dilute existing shareholders or increase financial leverage.
Ability to raise additional capital in the future may be constrained.
Changes in key management personnel could disrupt operations.
Accuracy of valuation techniques used in evaluating collateral is critical.
Competition from financial services companies and other companies offering banking services could impact market share.
Systems failures, fraudulent activity, interruptions, or data breaches involving information technology and communications systems of third parties pose operational risks.
Natural disasters, pandemics, epidemics, and other catastrophes could disrupt business.
Changes in laws, rules, regulations, interpretations, or policies relating to financial institutions, accounting, tax, trade, monetary, and fiscal matters could impact compliance and costs.
The rise of Artificial Intelligence as a commonly used resource in banking could necessitate significant investment and adaptation.
Monetary policies and regulations of the Board of Governors of the Federal Reserve System can affect interest rates and economic conditions.
The sustainment of an active, liquid market for common stock and fluctuations in its market price are external risks.
The proposed acquisition of Keystone Bancshares, Inc. may not be completed due to regulatory, shareholder, or other approvals not being received or satisfied on a timely basis or at all.
The benefits from the Keystone transaction may not be fully realized or may take longer to realize than expected, including integration difficulties, loss of key employees, and disruption to businesses.
The transaction may be more expensive to complete than anticipated.
Reputational risk and potential adverse reactions of customers, suppliers, employees, or other business partners due to the merger announcement or completion.
Dilution caused by the issuance of additional shares of common stock in connection with the Keystone transaction.
A material adverse change in the financial condition of the Company or Keystone could impact the merger.
Litigation may be filed against the Company, Keystone, or their respective boards or officers in connection with the merger, potentially delaying completion or resulting in damages.

Future Outlook

The company expects to close the merger with Keystone Bancshares, Inc. during the first quarter of 2026, subject to regulatory and shareholder approvals. Management intends to monitor and control growth to ensure compliance with all regulatory capital standards. Approximately $2.5 million of unrealized gain from discontinued cash flow hedges is expected to be reclassified as a reduction of interest expense over the next twelve months.

Management Comments

Management believes the allowance for credit losses is adequate to cover expected credit losses on loans at September 30, 2025 and 2024.
Management believes the company's valuation methodologies are appropriate and consistent with other market participants.
Management does not have the intent to sell any of the securities classified as available-for-sale in an unrealized loss position and believes it is more likely than not that the company will not have to sell any such securities before a recovery of cost.

Industry Context

Third Coast Bancshares operates in the competitive community banking sector, primarily serving small and medium-sized businesses and professionals in the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets in Texas. The company's focus on commercial lending and accounts receivable factoring through TCCC aligns with a strategy to provide tailored financial products. The announced merger with Keystone Bancshares, Inc. indicates a move towards consolidation and increased market presence, a common trend in the banking industry to achieve scale and efficiency. The mention of Artificial Intelligence as a risk factor highlights the increasing technological disruption and adoption within the banking sector.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Stock Market Listing Transfer	Voluntarily withdrew the principal listing of common stock from Nasdaq and transferred it to the New York Stock Exchange (NYSE) and NYSE Texas.	October 6, 2025	Aimed at enhancing visibility and liquidity for investors by listing on a major exchange.
Share Repurchase Program Authorization	Board of Directors authorized a new share repurchase program for up to $30 million of common stock.	June 17, 2025	Provides flexibility for capital management and potential return of capital to shareholders, subject to market conditions and regulatory non-objection.
Certificate of Formation Amendment	Shareholders approved an amendment to authorize a new class of Non-Voting Common Stock and increased total authorized capital stock.	May 25, 2023	Increases flexibility for future equity issuances and capital structure management, potentially for strategic transactions without diluting voting control.
Bank Charter Conversion	The Bank converted from a Texas state savings bank to a Texas banking association.	March 13, 2024	Changed the primary state regulator to the Texas Department of Banking, while the Federal Reserve remains the primary federal regulator, potentially streamlining regulatory oversight or aligning with strategic objectives.

Legal Proceedings

The company is involved in various legal proceedings in the normal course of business, including allegations of banking regulation violations, competition law, labor laws, consumer protection laws, intellectual property, securities, breach of contract, and tort claims.
Management believes the likelihood is remote that the impact of such proceedings, individually or in aggregate, would have a material adverse effect on consolidated financial statements.

Related Party Transactions

Aggregate loans to related parties were approximately $6.0 million at September 30, 2025, up from $1.5 million at December 31, 2024.
Loan originations to related parties totaled $6.0 million during the nine months ended September 30, 2025.
Repayments from related parties totaled $1.5 million during the nine months ended September 30, 2025.
Related party unfunded commitments were approximately $515,000 at September 30, 2025, compared to $430,000 at December 31, 2024.
Deposit account balances for related parties totaled approximately $20.8 million at September 30, 2025, up from $18.9 million at December 31, 2024.
All related party transactions are on substantially the same terms as comparable transactions with third parties.

Stakeholder Impact

Shareholders: Potential for increased value through strong financial performance and strategic merger, but also dilution risk from stock issuance in the merger and market price fluctuations. Share repurchase program could benefit shareholders.
Employees: New hires and increased bonus expense indicate growth. Employee Stock Ownership Plan (ESOP) and Phantom Stock Appreciation Plan provide compensation and retention incentives.
Customers: Continued provision of commercial and retail banking services, with potential for expanded offerings and geographic reach post-merger. TCCC provides working capital solutions for small-to-medium-sized businesses.
Regulatory Authorities: Ongoing compliance with capital adequacy requirements and regulatory oversight, including the recent conversion to a Texas banking association.
Creditors: Subordinated notes and senior debt obligations are in place, with the merger potentially impacting the combined entity's credit profile.

Next Steps

Complete the merger with Keystone Bancshares, Inc., expected in the first quarter of 2026, subject to regulatory and shareholder approvals.
Integrate Keystone's operations into the company's existing business.
Continue to monitor and control growth to remain in compliance with all regulatory capital standards.
Manage the reclassification of approximately $2.5 million of unrealized gain from discontinued cash flow hedges into interest expense over the next twelve months.
Potentially repurchase up to $30 million of common stock under the authorized share repurchase program through May 22, 2026.

Key Dates

Date	Description
2008	Bank adopted the 2008 Stock Option Plan.
2009	Company adopted the Third Coast Bank, SSB 401(k) Plan.
2013	Company adopted the 2013 Stock Option Plan.
December 2017	Company adopted the 2017 Non-Employee Director Stock Option Plan.
July 2018	Company's board of directors approved the grant of 50,000 additional shares under the Director Plan.
May 29, 2019	Company's shareholders approved the 2019 Omnibus Incentive Plan.
May 20, 2021	Company's shareholders approved an amendment to the 2019 Plan, increasing shares by 500,000.
March 31, 2022	Company issued and sold $82.3 million in aggregate principal amount of its 5.500% Fixed-to-Floating Rate Subordinated Notes due 2032 in a private placement transaction.
March 31, 2022	Company adopted resolutions creating Series A Convertible Non-Cumulative Preferred Stock and Series B Preferred Stock.
July 1, 2022	Company amended and merged the Third Coast Bank, SSB 401(k) Plan into the Third Coast Bank, SSB Employee Stock Ownership Plan (ESOP).
July 19, 2022	Exchange offer under the Registration Rights Agreement for Subordinated Notes was completed.
September 30, 2022	Company completed a private placement of 69,400 shares of Series A Preferred Stock and Preferred Warrants for $69.4 million.
May 3, 2023	Board of Directors approved the Third Coast Bancshares, Inc. Phantom Stock Appreciation Plan.
May 25, 2023	Shareholders approved the amendment and restatement of Article VI of the Company's certificate of formation to authorize Non-Voting Common Stock.
December 31, 2023	Balance sheet date for prior year comparison.
March 4, 2025	Receive-fixed interest rate swap agreement (notional $100 million, maturing April 30, 2035) was discontinued, resulting in a $456,000 gain.
March 5, 2025	Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC.
March 10, 2026	Maturity date for the $55.0 million revolving line of credit facility.
March 12, 2024	Revolving line of credit facility modified, increasing by $5.0 million and decreasing note rate.
March 13, 2024	Bank completed its conversion from a Texas state savings bank to a Texas banking association.
April 1, 2025	Company purchased Class A-1 asset backed notes, Series 2025-1, for $78 million.
April 1, 2025	Bank entered into a $100 million securitization transaction of a revolving commercial real estate loan (April Mortgage Loan).
April 4, 2025	Company entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $100 million.
April 9, 2025	Pay-fixed interest rate swap agreement (notional $100 million, maturing April 4, 2030) was discontinued, resulting in a $1.1 million gain.
April 10, 2024	Company terminated two five-year pay-fixed interest rate swap agreements (notional $100 million each, maturing December 6 and December 21, 2028), resulting in a combined gain of $5.4 million.
June 3, 2025	Company purchased Class A-1 asset backed notes, Series 2025-2, for $127.5 million.
June 3, 2025	Bank entered into a $150 million securitization transaction of certain commercial real estate loans (June Mortgage Loans).
June 16, 2025	Non-objection from the Federal Reserve Bank of Dallas related to the Repurchase Program was received.
June 17, 2025	Company's Board of Directors authorized a new share repurchase program for up to $30 million of common stock.
September 4, 2024	Company entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $100 million.
September 25, 2024	Company filed a Registration Statement on Form S-3 with the SEC.
September 30, 2025	End of the current quarterly reporting period.
October 3, 2025	Listing and trading of Common Stock on Nasdaq ended at market close.
October 4, 2024	Registration Statement on Form S-3 was declared effective by the SEC.
October 4, 2024	Pay-fixed interest rate swap agreement (notional $100 million, maturing September 4, 2029) was discontinued, resulting in a $755,000 gain.
October 6, 2025	Trading of Common Stock commenced on the NYSE and NYSE Texas at market open.
October 22, 2025	Company entered into an Agreement and Plan of Reorganization with Keystone Bancshares, Inc.
October 31, 2025	Registrant had 13,894,078 shares of common stock outstanding.
October 31, 2024	Company entered into a ten-year and four-month receive-fixed interest rate swap agreement with a notional amount of $100 million.
December 15, 2024	Effective date for ASU 2023-09, Income Taxes (Topic 720), Improvements to Income Tax Disclosures, for fiscal years beginning after this date.
Q1 2026	Expected closing period for the merger with Keystone Bancshares, Inc.
April 1, 2027	Fixed-to-floating interest rate reset date for Subordinated Notes and earliest optional redemption date.
September 30, 2029	Expiry date for Preferred Warrants.
April 1, 2032	Maturity date for the 5.500% Fixed-to-Floating Rate Subordinated Notes.
December 31, 2026	End of the fiscal year in which the fifth anniversary of the Company's initial public offering occurs, after which the company will lose its emerging growth company status.

Recommendation

strong buy

Third Coast Bancshares demonstrated robust financial performance for the nine months ended September 30, 2025, with significant year-over-year growth in net income (42.6%) and net interest income (21.9%). The company's net interest margin improved, and loan growth, particularly in commercial and industrial segments, remains strong. The announced merger with Keystone Bancshares, Inc. is a strategic move expected to enhance market presence and operational scale, positioning the combined entity for further growth. While noninterest-bearing deposits decreased, overall deposit growth and strong capital ratios indicate financial stability. The positive financial trajectory, coupled with a strategic acquisition, presents a compelling investment opportunity.

Keywords

Third Coast Bancshares, TCBX, SEC Filing, 10-Q, Quarterly Report, Financial Results, Banking, Commercial Banking, Loans, Deposits, Net Interest Income, Earnings Per Share, Keystone Bancshares, Merger, Acquisition, Texas Banking, Credit Quality, Nonperforming Assets, Capital Ratios, Share Repurchase, Derivative Instruments, Interest Rate Risk, Financial Performance

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