Third Coast Bancshares (NASDAQ:TCBX) reported third-quarter net income of $19 million, or $0.93 per diluted share, as merger-related expenses tied primarily to its prior Keystone acquisition affected quarterly results. The company said adjusted net income, excluding $3.2 million of merger-related costs, was approximately $21.6 million, or $1.06 per diluted share.
Net income compared with $22 million, or $1.08 per diluted share, in the second quarter and $18.1 million, or $1.03 per diluted share, a year earlier. Chief Financial Officer John McWhorter said the company’s quarterly comparisons were also affected by a $3.5 million gain from the second-quarter sale of its factoring business.
“While several items affected the quarter-over-quarter comparison, we continue to see strong loan demand, progress in our funding mix, and continued growth in shareholder value,” McWhorter said.
Loan Growth and Deposit Mix
Gross loans ended the quarter at approximately $5.5 billion, up $57 million from June. The reported balance included the impact of approximately $87 million in loans sold through the company’s securitization program. Excluding that sale, underlying loan growth exceeded $144 million during the quarter, according to management.
President and Chief Executive Officer Bart Caraway said the bank continues to see customer demand across its markets and expects to maintain its existing loan-growth guidance despite the planned acquisition of Great Plains Bancshares. Management said loans had increased by approximately $80 million early in October and that commercial and industrial lending is expected to be the largest contributor to growth in the next quarter.
Total deposits rose $69 million from June to $5.9 billion. Non-interest-bearing demand deposits increased approximately $78 million to $721 million and represented 12.2% of total deposits, compared with 11% at the end of the prior quarter.
Caraway highlighted treasury-management growth as a source of customer relationships and deposits. Over the past 12 months, non-interest-bearing deposits increased 60.3%, compared with 35.5% total deposit growth, he said. The bank had 25 customer accounts with balances above $1 million, and Caraway said the company’s upgraded operating system has supported its ability to onboard and manage larger relationships.
The average cost of deposits was 3.09% in the quarter, up 4 basis points sequentially but 47 basis points below the prior-year period.
Margin Decline and Fourth-Quarter Expectations
Net interest income was $59.5 million, compared with $60.3 million in the second quarter and $50.8 million a year earlier. Net interest margin was 3.70%, down from 3.83% in the second quarter. Excluding accelerated accretion, margin would have been 3.74%, McWhorter said.
McWhorter attributed the decline to several factors, including the early-quarter securitization of loans that had largely already amortized their fee income, a lower yield on securities acquired in connection with the transaction, and premium amortization from a Keystone loan payoff. He said September margin was approximately 3.85% and projected a fourth-quarter margin of about 3.80%, with potential to exceed that level.
The company described itself as slightly asset sensitive, estimating that it is 2% asset sensitive in a 200-basis-point rate scenario. McWhorter said the bank did not raise deposit rates following the recent Federal Reserve rate increase, although some accounts reprice with market rates.
Third Coast expects to complete another securitization later in the fourth quarter, potentially in December, though management said it could move into the first quarter. Unlike the third-quarter transaction, the planned securitization is expected to generate more fee income and involve a higher-yielding security retained by the bank. The next transaction will also be the company’s first securitization from its commercial loan portfolio.
Credit Metrics Remain Stable
Chief Credit Officer Audrey Spaulding said credit performance remained stable. Nonperforming loans totaled approximately $29 million, or 0.53% of total loans, compared with $27.1 million, or 0.50%, at the end of June. The increase primarily reflected three Small Business Administration loans totaling about $2.3 million that were placed on nonaccrual status.
More than 45% of total nonaccrual loans are either fully guaranteed by the SBA or cash secured, Spaulding said. The company recorded net recoveries of $27,000 in the third quarter, its third consecutive quarter of recoveries, bringing year-to-date net recoveries to $182,000.
Provision for credit losses was $540,000, and the allowance for credit losses was $54.4 million, or 0.99% of total loans. Commercial and industrial loans accounted for 43% of the portfolio, while construction, development and land loans represented 16%; owner-occupied commercial real estate represented 11%; and non-owner-occupied commercial real estate accounted for 18%.
Great Plains Deal and Integration Plans
Earlier in October, Third Coast announced an agreement to merge with Great Plains Bancshares, the parent company of Great Plains National Bank. Caraway said the transaction would expand Third Coast’s Dallas presence, establish an Oklahoma entry point and create a combined franchise with approximately $9 billion in assets.
Management expects the transaction to strengthen its funding profile through Great Plains’ relationship-based core deposit base. McWhorter said the deal is expected to close between Feb. 1 and April 1, 2027, subject to shareholder meetings and other steps.
Third Coast expects the integration to be simpler than its Keystone transaction because both organizations use FIS systems and have similar treasury platforms, McWhorter said. The company expects limited merger expense in the fourth quarter, estimating about $500,000 and no more than $1 million, while most Keystone-related expenses have already been recognized.
Book value per common share rose to $36.53, while tangible book value per share reached a record $33.31, up from $33.08 at June 30 and $30.91 a year earlier.
About Third Coast Bancshares (NASDAQ:TCBX)
Third Coast Bancshares, Inc is the bank holding company for Third Coast Bank SSB, a Texas-based community bank. The bank provides relationship-focused financial services to businesses, professionals and individuals through a network of banking offices and digital banking channels.
Its products and services include commercial and industrial loans, commercial real estate financing, construction and development loans, residential real estate lending, consumer loans and deposit accounts. The bank also offers treasury management, online and mobile banking, cash-management services and other solutions designed to support business and personal financial needs.
Founded in 2008, Third Coast Bank serves customers in key Texas markets, including the Houston, Dallas-Fort Worth and Austin areas.
