Third Coast Bancshares Highlights Growth After Keystone Deal

Third Coast Bancshares Inc ((TCBX)) has held its Q1 earnings call. Read on for the main highlights of the call.

Third Coast Bancshares struck an optimistic tone this quarter, emphasizing that the Keystone acquisition is already reshaping its balance sheet and growth trajectory. Management acknowledged near‑term noise from merger costs, margin pressure, and one large CRE nonaccrual, but framed these as manageable one‑offs against a backdrop of solid organic loan demand and steady core profitability.

Keystone Deal Powers Balance Sheet and Franchise Growth

The Keystone acquisition materially enlarged Third Coast’s footprint, with total assets up 23.2%, loans up 19.5% and deposits up 23.5% year‑to‑date. Keystone contributed roughly a 20% lift to loans and deposits while expanding the customer base and presence in Central Texas, positioning the bank for deeper market penetration in a key growth corridor.

Loan Pipelines Show Strong Early Second‑Quarter Momentum

Under the hood, organic loan demand remains robust even without Keystone’s contribution, with loans excluding Keystone up about $45 million in the quarter and average loan balances up more than $100 million. April originations already surpassed $100 million, prompting management to extend its quarterly loan growth target to a healthy $75 million–$125 million range.

Larger Earning Asset Base Lifts Net Interest Income

Net interest income reached $53.6 million, a 2.7% sequential increase, helped by the significantly larger earning asset base following the merger. While margin compressed, the absolute dollar growth in interest income signals that scale from Keystone is beginning to flow through the income statement.

Adjusted Earnings Reveal Underlying Profit Power

Headline diluted EPS came in at $0.88, but merger‑related expenses weighed heavily on the quarter’s reported profits. Excluding those one‑time costs, management said EPS would have been about $1.02 and return on average assets near 1.25%, underscoring that core profitability remains solid despite integration noise.

Tangible Book Value On Target as Cost Saves Loom

Tangible book value ended the quarter at $31.70, essentially matching prior guidance of $31.69 and signaling that the deal has not diluted shareholder equity. Management reiterated expectations for roughly $6 million of merger‑related cost savings, most of which should show up in the back half of the year and be fully reflected in 2025.

Building Platforms and Products to Diversify Growth

Third Coast is investing in future revenue streams by adding senior relationship bankers in Houston and Dallas and rolling out an asset‑based lending platform. Expanded public funds and correspondent banking teams are also designed to broaden funding sources and fee income, giving the bank more levers than traditional commercial lending alone.

Fee Income Steady With Upside from Securitizations

Fee income is tracking roughly $4.0 million for the quarter, and management expects a modest step‑up into a $4.0–$4.5 million range going forward. Securitizations remain on the table as an avenue to boost both fee revenue and margin, offering potential upside to the current guidance if market conditions cooperate.

Merger and Hiring Costs Inflate Noninterest Expense

Operating costs were inflated by $3.3 million of Keystone‑related noninterest expense, largely from legal and professional fees plus salary and benefit items, as well as $644,000 of sign‑on bonuses. Management stressed these elevated noninterest expenses are primarily nonrecurring, suggesting earnings should normalize as integration work tails off.

Margin Compression Reflects Deal Mix and Interest Reversal

Net interest margin faced pressure from the Keystone merger mix and a $996,000 reversal of accrued interest on two loans moved to nonaccrual status. Management now sees a blended margin around 3.75%, versus prior standalone guidance near 3.90%, noting that the interest reversal alone shaved roughly four basis points off NIM this quarter.

Nonperformers Tick Up on Single Large CRE Nonaccrual

Nonperforming assets to total assets rose 11 basis points, largely due to one $17.1 million commercial real estate loan placed on nonaccrual and $1.8 million of purchased credit‑impaired loans from Keystone. The bank has already foreclosed on the $17.1 million property, which carries a loan‑to‑value just under 70%, providing a cushion against potential loss.

Allowance Builds While Underlying Credit Stays Benign

The allowance for credit losses increased to $51.5 million, or 0.98% of gross loans, up from $43.9 million and 1.00% largely due to day‑one reserves tied to Keystone. Net recoveries were essentially flat at $4,000, and management noted that excluding the large $17.1 million nonaccrual, nonperforming assets would have actually declined by about 15 basis points.

Loan Paydowns Create Temporary Growth “Lumpiness”

Management flagged unusually large paydowns late in the quarter, mostly linked to a lender who has since departed, which offset earlier strong originations. This timing issue created a choppy look to quarter‑to‑quarter organic loan growth, though the strong April pipeline suggests the underlying trend remains favorable.

Cost Synergies Will Phase In Over Coming Quarters

Although roughly $6 million of merger‑driven cost savings are expected, the bank emphasized that many require system conversion and consolidation steps. A core conversion in July and data‑processing savings starting in August mean the bulk of the efficiency benefits should phase in during the third and fourth quarters and be fully realized next year.

Guidance Points to Growth, Margin Stabilization and Rising Fees

Looking ahead, management expects net interest margin around 3.75% next quarter, with potential support from securitizations and a higher loan‑to‑deposit ratio over time. They are targeting quarterly loan growth of $75 million–$125 million and fee income in the $4.0–$4.5 million range, while about $6 million of merger‑related cost saves should begin to improve efficiency in the back half of the year and into 2027.

Third Coast’s latest call painted a picture of a bank leaning into growth while working through short‑term integration bumps and a single credit issue. For investors, the message was that the Keystone deal is expanding scale, earnings power and franchise reach, with cost synergies and steady asset quality expected to support stronger, more predictable performance over the next several quarters.