Third Coast Bancshares, Inc. (TCBX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong loan growth, favorable market conditions, and a strategic merger with Keystone Bancshares. Despite some non-recurring expenses, the company anticipates revenue growth to outpace expenses, and the merger is expected to enhance its market position. The positive sentiment is further supported by management's optimistic outlook on loan production and noninterest income. While guidance on some aspects was less precise, the overall strategic direction and growth prospects suggest a positive stock price movement.
Key Financial Performance
Gross Loans Increased by $230 million (5.5%) compared to the third quarter, reaching $4.39 billion. This marks a 10.8% rise compared to the previous year, surpassing the targeted run rate of 8%.
Total Assets Ended the year at $5.34 billion, reflecting a 5.5% increase over the third quarter and an 8.1% rise compared to the previous year-end.
Total Deposits Grew by over $254 million in the fourth quarter, reaching $4.6 billion, a 5.8% increase from the third quarter, and a 7.3% rise compared to a year ago.
Service Charges and Fees Increased approximately 24% over the third quarter and 55% year-over-year due to the effectiveness of the relationship banking model and appealing platform.
Loan Interest Income and Fees Grew by about 7% compared to the previous year due to effective expansion of the overall loan portfolio.
Interest Expense Lowered by approximately 4.2% from the third quarter and 5.2% compared to a year ago by dynamically pricing a portion of the deposit portfolio and capitalizing on the evolving interest rate landscape.
Book Value and Tangible Book Value Rose to $33.47 and $32.12, respectively, reflecting a year-over-year increase of 16.8% and 17.7%.
Return on Average Assets Achieved an annualized 1.33% for the full year of 2025, with a year-over-year enhancement of more than 26%.
Net Income Reported $17.9 million for the fourth quarter, leading to a record total annual net income of $66.3 million, reflecting a 39% increase year-over-year.
Return on Equity Achieved 14% for the year, marking a 24% increase from last year.
Earnings Per Share Reached $1.02 per diluted share for the quarter, totaling $3.79 for the year, representing a 36% increase from the prior year.
Net Interest Income Was $52.2 million in the fourth quarter and $195.2 million for the year, an increase of 21% from the previous year, primarily due to an increase in earning assets.
Investment Securities Decreased $7.5 million during the fourth quarter, ending the period at $575 million, reflecting normal portfolio runoff and active balance sheet management.
Cost of Funds Stood at 3.33% in the fourth quarter, reflecting a 23 basis point improvement from the third quarter and a 50 basis point improvement from a year ago.
Net Interest Margin Remained consistent at 4.10% for the quarter, exceeding expectations, with a core net interest margin of 3.90%, up about 10 basis points from the prior quarter.
Nonaccrual Loans Decreased by $603,000 in the fourth quarter and $16.7 million for the full year, showing continued improvement for the fourth consecutive quarter.
Nonperforming Loans Improved by $259,000 quarter-over-quarter, contributing to a total annual improvement of $6.5 million compared to the same period last year. The ratio of nonperforming loans to total loans improved by 3 basis points from the prior quarter and 21 basis points year-over-year.
Allowance for Credit Losses Represented 1% of total loans, a slight decline from 1.02% at the third quarter and previous year-end.
Net Charge-Offs Were 8 basis points for the year, representing a 1 basis point improvement over the same period last year.
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Operating Highlights
Commercial lines expansion: Expanded to corporate and specialty products.
Core and treasury management solutions: Enhanced offerings in these areas.
Securitizations: Completed two securitizations in 2025.
Merger with Keystone Bancshares: Strategic partnership to create a $6 billion entity with 22 locations across Texas, including three in Austin.
Loan growth: Achieved $230 million increase in gross loans in Q4, marking a 10.8% year-over-year rise.
Deposit growth: Deposits grew by $254 million in Q4, a 7.3% year-over-year increase.
Net income: Achieved record annual net income of $66.3 million, a 39% year-over-year increase.
Net interest margin: Maintained at 4.10% in Q4, exceeding expectations.
Credit quality: Nonaccrual loans decreased by $16.7 million for the year, with nonperforming loans improving by $6.5 million year-over-year.
Integration of Keystone Bancshares merger: Focus on uniting culturally aligned community banks and leveraging shared commitment to relationship banking.
2026 growth targets: Aiming for $75 million to $100 million loan growth per quarter and an annualized growth rate of 8%.
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Risk or Challenges
Merger Integration Risks: The integration of the merger with Keystone Bancshares, Inc. poses potential challenges, including cultural alignment, operational integration, and achieving anticipated synergies. Failure to effectively integrate could impact operational efficiency and financial performance.
Loan Portfolio Quality: While nonaccrual loans and nonperforming loans have improved, there remains a risk of loans over 90 days past due, totaling $11.36 million. This could impact credit quality and financial stability if not managed effectively.
Economic and Interest Rate Environment: The company’s performance is influenced by the evolving interest rate landscape. While interest expense has been managed effectively, fluctuations in interest rates could pose risks to net interest margin and overall profitability.
Strategic Growth Execution: Achieving loan growth targets of $75 million to $100 million per quarter and maintaining an annualized growth rate of 8% requires disciplined underwriting and portfolio management. Failure to meet these targets could impact strategic objectives.
Asset Quality Management: The allowance for credit losses has slightly declined, and net charge-offs remain low. However, any deterioration in asset quality could adversely affect financial performance.
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Guidance & Outlook
Loan Growth Targets: Achieving loan growth targets of $75 million to $100 million per quarter, establishing an annualized growth rate of approximately 8%.
Merger Integration: Integration of the merger with Keystone Bancshares, Inc., creating a combined $6 billion entity with 22 locations across Texas, including three in Austin.
Operational Efficiency: Enhancing operational efficiency while scaling the organization for greater success.
Underwriting and Portfolio Management: Maintaining disciplined underwriting and portfolio management practices to ensure high-quality loan growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Could you walk through some of the actions you took in the quarter regarding expenses?
A:John McWhorter explained that there were several moving parts, including $1 million in merger-related expenses and hundreds of thousands in nonrecurring salary and employee benefits expenses. There was also a tailwind from taxes due to purchased tax credits. The excess in salary and benefits of $500 million was offset by tax benefits. The company hired additional staff to support loan operations and other areas.
Q:How do you think about additional hiring after the acquisition is closed?
A:Bart Caraway stated that the company will continue to add talent as it becomes available, emphasizing their position as a 'talent magnet.' John McWhorter added that headcount increases are expected during big quarters to support operations in areas like loan ops, IT, and treasury.
Q:Do you expect the loan growth range to increase after the Keystone acquisition?
A:Bart Caraway stated that the growth range of $75 million to $100 million per quarter remains appropriate, with a slight bump in the lower number due to a strong pipeline. He expects 2026 to be favorable for loan production, with fewer headwinds from payoffs or paydowns.
Q:What is driving the strong growth in the C&I bucket and the raised loan growth expectations?
A:Bart Caraway attributed the growth to favorable demographics in Texas, market dislocation from M&A, and a better loan environment as rates come down. He considers the $75 million to $100 million range as a base case, with potential for better performance depending on market conditions.
Q:What contributed to the margin holding flat, and how should we think about the starting margin for the first quarter?
A:John McWhorter noted $1.5 million in excess loan fees in the fourth quarter, which are not expected to recur in the first quarter. He expects the margin to drop to around 3.90% in the first quarter.
Q:What is the appetite for additional M&A after the Keystone deal?
A:Bart Caraway stated that M&A remains part of their strategic planning, with no significant changes in their approach. They continue to build relationships and evaluate opportunities selectively.
Q:What drove the strong deposit growth towards the end of the year?
A:John McWhorter explained that the growth was seasonal and customer-dependent, with no special campaigns. He noted that noninterest-bearing demand deposits have been growing steadily for several months.
Q:What kind of expense growth are you expecting for 2026?
A:John McWhorter expects expense growth to be weighted towards the beginning of the year, with a 5% to 7% increase from the current run rate. He emphasized that revenue growth is expected to outpace expense growth.
Q:What are your expectations for fees and noninterest income in 2026?
A:John McWhorter is optimistic about noninterest income, expecting a $4 million run rate, excluding Keystone. He noted that loan fees will be choppy, but core deposit fees and swap fees are strong.
Q:What is the update on the securitization pipeline for 2026?
A:John McWhorter expects to do another securitization in 2026, likely involving selling existing assets to free up room for construction lending. This would affect the mix and yield of the balance sheet rather than its size.
Q:What is the timeline for the Keystone merger?
A:Bart Caraway stated that the merger is proceeding as planned, with shareholder meetings for approval scheduled soon.
Q:What are the mechanics and impact of the preferred convertible instrument on your balance sheet?
A:John McWhorter explained that the instrument can be called in September 2027 and is likely to be converted to common at that time. It would add about 125 basis points to CET1 but would not affect tangible book value or earnings per share as it is already included in those metrics.
Q:How has dynamic pricing helped lower interest expense, and are there limits to this tool?
A:Bart Caraway highlighted that new core systems and better pricing tools have improved rate structures and customer understanding. He believes the company is well-positioned for rate changes and continues to refine its approach.
Q:What is the expected timeline for the NIM to reach 3.9%?
A:John McWhorter expects the NIM to drop to 3.90% for the first quarter due to the absence of one-time loan fees that boosted the fourth-quarter margin.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the timeline for the Keystone merger, stating only that it is proceeding as planned. Additionally, they did not provide specific details on the potential impact of dynamic pricing limits or the exact timing of securitization activities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CRE
Chairman President
Chief Credit
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Founder Chairman
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improvement period
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yesterday release
TCBX Transcript
Third Coast Bancshares, Inc. (TCBX) Q4 2025 Earnings Call Transcript
Positive1-22
The earnings call summary and Q&A reveal strong loan growth, favorable market conditions, and a strategic merger with Keystone Bancshares. Despite some non-recurring expenses, the company anticipates revenue growth to outpace expenses, and the merger is expected to enhance its market position. The positive sentiment is further supported by management's optimistic outlook on loan production and noninterest income. While guidance on some aspects was less precise, the overall strategic direction and growth prospects suggest a positive stock price movement.
Whitecap Resources Inc. (WCP:CA) Q3 2025 Earnings Call Transcript
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The earnings call highlights strong operational efficiencies, improved drilling performance, and significant cost synergies, leading to better-than-expected results. The Q&A section reveals a strategic focus on maintaining efficient operations and leveraging synergies, with a positive outlook on share repurchases and infrastructure optimization. Despite some uncertainties in future spending, the overall sentiment remains positive, supported by strong production results and proactive management strategies.
Third Coast Bancshares, Inc. (TCBX) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call summary reflects strong financial performance, with record loan fees, improved nonaccrual loans, and increased deposits. The Q&A reveals optimism about loan growth and Keystone merger synergies. Despite some unclear responses, the overall sentiment is positive, supported by strong fee income initiatives and strategic geographic focus. The positive outlook on margin expectations and controlled expenses further bolster confidence in future performance.
Third Coast Bancshares, Inc. (TCBX) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call highlights strong loan growth, improved efficiency, and a positive net interest margin. The Q&A reveals optimism in loan growth and capital deployment, with ongoing securitizations freeing up capital. Despite some nonrecurring income, recurring revenue sources remain strong. Management's cautious approach to credit standards and capital deployment supports confidence. Overall, the positive financial performance and strategic outlook suggest a positive stock price movement in the short term.
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