Executive Summary / Key Takeaways

• Third Coast Bancshares (NYSE:TCBX) has achieved significant scale, surpassing $5 billion in total assets with a robust 19.3% compound annual growth rate since its 2021 IPO, underpinned by a relationship banking model and strategic market positioning in the high-growth Texas Triangle.
• The company's innovative use of securitization for commercial real estate loans has earned international recognition, providing a competitive advantage in capital management, risk mitigation, and customer accommodation, with a third securitization likely in Q1 2026.
• Recent financial performance highlights include a record annualized Return on Average Assets (ROAA) of 1.41% in Q3 2025, an improved efficiency ratio of 53.05%, and consistent net interest income growth, demonstrating strong operational leverage and profitability.
• The definitive merger agreement with Keystone Bancshares, Inc., expected to close in Q1 2026, will expand TCBX's footprint in the dynamic Austin market, increasing pro forma assets to over $6 billion and offering significant synergy potential.
• Management projects continued disciplined loan growth of $50 million to $100 million per quarter (approximately 8% annualized for 2025) and a stable net interest margin, supported by strategic deposit gathering and the benefits of a new core banking system.

A Texas Growth Story: Foundation, Strategy, and Innovation

Third Coast Bancshares, Inc. (TCBX), headquartered in Humble, Texas, has carved out a compelling niche in the competitive financial services landscape of the Lone Star State. Founded in 2008, the company operates through its subsidiary, Third Coast Bank, focusing on providing tailored commercial banking solutions to small and medium-sized businesses and professionals across the Greater Houston, Dallas-Fort Worth, and Austin-San Antonio markets. This strategic geographic concentration in the rapidly expanding "Texas Triangle" has been a foundational element of its growth narrative. The company's relationship banking model, emphasizing deep customer intimacy and personalized service, has proven highly effective, driving consistent quarter-over-quarter growth in both deposits and loans.

TCBX's journey has been marked by strategic milestones and a resilient approach to market dynamics. Its public debut in November 2021, with loans at $2.07 billion, set the stage for an impressive expansion. The company has successfully navigated a complex macroeconomic environment, including a global pandemic, extraordinary weather events, and periods of liquidity stress, consistently surpassing its projected figures. This resilience is a testament to its disciplined management and strategic foresight.

Technological Edge and Operational Excellence

A key differentiator for Third Coast Bancshares lies in its commitment to technological innovation and operational efficiency. The company is undergoing a significant core system conversion, transitioning from Jack Henry (JKHY) to FIS (FIS). This upgrade is not merely an IT overhaul but a strategic enhancement designed to deliver tangible benefits. The new system is expected to provide enhanced functionality for treasury products, enabling TCBX to attract and serve larger corporate customers more effectively. Furthermore, the new contract is anticipated to yield substantial cost savings compared to the previous agreement, directly contributing to improved productivity and a stronger bottom line. This technological advancement is foundational to TCBX's ability to scale efficiently and deepen client relationships.

Beyond core systems, TCBX has demonstrated innovation in financial engineering through its securitization strategy. In 2025, the company successfully executed two commercial real estate loan securitization transactions, totaling $250 million. These transactions, which garnered international recognition with the SCI Risk Sharing award for North American transaction of the year, serve multiple strategic purposes. They reduce risk-weighted assets, lower construction loan concentrations, and mitigate credit risk within the loan portfolio. Crucially, this capability has become a competitive advantage, allowing TCBX to accommodate the needs of select customers who might otherwise turn to much larger institutions. The company is already considering a third securitization, likely in the first quarter of 2026, underscoring the replicability and strategic value of this innovative approach.

Competitive Landscape and Strategic Positioning

Third Coast Bancshares operates within a highly competitive regional banking sector in Texas, vying with both larger, established players and nimble fintech platforms. Direct competitors include regional bank holding companies such as Prosperity Bancshares, Inc. (PB), Independent Bank Group, Inc. (IBTX), and Texas Capital Bancshares, Inc. (TCBI).

Prosperity Bancshares, with its broader scale and extensive branch network, generally holds an advantage in market penetration and diversified revenue streams. However, TCBX differentiates itself through a more personalized, relationship-based approach for small and medium-sized businesses, potentially fostering greater customer intimacy. While PB may exhibit superior operational efficiency due1 to its longer history, TCBX's focused geographic presence allows for faster decision-making and stronger local ties.

Against Independent Bank Group, which emphasizes real estate finance, TCBX's focus on a broader range of commercial loans and its investment in modern digital banking applications offer a distinct user experience. TCBX's operational focus on treasury management also enhances its cash flow generation. While IBTX might show stronger cash flow from its diversified lending, TCBX's branch locations in high-growth areas like Austin-San Antonio position it for rapid innovation in digital services.

Compared to Texas Capital Bancshares, a specialist in middle-market commercial banking, TCBX positions itself as more accessible for smaller businesses. While TCBI benefits from sector expertise in areas like energy, TCBX's community-oriented approach aims for stronger customer loyalty and a broader suite of deposit products for everyday banking. TCBX's "talent magnet" status, attracting exceptional bankers from larger institutions, further bolsters its organic growth capabilities and competitive standing. The company also views itself as a "platform magnet," offering other banks an avenue for partnership and growth leveraging TCBX's infrastructure and technology.

Indirect competitors, including fintech platforms like Block (SQ) (formerly Square) and online banks such as Ally Financial (ALLY), pose a threat by offering streamlined digital lending and payment solutions. These players can impact TCBX's market share through faster approvals and potentially lower fees, necessitating TCBX's continuous investment in its own digital capabilities and operational efficiency.

Financial Performance and Operational Momentum

Third Coast Bancshares has demonstrated a compelling trajectory of financial performance. As of September 30, 2025, total assets surpassed $5 billion for the first time, reflecting a robust 19.3% compound annual growth rate since the company's IPO in November 2021. This growth has translated into significant shareholder value, with book value reaching $32.25 and tangible book value $30.91 in Q3 2025, both new records. The company's annualized Return on Average Assets (ROAA) hit a new high of 1.41% for the third quarter of 2025.

Net interest income (NII) has been a consistent driver of profitability, increasing by $25.70 million, or 21.9%, for the nine months ended September 30, 2025, compared to the same period in 2024. This growth was fueled by a substantial increase in interest income from loan growth and investment yields, coupled with a decrease in the average rate paid on interest-bearing deposits, which fell from 4.72% to 4% over the same period. The efficiency ratio has shown remarkable improvement, reaching 53.05% in Q3 2025, significantly better than the 61.39% a year prior and well below the company's internal target of 60%. This efficiency gain is a direct result of the "1% improvement campaign" and disciplined cost management, even as salary and employee benefits increased due to strategic new hires.

Loan growth remains strong, with average loans increasing from $3.74 billion to $4.06 billion for the nine months ended September 30, 2025. The company's capitalized loan fees reached a record $19.9 million as of September 30, 2025, with approximately $1 million amortizing per month, providing a valuable hedge to the net interest margin, especially in a declining interest rate environment. Noninterest income has also seen significant growth, particularly from the treasury management division, which has experienced 50% to 60% annual fee income growth from a relatively small base.

Liquidity, Capital, and Risk Management

TCBX maintains a strong liquidity and capital position. Total shareholders' equity grew to $513.80 million as of September 30, 2025, an 11.5% increase from December 31, 2024. The Bank consistently meets and exceeds regulatory capital requirements, classified as "well capitalized." The company has substantial borrowing capacity, including $524.50 million in FHLB advances, $1.40 billion from the Federal Reserve Bank of Dallas Discount Window, and $36.50 million in federal funds lines of credit.

Credit quality remains a top priority, with disciplined underwriting standards contributing to a stable loan portfolio. Nonaccrual loans declined for the second consecutive quarter in Q3 2025, improving by $2.6 million. While nonperforming loans saw a slight quarter-over-quarter increase, they were $2.3 million lower than the same period a year ago. The company's real estate portfolio is diverse, with owner-occupied commercial real estate at 9.8% of total loans, non-owner-occupied at 16.5%, and construction, development, and other loans at 19.9%. Office and medical office exposure remains manageable, with average loan-to-value ratios of approximately 68% and 60%, respectively. Management does not anticipate losses on recent non-accruals, including a $5.4 million commercial loan with a 35% combined loan-to-value.

Key risks include the inherent geographic concentration in Texas, which exposes the company to regional economic fluctuations. The proposed merger with Keystone Bancshares also introduces integration risks, including the possibility of regulatory or shareholder approvals not being received, potential for unforeseen costs, business disruptions, and dilution from new common stock issuance. However, management views the cultural alignment with Keystone as a mitigating factor for integration challenges.

Outlook and Guidance

Third Coast Bancshares' management is optimistic about the remainder of 2025 and into 2026, projecting continued strong performance. Loan growth targets are maintained at $50 million to $100 million per quarter, translating to an annualized growth rate of approximately 8% or $325 million for the full year 2025, consistent with 2024. This outlook is supported by robust loan pipelines and the company's ability to attract high-quality clients.

The net interest margin (NIM) is forecasted to be between 3.90% and 3.95% for the fourth quarter of 2025. While this represents a slight moderation from Q3 2025's elevated level, it is expected to remain strong, benefiting from the amortization of capitalized loan fees. Management anticipates the NIM to be flat to slightly better if the Federal Reserve implements expected rate cuts, leveraging the bank's balanced asset-liability structure and ability to manage deposit costs. Deposit growth is expected to mirror loan growth, with an anticipated increase of $50 million to $100 million per quarter, supported by the new core system and improved product offerings. Non-interest expenses are projected to remain relatively flat, around $27 million to $28 million per quarter, with further savings from the core conversion expected in the latter half of 2025. The company aims to maintain its ROAA target of 1% or better, with expectations for continued positive earnings growth in future quarters.

The acquisition of Keystone Bancshares, expected to close in Q1 2026, is a pivotal strategic move. This merger will significantly expand TCBX's presence in the Austin market, a region characterized by dynamic economic growth. The combined entity is projected to have pro forma total assets exceeding $6 billion, and management anticipates the deal to be more accretive than initially estimated, due to conservative synergy assumptions and the potential to introduce TCBX's treasury and derivative tools to Keystone's client base.

Conclusion

Third Coast Bancshares stands as a compelling investment opportunity, demonstrating a powerful combination of disciplined organic growth, strategic inorganic expansion, and innovative operational capabilities within the vibrant Texas market. The company's consistent financial performance, marked by record asset levels, robust profitability, and improving efficiency, underscores the effectiveness of its relationship banking model and prudent risk management. The strategic listing on the NYSE and NYSE Texas, coupled with its award-winning securitization program, highlights a forward-thinking approach to capital and risk.

The impending merger with Keystone Bancshares is poised to further solidify TCBX's competitive position in the critical Austin market, leveraging cultural alignment for seamless integration and unlocking new avenues for growth and profitability. With a clear outlook for continued loan and deposit expansion, a stable net interest margin, and ongoing operational enhancements driven by technological upgrades, Third Coast Bancshares is well-positioned to continue its trajectory of value creation for shareholders. The company's ability to attract top talent and adapt to evolving market conditions, while maintaining stringent credit standards, reinforces its long-term investment thesis as a dynamic and resilient regional banking leader.