Third Coast Bancshares Q2 Earnings Call Highlights

Key Points

• Third Coast Bancshares posted a strong second quarter with record diluted EPS, net interest income up 12.4% to $60.3 million, and net interest margin expanding to 3.83%, above management’s post-Keystone target.
• Loan and deposit growth remained healthy, with total loans up about $185 million and total deposits up $140.4 million, while the average cost of deposits fell 12 basis points as the bank continued to benefit from improved funding mix.
• Credit quality and efficiency improved as non-performing loans fell to 0.55% of total loans and the efficiency ratio improved sharply to 56.5% from 66.1%; management also completed the sale of Third Coast Commercial Capital to simplify operations and focus on core banking.

Third Coast Bancshares NASDAQ: TCBX reported what executives described as another strong quarter, citing record diluted earnings per share, higher net interest income, disciplined loan growth and stable credit trends during the company’s second quarter 2026 earnings call.

Founder, Chairman, President and Chief Executive Officer Bart Caraway said the results reflected the bank’s long-running priorities of “disciplined growth, relationship-based funding, positive operating leverage, and consistent credit execution.” He said the quarter showed progress in loan and deposit growth, profitability and balance sheet management, while the company continued to invest in its commercial banking team.

Net Interest Income and Margin Improve

Chief Financial Officer John McWhorter said net interest income rose to $60.3 million, up 12.4% from the first quarter. He attributed the increase to organic loan production, balance sheet optimization following the Keystone merger and expansion in lower-cost funding sources.

Total loans increased by approximately $185 million, or 3.5%, during the quarter. McWhorter said commercial and industrial lending accounted for substantially all of that increase, rising approximately $187 million from the prior quarter.

Deposit trends also improved. Non-interest-bearing deposits increased by $65.5 million, while total deposits rose $140.4 million from the first quarter. McWhorter said the bank’s average cost of deposits declined 12 basis points, reflecting improvements in pricing and mix.

Net interest margin expanded to 3.83%, above the 3.75% target management had set after the Keystone merger. McWhorter said the result reflected disciplined loan and deposit pricing, better funding trends and execution on Keystone integration. In response to an analyst question, he said the margin could be “flat to maybe up just a little bit” in the third quarter before considering the impact of securitizations, which he said should provide additional support.

Expenses Flat as Efficiency Improves

Third Coast also reported stronger operating leverage. McWhorter said total non-interest expense was essentially flat compared with the prior quarter, while the efficiency ratio improved to 56.5% from 66.1% in the first quarter.

He said the company expects cost savings related to systems integration of $100,000 per month beginning Aug. 1 and an additional $150,000 per month beginning Feb. 1, 2027. The bank completed its Keystone core conversion during the weekend before the call, which Caraway said “went very smoothly.”

Management also discussed the impact of hiring on expenses. Caraway said the company added five experienced commercial banking professionals during the second quarter and expects to hire a similar number in the third quarter. McWhorter said expenses are likely to be roughly flat in the third quarter, as integration-related savings are expected to be offset by the cost of new hires.

Caraway said the company’s internal goal is to lower the efficiency ratio below 55 over time, while McWhorter said non-interest expense as a percentage of average earning assets should improve as the bank scales.

Sale of Third Coast Commercial Capital Completed

The company completed the sale of substantially all of the assets of Third Coast Commercial Capital, or TCC, effective June 25. McWhorter said the transaction generated total consideration of approximately $27.5 million and a gain of $3.5 million at closing. The sale also includes an ongoing revenue-sharing arrangement.

Caraway said the transaction simplifies the organization and sharpens its focus on core banking platforms, while still allowing the company to serve factoring clients through a strategic partnership.

Chief Credit Officer Audrey Duncan said the disposition was viewed favorably from a credit standpoint, noting that over the last five and a half years, 44% of the company’s total net charge-offs came from Third Coast Commercial Capital.

Credit Metrics Remain Stable

Duncan said credit fundamentals remained healthy in the second quarter. Non-performing loans declined by approximately $5.6 million and improved to 0.55% of total loans, compared with 0.68% in the prior quarter.

The decline was primarily driven by the transfer of a $17.1 million loan to other real estate owned, partially offset by three relationships totaling $10.1 million being placed on non-accrual and a $2.1 million increase in loans more than 90 days past due and still accruing. Duncan said the three non-accrual relationships are well secured and that the company does not anticipate losses on them. She also noted that 44% of total non-accruals are SBA guaranteed.

The company recorded net recoveries of $150,000 in the quarter, marking a second consecutive quarter of net recoveries. Provision for credit losses totaled $2.1 million, and the allowance for credit losses increased to $53.6 million, or 0.99% of total loans, compared with 0.98% in the prior quarter.

As of June 30, total loans were $5.44 billion. Duncan said the portfolio remained diversified, with C&I loans representing 44% of total loans, construction, development and land loans at 16%, owner-occupied commercial real estate at 11% and non-owner occupied commercial real estate at 17%.

During the question-and-answer session, analysts asked about the $17.1 million OREO property. Duncan said it was a medical office building in Southeast Texas that was foreclosed in April. She said the company is working on leases to increase occupancy, has listed the property for sale and successfully modified a restrictive covenant that should help broaden leasing and marketing options.

Management Points to Continued Growth, With Discipline

Caraway said the company remains optimistic heading into the second half of 2026, citing strong customer activity, healthy loan pipelines, improving funding trends and a resilient Texas economy.

Asked about the pace of loan growth, Caraway emphasized that Third Coast is maintaining “a pretty tight credit box” and is focused on loan pricing, structure and return on capital. He said loan growth can vary by quarter because of paydowns and timing, but described the overall trajectory as positive.

McWhorter added that quarters with about $200 million in loan growth are “probably going to be more the exception than the rule.” He said a quarterly loan growth pace of $75 million to $125 million remains a reasonable guide, though securitizations can affect reported loan balances. The company closed its third securitization on July 15, and McWhorter said another securitization in August looked likely at the time of the call.

Caraway also highlighted the bank’s deposit strategy, including growth in rural markets acquired through the 2019 Heritage Bank merger. He said deposits in those markets have grown approximately 90%, representing an 11.3% compound annual growth rate, compared with roughly 3.1% growth in the underlying markets.

Management said the company remains focused on profitable growth, funding discipline and credit quality. Caraway said the quarter’s results were driven not only by the level of earnings, but by the “quality and durability” of those earnings.

About Third Coast Bancshares (NASDAQ:TCBX)

Third Coast Bancshares, Inc operates as a bank holding company for Third Coast Bank, SSB that provides various commercial banking solutions to small and medium-sized businesses, and professionals. The company's deposit products include checking, savings, individual retirement, and money market accounts, as well as certificates of deposit. It also offers commercial and industrial loans, equipment loans, working capital lines of credit, guaranteed loans, auto finance, letters of credit, commercial and residential real estate, and construction, development, and other loans.

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