Third Coast Bancshares Earnings Call Highlights Strong Momentum

Third Coast Bancshares Inc ((TCBX)) has held its Q4 earnings call. Read on for the main highlights of the call.

Third Coast Bancshares Signals Strong Momentum Despite Near-Term Noise

The latest earnings call from Third Coast Bancshares Inc. struck a distinctly upbeat tone, underscoring record profitability, robust loan and deposit growth, expanding margins and improving credit quality. While management acknowledged some near‑term noise from one‑time fees, merger‑related costs and seasonal deposits, the underlying message was that core trends remain strong and that the bank enters 2026 with positive momentum, solid capital and a clear strategic roadmap that appears to outweigh the identified short-term risks.

Strong Loan Growth Outpaces Targets

Third Coast Bancshares reported another quarter of strong loan expansion, with gross loans rising $230 million in the fourth quarter, a 5.5% sequential increase to $4.39 billion. On a year‑over‑year basis, loans grew 10.8%, comfortably beating the bank’s stated 8% run‑rate target. Management emphasized that this growth is being achieved with disciplined underwriting and highlighted that, while the pipeline can be lumpy and sensitive to rates and borrower sentiment, the core franchise is generating enough demand to support high-single‑digit annualized loan growth.

Assets and Deposits Expand, Though Seasonality Looms

Total assets ended the year at $5.34 billion, up 5.5% quarter‑over‑quarter and 8.1% year‑over‑year. Deposits were a key driver, jumping more than $254 million in the fourth quarter to $4.6 billion, representing 5.8% sequential growth and 7.3% growth versus a year ago. Management noted that a meaningful portion of this deposit inflow was seasonal and tied to customer‑specific factors, cautioning that some balances could drift lower in coming quarters. Even so, the underlying trajectory of core deposit growth appears positive, particularly given the bank’s recent push in treasury and corporate deposit initiatives.

Record Earnings and Sharper Profitability Metrics

Profitability hit new highs. Fourth‑quarter net income reached $17.9 million, contributing to a record full‑year net income of $66.3 million, up 39% from the prior year. Return on equity climbed to 14%, a 24% year‑over‑year increase, while annualized return on average assets improved by more than 26% to 1.33%. These improving returns suggest that the bank is leveraging its balance sheet growth and operating platform more efficiently, despite elevated investment in talent and systems to support future expansion.

EPS Growth and Net Interest Income Strength

Earnings per share showed notable momentum. Diluted EPS came in at $1.02 for the fourth quarter and $3.79 for the full year, up 36% year‑over‑year. Net interest income was a major driver, increasing to $52.2 million in the quarter and $195.2 million for the year, a 21% annual increase. Management linked this performance to both loan growth and improved funding costs, while acknowledging that some fee‑related items boosted quarterly results and may not repeat at the same level.

Fee Income Acceleration Supports Revenue Diversification

Noninterest income became a more meaningful contributor to overall revenue. Service charges and fees were up roughly 24% quarter‑over‑quarter and about 55% year‑over‑year, driven largely by deeper relationship banking and expansion of the bank’s product platform. Management indicated they are comfortable with a recurring noninterest income run rate around $4 million per quarter, signaling that fee revenues are becoming a more stable, recurring part of the earnings mix rather than a purely opportunistic source of income.

Funding Costs Improve and Margins Remain Attractive

On the liability side, the bank’s cost of funds improved to 3.33% in the fourth quarter, down 23 basis points from the prior quarter and 50 basis points from a year earlier. Reported net interest margin was a healthy 4.10% for the quarter, but management estimated core NIM at about 3.90% once one‑time items are stripped out. This still represents roughly a 10‑basis‑point sequential improvement, reflecting better deposit pricing, balance sheet mix management and targeted use of securitizations.

Capital and Book Value Continue to Build

Capital strength was another highlight. Book value per share climbed to $33.47, up 16.8% year‑over‑year, while tangible book value increased 17.7% to $32.12. Management framed these gains as evidence of disciplined capital deployment and earnings retention. They also laid out longer‑term capital planning considerations, including the potential impact on common equity Tier 1 ratios from a preferred convertible instrument callable in 2027, which could shift regulatory capital metrics by roughly 125–150 basis points depending on conversion.

Credit Quality Improves Across Key Metrics

Asset quality trends were generally favorable. Nonaccrual loans fell by $603,000 in the quarter and by $16.7 million over the full year. Loans over 90 days past due and still accruing stood at $11.36 million, but management noted a roughly $5.5 million loan in that bucket has since been renewed and brought current. The nonperforming loans ratio improved by 3 basis points sequentially and 21 basis points year‑over‑year, while net charge‑offs were just 8 basis points of average loans for the year, an improvement of 1 basis point. The allowance for credit losses ticked down slightly to 1.00% of total loans from 1.02%, a modest decline that management believes remains consistent with the bank’s strong credit performance but will warrant ongoing monitoring.

Strategic Securitizations and Keystone Merger Shape Future Footprint

Strategic moves were front and center. Third Coast completed two securitizations and announced a merger with Keystone Bancshares, which will create a roughly $6 billion institution with 22 Texas locations on a pro forma basis. Management also set a 2026 loan growth target of $75 million to $100 million per quarter, or around 8% annualized. Future securitizations are expected to be used to manage loan concentrations and capital, though they may temporarily shrink the balance sheet or change its mix and could result in lower retained yields and some timing‑related impacts on income recognition.

Operational Enhancements and Revenue Discipline Underpin Growth

The bank is leaning on technology and data to support profitable growth. A new core system and dynamic pricing tools are being used to more precisely manage deposit and funding costs, which should help sustain margins in a competitive rate environment. Treasury management and corporate deposit initiatives have recently boosted noninterest‑bearing balances, reducing reliance on high‑cost funding. Management framed these operational upgrades as key to maintaining revenue discipline and supporting the bank’s targeted efficiency improvements.

Merger-Related and One-Time Costs Create Short-Term Noise

Earnings were weighed down by nonrecurring expenses. The fourth quarter included about $1.5 million of sign‑on and severance costs, along with roughly $1 million in legal and professional fees tied to the Keystone merger. Management expects around $5 million of additional merger‑related expenses over the next few quarters. While these costs will add pressure to near‑term expense ratios, they are viewed internally as necessary investments to realize longer‑term scale, efficiency and revenue synergies.

Higher Headcount and Steady Expense Growth to Support Expansion

The bank’s growth strategy has come with a larger workforce. Significant hiring in loan operations and other support areas pushed up salary and benefits. For 2026, management is guiding to operating expense growth of roughly 5%–7%, but they expect revenue growth to outpace that, improving operating leverage over time. A renewed 1% efficiency initiative is aimed at unlocking further cost savings as systems and processes are integrated and optimized post‑merger.

NIM Sensitivity to One-Time Fees and Securitizations

Management was candid about the “lumpiness” in recent margin performance. Fourth‑quarter NIM benefited from an estimated $1.3 million to $1.5 million in excess loan fees, largely tied to securitizations and large originations. Absent similar items, they expect NIM to settle closer to 3.90%, representing more of a step down than a gradual decline. Planned securitizations in 2026 to manage concentrations could also lower yields on retained assets and alter balance sheet mix, adding another source of margin variability even as they support risk management and capital efficiency.

Growth Lumpiness and Seasonal Deposits Add Uncertainty

Beyond one‑off fees, management emphasized that both loan and deposit growth can be uneven from quarter to quarter. Q4 deposit growth was partly seasonal and client‑specific, meaning some of the funding benefit may not fully persist. Likewise, loan originations are sensitive to interest rate moves and borrower confidence, which could cause quarterly growth to fluctuate around the bank’s $75 million to $100 million target range. Management’s message to investors: focus on the underlying annual trajectory, not quarter‑to‑quarter volatility.

Forward-Looking Guidance: Solid Core, Managed Risks

Looking ahead to 2026, Third Coast Bancshares is targeting quarterly loan growth of $75 million to $100 million, or around 8% annualized, while maintaining a roughly 95% loan‑to‑deposit ratio and disciplined underwriting. Core NIM is expected to stabilize around 3.90%, with the current 3.33% cost of funds serving as a baseline and further efficiency efforts helping to offset competitive pressures. Management aims to sustain noninterest income at about $4 million per quarter and is guiding to operating earnings in the vicinity of $107 million, while holding expense growth to 5%–7% despite remaining merger‑related costs over the next few quarters. Another securitization is planned to manage portfolio concentrations, and the Keystone transaction is slated to close by the end of the first quarter, combining into a roughly $6 billion, 22‑location Texas franchise. The bank expects to maintain its allowance for credit losses near 1% of loans and keep net charge‑offs around current low levels, reinforcing the view that credit quality should remain a strength.

In sum, Third Coast Bancshares’ earnings call painted a picture of a bank with strong core performance, expanding scale and improving efficiency, even as investors should brace for some temporary noise from one‑time fees, seasonal deposits and merger‑related expenses. Record earnings, double‑digit loan growth, rising book value and better credit metrics underpin a generally positive outlook, while explicit guidance on loan growth, margin normalization and expense discipline provides a clearer roadmap for how management intends to navigate a still‑uncertain rate and economic environment.