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    TCBX
    Earnings call· Jun 2026(Q2 FY26)

    Third Coast Bancshares, Inc. TCBX

    Jul 23, 2026 Source

    Executive summary

    Third Coast Bancshares Q2 FY26 — Record EPS and Strong Core Performance

    Third Coast Bancshares delivered a record Q2 FY26, driven by strong loan and deposit growth, improved core profitability, and effective expense management. The company successfully executed strategic initiatives, including the sale of Third Coast Commercial Capital and a securitization, while continuing to attract top talent. Management remains optimistic about continued profitable growth, leveraging a resilient Texas economy and disciplined credit standards.

    Highlights

    6

    • Delivered a new record diluted EPS of $1.08 per share for the second quarter.

    • Net interest income increased meaningfully to $60.3 million, up 12.4% from the first quarter.

    • Total loans increased by approximately $185 million, or 3.5%, in the quarter.

    • Non-interest-bearing deposits were up $65.5 million, and overall deposits were up $140.4 million from the first quarter.

    • Net interest margin expanded to 3.83%, exceeding the 3.75% target set after the Keystone merger.

    • Efficiency ratio improved significantly to 56.5% from 66.1% in the first quarter.

    Concerns

    4

    • Non-performing loans included a $17.1 million loan transferred to other real estate owned (OREO).

    • Three relationships totaling $10.1 million were placed on non-accrual during the quarter.

    • Loans over 90 days past due and still accruing increased by $2.1 million.

    • Non-recurring expenses in Q2 were estimated between $500,000 and $1 million.

    Guidance & targets

    7
    CategoryTargetConfidence
    Cost savings from systems integration
    $100,000 per month
    medium materiality
    High
    Additional cost savings from systems integration
    $150,000 per month
    medium materiality
    High
    Securitization
    One additional securitization
    medium materiality
    Medium
    Net interest margin
    Flat to maybe up just a little bit
    high materiality
    Medium
    Fee income (excluding gains)
    $4.0M-$4.5M
    medium materiality
    Medium
    Quarterly loan growth
    $75 million to $125 million
    high materiality
    Medium
    Total non-interest expense
    Flat
    medium materiality
    Medium

    Operational metrics

    11
    Average cost of deposits
    12 bpsdeclined QoQ
    Q2 FY26

    Reflecting continued improvement in deposit pricing and mix.

    Non-interest expense (non-recurring)
    $500,000-$1 million
    Q2 FY26

    Related to TCC sale legal fees, merger expenses, shareholder meeting, and signing bonuses for new lenders.

    New commercial banking professionals hired
    5
    Q2 FY26

    Expect to hire a similar number in Q3.

    Rural markets deposit growth (Heritage Bank acquired)
    90%11.3% CAGR
    Since 2019

    Outperformed underlying market growth.

    TCC net charge-offs contribution
    44%
    Last 5.5 years

    Of total net charge-offs came from Third Coast Commercial Capital.

    Non-accrual loans (SBA guaranteed portion)
    44%
    Q2 FY26

    Of total non-accruals are SBA guaranteed.

    Non-accrual loan (SBA)
    $3.0M
    Q2 FY26

    Secured by real estate.

    Non-accrual loan (Office building)
    $5.5M
    Q2 FY26

    Secured by office building, recently brought current with 6 months payment reserves.

    Non-accrual loan (C&I)
    $1.6M
    Q2 FY26

    Secured by real estate, equipment, and revolving line of credit.

    Charge-offs (YTD)
    $320,000
    YTD FY26

    Net recoveries for the year so far.

    Non-interest expense to average earning assets
    2.44%second best quarter
    Q2 FY26

    Management aims to improve this ratio over time.

    Industry KPIs

    10
    MetricValueDetails
    Loans$5.44 billionUSD
    Deposits$140.4 millionUSD
    Fee income linesroughly $4.2 millionUSD
    Allowance reserves$53.6 millionUSD
    Net interest income$60.3 millionUSD
    Net interest margin3.83%%
    Net charge offs npls0.55%%
    Total operating expensesessentially flat
    Provision for credit losses$2.1 millionUSD
    Efficiency ratio operating leverage56.5%%

    Deals & partnerships

    1
    Third Coast Commercial Capital (TCC) buyerSale of substantially all assets of Third Coast Commercial Capital.$27.5 million

    Simplifies organization, sharpens strategic focus on core banking platforms, allows continued service to factoring clients through strategic partnership.

    Risks & headwinds

    4
    Elevated deposit competitioncurrent

    elevated

    Mitigation: Continued focus on improving funding mix and supporting margin stability.

    Loan paydownscurrent

    challenging somewhat

    Mitigation: Finding great relationship-based customers.

    Deterioration in SBA portfoliocurrent

    some deterioration

    Mitigation: Proactive charge-downs on unguaranteed portions, small portfolio size.

    Competition in mini storage marketscurrent

    reduced rental rates

    Mitigation: Facilities in special mention are expected to be refinanced as part of a larger portfolio.

    What to watch in Q3 FY26

    5

    Cost savings from Keystone integration

    Q3 FY26 (for initial savings), Q1 FY27 (for additional savings)
    Current$100,000 per month
    Target$150,000 per month

    Why it matters

    Demonstrates successful integration and contributes to operating leverage.

    So we expect effective August 1st, we'll have about $100,000 a month in cost savings that's directly related to the data processing contracts. And then we think February 1st of next year, we'll pick up an additional $150,000 a month.

    Q&A highlights

    6

    Inquiring about the sustainability of strong loan growth given recent lender hires and the impact of securitizations on reported loan balances.

    Bart emphasized a tight credit box focused on relationship-based clients and credit quality. John clarified that $200M quarters are exceptional, and securitizations (one closed July 15th, another likely in August) will reduce reported loan balances, but the underlying balance sheet growth remains strong.

    “Yes, Michael, I might add that, you know, $200 million quarters are probably going to be more the exception than the rule, that when we do have these big quarters, we're more likely to do a securitization.”

    asked by Michael Rose · answered by Unknown Speaker

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Initiatives and Simplification

    The company completed the sale of Third Coast Commercial Capital (TCC) for $27.5 million, generating a $3.5 million gain and simplifying its organizational structure to focus on core banking platforms. This divestiture is expected to positively impact credit performance, as TCC historically accounted for 44% of total net charge-offs over the last five and a half years. The transaction also includes a structured ongoing revenue share, allowing continued participation in the portfolio's performance.

    02

    Balance Sheet Management and Funding

    Third Coast closed its third securitization on July 15th and expects another in August, viewing these as normal extensions of its funding and capital management toolkit. The company's focus on relationship-based deposits yielded a $65.5 million increase in non-interest-bearing deposits and a $140.4 million increase in overall deposits, improving the funding mix and reducing the average cost of deposits by 12 basis points QoQ. This strategy supports both growth and profitability.

    03

    Talent Acquisition and Growth

    The bank continues to attract experienced commercial banking professionals, adding five in Q2 and expecting a similar number in Q3. This talent acquisition strategy is seen as a key driver for long-term quality growth and a clear indicator of the bank's quality. Management believes these investments in people strengthen their competitive position and will drive additional quality growth over time⏳.

    04

    Keystone Integration and Operating Leverage

    The Keystone conversion was successfully completed, with expected cost savings of $100,000 per month starting August 1st and an additional $150,000 per month from February 1st, 2027. The company demonstrated meaningful operating leverage, with total non-interest expense remaining flat while the efficiency ratio improved significantly from 66.1% to 56.5%. This performance highlights the scalability of their model and benefits from prior operating and technology investments.

    05

    Credit Quality and Portfolio Diversification

    Credit fundamentals remained healthy, with non-performing loans declining by $5.6 million to 0.55% of total loans. The loan portfolio is well-diversified across industries and markets, with C&I loans representing 44% of total loans. Management maintains a tight credit box and disciplined underwriting, contributing to net recoveries of $150,000 in the quarter and confidence in supporting continued growth while maintaining strong credit quality.

    AI-generated summary of the company’s earnings call. Not investment advice.