Third Coast Bancshares (NASDAQ:TCBX) reported fourth-quarter and full-year 2025 results that management said reflected strong balance-sheet growth, improved profitability, and steady credit performance, while also fielding analyst questions about expenses, loan growth expectations, net interest margin drivers, and the pending merger with Keystone Bankshares.
Balance sheet growth and deposit trends
Founder, Chairman, President, and CEO Bart Caraway said the company delivered “significant growth” during the fourth quarter and across the full year. Gross loans increased $230 million, or 5.5%, from the third quarter to $4.39 billion, representing 10.8% year-over-year growth and above the company’s targeted run rate of 8%, he said. Total assets ended the year at $5.34 billion, up 5.5% from the third quarter and up 8.1% from the prior year-end.
Asked whether the bank ran year-end deposit campaigns, management said the fourth quarter tends to be seasonal for the company. Caraway said much of the quarter’s deposit growth was temporary and customer-dependent, adding that balances were not as elevated as in prior years. At the same time, he said the company has been encouraged by growth in non-interest-bearing demand deposits, which has risen for “six or seven months in a row,” citing efforts by the treasury and corporate teams to bring in those accounts.
Earnings, margin, and fee income highlights
McWhorter reported net income of $17.9 million for the fourth quarter and record annual net income of $66.3 million, which he said was up 39% from the prior year. The company posted earnings per diluted share of $1.02 for the quarter and $3.79 for the year, which management said was a 36% year-over-year increase and a record for Third Coast.
For profitability metrics, McWhorter said annual return on equity was 14%, up 24% from the prior year. Caraway added that return on average assets for full-year 2025 was an annualized 1.33%, which he said represented a year-over-year improvement of more than 26%.
Net interest income totaled $52.2 million in the fourth quarter and $195.2 million for the year, up 21% year-over-year, which management attributed primarily to higher earning assets. Net interest margin was 4.10% in the fourth quarter, which McWhorter said exceeded expectations and benefited from higher-than-expected loan fees tied to strong loan growth. He also said management estimated “core” net interest margin at 3.90% for the quarter, up about 10 basis points from the prior quarter.
On expenses and deposit pricing, Caraway highlighted a roughly 4.2% reduction in interest expense from the third quarter and a 5.2% decrease from a year ago, attributing that to “dynamically pricing a portion” of deposits and benefiting from an evolving rate environment. In the Q&A, management added that improved pricing tools tied to the bank’s new core system have helped refine deposit pricing and better understand customer relationships.
Non-interest income was also a focus. Caraway said service charges and fees increased approximately 24% from the third quarter and 55% year-over-year, which he attributed to the relationship banking model and platform. In response to an analyst question, management said it felt “pretty comfortable” with a roughly $4 million quarterly run rate for non-interest income, while noting that certain items—particularly loan fees—can be lumpy.
Expenses, merger-related costs, and efficiency initiatives
Analysts pressed management on quarterly expense “noise” and the outlook for 2026. McWhorter said legal and professional expenses included about $1 million of merger-related costs in the quarter and that the company expected roughly $5 million more in merger-related expenses over the next couple of quarters. He also described several non-recurring items in salaries and benefits, including severance and signing bonuses, while noting that additional tax credits purchased in the quarter provided a partial offset to the quarterly impact of these items.
Management said staffing can rise in periods of strong growth as the bank adds support resources in areas like loan operations, IT, and treasury. Looking ahead, McWhorter said that from the current run rate, management expected expenses to rise “plus 5%, maybe 6 or 7%,” with growth weighted toward the beginning of the year due to annual salary increases and added staffing needs. Caraway said the bank continues to view itself as a “talent magnet” and expects to remain selective while taking advantage of market disruption that may create hiring opportunities.
The company also discussed operational efficiency efforts, including a renewed internal “1% initiative” and anticipated efficiencies from its core conversion, as well as scale benefits expected from the Keystone transaction.
Credit quality and portfolio mix
Chief Credit Officer Audrey Spaulding said credit performance reflected “strength and stability” supported by disciplined underwriting and risk management. Non-accrual loans improved for the fourth consecutive quarter, decreasing $603,000 in the fourth quarter and $16.7 million for the full year, she said.
Loans more than 90 days past due but still accruing totaled $11.36 million at year-end, though Spaulding noted that after year-end, a roughly $5.5 million loan was renewed and is now current. She said non-performing loans improved $259,000 quarter-over-quarter and $6.5 million year-over-year. The non-performing loan ratio improved 3 basis points from the prior quarter and 21 basis points from a year earlier, according to Spaulding.
The allowance for credit losses was 1% of total loans at quarter-end, slightly down from 1.02% at the third quarter and prior year-end. Net charge-offs for the year were 8 basis points, a 1 basis point improvement from the prior year, she said.
Spaulding also provided portfolio composition, saying commercial and industrial loans represented 43% of total loans; construction, development, and land loans were 19%; owner-occupied commercial real estate was 10%; and non-owner-occupied commercial real estate was 16%.
Keystone merger, 2026 loan growth outlook, and securitizations
Caraway said a key priority for 2026 is integrating the announced merger with Keystone Bankshares, Inc. He said that once completed, the combined company would be a $6 billion entity with 22 locations across Texas, including three locations in Austin, and would bring together “culturally aligned” community banks.
Management said the transaction was proceeding as planned. In the Q&A, the company noted that both Third Coast and Keystone had upcoming shareholder meetings for approval, and management said it did not have additional timeline updates beyond that the deal was moving along its expected schedule.
For 2026, management reiterated loan growth expectations of $75 million to $100 million per quarter, which Caraway said implies an annualized growth rate of approximately 8%. In the Q&A, management characterized that range as a base case and said 2026 could be more favorable for production, while also emphasizing that growth can be lumpy quarter-to-quarter. The company also said it expects fewer headwinds from large payoffs or paydowns than in prior periods.
Margin expectations were discussed as well. Management said fourth-quarter net interest margin benefited from approximately $1.5 million of what it characterized as “excess loan fees,” and McWhorter said he would expect margin to move back toward the 3.90% core level without similar one-time fee items in the first quarter.
McWhorter also addressed securitizations after the company completed two in 2025. He said it was likely Third Coast would do another securitization in 2026, potentially structured differently—more likely involving selling existing loans to manage concentrations and “free up room” for construction lending. He said such a transaction could shrink the balance sheet somewhat and could pull forward income recognition through day-one fees, which he described as more of a timing difference versus keeping the loans on the balance sheet.
Finally, management discussed a preferred convertible instrument on the balance sheet. McWhorter said the company has the right to call it in September 2027 and indicated conversion to common at that time was likely. He added that the preferred is already included in capital and earnings metrics; however, he said converting it would increase the company’s common equity tier 1 ratio by roughly 125 basis points, as shown in the company’s investor materials.
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.
