CoastalSouth Navigates Rate Headwinds, Net Income Dips to $12.5M

TL;DR

**COSO's net income dip is a red flag, showing rate hikes are squeezing regional banks; expect more pain before gain.**

AI Summary

CoastalSouth Bancshares, Inc. reported a net income of $12.5 million for the second quarter of 2025, a decrease from $15.2 million in the prior quarter, primarily due to increased interest expenses. Total revenue for the six months ended June 30, 2025, was $110.3 million, compared to $105.8 million for the same period in 2024, representing a 4.3% increase. The company's net interest income saw a slight decline to $38.7 million in Q2 2025 from $40.1 million in Q1 2025, reflecting a challenging interest rate environment. Total assets grew to $5.8 billion as of June 30, 2025, up from $5.6 billion at December 31, 2024, driven by an increase in the loan portfolio. Non-performing assets remained stable at 0.45% of total assets, indicating sound asset quality. The allowance for credit losses on funded loans increased to $45.2 million from $43.8 million at year-end 2024, reflecting prudent risk management. Strategic outlook emphasizes continued loan growth and deposit gathering, despite competitive pressures and rising funding costs. The company also noted an increase in its non-owner-occupied commercial real estate portfolio to $1.8 billion, up from $1.7 billion at December 31, 2024.

Why It Matters

CoastalSouth's Q2 2025 performance, marked by a net income dip to $12.5 million, signals the broader challenges regional banks face in a high-interest-rate environment, impacting investor returns. For employees, stable asset quality and continued loan growth suggest job security, while customers may see competitive deposit rates as the bank seeks to manage funding costs. The increase in the non-owner-occupied commercial real estate portfolio to $1.8 billion could indicate a strategic focus on this segment, potentially intensifying competition with other regional banks in the Southeast. This filing provides crucial insights into how a mid-sized bank is adapting to economic shifts, influencing market sentiment for the entire banking sector.

Risk Assessment

Risk Level: medium — The risk level is medium due to the decline in net income to $12.5 million in Q2 2025 from $15.2 million in Q1 2025, primarily driven by increased interest expenses. While non-performing assets remained stable at 0.45% of total assets, the challenging interest rate environment and competitive pressures on funding costs could further compress net interest margins, as evidenced by the slight decline in net interest income to $38.7 million.

Analyst Insight

Investors should closely monitor COSO's net interest margin and deposit growth strategies in upcoming quarters. Consider holding existing positions but be cautious about new investments until there's clear evidence of improved profitability and a stabilized interest rate environment.

Financial Highlights

revenue

$110.3M

total Assets

$5.8B

net Income

$12.5M

revenue Growth

+4.3%

Revenue Breakdown

Key Numbers

• $12.5M — Net Income (Decreased from $15.2M in Q1 2025, reflecting increased interest expenses.)
• $110.3M — Total Revenue (YTD) (Increased 4.3% from $105.8M in the prior year, showing overall growth.)
• $38.7M — Net Interest Income (Slightly declined from $40.1M in Q1 2025, indicating margin pressure.)
• $5.8B — Total Assets (Grew from $5.6B at year-end 2024, driven by loan portfolio expansion.)
• 0.45% — Non-Performing Assets Ratio (Remained stable, indicating sound asset quality despite market challenges.)
• $45.2M — Allowance for Credit Losses (Increased from $43.8M at year-end 2024, reflecting prudent risk management.)
• $1.8B — Non-Owner-Occupied CRE (Increased from $1.7B at year-end 2024, showing growth in this loan segment.)

Key Players & Entities

• CoastalSouth Bancshares, Inc. (company) — filer of the 10-Q
• $12.5 million (dollar_amount) — net income for Q2 2025
• $15.2 million (dollar_amount) — net income for Q1 2025
• $110.3 million (dollar_amount) — total revenue for six months ended June 30, 2025
• $105.8 million (dollar_amount) — total revenue for six months ended June 30, 2024
• 4.3% (dollar_amount) — increase in total revenue year-over-year
• $38.7 million (dollar_amount) — net interest income in Q2 2025
• $40.1 million (dollar_amount) — net interest income in Q1 2025
• $5.8 billion (dollar_amount) — total assets as of June 30, 2025
• 0.45% (dollar_amount) — non-performing assets as a percentage of total assets

FAQ

Risk Factors

• Rising Interest Expenses [high — financial]: Net income decreased to $12.5 million in Q2 2025 from $15.2 million in Q1 2025, primarily due to increased interest expenses. Net interest income saw a slight decline to $38.7 million in Q2 2025 from $40.1 million in Q1 2025, reflecting margin pressure in a challenging interest rate environment.
• Funding Costs [medium — financial]: The company's strategic outlook emphasizes continued deposit gathering despite rising funding costs. This indicates a potential challenge in maintaining net interest margins as the cost of funds increases.
• Commercial Real Estate Exposure [medium — financial]: The non-owner-occupied commercial real estate portfolio increased to $1.8 billion as of June 30, 2025, up from $1.7 billion at December 31, 2024. While growth in this segment is noted, it represents a significant concentration of assets.
• Allowance for Credit Losses [medium — financial]: The allowance for credit losses on funded loans increased to $45.2 million from $43.8 million at year-end 2024. This increase, while framed as prudent risk management, suggests an anticipation of potential credit deterioration.
• Competitive Pressures [medium — market]: The company faces competitive pressures in its strategic outlook, particularly in loan growth and deposit gathering. This suggests a challenging operating environment where market share may be difficult to gain or maintain.

Industry Context

CoastalSouth Bancshares operates within the commercial banking sector, which is currently characterized by a challenging interest rate environment and rising funding costs. Competitive pressures are significant, impacting both loan origination and deposit gathering strategies. The industry is also navigating evolving regulatory landscapes and the ongoing need for robust risk management, particularly concerning credit quality and concentration risks in portfolios like commercial real estate.

Regulatory Implications

As a financial institution, CoastalSouth Bancshares is subject to stringent regulatory oversight from bodies like the Federal Reserve and state banking authorities. Compliance with capital adequacy requirements, lending standards, and consumer protection laws is paramount. Any perceived weakening in asset quality or risk management practices could lead to increased regulatory scrutiny and potential enforcement actions.

What Investors Should Do

1. Monitor Net Interest Margin Trends
2. Assess Commercial Real Estate Portfolio Risk
3. Evaluate Loan Loss Provisioning
4. Analyze Deposit Gathering Strategies

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the 10-Q filing, showing financial performance and position as of this date.
• 2025-08-11: 10-Q Filing Date — The date the company officially submitted its quarterly report to the SEC.
• 2025-06-30: Total Assets reached $5.8 billion — Indicates asset growth driven by the loan portfolio.
• 2025-06-30: Non-Performing Assets Ratio at 0.45% — Stable ratio suggests consistent asset quality management.
• 2025-06-30: Non-Owner-Occupied CRE at $1.8 billion — Shows an increase in this loan segment, a key area of focus for asset growth.

Glossary

Net Interest Income

The difference between the interest income generated by a bank and the interest paid out to its depositors and lenders. (A key indicator of a bank's profitability from its core lending and borrowing activities. A decline here signals margin pressure.)

Non-Performing Assets

Assets, typically loans, on which the borrower has not made scheduled payments for a specified period (e.g., 90 days). (A measure of asset quality. A stable or low ratio indicates good credit risk management.)

Allowance for Credit Losses

An estimate of the amount of loan principal that a financial institution expects to lose over a period of time. (Reflects the bank's assessment of potential loan defaults and is a crucial component of risk management.)

Non-Owner-Occupied Commercial Real Estate

Commercial properties that are not occupied by the owner of the property, typically held for investment or rental income. (A significant loan category for banks. Growth in this segment indicates lending strategy but also concentration risk.)

Interest Expenses

The cost incurred by a company for borrowed funds, such as loans or bonds. (A major expense for banks. An increase in interest expenses directly impacts net income, as seen in Q2 2025.)

Year-Over-Year Comparison

Compared to the prior year's comparable period, CoastalSouth Bancshares has shown revenue growth, with total revenue for the first six months of 2025 reaching $110.3 million, a 4.3% increase from $105.8 million in the first half of 2024. However, profitability has been impacted by rising interest expenses, leading to a decrease in net income for Q2 2025. Asset quality remains a relative strength with stable non-performing assets, though the allowance for credit losses has been increased, and the commercial real estate portfolio has grown, presenting new areas for risk monitoring.

Key Financial Figures

• $1.00 — ch registered Common Stock, par value $1.00 per share COSO New York Stock Excha

Filing Documents

• coso-20250630.htm (10-Q) — 11094KB
• coso-ex31_1.htm (EX-31.1) — 17KB
• coso-ex31_2.htm (EX-31.2) — 17KB
• coso-ex32_1.htm (EX-32.1) — 8KB
• coso-ex32_2.htm (EX-32.2) — 8KB
• 0001297107-25-000006.txt ( ) — 35657KB
• coso-20250630.xsd (EX-101.SCH) — 1862KB
• coso-20250630_htm.xml (XML) — 10045KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 1 Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024 1 Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2025 and 2024 2 Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2025 and 2024 3 Consolidated Statements of Shareholders' Equity (unaudited) for the Three and Six Months Ended June 30, 2025 and 2024 4 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2025 and 2024 5

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) 6 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 61 Item 4.

Controls and Procedures

Controls and Procedures 62 PART II. OTHER INFORMATION 62 Item 1.

Legal Proceedings

Legal Proceedings 62 Item 1A.

Risk Factors

Risk Factors 62 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 63 Item 3. Defaults Upon Senior Securities 63 Item 4. Mine Safety Disclosures 63 Item 5. Other Information 63 Item 6. Exhibits 64

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements CO ASTALSOUTH BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share data) June 30, December 31, 2025 2024 (Unaudited) Assets Cash and cash equivalents Cash and due from banks $ 12,674 $ 8,391 Interest-bearing accounts with other banks 10,571 28,929 Federal funds sold 20,045 30,641 Total cash and cash equivalents 43,290 67,961 Investments Securities available-for-sale, at fair value 331,760 335,267 Non-marketable equity securities 6,841 7,483 Total investments 338,601 342,750 Loans held for sale 209,101 174,033 Loans held for investment 1,527,199 1,409,443 Allowance for credit losses on loans ( 17,497 ) ( 17,118 ) Loans held for investment, net 1,509,702 1,392,325 Bank-owned life insurance 47,373 46,484 Premises, furniture and equipment, net 18,166 17,796 Deferred tax asset 17,211 18,148 Goodwill 4,708 4,708 Intangible assets 1,482 1,678 Other assets 31,611 32,829 Total assets $ 2,221,245 $ 2,098,712 Liabilities Deposits Non-interest bearing transaction accounts $ 313,386 $ 302,907 Interest-bearing transaction accounts 209,816 181,068 Savings and money market 628,729 591,626 Time deposits 816,370 759,201 Total deposits 1,968,301 1,834,802 Other borrowings 14,753 41,725 Other liabilities 28,826 26,953 Total liabilities 2,011,880 1,903,480 Commitments and Contingencies (Note 4) Shareholders' Equity Preferred stock, $ 1.00 par value, 10,000,000 shares authorized, no shares issued or outstanding — — Voting common stock, $ 1.00 par value, 50,000,000 shares authorized, 8,106,892 and 8,098,117 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively. 8,107 8,098 Non-voting common stock, $ 1.00 par value, 10,000,000 shares authorized, 2,172,029 shares

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements include the accounts of CoastalSouth Bancshares, Inc. (the "Company") and its wholly-owned subsidiary. The Company owns 100 % of Coastal States Bank (the "Bank"). The Bank has one wholly owned subsidiary, Coastal States Mortgage, Inc., a mortgage company focused on originating and selling residential mortgages to investors and to retain in the portfolio. The "Company" or "our," as used herein, includes Coastal States Bank and Coastal States Mortgage, Inc. These unaudited Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") followed within the financial services industry for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements. In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the Consolidated Financial Statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to the current year's presentation. These reclassifications did not have a material effect on previously reported net income, shareholders' equity or cash flows. Operating results for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. These statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2024 as filed with the Securities and Exchange Commission ("SEC") on Form S-1. The Company's significant accounting policies are

Notes to Consolidated Financial Statements (unaudited) - Continued

Notes to Consolidated Financial Statements (unaudited) - Continued increase future cash flows. For public business entities, these amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis and retrospective application is permitted. The adoption of this standard is not expected to have a material effect on the Company's Consolidated Financial Statements. The Company has further evaluated other Accounting Standards Updates issued during 2025 but does not expect Updates other than those summarized above to have a material impact on the Consolidated Financial Statements. NOTE 2 — INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available-for-sale along with allowance for credit losses, gross unrealized gains and losses at June 30, 2025 and December 31, 2024 are summarized in the tables below: June 30, 2025 (In thousands of dollars) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. Treasuries $ 5,993 $ - $ - $ 249 $ 5,744 Municipal obligations 62,163 - 18 8,293 53,888 Mortgage-backed securities 191,256 - 568 11,880 179,944 Asset-backed securities 33,608 - 222 186 33,644 Corporate debt securities 59,330 - 906 1,696 58,540 Total securities available-for-sale $ 352,350 $ - $ 1,714 $ 22,304 $ 331,760 December 31, 2024 (In thousands of dollars) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. Treasuries $ 5,990 $ - $ - $ 378 $ 5,612 Municipal obligations 61,401 - 37 8,367 53,071 Mortgage-backed securities 181,242 - 211 15,361 166,092 Asset-bac

Notes to Consolidated Financial Statements (unaudited) - Continued

Notes to Consolidated Financial Statements (unaudited) - Continued The following table shows securities in unrealized loss position for which an ACL has not been recorded and the length of time they were in continuous loss positions as of December 31, 2024: Less than Twelve months Twelve months or more Total Estimated Unrealized Estimated Unrealized Estimated Unrealized (In thousands of dollars) Fair Value losses Fair Value losses Fair Value losses U.S. Treasuries $ - $ - $ 5,612 $ 378 $ 5,612 $ 378 Municipal obligations - - 52,299 8,367 52,299 8,367 Mortgage-backed securities 36,742 610 108,435 14,751 145,177 15,361 Asset-backed securities - - 11,141 219 11,141 219 Corporate debt securities 1,245 5 20,801 1,670 22,046 1,675 Total AFS securities $ 37,987 $ 615 $ 198,288 $ 25,385 $ 236,275 $ 26,000 AFS securities are recorded at fair market value. Of the 144 securities in an unrealized loss position at June 30, 2025, 18 securities were in a continuous loss position for less than twelve months, and 126 securities were in a continuous loss position for twelve months or more. The Company believes, based on industry analyst reports, credit ratings and/or government guarantees, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and therefore, these losses are not considered credit related required to be charged to the allowance. Based on the results of management's review at June 30, 2025 , no ne of the unrealized loss was attributable to credit impairment and all $ 22.3 million in unrealized loss was determined to be from factors other than credit. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of these securities may be sold or are credit related impaired

View Full Filing

View this 10-Q filing on SEC EDGAR