CoastalSouth's Q3 Net Income Dips, Assets & Deposits Climb

TL;DR

**COSO's Q3 net income is down, but their balance sheet is growing, so watch credit quality closely as they expand.**

AI Summary

CoastalSouth Bancshares, Inc. (COSO) reported a net income of $6.741 million for the three months ended September 30, 2025, a decrease of 14.49% from $7.884 million in the same period of 2024. For the nine months ended September 30, 2025, net income increased by 9.60% to $17.756 million, up from $16.200 million in 2024. Total assets grew to $2.255 billion as of September 30, 2025, from $2.099 billion at December 31, 2024, an increase of 7.45%. Loans held for investment, net, increased by 10.25% to $1.535 billion from $1.392 billion. Total deposits also saw a significant rise, reaching $1.950 billion, up 6.26% from $1.835 billion. The company's shareholders' equity increased substantially by 28.28% to $250.438 million, primarily due to an initial public offering that generated $31.858 million and a transfer of 642,000 non-voting common shares to voting common stock. The provision for credit losses increased to $653,000 for the three months ended September 30, 2025, compared to a recovery of $1.023 million in the prior year, indicating a more conservative outlook on loan performance. Diluted EPS for the quarter decreased to $0.54 from $0.75, while for the nine months, it slightly increased to $1.58 from $1.55. The company also saw a decrease in total interest expense by 12.00% for the quarter, contributing to a net interest income increase of 13.11% to $19.190 million.

Why It Matters

CoastalSouth's mixed Q3 results, with a quarterly net income dip but strong asset and deposit growth, signal a complex environment for investors. The significant increase in the provision for credit losses to $653,000 from a recovery of $1.023 million suggests management is bracing for potential loan quality challenges, which could impact future profitability and investor confidence. The successful initial public offering and subsequent increase in shareholders' equity by 28.28% provides a stronger capital base, potentially enabling competitive expansion or resilience against economic headwinds. For customers, the growth in deposits indicates continued trust, while employees might see stability from the company's expanding asset base. In a competitive banking landscape, COSO's ability to grow its balance sheet while managing credit risk will be crucial for long-term market positioning.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant increase in the provision for credit losses to $653,000 for the three months ended September 30, 2025, compared to a recovery of $1.023 million in the prior year, indicating potential future asset quality concerns. Additionally, while total assets grew, cash and cash equivalents decreased by 61.33% from $67.961 million at December 31, 2024, to $26.279 million at September 30, 2025, which could impact liquidity.

Analyst Insight

Investors should scrutinize CoastalSouth's upcoming earnings calls for detailed explanations on the increased provision for credit losses and any shifts in loan portfolio quality. While the balance sheet growth is positive, a deeper dive into the composition of new loans and potential non-performing assets is warranted. Consider holding existing positions but deferring new investments until credit quality trends become clearer.

Financial Highlights

debt To Equity

N/A

revenue

$19.190M

operating Margin

N/A

total Assets

$2.255B

total Debt

N/A

net Income

$6.741M

eps

$0.54

gross Margin

N/A

cash Position

$26.279M

revenue Growth

+13.11%

Revenue Breakdown

Key Numbers

• $6.741M — Net Income (Q3 2025) (Decreased from $7.884M in Q3 2024)
• $17.756M — Net Income (9M 2025) (Increased from $16.200M in 9M 2024)
• $2.255B — Total Assets (Increased 7.45% from $2.099B at Dec 31, 2024)
• $1.950B — Total Deposits (Increased 6.26% from $1.835B at Dec 31, 2024)
• $250.438M — Total Shareholders' Equity (Increased 28.28% from $195.232M at Dec 31, 2024)
• $653K — Provision for Credit Losses (Q3 2025) (Increased from a recovery of ($1.023M) in Q3 2024)
• $0.54 — Diluted EPS (Q3 2025) (Decreased from $0.75 in Q3 2024)
• $1.58 — Diluted EPS (9M 2025) (Increased from $1.55 in 9M 2024)
• $31.858M — Proceeds from Initial Public Offering (Contributed to increased shareholders' equity)
• $19.190M — Net Interest Income (Q3 2025) (Increased 13.11% from $16.966M in Q3 2024)

Key Players & Entities

• CoastalSouth Bancshares, Inc. (company) — Registrant
• Coastal States Bank (company) — Wholly-owned subsidiary of CoastalSouth Bancshares, Inc.
• Coastal States Mortgage, Inc. (company) — Wholly-owned subsidiary of Coastal States Bank
• New York Stock Exchange (regulator) — Exchange where COSO common stock is registered
• SEC (regulator) — Securities and Exchange Commission
• FASB (regulator) — Financial Accounting Standards Board
• $6.741 million (dollar_amount) — Net income for three months ended September 30, 2025
• $17.756 million (dollar_amount) — Net income for nine months ended September 30, 2025
• $2.255 billion (dollar_amount) — Total assets as of September 30, 2025
• $1.950 billion (dollar_amount) — Total deposits as of September 30, 2025

FAQ

Risk Factors

• Credit Risk and Loan Portfolio Quality [high — financial]: The company's primary risk stems from its loan portfolio. An increase in the provision for credit losses to $653,000 in Q3 2025 from a recovery of $1.023 million in Q3 2024 signals a more conservative outlook and potential concerns about borrower repayment capabilities. Deterioration in loan quality could lead to increased charge-offs and negatively impact earnings.
• Interest Rate Sensitivity [medium — market]: As a financial institution, CoastalSouth is exposed to interest rate risk. Fluctuations in interest rates can impact net interest income and the fair value of investment securities. While net interest income increased by 13.11% to $19.190 million in Q3 2025, sustained low or volatile rates could pressure profitability.
• Cybersecurity and Data Breaches [medium — operational]: The company relies on technology to conduct its operations and store sensitive customer data. A cybersecurity incident or data breach could result in significant financial losses, reputational damage, and regulatory penalties.
• Regulatory Compliance and Changes [medium — regulatory]: The banking industry is heavily regulated. Changes in regulations, compliance failures, or increased supervisory scrutiny could lead to increased operating costs, fines, or restrictions on business activities.
• Liquidity Risk [medium — financial]: While total deposits increased by 6.26% to $1.950 billion, a sudden and significant withdrawal of deposits or inability to access funding sources could impair the company's ability to meet its obligations and fund its operations.
• Economic Downturn Impact [high — market]: A general economic slowdown or recession could negatively affect the company's borrowers, leading to increased loan defaults and a decline in loan demand, thereby impacting asset quality and profitability.

Industry Context

CoastalSouth Bancshares operates within the community banking sector, characterized by a focus on local markets and relationship-based lending. The industry is highly competitive, facing pressure from larger national banks, credit unions, and increasingly, fintech companies. Trends include a continued focus on digital transformation, evolving customer expectations for seamless online and mobile experiences, and navigating a complex regulatory environment.

Regulatory Implications

As a bank holding company, CoastalSouth is subject to oversight from various regulatory bodies, including the Federal Reserve and state banking authorities. Compliance with capital requirements, liquidity rules, and consumer protection laws is paramount. Any changes in these regulations, such as increased capital adequacy ratios or stricter lending standards, could impact the company's operations and profitability.

What Investors Should Do

1. Monitor loan portfolio quality and provision for credit losses.
2. Analyze the impact of the IPO on capital structure and future growth.
3. Assess interest rate sensitivity and net interest margin trends.
4. Evaluate the growth in loans held for sale.

Key Dates

• 2025-09-30: Quarterly Financial Reporting — Reported net income of $6.741 million, total assets of $2.255 billion, and shareholders' equity of $250.438 million.
• 2024-12-31: Previous Year-End Financial Reporting — Reported total assets of $2.099 billion and shareholders' equity of $195.232 million.
• 2025-09-30: Initial Public Offering (IPO) Proceeds — $31.858 million generated from IPO contributed to the substantial increase in shareholders' equity.

Glossary

Provision for Credit Losses

An expense recognized by financial institutions to cover potential losses from loans that may not be repaid. An increase indicates a more cautious view of loan portfolio health. (The increase in this provision for Q3 2025 signals a potential shift in the company's assessment of credit risk within its loan portfolio.)

Net Interest Income

The difference between the interest income generated by a bank's interest-earning assets (like loans and investments) and the interest paid out on its interest-bearing liabilities (like deposits and borrowings). (A key driver of profitability for banks; the 13.11% increase in Q3 2025 is a positive indicator for the company's core lending and funding operations.)

Diluted EPS

Earnings per share calculated using the total number of outstanding shares of common stock, including the potential dilution from stock options, convertible securities, and warrants. (The decrease in Diluted EPS for Q3 2025 from $0.75 to $0.54 suggests a reduction in profitability on a per-share basis for the quarter, despite overall net income growth for the nine-month period.)

Securities Available-for-Sale (AFS)

Investments in debt or equity securities that are not classified as held-to-maturity or trading securities. They are reported at fair value on the balance sheet, with unrealized gains and losses recorded in other comprehensive income. (The company holds $334.955 million in AFS securities, and the note on unrealized losses indicates potential market value fluctuations impacting equity.)

Capital Surplus

The amount of money a company receives from selling stock above its par value. (The significant increase in capital surplus from $158.755 million to $189.654 million is directly linked to the proceeds from the IPO and the reclassification of shares.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, CoastalSouth Bancshares shows mixed performance. While total assets grew by 7.45% to $2.255 billion and total deposits increased by 6.26% to $1.950 billion, net income for the third quarter decreased by 14.49% to $6.741 million, accompanied by a drop in diluted EPS from $0.75 to $0.54. However, for the nine-month period, net income saw a modest increase of 9.60% to $17.756 million, and diluted EPS edged up to $1.58 from $1.55. A significant development is the substantial 28.28% increase in shareholders' equity, largely driven by an IPO, and a notable shift in credit loss provisioning, moving from a recovery to an expense.

Key Financial Figures

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

Filing Documents

• coso-20250930.htm (10-Q) — 11468KB
• 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
• 0001193125-25-272276.txt ( ) — 36992KB
• coso-20250930.xsd (EX-101.SCH) — 1885KB
• coso-20250930_htm.xml (XML) — 10534KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 1 Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024 1 Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2025 and 2024 2 Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2025 and 2024 3 Consolidated Statements of Shareholders' Equity (unaudited) for the Three and Nine Months Ended September 30, 2025 and 2024 4 Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 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 34 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 63 Item 4.

Controls and Procedures

Controls and Procedures 64 PART II. OTHER INFORMATION 64 Item 1.

Legal Proceedings

Legal Proceedings 64 Item 1A.

Risk Factors

Risk Factors 64 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 65 Item 3. Defaults Upon Senior Securities 65 Item 4. Mine Safety Disclosures 65 Item 5. Other Information 65 Item 6. Exhibits 66

—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) September 30, December 31, 2025 2024 (Unaudited) Assets Cash and cash equivalents Cash and due from banks $ 11,145 $ 8,391 Interest-bearing accounts with other banks 8,943 28,929 Federal funds sold 6,191 30,641 Total cash and cash equivalents 26,279 67,961 Investments Securities available-for-sale, at fair value 334,955 335,267 Non-marketable equity securities 8,035 7,483 Total investments 342,990 342,750 Loans held for sale 231,593 174,033 Loans held for investment 1,552,976 1,409,443 Allowance for credit losses on loans ( 18,028 ) ( 17,118 ) Loans held for investment, net 1,534,948 1,392,325 Bank-owned life insurance 47,833 46,484 Premises, furniture and equipment, net 18,186 17,796 Deferred tax asset 16,262 18,148 Goodwill 4,708 4,708 Intangible assets 1,478 1,678 Other assets 31,112 32,829 Total assets $ 2,255,389 $ 2,098,712 Liabilities Deposits Non-interest bearing transaction accounts $ 313,604 $ 302,907 Interest-bearing transaction accounts 198,753 181,068 Savings and money market 634,826 591,626 Time deposits 802,489 759,201 Total deposits 1,949,672 1,834,802 Other borrowings 25,000 41,725 Other liabilities 30,279 26,953 Total liabilities 2,004,951 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, 10,448,892 and 8,098,117 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively. 10,449 8,098 Non-voting common stock, $ 1.00 par value, 10,000,000 shares authorized, 1,530,02

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 nine months ended September 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 polici

Notes to Consolidated Financial Statements (unaudited) - Continued

Notes to Consolidated Financial Statements (unaudited) - Continued consideration of software project development stages; cost capitalization would begin when (i) management has authorized and committed to funding the project and (ii) it is probable' the project will be completed and the software used to perform its intended function (the probable-to-complete' threshold); and (b) enhancing the guidance around the probable-to-complete' threshold. This Update also modifies the website development costs guidance by requiring entities to provide disclosures required under Subtopic 360-10 on property, plant & equipment to capitalized internal-use software and related amortization, regardless of how the internal-use software is classified on the balance sheet or how it was acquired. This Update is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods with early adoption permitted as of the beginning of an annual reporting period. The Company intends to adopt this Update on a prospective transition approach. The adoption of this standard is not expected to have a material effect on the Company's Consolidated Financial Statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU enhances the transparency and decision usefulness of income tax disclosures for investors, lenders, creditors, and other allocators of capital (collectively, "investors"). These new enhancements are meant to better (1) understand an entity's exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. For public business entities, these amendments are effective for annual periods beginning after December 15,

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 allowance for credit losses ("ACL") has not been recorded and the length of time they were in continuous loss positions as of September 30, 2025: 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 $ - $ - $ 5,799 $ 195 $ 5,799 $ 195 Municipal obligations - - 54,414 7,096 54,414 7,096 Mortgage-backed securities 6,910 52 111,095 10,611 118,005 10,663 Asset-backed securities 1,992 8 7,237 141 9,229 149 Corporate debt securities 7,395 41 19,102 1,372 26,497 1,413 Total AFS securities $ 16,297 $ 101 $ 197,647 $ 19,415 $ 213,944 $ 19,516 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 137 securities in an unrealized loss position at September 30, 2

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