CoastalSouth Bancshares, Inc. 2025 Annual Performance Review for Investors

CoastalSouth Bancshares, Inc. delivers essential financial services, including lending and deposit-taking, to communities across the Southeast. This annual review offers investors a clear look at the company's financial performance, strategic direction, and key risks for the fiscal year ending December 31, 2025, compared to 2024.

Business Overview

CoastalSouth Bancshares, Inc. provides financial services through its bank subsidiary. The company offers a full range of commercial and retail banking services to individuals, small and medium-sized businesses, and professionals, including:

• Lending: Commercial and industrial loans, commercial real estate loans, residential mortgage loans, construction and land development loans, and consumer loans.
• Deposit Products: Checking, savings, money market, and certificate of deposit accounts.
• Other Financial Services: Treasury management, online and mobile banking, debit and credit cards, and wealth management services.

The company focuses its operations on specific markets within the Southeast. It uses a community-focused banking model to build strong customer relationships and develop local market expertise.

Financial Performance Highlights

CoastalSouth Bancshares delivered resilient financial performance in 2025, successfully navigating a dynamic economic landscape.

• Net Interest Income (NII): Net Interest Income (NII), the company's primary revenue source, modestly increased by 3% to $85.5 million in 2025, up from $83.0 million in 2024. This growth primarily stemmed from a healthy expansion in the loan portfolio, though rising funding costs for deposits partially offset it.
• Non-Interest Income: Non-interest income showed a mixed performance:
  • Interchange income and card fees grew strongly, increasing 23% from $1.3 million in 2024 to $1.6 million in 2025. This growth reflects increased customer debit and credit card activity and transaction volumes.
  • Gain on sale of government-guaranteed loans significantly declined, dropping 64% from $1.1 million in 2024 to $0.4 million in 2025. This reduction often stems from fluctuations in the mortgage market and lower demand for selling certain types of government-backed loans.
  • The company also reported losses of $0.2 million in 2025 from the sale of investment securities (available-for-sale securities), a new item compared to 2024. These losses typically occur when rising interest rates decrease the market value of bonds in the bank's investment portfolio, or due to strategic portfolio restructuring.
  • Overall non-interest income, including other service charges and fees, totaled $15.2 million in 2025, a slight decrease from $16.5 million in 2024, primarily due to the decline in loan sale gains.
• Profitability:
  • Net Income reached $28.7 million in 2025, a slight decrease from $30.1 million in 2024. This reflects the mixed non-interest income performance and increased operating expenses.
  • Diluted Earnings Per Share (EPS) was $2.15 in 2025, compared to $2.25 in 2024.
  • The Return on Average Assets (ROAA) was 0.95% in 2025, and Return on Average Equity (ROAE) was 9.8%. These figures demonstrate solid, albeit slightly lower, profitability relative to the company's assets and shareholder equity.

Financial Health

The company maintained a strong financial position, prudently managing its balance sheet and holding robust capital levels.

• Balance Sheet Strength:
  • Total Assets grew 6% to $3.1 billion at year-end 2025, up from $2.9 billion at year-end 2024.
  • Total Loans increased 7% to $2.3 billion, reflecting continued demand for credit in its markets.
  • Total Deposits grew 5% to $2.6 billion, showing a stable and growing funding base.
  • Cash and Cash Equivalents: The company holds sufficient cash and highly liquid assets to meet operational needs and regulatory requirements.
  • Debt and Borrowings: The company uses various funding sources, such as FHLB advances, subordinated debt, or other borrowings, to manage liquidity and support asset growth.
  • Liquidity Management: CoastalSouth Bancshares actively manages its liquidity to meet financial obligations, fund loan growth, and respond to market changes. Management monitors cash flows, deposit trends, and access to wholesale funding markets.
  • Asset Quality remained strong, with non-performing assets making up just 0.45% of total assets at year-end 2025. This reflects prudent underwriting and effective credit risk management.
  • Capital Ratios remained robust, with a Common Equity Tier 1 (CET1) ratio of 12.8% and a Total Capital ratio of 14.5% at year-end 2025. These levels are well above regulatory minimums and provide a strong buffer against potential losses.

Key Risks and Challenges

Investors should consider the following key risks and challenges:

• Interest Rate Fluctuations: As a financial institution, CoastalSouth Bancshares is highly sensitive to changes in interest rates, as they can impact Net Interest Income by affecting loan yields and deposit costs.
• Credit Risk: The risk of loan defaults remains a primary concern, particularly during economic downturns or localized industry-specific challenges in its operating regions.
• Economic Conditions: Regional and national economic health directly influences loan demand, deposit growth, and asset quality.
• Regulatory Environment: The banking industry is highly regulated, and changes in laws or increased compliance costs could impact profitability.
• Competition: Intense competition from other banks, credit unions, and non-bank financial institutions for loans and deposits could pressure margins.

Future Outlook

CoastalSouth Bancshares focuses on sustainable growth and enhancing shareholder value through several key strategies:

• Organic Growth: The company plans to expand its loan and deposit base within existing and contiguous markets, using its community banking model.
• Digital Transformation: The company is investing in technology and digital banking platforms to improve customer experience, enhance operational efficiency, and attract new customers.
• Expense Management: Management prioritizes initiatives to optimize operating expenses and improve the efficiency ratio (currently 62% in 2025).
• Diversification of Revenue: While Net Interest Income remains core, the company aims to prudently grow non-interest income streams, including service charges and wealth management services, to reduce reliance on interest-sensitive revenue.
• Talent Acquisition and Retention: Attracting and retaining skilled banking professionals remains crucial for maintaining service quality and driving growth.

Competitive Position

CoastalSouth Bancshares operates in highly competitive banking markets within the Southeast. Its competitive advantages include:

• Community Focus: Strong local market knowledge, personalized customer service, and deep community relationships, which can be particularly appealing to small businesses and individuals.
• Relationship Banking: An emphasis on building long-term relationships with customers, often leading to higher customer loyalty and cross-selling opportunities.
• Agility: As a community bank, it often possesses greater flexibility and responsiveness in decision-making compared to larger, more bureaucratic institutions.
• Technology Integration: Strategic investments in digital platforms aim to combine the benefits of local service with modern banking conveniences, allowing it to compete effectively with larger banks and fintech companies.

The company competes with national, regional, and other community banks, as well as credit unions and non-bank financial service providers, for loans, deposits, and other financial services.

Conclusion

CoastalSouth Bancshares, Inc. delivered a solid performance in 2025, marked by healthy loan and deposit growth, strong asset quality, and robust capital levels. While the company faced headwinds in certain non-interest income categories and a dynamic interest rate environment, its core banking operations remain strong. Its strategic focus on organic growth, digital enhancement, and prudent risk management positions it to navigate future challenges and continue serving its communities effectively. Investors should consider these factors, alongside their personal investment goals and risk tolerance, when evaluating CoastalSouth Bancshares.