CoastalSouth Bancshares, Inc. (COSO) stock intrinsic value fair value estimate & owner earnings analysis

CoastalSouth Bancshares owns Coastal States Bank, an Atlanta-headquartered commercial bank with $2.42 billion of assets and $2.05 billion of deposits at June 30, 2026. It runs branches in the Lowcountry of South Carolina, Savannah and metro Atlanta, and four national specialty lending lines: senior housing, marine (boat) loans, SBA and USDA government-guaranteed loans, and Mortgage Banker Finance, which funds independent mortgage originators while their loans await sale. It listed on the NYSE in July 2025. How we measured earnings. We start from operating cash flow and strip out the very large swings in loans held for sale (about $6.7 billion passed through in 2025), which are inventory rather than earnings, while keeping the gains the bank actually realizes selling SBA and mortgage loans. We subtract stock pay, upkeep spending on branches and equipment, and actual loan charge-offs. On that basis the bank earned $26.2 million in 2024 and $26.6 million in 2025. Only two audited years are available, so our starting point is the midpoint, about $26.4 million, or $2.12 per share on the 12.45 million diluted shares now outstanding. Charge-offs in both years were almost nil (0.01% and 0.02% of loans), far below what a lender carries through a full credit cycle, so every case charges a normal level of losses the recent record does not show: about 0.25% of loans a year in the central case. That leaves a normal return of about 1.07% of assets. How the debt is treated. For a bank, deposits and Federal Home Loan Bank and other borrowings ($75 million of borrowings at June 30, 2026) are the raw material of the business, and their interest is already charged in the earnings we value, so we do not subtract them a second time. The parent company itself owes nothing: in 2025 it repaid its $15 million of 5.95% subordinated notes and its bank credit line, and its $15 million line was undrawn at year-end. So in each case what the business is worth and what shareholders own are the same figure. Leverage is still charged where it belongs, in the downside case: the bank holds about $8 of liabilities for every $1 of equity. Capital. A bank can only grow loans if it keeps adding equity alongside them. We assume it holds 10.5% of assets as equity; at June 30, 2026 it held 11.1% ($270 million), so about $15.5 million is surplus today and is included in every case. Each case deducts the capital needed to fund its own growth, and only the rest counts as cash to owners. Recent results and the first year. Owner earnings grew 1.7% in 2025 (and fell 7.6% per share because of the IPO shares). Our central case's first year is about 4% higher per share than 2025 on the same credit basis. The reason is already visible: the IPO capital and the repayment of the 5.95% notes were only partly in the 2025 figures, and in both quarters of 2026 results rose - first-half net income was $13.7 million against $11.0 million a year earlier, and net interest income was 16% higher. Central case (about $41 per share, a business worth about $513 million with no parent-company debt against it). Returns of 1.07% of assets after normal credit losses. The balance sheet grows 4% a year for ten years, funded entirely from retained earnings - below the bank's recent record (deposits grew 8% in 2025 and about 6% annualized in the first half of 2026), because two years is too short a record to rely on the full pace. After year ten we assume no further growth but a franchise that keeps earning: the bank has operated since 2004 and its local deposit base and branches are what keep it going. Downside case (about $27 per share, worth about $331 million, owing nothing at the parent level). The loan book is concentrated: income-producing commercial real estate is 23% of loans, marine 19% and senior housing 16%. Nonaccrual loans were already 1.13% of loans at year-end 2025, covered only 1.02 times by reserves. Brokered deposits were $307 million, 15.5% of deposits, and the bank says falling rates squeeze its margin. This case returns the margin to 2024 levels, charges heavier normal losses (0.35% of loans), holds the balance sheet flat, and adds a credit downturn in years two to four costing about $33 million after tax (roughly 2.6% of loans). Earnings stay positive throughout, so the bank absorbs this without new shares, and it keeps earning about 0.85% of assets afterward. Upside case (about $54 per share, worth about $668 million, no parent-company debt). Returns of 1.20% of assets, close to what the bank earned in 2024 and 2025 with light credit costs, and 7% a year balance-sheet growth for ten years, still below the 2025 pace, then no further growth. What changed. Our previous estimates were $33, $45 and $62. The debt treatment is unchanged - there is still no parent-company debt and the bank's funding is already paid for in the earnings. The estimates are lower mainly because we now credit only growth the bank can fund itself at a pace below its short record (4% rather than 7% then 5% in the central case), and because the downturn in the downside case is a little larger given the level of nonaccrual loans. The stronger 2026 results support the starting level. What could make this estimate wrong. Credit is the main risk: two years of near-zero losses is not a full cycle, and concentrated real estate, senior housing and marine loans can go bad together. A sustained fall in rates or more reliance on brokered funding would cut margins. On the other side, the bank has surplus capital and a debt-free parent, and has grown faster than we credit. The bank pays no dividend. The margin-of-safety price is about $24 per share, a wide margin below our central value because the earnings record is short, the business is leveraged and the loan book is concentrated.