UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-42730

COASTALSOUTH BANCSHARES, INC.

(Exact Name of Registrant as Specified in its Charter)

Georgia	57-1184730
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 Galleria Parkway, Suite 1900 Atlanta, GA	30339
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (678) 396-4605

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	COSO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 7, 2025, the registrant had 11,978,921 shares of common stock, $1.00 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	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)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II.	OTHER INFORMATION	62
Item 1.	Legal Proceedings	62
Item 1A.	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
Signatures		65

i

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

COASTALSOUTH 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 issued and outstanding at June 30, 2025 and December 31, 2024		2,172			2,172
Capital surplus		159,267			158,755
Retained earnings		53,009			41,994
Accumulated other comprehensive loss		(13,190	)		(15,787	)
Total shareholders' equity		209,365			195,232
Total liabilities and shareholders' equity	$	2,221,245		$	2,098,712

The accompanying notes are an integral part of these consolidated financial statements.

1

COASTALSOUTH BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2025		2024		2025		2024
Interest income
Loans, including fees
Loans held for investment	$	23,813	$	23,633	$	46,120	$	46,685
Loans held for sale		3,296		2,335		6,115		3,875
Investments
Taxable		3,666		4,022		7,269		7,465
Non-taxable		94		94		188		206
Non-marketable equity securities		114		104		218		210
Federal funds sold		699		842		1,661		1,836
Other earning assets from banks		111		140		246		281
Total interest income		31,793		31,170		61,817		60,558
Interest expense
Interest-bearing deposits		13,251		13,122		26,081		25,715
Other borrowings		464		1,348		899		2,758
Total interest expense		13,715		14,470		26,980		28,473
Net interest income		18,078		16,700		34,837		32,085
Provision for credit losses		752		173		1,381		336
Net interest income after provision for credit losses		17,326		16,527		33,456		31,749
Noninterest income
Bank-owned life insurance		449		491		889		787
Income from mortgage originations		326		299		547		537
Gain on sale of government guaranteed loans		265		35		265		355
Interchange income and card fees		257		226		523		442
Service charges on deposit accounts		215		198		426		409
Losses on sale of available-for-sale securities		-		-		-		(3,465	)
Other noninterest income		283		340		1,026		530
Total noninterest income (loss)		1,795		1,589		3,676		(405	)
Noninterest expense
Salaries and employee benefits		6,997		6,654		13,691		12,701
Occupancy and equipment		814		736		1,602		1,479
Software and other technology expense		719		631		1,422		1,297
Other professional fees		973		501		1,666		1,192
Data processing		652		534		1,277		1,060
Regulatory assessment		344		318		705		611
Other noninterest expense		1,593		1,278		3,148		2,563
Total noninterest expense		12,092		10,652		23,511		20,903
Income before taxes		7,029		7,464		13,621		10,441
Income tax provision		1,064		1,577		2,606		2,125
Net income	$	5,965	$	5,887	$	11,015	$	8,316
Net income per common share:
Basic	$	0.58	$	0.58	$	1.07	$	0.82
Diluted	$	0.57	$	0.56	$	1.04	$	0.80

The accompanying notes are an integral part of these consolidated financial statements.

2

COASTALSOUTH BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2025			2024			2025			2024
Net income	$	5,965		$	5,887		$	11,015		$	8,316
Other comprehensive income
Change in unrealized gain on available-for-sale securities		1,215			982			3,815			255
Reclassification adjustment for net loss on sale of securities included   in net income		-			-			-			3,465
Income tax effect		(282	)		(229	)		(888	)		(872	)
Unrealized gain on available-for-sale securities, net of tax		933			753			2,927			2,848
Unrealized (loss) gains on derivatives
Change in unrealized gain (loss) on cash flow hedges		120			332			(293	)		736
Reclassification adjustment for net loss included in net income		(4	)		(399	)		(141	)		(644	)
Income tax effect		(28	)		16			104			(22	)
Unrealized gain (loss) on derivative instruments, net of tax		88			(51	)		(330	)		70
Other comprehensive income, net of tax		1,021			702			2,597			2,918
Comprehensive income	$	6,986		$	6,589		$	13,612		$	11,234

The accompanying notes are an integral part of these consolidated financial statements.

3

COASTALSOUTH BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(Dollars in thousands)

														Accumulated
	Common Stock													Other
	Voting				Non-voting				Capital			Retained		Comprehensive
Three Months Ended:	Shares		Amount		Shares		Amount		Surplus			Earnings		Loss			Total
Balance, April 1, 2024		8,073,467	$	8,073		2,172,029	$	2,172	$	157,779		$	22,519	$	(17,315	)	$	173,228
Issuance of common stock under incentive plan		4,950		5		-		-		(5	)		-		-			-
Stock-based compensation expense		-		-		-		-		351			-		-			351
Net income		-		-		-		-		-			5,887		-			5,887
Other comprehensive income, net of tax		-		-		-		-		-			-		702			702
Balance as of June 30, 2024		8,078,417	$	8,078		2,172,029	$	2,172	$	158,125		$	28,406	$	(16,613	)	$	180,168
Balance, April 1, 2025		8,102,242		8,102		2,172,029		2,172		158,997			47,044		(14,211	)		202,104
Issuance of common stock under incentive plan		4,650		5		-		-		37			-		-			42
Stock-based compensation expense		-		-		-		-		233			-		-			233
Net income		-		-		-		-		-			5,965		-			5,965
Other comprehensive income, net of tax		-		-		-		-		-			-		1,021			1,021
Balance as of June 30, 2025		8,106,892	$	8,107		2,172,029	$	2,172	$	159,267		$	53,009	$	(13,190	)	$	209,365
Six Months Ended:
Balance, January 1, 2024		7,367,900	$	7,368		2,172,029	$	2,172	$	145,944		$	20,090	$	(19,531	)	$	156,043
Issuance of common stock under incentive plan		9,075		9		-		-		(9	)		-		-			-
Issuance of common stock upon private placement		701,442		701		-		-		11,543			-		-			12,244
Stock-based compensation expense		-		-		-		-		647			-		-			647
Net income		-		-		-		-		-			8,316		-			8,316
Other comprehensive income, net of tax		-		-		-		-		-			-		2,918			2,918
Balance as of June 30, 2024		8,078,417	$	8,078		2,172,029	$	2,172	$	158,125		$	28,406	$	(16,613	)	$	180,168
Balance, January 1, 2025		8,098,117		8,098		2,172,029		2,172		158,755			41,994		(15,787	)		195,232
Issuance of common stock under incentive plan		8,775		9		-		-		33			-		-			42
Stock-based compensation expense		-		-		-		-		479			-		-			479
Net income		-		-		-		-		-			11,015		-			11,015
Other comprehensive income, net of tax		-		-		-		-		-			-		2,597			2,597
Balance as of June 30, 2025		8,106,892	$	8,107		2,172,029	$	2,172	$	159,267		$	53,009	$	(13,190	)	$	209,365

The accompanying notes are an integral part of these consolidated financial statements.

4

COASTALSOUTH BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Six Months Ended
	June 30,
	2025			2024
Operating activities
Net income	$	11,015		$	8,316
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Provision for credit losses		1,381			336
Depreciation expense and software amortization		722			651
Increase in cash value of bank-owned life insurance		(889	)		(720	)
Stock-based compensation expense		479			647
Net loss on sale of available-for-sale securities		-			3,465
Amortization of operating lease right-of-use assets		416			381
Amortization of debt issuance costs		28			27
Writedown on other real estate owned		99			-
Write down on repossessed assets		104			-
Net gain on sale of other real estate owned		(64	)		-
Gain on sale of government guaranteed loans, including originations of servicing rights		(265	)		(355	)
Loss on sale of other loans		-			71
Income from mortgage operations		(547	)		(537	)
Discount accretion and premium amortization on securities available-for-sale		(369	)		(215	)
Amortization of intangible assets		291			266
Deferred income tax expense		153			1,705
Originations of loans held for sale		(3,010,117	)		(1,939,698	)
Proceeds from loans held for sale		2,980,351			1,872,857
(Increase) decrease in other assets		(1,507	)		4,783
Increase (decrease) in other liabilities		1,873			5
Net cash used by operating activities		(16,846	)		(48,015	)
Investing activities
Purchase of securities available-for-sale		(20,925	)		(61,162	)
Proceeds from sales of securities available-for-sale		-			39,100
Proceeds from paydowns, calls, and maturities on securities available-for-sale		29,523			37,032
Net sale of non-marketable equity securities		642			1,858
Loan originations and principal collections, net		(123,343	)		(28,628	)
Net purchase of premises, furniture and equipment		(1,092	)		(473	)
Proceeds from sales of other real estate owned		829			-
Net cash used by investing activities		(114,366	)		(12,273	)
Financing activities
Net increase in deposits		133,499			54,933
Net repayment of Federal Home Loan Bank of Atlanta advances		(15,000	)		(50,000	)
Proceeds from Federal Reserve Bank advances		-			70,000
Proceeds from issuance of common stock under incentive plan		42			-
Proceeds from private placement capital raise		-			12,244
Net repayment of commercial line of credit		(12,000	)		(12,000	)
Net cash provided by financing activities		106,541			75,177
Net increase in cash and cash equivalents		(24,671	)		14,889
Cash and cash equivalents, beginning of year		67,961			48,553
Cash and cash equivalents, end of period	$	43,290		$	63,442
Cash (received) paid during the period for:
Interest	$	25,022		$	25,922
Income taxes		1,368			460
Noncash investing and financing activities:
Unrealized gain on securities available-for-sale, net		2,927			2,848
Unrealized (loss) gain on derivatives, net		(330	)		70
Transfers from loans held for investment to loans held for sale		4,496			5,082
Right-of-use assets obtained in exchange for new operating lease liabilities		535			323
Lease liabilities arising from obtaining right-of-use assets		535			323

The accompanying notes are an integral part of these consolidated financial statements.

5

CoastalSouth Bancshares, Inc. and Subsidiary

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 described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2024 as filed with the SEC on Form S-1. There were no new accounting policies or changes to existing policies adopted during the six months ended June 30, 2025 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Operating Segments

The Company principally operates in one business segment, which is community banking.

Accounting standards require that information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified in these standards as those revenue producing components for which separate financial information is produced internally and which are subject to evaluation by the Chief Operating Decision Maker ("CODM"). While the CODM monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

The Company's CODM is the chief executive officer. The segment measure of profit or loss is consolidated net income according to the Consolidated Statements of Operations, the measure of segment assets is total assets of the consolidated company according to the Consolidated Balance Sheets, and the accounting policies of the segment are the same as those described in the Consolidated Financial Statements within Note 1 for the year ended December 31, 2024 as filed with the SEC on Form S-1. The CODM monitors budgeted to actual results of net income to assess the company's performance, to make decisions on strategic initiatives, and to establish management's compensation. The segment's revenues are primarily derived from retail and commercial banking products, and investment income.

Contingencies

Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of June 30, 2025. Although the ultimate outcome of all claims and lawsuits outstanding as of June 30, 2025 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board ("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

6

CoastalSouth Bancshares, Inc. and Subsidiary
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-backed securities		46,775		-		384		219		46,940
Corporate debt securities		64,264		-		963		1,675		63,552
Total securities available-for-sale	$	359,672	$	-	$	1,595	$	26,000	$	335,267

The following is a summary of maturities of available-for-sale ("AFS") securities as of June 30, 2025. The amortized cost and estimated fair values are based on the contractual maturity dates. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without penalty. Mortgaged-backed securities are not presented by maturity date because pay-downs are expected before contractual maturity dates.

	Amortized		Estimated
(In thousands of dollars)	Cost		Fair Value
Due in one year or less	$	2,500	$	2,500
Due after one year but within five years		31,324		31,089
Due after five years but within ten years		78,097		73,867
Due after ten years		49,173		44,360
Mortgage-backed securities		191,256		179,944
Total	$	352,350	$	331,760

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 June 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	$	-	$	-	$	5,744	$	249	$	5,744	$	249
Municipal obligations		-		-		53,118		8,293		53,118		8,293
Mortgage-backed securities		36,563		205		104,233		11,675		140,796		11,880
Asset-backed securities		1,532		10		7,395		176		8,927		186
Corporate debt securities		3,355		33		20,810		1,663		24,165		1,696
Total AFS securities	$	41,450	$	248	$	191,300	$	22,056	$	232,750	$	22,304

7

CoastalSouth Bancshares, Inc. and Subsidiary
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, none 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, which would require a charge to earnings in such periods.

The table below presents a summary of sales activities in the Company's investment securities available-for-sale portfolio the periods presented:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In thousands of dollars)	2025		2024		2025		2024
Gross gains on sales of securities	$	-	$	-	$	-	$	47
Gross losses on sales of securities		-		-		-		(3,512	)
Net realized losses on sales of securities available-for-sale	$	-	$	-	$	-	$	(3,465	)
Sales proceeds	$	-	$	-	$	-	$	39,100

At June 30, 2025, investment securities with a book value of $57.6 million and a market value of $50.7 million were pledged to secure federal funds lines of credit, Federal Reserve Bank Discount Window credit availability, and municipal deposits. At December 31, 2024, investment securities with a book value of $59.2 million and a market value of $51.8 million were pledged to secure federal funds lines of credit, Federal Reserve Bank Discount Window credit availability, and municipal deposits.

NOTE 3 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

Composition of Loan Portfolio

The Company engages in a full complement of lending activities, including commercial real estate loans ("CRE"), construction loans, commercial and industrial loans ("C&I"), and consumer purpose loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. The following is a brief description of the major loans receivable categories:

Commercial Loans

Acquisition, Development, and Construction ("ADC") – ADC loans include both loans and credit lines for the purpose of purchasing, carrying, and developing land into residential subdivisions or various types of commercial developments, such as industrial, hospitality, warehouse, retail, office, and multi-family. This category also includes loans and credit lines for construction of residential developments, multi-family buildings, and commercial buildings. The Company generally engages in ADC lending primarily in local markets served by its branches, and through our homebuilder finance and government guaranteed lending lines of business. The Company recognizes that risks are inherent in the financing of commercial real estate development and construction. These risks include location, market conditions and price volatility, change in interest rates, demand for developed land, lots and buildings, desirability of features and styling of completed developments and buildings, competition from other developments and builders, traffic patterns, remote work patterns, governmental jurisdiction, tax structure, availability of utilities, roads, public transportation and schools,

8

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

availability of permanent financing for homebuyers, zoning, environmental restrictions, lawsuits, economic and business cycle, labor, and reputation of the builder or developer.

Each ADC loan is underwritten to address: (i) the desirability of the project, its market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor as to liquidity, cash flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the developer’s experience and success with similar projects; and (v) the value of the collateral. ADC loans are inspected periodically to ensure that the project is on schedule and eligible for requested draws. Inspections may be performed by construction inspectors hired by the Company or by appropriate loan officers and are conducted periodically to monitor the progress of a particular project. These inspections may also include discussions with project managers and engineers. Rising interest rates and the potential for slowing economic conditions could negatively impact borrowers’ and guarantors’ ability to repay their debt which could make more of the Company’s loans collateral-dependent.

Income Producing CRE – Income Producing CRE loans include loans to finance income-producing commercial and multi-family properties. Lending in this category is generally limited to properties located in the Company’s market area with only limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The underwriting of these loans takes into consideration the occupancy, rental rates, and local market demand as well as the financial health of the borrower. The primary risk associated with loans secured with income-producing property is the inability of that property to produce adequate cash flow to service the debt. High unemployment, significant increases to interest rates, generally weak economic conditions and/or an oversupply in the market may result in our customers having difficulty achieving adequate occupancy and/or rental rates. Payments on such loans are often dependent on successful operation or management of the properties.

Owner-Occupied CRE – Owner-occupied loans include loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal guarantees, if applicable, are generally required for these loans. The Company recognizes that risk from economic cycles, pandemics, government regulation, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel, or competitive situations may adversely affect the scheduled repayment of business loans.

Senior Housing – Senior housing loans support senior adults facilities, generally restricted for adults over the age of 55 years old. These types of loans include senior apartments, independent living communities, assisted living and memory care communities, nursing homes or skilled nursing facilities, and continuing care retirement communities. The Company recognizes that risk from high resident turnover, pandemics, government regulation, operator risk, increases in acuity, availability and cost of qualified staffing resources, technology risk, and other risks such as liability, insurance, reimbursement and regulatory changes may impact repayment of these loans. Underwriting focuses primarily on operator quality and business operations rather than income producing CRE property quality metrics.

Commercial and Industrial – C&I loans are loans and lines of credit to finance business operations, equipment and other non-real estate collateral primarily for small and medium-sized enterprises. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal and/or corporate guarantees are generally obtained where available and prudent. The Company recognizes that risk from economic cycles, commodity prices, pandemics, government regulation, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel or competitive situations may adversely affect the scheduled repayment of business loans.

Retail loans

Marine Vessels – Marine vessel loans are a type of consumer loan used to finance the purchase of a boat or another marine craft. Functioning similarly to auto loans and personal loans, these installment loans come with a repayment term, fixed monthly payments and variable-or-fixed interest rates. These loans are underwritten in accordance with the Company’s general loan policies and procedures and are generally secured with title or preferred ships' mortgage on the marine vessel. The Company recognizes that risk from economic cycles, pandemics, government regulation, natural disasters, losses due to theft, or changes to customer's ability to meet the scheduled repayment of marine vessel. At June 30, 2025 and December 31, 2024, there were $302 thousand and $405 thousand of repossessed marine assets, respectively. There were $104 thousand and $67 thousand of repossessed assets write-downs during the six months ended June 30, 2025 and 2024, respectively.

Residential Mortgages – Residential mortgages are first or second-lien loans secured by a primary residence or second home. This category includes permanent mortgage financing, construction loans to individual consumers, and home equity lines of credit. The loans are generally secured by properties located within the local market area of the Bank's retail footprint which originates and services the loan. These loans are underwritten in accordance with the Company’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and property value. In addition to loans originated through the Company’s branches, the Company originates and services residential mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency guidelines. At June 30, 2025, there were no residential mortgage loans in process of foreclosure, and at December 31, 2024, there were $164 thousand of residential mortgage loans in process of

9

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

foreclosure. Additionally, the Company held no foreclosed residential properties at June 30, 2025 and had $864 thousand foreclosed residential properties at December 31, 2024.

Cash Value Life Insurance Line of Credit ("CVLI") – Cash value life insurance encompasses multiple types of life insurance that contain a cash value account. This cash value component typically earns interest or other investment gains and grows tax-deferred. CVLI loans are generally lines of credit ("LOC") secured by cash value life insurance of the debtor and can be originated for personal or business purposes. Upon the delinquency of the loan or lapse of an insurance policy premium payment, the Company pursues liquidation of the policy cash value in order to satisfy the loan.

Other Consumer – Other consumer loans primarily includes unsecured student loans and other secured and unsecured consumer purpose loans. Certain loans are secured by recreational vehicles and other such tangible property. These types of loans may be impacted by negative macroeconomic conditions impacting individual consumers, such as increased unemployment, which can reduce a borrower’s ability to repay the loan.

Loans held for sale ("LHFS") are comprised of loans acquired through mortgage warehouse lending activities and origination of mortgage loans. The Company serves as a warehouse lender by purchasing loans originated by third-party mortgage originators and selling these loans to other third-party investors. The Company also originates mortgage loans with customers through Coastal States Mortgage, Inc. ("CSM") and sells the majority of these loans to third-party investors.

Following is a summary of the composition of the loan portfolio at June 30, 2025 and December 31, 2024:

	June 30, 2025						December 31, 2024
(Dollars in thousands)	Amount			%			Amount			%
Commercial loans
Acquisition, development and construction	$	100,528			6.6	%	$	72,520			5.2	%
Income producing CRE		372,142			24.4			321,558			22.8
Owner-occupied CRE		91,147			6.0			94,573			6.7
Senior housing		236,474			15.5			234,081			16.6
Commercial and industrial		131,716			8.6			141,626			10.0
Total commercial loans		932,007			61.1			864,358			61.3
Retail loans
Marine vessels		301,327			19.7			263,657			18.6
Residential mortgages		185,527			12.1			174,099			12.4
Cash value life insurance LOC		87,135			5.7			86,844			6.2
Other consumer		21,203			1.4			20,485			1.5
Total retail loans		595,192			38.9			545,085			38.7
Total gross loans held for investment ("LHFI"), net of unearned income		1,527,199			100.0	%		1,409,443			100.0	%
Less allowance for credit losses		(17,497	)					(17,118	)
LHFI, net	$	1,509,702					$	1,392,325
LHFS	$	209,101					$	174,033

Credit Quality Indicators

The Company monitors the credit quality of its commercial loan portfolio using internal credit risk ratings. These credit risk ratings are based upon established regulatory guidance and are assigned upon initial approval of credit to borrowers. Credit risk ratings are updated periodically after the initial assignment or whenever management becomes aware of information affecting the borrowers’ ability to fulfill their obligations. The Company utilizes the following categories of credit grades to evaluate its commercial loan portfolio:

Pass — Loans classified as pass are higher quality loans that do not fit any of the other categories below.

Special Mention — Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company's credit position at some future date.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The Company had no loans rated

10

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

Doubtful at June 30, 2025 or December 31, 2024.

The Company monitors the credit quality of its retail portfolio based primarily on payment activity and credit scores. Payment activity is the primary factor considered in determining whether a retail loan should be classified as nonperforming. Retail loans are considered to be nonperforming if they are on nonaccrual status or if they are 90 days past due or greater.

The following tables present the risk category of commercial loans on amortized cost basis and, for 2025, gross charge-offs by vintage year as of June 30, 2025:

	Amortized Cost Basis by Origination Year
(In thousands of dollars)	2025		2024		2023		2022		2021		Prior		Revolvers		Revolvers Converted to Term		Total
Commercial loans
Acquisition, development and construction
Pass	$	49,412	$	41,088	$	8,371	$	1,365	$	-	$	292	$	-	$	-	$	100,528
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total acquisition, development    and construction	$	49,412	$	41,088	$	8,371	$	1,365	$	-	$	292	$	-	$	-	$	100,528
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Income producing CRE
Pass	$	54,288	$	40,215	$	48,654	$	133,105	$	54,767	$	38,302	$	1,924	$	-	$	371,255
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		887		-		-		887
Total income producing	$	54,288	$	40,215	$	48,654	$	133,105	$	54,767	$	39,189	$	1,924	$	-	$	372,142
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Owner-occupied CRE
Pass	$	5,332	$	3,381	$	9,686	$	17,038	$	24,103	$	21,196	$	508	$	-	$	81,244
Special mention		-		-		-		-		-		3,612		-		-		3,612
Substandard		-		1,800		-		3,861		-		630		-		-		6,291
Total owner occupied	$	5,332	$	5,181	$	9,686	$	20,899	$	24,103	$	25,438	$	508	$	-	$	91,147
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Senior housing
Pass	$	42,398	$	48,501	$	24,184	$	67,618	$	25,159	$	10,111	$	-	$	-	$	217,971
Special mention		-		-		4,031		-		8,047		-		-		-		12,078
Substandard		-		-		-		-		6,425		-		-		-		6,425
Total senior housing	$	42,398	$	48,501	$	28,215	$	67,618	$	39,631	$	10,111	$	-	$	-	$	236,474
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial and industrial
Pass	$	16,930	$	25,233	$	26,103	$	10,773	$	16,313	$	4,125	$	22,872	$	2,630	$	124,979
Special mention		-		-		-		-		-		-		2,199		-		2,199
Substandard		51		-		-		-		260		2,477		65		1,685		4,538
Total non-real estate	$	16,981	$	25,233	$	26,103	$	10,773	$	16,573	$	6,602	$	25,136	$	4,315	$	131,716
Current period gross charge-offs	$	-	$	-	$	32	$	-	$	-	$	-	$	-	$	-	$	32

11

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following tables present the risk category of retail loans on amortized cost basis and, for 2025, gross charge-offs by vintage year as of June 30, 2025:

	Amortized Cost Basis by Origination Year
(In thousands of dollars)	2025		2024		2023		2022		2021		Prior		Revolvers		Revolvers Converted to Term		Total
Retail loans
Marine vessels
Performing	$	56,713	$	45,904	$	68,103	$	87,296	$	21,115	$	22,196	$	-	$	-	$	301,327
Nonperforming		-		-		-		-		-		-		-		-		-
Total marine vessels	$	56,713	$	45,904	$	68,103	$	87,296	$	21,115	$	22,196	$	-	$	-	$	301,327
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential mortgages
Performing	$	20,307	$	24,104	$	23,943	$	43,957	$	24,951	$	26,919	$	20,567	$	414	$	185,162
Nonperforming		-		-		-		-		-		365		-		-		365
Total residential mortgages	$	20,307	$	24,104	$	23,943	$	43,957	$	24,951	$	27,284	$	20,567	$	414	$	185,527
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Cash value life insurance LOC
Performing	$	-	$	-	$	-	$	-	$	-	$	-	$	87,133	$	2	$	87,135
Nonperforming		-		-		-		-		-		-		-		-		-
Total cash value life insurance      LOC	$	-	$	-	$	-	$	-	$	-	$	-	$	87,133	$	2	$	87,135
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other consumer
Performing	$	3,229	$	1,744	$	1,950	$	71	$	1,626	$	12,124	$	459	$	-	$	21,203
Nonperforming		-		-		-		-		-		-		-		-		-
Total other consumer	$	3,229	$	1,744	$	1,950	$	71	$	1,626	$	12,124	$	459	$	-	$	21,203
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	239	$	-	$	-	$	239

The following tables present the risk category of commercial loans on amortized cost basis and, for 2024, gross charge-offs by vintage year as of December 31, 2024:

	Amortized Cost Basis by Origination Year
(In thousands of dollars)	2024		2023		2022		2021		2020		Prior		Revolvers		Revolvers Converted to Term		Total
Commercial loans
Acquisition, development and construction
Pass	$	56,157	$	12,929	$	2,923	$	8	$	-	$	503	$	-	$	-	$	72,520
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total acquisition, development    and construction	$	56,157	$	12,929	$	2,923	$	8	$	-	$	503	$	-	$	-	$	72,520
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Income producing CRE
Pass	$	41,441	$	54,468	$	123,767	$	57,156	$	28,306	$	16,006	$	2	$	-	$	321,146
Special mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		412		-		-		412
Total income producing	$	41,441	$	54,468	$	123,767	$	57,156	$	28,306	$	16,418	$	2	$	-	$	321,558
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Owner-occupied CRE
Pass	$	4,400	$	9,803	$	19,153	$	26,183	$	15,831	$	12,520	$	16	$	-	$	87,906
Special mention		-		-		-		-		-		-		-		-		-
Substandard		1,825		-		3,996		-		-		846		-		-		6,667
Total owner occupied	$	6,225	$	9,803	$	23,149	$	26,183	$	15,831	$	13,366	$	16	$	-	$	94,573
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Senior housing
Pass	$	43,372	$	24,428	$	80,881	$	31,613	$	9,789	$	-	$	-	$	-	$	190,083
Special mention		-		-		-		17,532		-		7,494		-		-		25,026
Substandard		-		-		-		13,903		-		5,069		-		-		18,972
Total senior housing	$	43,372	$	24,428	$	80,881	$	63,048	$	9,789	$	12,563	$	-	$	-	$	234,081
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial and industrial
Pass	$	41,292	$	34,052	$	12,364	$	19,206	$	1,472	$	6,400	$	18,811	$	3,281	$	136,878
Special mention		-		-		-		36		-		-		-		-		36
Substandard		-		-		-		283		-		2,626		69		1,734		4,712
Total non-real estate	$	41,292	$	34,052	$	12,364	$	19,525	$	1,472	$	9,026	$	18,880	$	5,015	$	141,626
Current period gross charge-offs	$	-	$	87	$	62	$	-	$	-	$	-	$	-	$	-	$	149

12

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following tables present the risk category of retail loans on amortized cost basis and, for 2024, gross charge-offs by vintage year as of December 31, 2024:

	Amortized Cost Basis by Origination Year
(In thousands of dollars)	2024		2023		2022		2021		2020		Prior		Revolvers		Revolvers Converted to Term		Total
Retail loans
Marine vessels
Performing	$	48,640	$	74,645	$	95,768	$	21,729	$	5,690	$	17,185	$	-	$	-	$	263,657
Nonperforming		-		-		-		-		-		-		-		-		-
Total marine vessels	$	48,640	$	74,645	$	95,768	$	21,729	$	5,690	$	17,185	$	-	$	-	$	263,657
Current period gross charge-offs	$	-	$	36	$	-	$	-	$	-	$	-	$	-	$	-	$	36
Residential mortgages
Performing	$	19,067	$	29,485	$	49,850	$	27,362	$	12,472	$	17,104	$	18,292	$	202	$	173,834
Nonperforming		-		-		-		-		-		164		-		101		265
Total residential mortgages	$	19,067	$	29,485	$	49,850	$	27,362	$	12,472	$	17,268	$	18,292	$	303	$	174,099
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Cash value life insurance LOC
Performing	$	-	$	-	$	-	$	-	$	-	$	-	$	83,751	$	3,093	$	86,844
Nonperforming		-		-		-		-		-		-		-		-		-
Total cash value life insurance      LOC	$	-	$	-	$	-	$	-	$	-	$	-	$	83,751	$	3,093	$	86,844
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	47	$	-	$	47
Other consumer
Performing	$	1,921	$	1,995	$	83	$	1,666	$	2,898	$	11,414	$	465	$	-	$	20,442
Nonperforming		-		-		-		-		-		43		-		-		43
Total other consumer	$	1,921	$	1,995	$	83	$	1,666	$	2,898	$	11,457	$	465	$	-	$	20,485
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	53	$	-	$	-	$	53

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment, approved by the Company’s Chief Credit Officer. Past due loans are loans whose principal or interest is past due 30 days or more. During the six months ended June 30, 2025 and the six months ended June 30, 2024, there was $56 thousand and $5 thousand, respectively, of interest income reversed from income related to loans that were transferred to nonaccrual status.

The following table presents a summary of past due and nonaccrual loans as of June 30, 2025:

			Loans Past Due
(In thousands of dollars)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More and Accruing		Nonaccrual		Total Past Due and Nonaccrual		Total Loans Receivable
Acquisition, development and   construction	$	100,528	$	-	$	-	$	-	$	-	$	-	$	100,528
Income producing CRE		371,255		-		475		-		412		887		372,142
Owner-occupied CRE		87,900		-		-		-		3,247		3,247		91,147
Senior housing		230,049		-		-		-		6,425		6,425		236,474
Commercial and industrial		127,155		46		260		93		4,162		4,561		131,716
Marine vessels		301,130		197		-		-		-		197		301,327
Residential mortgages		185,162		-		-		-		365		365		185,527
Cash value life insurance LOC		87,135		-		-		-		-		-		87,135
Other consumer		21,175		28		-		-		-		28		21,203
Total	$	1,511,489	$	271	$	735	$	93	$	14,611	$	15,710	$	1,527,199

13

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following table presents a summary of past due and nonaccrual loans as of December 31, 2024:

			Loans Past Due
(In thousands of dollars)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More and Accruing		Nonaccrual		Total Past Due and Nonaccrual		Total Loans Receivable
Acquisition, development and   construction	$	72,520	$	-	$	-	$	-	$	-	$	-	$	72,520
Income producing CRE		321,146		-		-		-		412		412		321,558
Owner-occupied CRE		91,148		-		-		-		3,425		3,425		94,573
Senior housing		227,511		-		-		-		6,570		6,570		234,081
Commercial and industrial		137,330		5		-		6		4,285		4,296		141,626
Marine vessels		263,657		-		-		-		-		-		263,657
Residential mortgages		172,525		1,309		-		-		265		1,574		174,099
Cash value life insurance LOC		86,844		-		-		-		-		-		86,844
Other consumer		19,996		325		121		43		-		489		20,485
Total	$	1,392,677	$	1,639	$	121	$	49	$	14,957	$	16,766	$	1,409,443

Individually Analyzed Collateral-Dependent Loans

As of June 30, 2025, there were $14.6 million of individually analyzed collateral-dependent loans which are primarily secured by real estate, equipment and receivables. All of the Company's nonaccrual loans at June 30, 2025 are collateral-dependent. The following table presents an analysis of nonaccrual loans that are also collateral-dependent financial assets and related allowance for credit losses:

(In thousands of dollars)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses		Nonaccrual Interest Income Recognized
Income producing CRE	$	412	$	-	$	412	$	-	$	-
Owner-occupied CRE		3,247		-		3,247		-		-
Senior housing		-		6,425		6,425		791		-
Commercial and industrial		4,111		51		4,162		13		-
Residential mortgages		365		-		365		-		1
Total	$	8,135	$	6,476	$	14,611	$	804	$	1

As of December 31, 2024, there were $15.0 million of individually analyzed collateral-dependent loans which are primarily secured by real estate, equipment and receivables. All of the Company's nonaccrual loans at December 31, 2024, are collateral-dependent. The following table presents an analysis of nonaccrual loans that are also collateral-dependent financial assets and related allowance for credit losses:

(In thousands of dollars)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses		Nonaccrual Interest Income Recognized
Income producing CRE	$	412	$	-	$	412	$	-	$	-
Owner-occupied CRE		3,425		-		3,425		-		-
Senior housing		-		6,570		6,570		1,703		-
Commercial and industrial		2,057		2,228		4,285		36		134
Marine vessels		-		-		-		-		3
Residential mortgages		164		101		265		3		6
Cash value life insurance LOC		-		-		-		-		5
Total	$	6,058	$	8,899	$	14,957	$	1,742	$	148

Modifications to Borrowers Experiencing Financial Difficulty

The Company periodically provides modifications to borrowers experiencing financial difficulty. These modifications include either payment deferrals, term extensions, interest rate reductions, principal forgiveness or combinations of modification types. The determination of whether the borrower is experiencing financial difficulty is made on the date of the modification. When principal forgiveness is provided, the amount of principal forgiveness is charged off against the allowance for credit losses with a corresponding reduction in the amortized cost basis of the loan.

14

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted as of June 30, 2025:

(Dollars in thousands)	Principal forgiveness		Payment deferral		Term extension		Interest rate reduction		Combination of term extension and payment delay		Combination of term extension and interest rate reduction		Total modified loans		Percent of total loan class
Commercial loans
Senior housing	$	-	$	-	$	-	$	-	$	6,425	$	-	$	6,425		2.7	%
Commercial and industrial		-		2,160		-		-		-		1,685		3,845		2.9	%
Total	$	-	$	2,160	$	-	$	-	$	6,425	$	1,685	$	10,270		0.7	%

The Company had no unfunded commitments to borrowers experiencing financial difficulty for which the Company has modified their loans as of June 30, 2025 or June 30, 2024.

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the last twelve months as of June 30, 2025:

Loan type	Financial effect
Payment deferral
Commercial and industrial	Provided one year of principal payment deferral (interest only).
Combination of term extension and payment delay
Senior housing	Provided term extension of 14 months and deferral of full principal and interest payments.
Combination of term extension and interest rate  reduction
Commercial and industrial	Provided 36-month extension broken into three 12-month extension options, and reduced interest   rate by 100 bps in the first 12 months and by 50 bps in the second 12 months.

The Company monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months as of June 30, 2025:

			Loans Past Due
(In thousands of dollars)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total
Commercial real estate
Senior housing	$	6,425	$	-	$	-	$	-	$	6,425
Commercial and industrial		-		-		-		3,845		3,845
Total	$	6,425	$	-	$	-	$	3,845	$	10,270
Total nonaccrual loans included above	$	6,425	$	-	$	-	$	3,845	$	10,270

The following table provides the amortized cost basis of financing receivables related to loans modified to borrowers experiencing financial difficulty at June 30, 2025 that had a subsequent payment default and were modified in the previous 12 months:

(In thousands of dollars)	Payment Deferral		Combination Term Extension and Interest Rate Reduction
Commercial and industrial	$	2,160	$	1,685
Total	$	2,160	$	1,685

At June 30, 2024, there were no loans modified to borrowers experiencing financial difficulty.

Allowance for Credit Losses - Loans

The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets adjusted for prepayments. The contractual term does not consider extensions, renewals or modifications. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.

15

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following table presents a summary of the Company's allowance, by loan category for credit losses for the three months ended June 30, 2025:

	Beginning							Provision			Ending
(In thousands of dollars)	Balance		Charge-offs			Recoveries		(Release)			Balance
Three Months Ended June 30, 2025
Commercial loans
Acquisition, development, and construction	$	1,337	$	-		$	-	$	(94	)	$	1,243
Income producing CRE		6,619		-			-		463			7,082
Owner-occupied CRE		595		-			-		167			762
Senior housing		4,149		-			-		(524	)		3,625
Commercial and industrial		842		(26	)		7		8			831
Total commercial loans		13,542		(26	)		7		20			13,543
Retail loans
Marine vessels		1,309		-			-		67			1,376
Residential mortgages		1,801		-			3		337			2,141
Cash value life insurance LOC		79		-			-		3			82
Other consumer		373		(196	)		4		174			355
Total retail loans		3,562		(196	)		7		581			3,954
Total allowance for funded loans		17,104		(222	)		14		601			17,497
Reserve for losses on   unfunded loan commitments		3,348		-			-		151			3,499
Total ACL	$	20,452	$	(222	)	$	14	$	752		$	20,996

The following table presents a summary of the Company's allowance, by loan category for credit losses for the three months ended June 30, 2024:

	Beginning							Provision			Ending
(In thousands of dollars)	Balance		Charge-offs			Recoveries		(Release)			Balance
Three Months Ended June 30, 2024
Commercial loans
Acquisition, development, and construction	$	2,800	$	-		$	-	$	(276	)	$	2,524
Income producing CRE		5,230		-			-		92			5,322
Owner-occupied CRE		523		-			-		(52	)		471
Senior housing		1,868		-			-		(187	)		1,681
Commercial and industrial		922		(65	)		11		540			1,408
Total commercial loans		11,343		(65	)		11		117			11,406
Retail loans
Marine vessels		1,633		-			-		33			1,666
Residential mortgages		2,332		-			3		109			2,444
Cash value life insurance LOC		109		(47	)		-		35			97
Other consumer		357		-			2		30			389
Total retail loans		4,431		(47	)		5		207			4,596
Total allowance for funded loans		15,774		(112	)		16		324			16,002
Reserve for losses on   unfunded loan commitments		3,779		-			-		(151	)		3,628
Total ACL	$	19,553	$	(112	)	$	16	$	173		$	19,630

16

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The following table presents a summary of the Company's allowance, by loan category for credit losses for the six months ended June 30, 2025:

	Beginning							Provision			Ending
(In thousands of dollars)	Balance		Charge-offs			Recoveries		(Release)			Balance
Six Months Ended June 30, 2025
Commercial loans
Acquisition, development, and construction	$	1,188	$	-		$	-	$	55		$	1,243
Income producing CRE		5,867		-			-		1,215			7,082
Owner-occupied CRE		543		-			-		219			762
Senior housing		4,576		-			-		(951	)		3,625
Commercial and industrial		751		(32	)		12		100			831
Total commercial loans		12,925		(32	)		12		638			13,543
Retail loans
Marine vessels		1,688		-			-		(312	)		1,376
Residential mortgages		2,015		-			5		121			2,141
Cash value life insurance LOC		88		-			-		(6	)		82
Other consumer		402		(239	)		31		161			355
Total retail loans		4,193		(239	)		36		(36	)		3,954
Total allowance for funded loans		17,118		(271	)		48		602			17,497
Reserve for losses on   unfunded loan commitments		2,720		-			-		779			3,499
Total ACL	$	19,838	$	(271	)	$	48	$	1,381		$	20,996

The following table presents a summary of the Company's allowance, by loan category for credit losses for the six months ended June 30, 2024:

	Beginning							Provision			Ending
(In thousands of dollars)	Balance		Charge-offs			Recoveries		(Release)			Balance
Six Months Ended June 30, 2024
Commercial loans
Acquisition, development, and construction	$	3,318	$	-		$	-	$	(794	)	$	2,524
Income producing CRE		5,067		-			-		255			5,322
Owner-occupied CRE		628		-			-		(157	)		471
Senior housing		1,342		-			-		339			1,681
Commercial and industrial		1,079		(65	)		16		378			1,408
Total commercial loans		11,434		(65	)		16		21			11,406
Retail loans
Marine vessels		1,277		-			-		389			1,666
Residential mortgages		2,167		-			6		271			2,444
Cash value life insurance LOC		122		(47	)		-		22			97
Other consumer		465		-			3		(79	)		389
Total retail loans		4,031		(47	)		9		603			4,596
Total allowance for funded loans		15,465		(112	)		25		624			16,002
Reserve for losses on   unfunded loan commitments		3,916		-			-		(288	)		3,628
Total ACL	$	19,381	$	(112	)	$	25	$	336		$	19,630

NOTE 4 — COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities that are not reflected in the Company’s financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments and contingent liabilities.

Credit Related Commitments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

17

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments where contract amounts represent credit risk as of June 30, 2025 and December 31, 2024:

(In thousands of dollars)	June 30, 2025		December 31, 2024
Commitments to extend credit	$	480,944	$	460,840
Letters of credit		181		1,223
Total	$	481,125	$	462,063

Commitments to extend credit, including unused lines of credit, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities. Collateral held for commitments to extend credit and letters of credit varies but may include accounts receivable, inventory, property, plant, equipment and income-producing commercial properties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The Company maintains cash deposits with a financial institution that during the year are in excess of the insured limitation of the Federal Deposit Insurance Corporation. If the financial institution were not to honor its contractual liability, the Company could incur losses. Management is of the opinion that there is no material risk because of the financial strength of the institution.

Tax Credit Investments

The Company has invested capital in a limited partnership to obtain renewable energy tax credits generated by solar power projects. The following table summarizes the tax credit investment and equity investment as of June 30, 2025 and December 31, 2024:

(In thousands of dollars)	Balance Sheet Location	June 30, 2025		December 31, 2024
Carrying amount	Other assets	$	1,034	$	2,666
Amount of future funding commitments not included in carrying amount	N/A		4,685		2,721

The following table presents a summary of net provision (benefit) to income tax expense from tax credit investments recognized in the provision for income taxes related to the recognition of tax credits, adjustments to taxes payable from flow-through losses, and changes in deferred tax items for the three and six months ended June 30, 2025 and 2024:

		Three Months Ended						Six Months Ended
(In thousands of dollars)	Income Statement Location	June 30, 2025			June 30, 2024			June 30, 2025			June 30, 2024
Tax credits:
Investment in solar tax credits	Income tax benefit	$	(499	)	$	(189	)	$	(437	)	$	(257	)

Contingencies

The Company is subject to claims and lawsuits which arise primarily in the ordinary course of business. Management is not aware of any legal proceedings which could have a material adverse effect on the financial position or operating results of the Company.

NOTE 5 — STOCK-BASED COMPENSATION

In 2017, the shareholders of the Company approved the CoastalSouth Bancshares, Inc. ("COSO") 2017 Incentive Plan (“2017 Plan”) to attract, incentivize and retain the services of senior officers, and directors of the Bank. As of June 30, 2025, there were 884,750 stock options and 372,500 unvested restricted stock units ("RSUs") outstanding under the 2017 Plan. In April 2025, the shareholders of the Company approved the COSO Omnibus Incentive Plan ("2025 Plan" and, together with the 2017 Plan, the "Plans") reserving 260,000 shares for future issuance, any or all of which may be granted as incentive stock options, nonqualified stock options, restricted stock, RSUs, deferred stock units, stock appreciation rights, performance awards, other stock-based awards, or any other right or interest relating to stock or cash. Following the adoption of the 2025 Plan, no new awards will be issued under the 2017 Plan.

18

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

In the event all or a portion of a stock award issued under the 2025 Plan is canceled, terminates, expires, is forfeited or lapses for any reason, any unissued or forfeited shares subject to such award shares become available for issuance pursuant to awards granted under the 2025 Plan thus increasing the number of shares available for future issuance. However, shares of common stock deducted or withheld upon the exercise or vesting of an award to satisfy tax withholding obligations count against the number of shares remaining available for issuance pursuant to awards granted under the Plan.

The Plans are administered by the Compensation Committee of our Board of Directors (the “Committee”). The determination of award recipients under the Plans, and the terms of those awards, are made by the Committee. The terms of each stock-based award are indicated in an award certificate. As of June 30, 2025, 260,000 shares authorized and available for issuance under the 2025 Plan.

Stock-based awards are recognized over the vesting period and reflected as salaries and employee benefits within the Consolidated Statements of Operations, which were $233 thousand and $351 thousand for the three months ended June 30, 2025 and 2024, respectively, and $479 thousand and $647 thousand for the six months ended June 30, 2025 and 2024, respectively.

Stock Options

The Company's stock options generally vest over four years of continuous service, with a majority vesting 25% on the anniversary of the grant date and a minority vesting 100% on the fourth anniversary of the grant date. The terms of all of the options are for ten years, expiring on the tenth anniversary of the grant date.

The grant date fair value of stock options is determined using the Black-Scholes model. Volatility is based on a peer group of similar community banks in the southeast United States. The risk-free rate is the treasury rate that most closely relates to the expected life on the grant date.

A summary of stock option activity for the six months ended June 30, 2025 and 2024 is presented below:

						Weighted Average
	Number of			Weighted Average		Grant Date
	Shares			Exercise Price		Fair Value
Outstanding at January 1, 2025		737,250		$	13.30	$	5.09
Exercised		(3,000	)		14.00		4.59
Forfeited or Expired		(3,000	)		14.83		5.56
Outstanding at June 30, 2025		731,250		$	13.29	$	5.09
Outstanding at January 1, 2024		746,750		$	13.29	$	5.09
Granted		1,500			15.80		7.81
Outstanding at June 30, 2024		748,250		$	13.30	$	5.10

As of June 30, 2025 and 2024, there were $56 thousand and $241 thousand, respectively, of total unrecognized compensation cost related to stock options granted under the Plans. As of June 30, 2025, the cost is expected to be recognized over a weighted-average period of 0.78 years.

Restricted Stock Units

Periodically, the Company issues RSUs to its directors and senior officers. Compensation expense is recognized over the vesting period of the awards based upon the fair value of the stock at grant date. The Company did not grant any RSUs during the six months ended June 30, 2025 to the Board of Directors. During the six months ended June 30, 2024, the Company granted 19,700 of RSUs to the Board of Directors. In addition, the Company granted 40,500 and 80,500 of RSUs during the six months ended June 30, 2025 and 2024, respectively, to members of management which cliff vest 100% at the end of five years.

A summary of RSU activity for the six months ended June 30, 2025 and 2024 is below:

				Weighted Average
	Number of			Grant Date
	Shares			Fair Value
Outstanding at January 1, 2025		159,275		$	16.26
Granted		40,500			20.97
Delivered		(5,775	)		17.99
Outstanding at June 30, 2025		194,000		$	17.20
Outstanding at January 1, 2024		89,350		$	15.97
Granted		100,200			16.53
Delivered		(9,075	)		17.67
Outstanding at June 30, 2024		180,475		$	16.19

As of June 30, 2025 and 2024, there was $2.1 million and $2.2 million, respectively, of total unrecognized compensation cost related to nonvested RSUs granted under the Plans. As of June 30, 2025, the cost is expected to be recognized over a weighted-average period

19

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

of 3.56 years.

NOTE 6 — NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted income per share is computed by dividing net income by the weighted-average number of common shares outstanding and dilutive common share equivalents using the treasury stock method. Dilutive common share equivalents include common shares issuable upon exercise of outstanding in-the-money stock warrants and options, as well as restricted stock units. Potential common shares are not included in the denominator of the diluted per share computation when inclusion would be anti-dilutive. As of June 30, 2025 and 2024, there were 1,500 and 83,000 common shares that were not included in the potentially dilutive stock options, respectively.

Net income per common share was calculated as follows for the three and six months ended June 30, 2025 and 2024:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands of dollars except share and per share amounts)	2025		2024		2025		2024
Net income per share - basic computation:
Net income available to common shareholders	$	5,965	$	5,887	$	11,015	$	8,316
Average common shares outstanding - basic		10,277,721		10,247,201		10,275,436		10,145,576
Basic net income per share	$	0.58	$	0.58	$	1.07	$	0.82
Diluted net income per share computation:
Net income available to common shareholders	$	5,965	$	5,887	$	11,015	$	8,316
Average common shares outstanding - basic		10,277,721		10,247,201		10,275,436		10,145,576
Incremental shares from assumed conversions
Stock options		247,388		152,865		257,590		144,265
Restricted stock units		87,146		45,078		103,971		54,974
Average common shares outstanding - diluted		10,612,255		10,445,144		10,636,997		10,344,815
Diluted net income per share	$	0.57	$	0.56	$	1.04	$	0.80

NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

US GAAP provides a framework for measuring and disclosing fair value which requires disclosures about the fair value of assets and liabilities recognized in the balance sheet, whether the measurements are made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, collateral-dependent loans).

Fair value is defined as the exchange in price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. US GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value. These levels are:

Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

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CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Securities AFS — Securities AFS are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Equity Securities — Equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. There were no equity securities held at June 30, 2025 and December 31, 2024.

Loans Held for Sale — Loans held for sale are comprised of loans originated for sale in the ordinary course of business and purchased with intent to sell through Mortgage Banker Finance ("MBF"). The fair value of loans originated for sale in the secondary market is based on purchase commitments or quoted prices for the same or similar loans and are classified as recurring Level 2. There were no loans held for sale requiring fair value adjustments at June 30, 2025 and December 31, 2024.

Collateral-Dependent Loans — The Company does not record loans at fair value on a recurring basis, however, from time to time, a loan is considered collateral-dependent, evaluated individually for impairment, and an allowance for credit loss is established. Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. If a loan is determined to be collateral-dependent, or if foreclosure is probable, the Company measures the net realizable value of the collateral (fair value less costs to sell) to determine the level of impairment for the loan. The valuation of collateral is supported by an appraisal, brokers price opinion, or other comparable market data. Otherwise, the Company performs a discounted cash flow analysis on the loan to determine the level of ACL needed. At June 30, 2025 and December 31, 2024, substantially all of the individually evaluated collateral-dependent loans were evaluated based upon the fair value of the collateral. Collateral-dependent loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other Real Estate Owned ("OREO") — Foreclosed assets are adjusted to fair value upon transfer of the loans to OREO. Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which are charges to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. OREO presented as measured on a non-recurring basis includes only those properties that had changes in valuation. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral.

Derivative Financial Instruments — The Company’s derivative financial instruments, which are interest rate contracts, are valued using a discounted cash flow method that incorporates current market interest rates.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy at June 30, 2025 and December 31, 2024:

	June 30, 2025
(In thousands of dollars)	Total			Level 1		Level 2		Level 3
Assets:
Available-for-sale securities
U.S. Treasuries	$	5,744		$	-	$	5,744	$	-
Municipal obligations		53,888			-		53,888		-
Mortgage-backed securities		179,944			-		179,944		-
Asset-backed securities		33,644			-		33,644		-
Corporate debt securities		58,540			-		58,040		500
Total	$	331,760		$	-	$	331,260	$	500
Other
Derivative assets	$	7,488		$	-	$	7,488	$	-
Liabilities:
Derivative liabilities	$	(5	)	$	-	$	-	$	(5	)

21

CoastalSouth Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited) - Continued

	December 31, 2024
(In thousands of dollars)	Total			Level 1		Level 2		Level 3
Assets:
Available-for-sale securities
U.S. Treasuries	$	5,612		$	-	$	5,612	$	-
Municipal obligations		53,071			-		53,071		-
Mortgage-backed securities		166,092			-		166,092		-
Asset-backed securities		46,940			-		46,940		-
Corporate debt securities		63,552			-		63,052		500
Total	$	335,267		$	-	$	334,767	$	500
Other
Derivative assets	$	7,717		$	-	$	7,717	$	-
Liabilities:
Derivative liabilities	$	(6	)	$	-	$	-	$	(6	)

Level 3 assets measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 were $500 thousand. Level 3 liabilities measured at fair value on a recurring basis at June 30, 2025 and December 31, 2024 were $5 thousand and $6 thousand, respectively. There were no changes in the value in either of those periods.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets and liabilities carried on the balance sheet by caption and by level within the valuation hierarchy (as described above) for which a nonrecurring change in fair value has been recorded during the six months ended June 30, 2025 and the year ended December 31, 2024.

	June 30, 2025
(In thousands of dollars)	Total