##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended September 30, 2007



| ̈ | Transition report under Section 13 or 15(d) of the Exchange Act
|- | ---------------------------------------------------------------

For the transition period from  to .

Commission file number 000-50433



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COAST FINANCIAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 14-1858265                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

1301  6thAvenue West, Suite 300

Bradenton, Florida 34205

(Address of Principal Executive Offices)

(941) 752-5900

(Registrants Telephone Number, Including Area Code)



(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)



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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 1394 during the past 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  x    NO ̈

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act). check one:

Large Accelerated Filer ̈Accelerated Filer  x    Non-Accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    YES ̈NO  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date;



|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Common Stock, par value $5.00 per
share |  | 6,509,057 shares               
|(class)                                 |  | Outstanding at October 31, 2007



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

INDEX



|                                                                                                                              |  |      
|----------------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                              |  | Page 
|PART I. FINANCIAL INFORMATION                                                                                                 |  |      
|                                                                                                                              | 
|Item 1.
Financial Statements                                                                                                  |  |      
|                                                                                                                              | 
|Condensed Consolidated Balance Sheets -At September 30, 2007 (unaudited) and At December 31, 2006                             |  | 2    
|                                                                                                                              | 
|Condensed Consolidated Statements of Operations -Three and Nine Months ended September 30, 2007 and 2006 (unaudited)          |  | 3    
|                                                                                                                              | 
|Condensed Consolidated Statements of Changes in Stockholders EquityNine Months Ended September 30, 2007 and 2006 (unaudited) |  | 4    
|                                                                                                                              | 
|Condensed Consolidated Statements of Cash Flows -Nine Months Ended September 30, 2007 and 2006 (unaudited)                    |  | 5-6  
|                                                                                                                              | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                              |  | 7-20 
|                                                                                                                              | 
|Review by Independent Registered Public Accounting Firm                                                                       |  | 21   
|                                                                                                                              | 
|Report of Independent Registered Public Accounting Firm                                                                       |  | 22   
|                                                                                                                              | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 23-49
|                                                                                                                              | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                            |  | 50   
|                                                                                                                              | 
|Item 4.
Controls and Procedures                                                                                               |  | 50   
|                                                                                                                              | 
|PART II. OTHER INFORMATION                                                                                                    |  |      
|                                                                                                                              | 
|Item 1.
Legal Proceedings                                                                                                     |  | 51-56
|                                                                                                                              | 
|Item 1A.
Risk Factors                                                                                                         |  | 56-60
|                                                                                                                              | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                           |  | 61   
|                                                                                                                              | 
|Item 3.
Defaults Upon Senior Securities                                                                                       |  | 61   
|                                                                                                                              | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                                                   |  | 61   
|                                                                                                                              | 
|Item 5.
Other Information                                                                                                     |  | 61   
|                                                                                                                              | 
|Item 6.
Exhibits                                                                                                              |  | 61-65
|                                                                                                                              | 
|SIGNATURES                                                                                                                    |  | 66   



1



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except per share amounts)



|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                 |  | September 30,2007 |         |   | December 31,2006 |  
|                                                                                                                                 |  | (Unaudited)       |         |   |                  |  
|Assets                                                                                                                           |  |                   |         |   |                  |   |         |  
|Cash and due from banks                                                                                                          |  | $                 | 9,833   |   |                  | $ | 13,952  |  
|Federal funds sold and securities purchased under agreements to resell                                                           |  |                   | 16,356  |   |                  |   | 385     |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                        |  |                   | 26,189  |   |                  |   | 14,337  |  
|                                                                                                                                 |  |                  
|Securities available for sale                                                                                                    |  |                   | 72,727  |   |                  |   | 92,013  |  
|Loans, net of allowance for loan losses of $34,798 and $25,710, respectively                                                     |  |                   | 530,077 |   |                  |   | 562,574 |  
|Federal Home Loan Bank stock, at cost                                                                                            |  |                   | 1,319   |   |                  |   | 3,035   |  
|Premises and equipment, net                                                                                                      |  |                   | 26,093  |   |                  |   | 27,598  |  
|Accrued interest receivable                                                                                                      |  |                   | 4,094   |   |                  |   | 4,119   |  
|Deferred income taxes                                                                                                            |  |                   |        |   |                  |   | 12,465  |  
|Other real estate owned                                                                                                          |  |                   | 1,762   |   |                  |   | 167     |  
|Other assets                                                                                                                     |  |                   | 2,191   |   |                  |   | 3,361   |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                     |  | $                 | 664,452 |   |                  | $ | 719,669 |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                             |  |                   |         |   |                  |   |         |  
|                                                                                                                                 |  |                  
|Liabilities:                                                                                                                     |  |                   |         |   |                  |   |         |  
|Noninterest-bearing demand deposits                                                                                              |  | $                 | 20,071  |   |                  | $ | 34,345  |  
|Savings, NOW and money-market deposits                                                                                           |  |                   | 77,652  |   |                  |   | 133,819 |  
|Time deposits                                                                                                                    |  |                   | 534,580 |   |                  |   | 436,408 |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total deposits                                                                                                                   |  |                   | 632,303 |   |                  |   | 604,572 |  
|                                                                                                                                 |  |                  
|Federal Home Loan Bank advances                                                                                                  |  |                   |        |   |                  |   | 41,000  |  
|Other borrowings                                                                                                                 |  |                   | 6,777   |   |                  |   | 14,108  |  
|Other liabilities                                                                                                                |  |                   | 3,121   |   |                  |   | 2,813   |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                |  |                   | 642,201 |   |                  |   | 662,493 |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                                                            |  |                   |         |   |                  |   |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding                                  |  |                   |        |   |                  |   |        |  
|Common stock, $5 par value; 20,000,000 shares authorized, 6,509,057 and 6,509,057 shares issued and outstanding in 2007 and
2006 |  |                   | 32,545  |   |                  |   | 32,545  |  
|Additional paid-in capital                                                                                                       |  |                   | 46,061  |   |                  |   | 45,992  |  
|Accumulated deficit                                                                                                              |  |                   | (56,453 | ) |                  |   | (21,119 | )
|Accumulated other comprehensive income (loss)                                                                                    |  |                   | 98      |   |                  |   | (242    | )
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                       |  |                   | 22,251  |   |                  |   | 57,176  |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                       |  | $                 | 664,452 |   |                  | $ | 719,669 |  
|                                                                                                                                 |  |                   |         |   |                  |   |         |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



2



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share amounts)



|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|----------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                        |  | Three Months EndedSeptember 30, |           |   | Nine Months EndedSeptember 30, |  
|                                                                        |  | 2007                            |           |   | 2006                           |   |           | 2007 |  |   | 2006      |  
|Interest income:                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Loans                                                                   |  | $                               | 8,578     |   |                                | $ | 9,367     |      |  | $ | 27,713    |   |  | $ | 24,510    |  
|Securities                                                              |  |                                 | 972       |   |                                |   | 1,010     |      |  |   | 3,591     |   |  |   | 2,954     |  
|Other interest-earning assets                                           |  |                                 | 469       |   |                                |   | 169       |      |  |   | 1,843     |   |  |   | 558       |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Total interest income                                                   |  |                                 | 10,019    |   |                                |   | 10,546    |      |  |   | 33,147    |   |  |   | 28,022    |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Interest expense:                                                       |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Deposits                                                                |  |                                 | 8,229     |   |                                |   | 5,991     |      |  |   | 24,584    |   |  |   | 14,865    |  
|Borrowings                                                              |  |                                 | 99        |   |                                |   | 213       |      |  |   | 826       |   |  |   | 600       |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Total interest expense                                                  |  |                                 | 8,328     |   |                                |   | 6,204     |      |  |   | 25,410    |   |  |   | 15,465    |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Net interest income                                                     |  |                                 | 1,691     |   |                                |   | 4,342     |      |  |   | 7,737     |   |  |   | 12,557    |  
|Provision for loan losses                                               |  |                                 | 9,514     |   |                                |   | 275       |      |  |   | 11,680    |   |  |   | 582       |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Net interest (expense) income after provision for loan losses           |  |                                 | (7,823    | ) |                                |   | 4,067     |      |  |   | (3,943    | ) |  |   | 11,975    |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Noninterest income:                                                     |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Service charges on deposit accounts                                     |  |                                 | 136       |   |                                |   | 126       |      |  |   | 424       |   |  |   | 365       |  
|Gain on sale of loans held for sale                                     |  |                                 | 293       |   |                                |   | 426       |      |  |   | 1,125     |   |  |   | 1,269     |  
|Other service charges and fees                                          |  |                                 | 18        |   |                                |   | 9         |      |  |   | 53        |   |  |   | 42        |  
|Other                                                                   |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   | 13        |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Total noninterest income                                                |  |                                 | 447       |   |                                |   | 561       |      |  |   | 1,602     |   |  |   | 1,689     |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Noninterest expenses:                                                   |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Employee compensation and benefits                                      |  |                                 | 2,473     |   |                                |   | 3,616     |      |  |   | 8,231     |   |  |   | 8,777     |  
|Occupancy and equipment                                                 |  |                                 | 1,319     |   |                                |   | 1,268     |      |  |   | 3,937     |   |  |   | 3,320     |  
|Data processing                                                         |  |                                 | 270       |   |                                |   | 281       |      |  |   | 846       |   |  |   | 763       |  
|Professional fees                                                       |  |                                 | 884       |   |                                |   | 233       |      |  |   | 2,580     |   |  |   | 667       |  
|Telephone, postage and supplies                                         |  |                                 | 280       |   |                                |   | 368       |      |  |   | 982       |   |  |   | 1,058     |  
|Advertising                                                             |  |                                 | 159       |   |                                |   | 522       |      |  |   | 712       |   |  |   | 1,463     |  
|FDIC and State assessments                                              |  |                                 | 730       |   |                                |   | 44        |      |  |   | 1,677     |   |  |   | 122       |  
|Other                                                                   |  |                                 | 702       |   |                                |   | 587       |      |  |   | 1,708     |   |  |   | 1,328     |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Total noninterest expenses                                              |  |                                 | 6,817     |   |                                |   | 6,919     |      |  |   | 20,673    |   |  |   | 17,498    |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Loss before income tax provision (benefit)                              |  |                                 | (14,193   | ) |                                |   | (2,291    | )    |  |   | (23,014   | ) |  |   | (3,834    | )
|Income tax provision (benefit)                                          |  |                                 |          |   |                                |   | (835      | )    |  |   | 12,320    |   |  |   | (1,361    | )
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Net loss                                                                |  | $                               | (14,193   | ) |                                | $ | (1,456    | )    |  | $ | (35,334   | ) |  | $ | (2,473    | )
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Loss per share, basic and diluted                                       |  | $                               | (2.18     | ) |                                | $ | (0.22     | )    |  | $ | (5.43     | ) |  | $ | (0.38     | )
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                                 | 6,509,057 |   |                                |   | 6,509,057 |      |  |   | 6,509,057 |   |  |   | 6,508,373 |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  
|Dividends per share                                                     |  | $                               |          |   |                                | $ |          |      |  |   |          |   |  |   |          |  
|                                                                        |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   |           |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



3



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Changes in
Stockholders Equity

Nine Months Ended September 30, 2007 and 2006

($ in thousands, except share amounts)



|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------ |  | ------------------------ | ------ |  | ------------------ | ------ | - | ---------------------- | - | ------- | ------------------------- |  | - | ---- | - |  | - | ------- | -
|                                                                                           |  | Common Stock |  | AdditionalPaid-InCapital |        |  | AccumulatedDeficit |        |   | OtherComprehensiveLoss |   |         | TotalStockholders Equity | 
|                                                                                           |  | SharesIssued |  | Amount                   |        |  |                    |       
|Balance at December 31, 2005                                                               |  | 6,503,600    |  | $                        | 32,518 |  | $                  | 45,591 |   |                        | $ | (3,839  | )                         |  | $ | (507 | ) |  | $ | 73,763  |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Comprehensive loss:                                                                        |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Net loss (unaudited)                                                                       |  |             |  |                          |       |  |                    |       |   |                        |   | (2,473  | )                         |  |   |     |   |  |   | (2,473  | )
|Net change in unrealized loss on securities available for sale, net of taxes (unaudited)   |  |             |  |                          |       |  |                    |       |   |                        |   |        |                           |  |   | 25   |   |  |   | 25      |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Comprehensive loss (unaudited)                                                             |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   | (2,448  | )
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Proceeds from exercise of common stock options (unaudited)                                 |  | 5,457        |  |                          | 27     |  |                    | 39     |   |                        |   |        |                           |  |   |     |   |  |   | 66      |  
|Tax effect from exercise of common stock options (1,624 shares) (unaudited)                |  |             |  |                          |       |  |                    | 4      |   |                        |   |        |                           |  |   |     |   |  |   | 4       |  
|Share Based Compensation expense (unaudited)                                               |  |             |  |                          |       |  |                    | 283    |   |                        |   |        |                           |  |   |     |   |  |   | 283     |  
|Offering costs relating to 2005 common stock offering paid in 2006 (unaudited)             |  |             |  |                          |       |  |                    | (150   | ) |                        |   |        |                           |  |   |     |   |  |   | (150    | )
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Balance at September 30, 2006 (unaudited)                                                  |  | 6,509,057    |  | $                        | 32,545 |  | $                  | 45,767 |   |                        | $ | (6,312  | )                         |  | $ | (482 | ) |  | $ | 71,518  |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Balance at December 31, 2006                                                               |  | 6,509,057    |  | $                        | 32,545 |  |                    | 45,992 |   |                        |   | (21,119 | )                         |  |   | (242 | ) |  | $ | 57,176  |  
|Comprehensive loss:                                                                        |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Net loss (unaudited)                                                                       |  |             |  |                          |       |  |                    |       |   |                        |   | (35,334 | )                         |  |   |     |   |  |   | (35,334 | )
|Net change in unrealized income on securities available for sale, net of taxes (unaudited) |  |             |  |                          |       |  |                    |       |   |                        |   |        |                           |  |   | 340  |   |  |   | 340     |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Comprehensive loss (unaudited)                                                             |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   | (34,994 | )
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Share Based Compensation expense (unaudited)                                               |  |             |  |                          |       |  |                    | 69     |   |                        |   |        |                           |  |   |     |   |  |   | 69      |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  
|Balance at September 30, 2007 (unaudited)                                                  |  | 6,509,057    |  | $                        | 32,545 |  | $                  | 46,061 |   |                        | $ | (56,453 | )                         |  | $ | 98   |   |  | $ | 22,251  |  
|                                                                                           |  |              |  |                          |        |  |                    |        |   |                        |   |         |                           |  |   |      |   |  |   |         |  

See Accompanying Notes to Condensed Consolidated Financial Statements.



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



|                                                                                |  |                                |          |   |      |   |          |  
|------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                |  | Nine Months EndedSeptember 30, |         
|                                                                                |  | 2007                           |          |   | 2006 |  
|Cash flows from operating activities:                                           |  |                                |          |   |      |   |          |  
|Net loss                                                                        |  | $                              | (35,334  | ) |      | $ | (2,473   | )
|Adjustments to reconcile net loss to net cash used in operating activities:     |  |                                |          |   |      |   |          |  
|Depreciation and amortization                                                   |  |                                | 1,792    |   |      |   | 1,454    |  
|Provision for loan losses                                                       |  |                                | 11,680   |   |      |   | 582      |  
|Deferred income tax provision (benefit)                                         |  |                                | 12,320   |   |      |   | (1,364   | )
|Amortization and accretion of discounts and premiums on securities              |  |                                | (408     | ) |      |   | 109      |  
|Share based compensation expense                                                |  |                                | 69       |   |      |   | 283      |  
|Loss (gain) on sale of property and equipment                                   |  |                                | 5        |   |      |   | (11      | )
|Gain on sale of loans held for sale                                             |  |                                | (1,125   | ) |      |   | (1,269   | )
|Originations of loans held for sale                                             |  |                                | (48,568  | ) |      |   | (64,447  | )
|Proceeds from sale of loans held for sale                                       |  |                                | 49,693   |   |      |   | 65,716   |  
|Decrease (increase) in accrued interest receivable                              |  |                                | 25       |   |      |   | (1,235   | )
|Decrease (increase) in other assets                                             |  |                                | 1,170    |   |      |   | (621     | )
|Increase in other liabilities                                                   |  |                                | 308      |   |      |   | 830      |  
|                                                                                |  |                                |          |   |      |   |          |  
|Net cash used in operating activities                                           |  |                                | (8,373   | ) |      |   | (2,446   | )
|                                                                                |  |                                |          |   |      |   |          |  
|Cash flows from investing activities:                                           |  |                                |          |   |      |   |          |  
|Purchase of securities available for sale                                       |  |                                | (174,537 | ) |      |   | (26,698  | )
|Proceeds from maturities, calls and repayments of securities available for sale |  |                                | 194,716  |   |      |   | 17,930   |  
|Net decrease (increase) in loans                                                |  |                                | 19,222   |   |      |   | (141,273 | )
|Sale (purchase) of Federal Home Loan Bank stock                                 |  |                                | 1,716    |   |      |   | (711     | )
|Purchase of premises and equipment                                              |  |                                | (294     | ) |      |   | (5,481   | )
|Proceeds from sale of property and equipment                                    |  |                                | 2        |   |      |   | 1,634    |  
|                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                             |  |                                | 40,825   |   |      |   | (154,599 | )
|                                                                                |  |                                |          |   |      |   |          |  
|Cash flows from financing activities:                                           |  |                                |          |   |      |   |          |  
|Net increase in deposits                                                        |  |                                | 27,731   |   |      |   | 118,528  |  
|Proceeds from Federal Home Loan Bank advances                                   |  |                                |         |   |      |   | 19,000   |  
|Repayments of Federal Home Loan Bank advances                                   |  |                                | (41,000  | ) |      |   | (9,000   | )
|Net decrease in other borrowings                                                |  |                                | (7,331   | ) |      |   | (1,201   | )
|Payment of offering costs relating to 2005 common stock offering                |  |                                |         |   |      |   | (150     | )
|Proceeds from exercise of common stock options                                  |  |                                |         |   |      |   | 66       |  
|Tax effect from exercise of common stock options                                |  |                                |         |   |      |   | 4        |  
|                                                                                |  |                                |          |   |      |   |          |  
|Net cash (used in) provided by financing activities                             |  |                                | (20,600  | ) |      |   | 127,247  |  
|                                                                                |  |                                |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                            |  |                                | 11,852   |   |      |   | (29,798  | )
|                                                                                |  |                               
|Cash and cash equivalents at beginning of period                                |  |                                | 14,337   |   |      |   | 48,013   |  
|                                                                                |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                      |  | $                              | 26,189   |   |      | $ | 18,215   |  
|                                                                                |  |                                |          |   |      |   |          |  

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)



|                                                                                                                     |  |                                |        |      |   |       
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------
|                                                                                                                     |  | Nine Months EndedSeptember 30,
|                                                                                                                     |  | 2007                           |        | 2006
|Supplemental disclosure of cash flow information:                                                                    |  |                                |        |      |   |       
|Cash paid during the period for:                                                                                     |  |                                |        |      |   |       
|Interest                                                                                                             |  | $                              | 25,208 |      | $ | 15,101
|                                                                                                                     |  |                                |        |      |   |       
|Income taxes                                                                                                         |  | $                              |       |      | $ |      
|                                                                                                                     |  |                                |        |      |   |       
|Noncash transactions:                                                                                                |  |                                |        |      |   |       
|Accumulated other comprehensive income, net change in unrealized loss on securities available for sale, net of taxes |  | $                              | 340    |      | $ | 25    
|                                                                                                                     |  |                                |        |      |   |       
|Transfer of loans to other real estate owned                                                                         |  | $                              | 1,595  |      | $ | 167   
|                                                                                                                     |  |                                |        |      |   |       

See Accompanying Notes to Condensed Consolidated Financial Statements.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. General.Coast Financial Holdings, Inc. (the Holding Company) owns 100% of the outstanding common stock of
Coast Bank of Florida (the Bank or Coast Bank) (collectively, the Company).

The Holding Companys primary
activity is the operation of the Bank. The Bank is a state (Florida)-chartered commercial bank. The Federal Deposit Insurance Corporation insures the deposit accounts of the bank. The Bank offers a variety of community banking services to individual
and corporate customers through its twenty banking offices located in Manatee, Pinellas, Hillsborough and Pasco Counties, Florida. Coast Financial Partners, Inc. (CFP), a wholly owned subsidiary of the Bank, is an inactive corporation.

In the opinion of the management of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting
principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2007, the results of operations for the three and nine month periods ended September 30, 2007 and 2006 and cash flows for the
nine-month periods ended September 30, 2007 and 2006. The results of operations and other data for the three and nine -month period ended September 30, 2007 are not necessarily indicative of results that may be expected for the year ending
December 31, 2007.

2. Loan Impairment and Loan Losses.The Companys construction-to-permanent loan portfolio was materially
adversely affected by the downturn in the Florida real estate market and the failure of Construction Compliance, Inc., (CCI), and its affiliates with whom a substantial number of our borrowers (our Borrowers) had entered into
contracts for the construction of their homes. Although each of Coast Banks construction-to-permanent residential loans (residential construction loans) are with Borrowers who individually own the properties on which single family
dwellings are to be constructed and each Borrower is required to separately contract with builders for such construction, a significant number of Borrowers contracted with CCI and its affiliates for such construction. After being advised that
subcontractor and other liens had been placed on several of the existing construction projects of the Companys Borrowers, CCI advised the Company that it had effectively ceased operations.

Upon learning of these developments, the Company undertook a thorough review of the full residential construction loan portfolio and identified 482 residential
construction loans pursuant to which our Borrowers had contracted with CCI and its affiliates for the construction of single family dwellings (Affected Loans). These Borrowers were primarily purchasing these homes for investment
purposes. The properties were primarily located in Charlotte and Sarasota counties. The outstanding balance of the Affected Loans at September 30, 2007 was $64.1 million, of which $8.6 million have modified to permanent financing, while $55.5
million are still construction loans.

Based on the Companys analysis of the residential construction loan portfolio, including the Affected Loans,
as well as the impact that the current local residential real estate market conditions may have on the willingness of our Borrowers to comply with their obligations, the Company recorded an additional provision to its allowance for loan losses
of $21.0 million for the year ended December 31, 2006.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2. Loan Impairment and Loan Losses, Continued.Of this provision, $14.0 million was specifically allocated to the Affected Loans to reflect the increased risk associated with these loans. The remaining
provision was related to residential construction loans that had similarities in product, primarily related to the investment purpose of the financing by borrowers.

At September 30, 2007, the Company had outstanding balances of approximately $103.6 million of residential construction loans, including $55.5 million of outstanding balances with respect to the Affected Loans,
where the construction was for investment purposes. Additionally, the Bank has approximately $60.9 million of completed residences with permanent financing, where the initial financing by borrowers was primarily for investment purposes. These loans
are predominantly construction loans that have completed and modified to permanent financing. Of this combined $164.5 million in outstanding balance, approximately $70.2 million is in the Cape Coral, Florida market, which has seen a comparatively
steep decline in recent market values. None of the Affected Loans are in this market. Another $52.0 million of this combined $164.5 million are in the North Port, Florida market, including $40.3 million of outstanding balances with respect to the
Affected Loans.

For any loan where the Borrower defaults on their loan agreement, Coast Bank intends to pursue any or all remedies available pursuant to
the loan documents and applicable Federal and State laws, including foreclosure and pursuit of deficiencies. Coast Bank is continuing to pursue foreclosure actions on the non-performing Affected Loans. In addition, approximately 143 Borrowers,
primarily represented by one attorney, have filed individual suits against the Bank. We intend to vigorously defend against each claim.

For the quarter
ended September 30, 2007 the Company recorded a provision to its allowance for loan losses of $9.5 million. The Bank took the additional provision primarily due to the continued depression of residential real estate values in the local markets
where we have loans, either in construction or with permanent financing, where the financing by borrowers was primarily for investment purposes. Of this provision, $3.6 million was specifically allocated to the Affected Loans. The remaining
provision was related to residential construction loans that had similarities in product, primarily related to the investment purpose of the financing by borrowers.

The activity in the allowance for loan losses is as follows (in thousands):



|                                  |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|--------------------------------- |  | ------------------------------- | ------ | ------------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | -----
|                                  |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                  |  | 2007                            |        |                                | 2006 |   | 2007  |  |   | 2006  
|Balance at beginning of period    |  | $                               | 26,666 |                                |      | $ | 3,446 |  | $ | 25,710 |   |  | $ | 3,146
|Provision for loan losses         |  |                                 | 9,514  |                                |      |   | 275   |  |   | 11,680 |   |  |   | 582  
|Net, (charge-offs) and recoveries |  |                                 | (1,382 | )                              |      |   | 27    |  |   | (2,592 | ) |  |   | 20   
|                                  |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      
|Balance at end of period          |  | $                               | 34,798 |                                |      | $ | 3,748 |  | $ | 34,798 |   |  | $ | 3,748
|                                  |  |                                 |        |                                |      |   |       |  |   |        |   |  |   |      

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2. Loan Impairment and Loan Losses, Continued.Impaired collateral dependent loans were as follows (in thousands):



|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    
|-------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ---- |  | ---- | ------ |  | - | ---
|                                             |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                             |  | 2007                            |        | 2006                           |   | 2007 |  | 2006
|Balance at end of period                     |  | $                               | 64,569 |                                | $ | 502  |  | $    | 64,569 |  | $ | 502
|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    
|Total related allowance for losses           |  | $                               | 18,361 |                                | $ | 502  |  | $    | 18,361 |  | $ | 502
|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    
|Average investment in impaired loans         |  | $                               | 64,859 |                                | $ | 502  |  | $    | 62,618 |  | $ | 538
|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    
|Interest income recognized on impaired loans |  | $                               | 294    |                                | $ |     |  | $    | 720    |  | $ |   
|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    
|Interest income received on impaired loans   |  | $                               |       |                                | $ |     |  | $    |       |  | $ |   
|                                             |  |                                 |        |                                |   |      |  |      |        |  |   |    

Nonaccrual and past due loans were as follows (in thousands):



|                                             |  |                  |        |      |   |    
|-------------------------------------------- |  | ---------------- | ------ | ---- | - | ---
|                                             |  | At September 30,
|                                             |  | 2007             |        | 2006
|Nonaccrual loans                             |  | $                | 76,018 |      | $ | 814
|Past due ninety days or more, still accruing |  |                  |       |      |   |   
|                                             |  |                  |        |      |   |    
|                                             |  | $                | 76,018 |      | $ | 814
|                                             |  |                  |        |      |   |    

At September 30, 2007, of the $76.0 million of nonaccrual loans, $39.3 million represents the nonaccrual
balance of the Affected Loans. With the Affected Loans, the Borrower had authorized Coast Bank to deduct interest from the loans in process (LIP) account throughout the time of construction. When CCI ceased operations, Coast Bank
notified the Borrowers that the bank would no longer deduct interest from the LIP account. March 1, 2007 was the first time Borrowers were expected to pay interest rather than deducting it from LIP.

$17.9 million of nonaccrual loans are from residential construction loans that have similar product characteristics as the Affected Loans, primarily related to the
investment purpose of the financing by borrowers. An additional $7.2 million of nonaccrual loans are residential loans that have modified to permanent financing after completion of construction, but where the financing by borrowers was primarily for
investment purposes.

The remaining nonaccrual loans are primarily due to three development loans with outstanding balances of $4.3 million, $2.6 million,
and $900,000. The Bank is in the process of working with these borrowers to secure repayment, and has begun foreclosure action on the $2.6 million and $900,000 loans.

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Going Concern. Although the Company anticipates that the Merger will be consummated in accordance with the terms of the Merger Agreement, if this transaction were not to close, management believes
that there is substantial doubt about the Holding Companys ability to continue as a going concern. The Banks recent increase in non-performing assets, declining net interest margin, continuing high levels of operating expenses related to
the credit problems in its residential construction lending program, including the Affected Loans, and the operating and capital requirements of the C&D Order are contributing factors for this concern. In order to comply with its regulatory
requirements, the Company would need to raise substantial additional capital or significantly reduce its asset size. There is no guarantee that sufficient capital would be available at acceptable terms, if at all, when needed, or that the Company
would be able to sell assets at terms favorable enough to accomplish its regulatory capital needs.

If, however, the Merger transaction should fail to
close for any reason, we would evaluate all potential alternative sources of capital to meet our cash requirements and to satisfy our obligations under the C&D Order, including debt financing, issuing equity securities, entering into to other
financing arrangements and/or strategic alliances, and seeking recapitalization opportunities. There can be no assurance, however, the additional financing or recapitalization plans will be available or forthcoming and, if available, can be obtained
or undertaken on terms favorable to the Company or its existing shareholders. Further there is no assurance that any acceptable financing alternative or recapitalization plan would be successfully implemented, or receive regulatory approval.

4. Stock Compensation Plan. The Holding Company adopted stock option plans in 2003, 2005 and in 2006 for certain key employees and directors
of the Company. A total of 968,000 shares of common stock have been reserved under these plans. 461,816 shares remain available for grant at September 30, 2007. The exercise price of the stock options granted under these plans must at least
equal the fair value of the common stock at the date of grant. Options granted to employees prior to December 29, 2006 generally have ten year terms and one third vest immediately with the remaining vesting over two years. Options granted on
December 29, 2006 and thereafter generally have ten year terms and twenty percent vest immediately with the remaining vesting over four years. No options have been granted under any of the Holding Companys stock option plans during the
2007 fiscal year. The options issued to directors generally are fully vested on the date of grant and have ten-year terms.

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

4. Stock Compensation Plan, continued.The weighted-average fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:



|                                              |  |                                 |   |  |                                |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                              |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |      
|                                              |  | 2007                            |   |  | 2006                           |       |   | 2007 |   |       | 2006 | 
|Risk-free interest rate                       |  | n/a                             | % |  |                                | 4.90  | % |      |   | 4.74  | %    |  |   | 4.85  | %
|Expected dividend yield                       |  | n/a                             | % |  |                                |      | % |      |   |      | %    |  |   |      | %
|Expected volatility                           |  | n/a                             | % |  |                                | 17.22 | % |      |   | 16.83 | %    |  |   | 17.96 | %
|Expected life in years                        |  | n/a                             |   |  |                                | 5.00  |   |      |   | 6.00  |      |  |   | 5.17  |  
|Per share fair value of options at grant date |  | n/a                             |   |  | $                              | 4.50  |   |      | $ | 4.85  |      |  | $ | 4.66  |  
|                                              |  |                                 |   |  |                                |       |   |      |   |       |      |  |   |       |  

As part of its adoption of SFAS 123R, the Company examined its historical pattern of option exercises in an effort
to determine if there was any pattern based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance in Staff Accounting Bulletin No. 107
to determine the estimated life of options issued subsequent to the adoption of SFAS 123R.

Based on this guidance, the estimated term was deemed to be the
midpoint of the vesting term and the contractual term ((vesting term and original contractual term)/2). Prior to 2006 the expected volatility was based on industry standards, however, in 2006 it is based on the Companys historical volatility.
The risk-free interest rates are based on U.S. Treasury strips in effect at the time of grant. The expected dividend yield assumption is based on the Companys history and expectation of dividend payments.

A summary of stock option transactions follows:



|                                  |  |                 |   |  |                               |       |                                 |     |                                        |   |  
|--------------------------------- |  | --------------- | - |  | ----------------------------- | ----- | ------------------------------- | --- | -------------------------------------- | - | -
|                                  |  | Number ofShares |   |  | Average PerShareExercisePrice |       | AverageRemainingContractualTerm |     | AggregateIntrinsicValue (in thousands)
|Outstanding at December 31, 2006  |  | 586,178         |   |  | $                             | 14.32 |                                 |     |                                        |   |  
|Granted                           |  | 14,000          |   |  |                               | 16.23 |                                 |     |                                        |   |  
|Expired                           |  | (121,651        | ) |  |                               | 14.88 |                                 |     |                                        |   |  
|                                  |  |                 |   |  |                               |       |                                 |     |                                        |   |  
|Outstanding at September 30, 2007 |  | 478,527         |   |  | $                             | 14.23 |                                 | 6.7 |                                        | $ | 
|                                  |  |                 |   |  |                               |       |                                 |     |                                        |   |  
|Exercisable at September 30, 2007 |  | 400,849         |   |  | $                             | 13.83 |                                 | 5.5 |                                        | $ | 
|                                  |  |                 |   |  |                               |       |                                 |     |                                        |   |  

There were no options exercised during the three or nine months ended September 30, 2007. At
September 30, 2007, there was approximately $248,000 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average
period of 40 months. The total fair value of shares vesting and recognized as compensation expense was approximately $18,000 and $69,000 for the three and nine months ended September 30, 2007. As of the date of this Form 10-Q, the market price
for the Holding Companys common stock is substantially less than the exercise prices of the options outstanding under the stock option plans.

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. Regulatory Capital. The Holding Company and Coast Bank are required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2007 of the regulatory
capital requirements and the Holding Companys and Coast Banks actual capital on a percentage basis:



|                                         |  |        |        |         |                              |   |        |                              |         |  |      |        |  |         |  |       
|---------------------------------------- |  | ------ | ------ | ------- | ---------------------------- | - | ------ | ---------------------------- | ------- |  | ---- | ------ |  | ------- |  | ------
|                                         |  | Actual |        |         | For CapitalAdequacy Purposes |   |        | For WellCapitalized Purposes
|                                         |  | Amount |        | Percent |                              |   | Amount |                              | Percent |  |      | Amount |  | Percent
|As of September 30, 2007:                |  |        |        |         |                              |   |        |                              |         |  |      |        |  |         |  |       
|Total capital (to Risk-Weighted Assets)  |  |        |        |         |                              |   |        |                              |         |  |      |        |  |         |  |       
|Consolidated                             |  | $      | 29,135 |         | 5.49                         | % |        | $                            | 42,463  |  | 8.00 |        |  | N/A     |  | N/A   
|Bank                                     |  |        | 29,558 |         | 5.56                         |   |        |                              | 42,497  |  | 8.00 | %      |  | 53,121  |  | 10.00%
|Tier I Capital (to Risk-Weighted Assets) |  |        |        |         |                              |   |        |                              |         |  |      |        |  |         |  |       
|Consolidated                             |  |        | 22,153 |         | 4.17                         |   |        |                              | 21,231  |  | 4.00 |        |  | N/A     |  | N/A   
|Bank                                     |  |        | 22,570 |         | 4.25                         |   |        |                              | 21,248  |  | 4.00 |        |  | 31,872  |  | 6.00  
|Tier I Capital (to Average Assets):      |  |        |        |         |                              |   |        |                              |         |  |      |        |  |         |  |       
|Consolidated                             |  |        | 22,153 |         | 3.16                         |   |        |                              | 28,041  |  | 4.00 |        |  | N/A     |  | N/A   
|Bank                                     |  |        | 22,570 |         | 3.22                         |   |        |                              | 28,040  |  | 4.00 |        |  | 35,051  |  | 5.00  

At September 30, 2007, Coast Bank met the definition of a significantly under capitalized
institution, with a Total Risk Based Capital of 5.56%, a Tier I Risk Based Capital of 4.25%, and a Leverage Ratio of 3.22%. As a result, Coast Bank is subject to certain operating restrictions and requirements. In particular, while the Bank remains
below adequately capitalized, it can no longer accept brokered deposits, its average assets cannot increase on a quarterly basis, and we have been required to submit a capital restoration plan to the Federal Deposit Insurance Corporation
(FDIC). On or about May 24, 2007, Coast Bank agreed to the entry of a Cease and Desist order (C&D Order) by the FDIC and the Florida Office of Financial Regulation (OFR). As a result of the
C&D Order, the Bank is required, among other things, by November, 2007, to have Tier 1 capital in such an amount as to equal or exceed seven and one-half percent (7.5%) of the Banks total assets, and maintain Tier 1 capital equal to
or exceeding 7.5% of the Banks total assets for the life of the order.

6. Earnings (loss) Per Share.Earnings (loss) per share
(EPS) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options are not considered dilutive securities for the three and nine-month periods ended
September 30, 2007 and September 30, 2006 due to the net losses incurred by the Company.

(continued)



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.Recent Loan Developments.On January 19, 2007, we reported that we had been advised of circumstances that were reasonably likely to have a material adverse impact on our construction-to-permanent
residential loan portfolio. Although each of Coast Banks residential construction loans are with Borrowers who individually own the properties on which single family dwellings are to be constructed and each Borrower is required to separately
contract with builders for such construction, a significant number of Borrowers hired CCI and its affiliates for such construction. In December, 2006, the Company was advised that a large number of subcontractor and other liens started to be placed
on several of the existing construction projects of the Companys Borrowers. In late December, 2006, CCI advised the Company that it had effectively ceased operations. In April 2007, CCI filed a petition for a Chapter 11 Bankruptcy in the
United States Bankruptcy Court.

Coast Bank has established a committee, consisting of senior management and bank counsel to evaluate and implement its
strategy related to the resolution of the Affected Loans. At the direction of this committee, Coast Bank has established a centralized call center to facilitate discussions with the Borrowers represented in this portfolio. Coast Bank is in the
process of working with the borrowers to establish the appropriate course of action related to their transaction and is actively providing information to the Borrowers to assist in this process. If, however, any Borrower fails to perform on their
loan agreement, Coast Bank has, and intends to continue, pursuing any or all remedies available pursuant to the loan documents and applicable Federal and State laws, including foreclosure and pursuit of deficiencies. Coast Bank continues to pursue
foreclosure actions on the non-performing Affected Loans and intends on continuing that process. In addition, approximately 143 Borrowers, primarily represented by one attorney, have filed individual suits against the Bank. We intend to vigorously
defend against each claim.

The following table illustrates the current approximate completion progress of the Affected Loans at September 30, 2007 ($
in thousands):



|                                |  |       |  |               |        |               |   |       
|------------------------------- |  | ----- |  | ------------- | ------ | ------------- | - | ------
|                                |  | Count |  | $ Outstanding |        | $ Undisbursed
|Construction                    |  |       |  |               |        |               |   |       
|Lot Only                        |  | 152   |  | $             | 12,912 |               | $ | 7,842 
|10% to 90% Complete             |  | 85    |  |               | 13,971 |               |   | 2,783 
|Over 90% Complete               |  | 133   |  |               | 28,627 |               |   | 639   
|                                |  |       |  |               |        |               |   |       
|                                |  | 370   |  | $             | 55,510 |               | $ | 11,264
|                                |  |       |  |               |        |               |   |       
|Modified to Permanent Financing |  |       |  |               |        |               |   |       
|Completed House                 |  | 36    |  | $             | 7,403  |               | $ |      
|Lot                             |  | 14    |  |               | 1,236  |               |   |      
|                                |  |       |  |               |        |               |   |       
|                                |  | 50    |  | $             | 8,639  |               | $ |      
|                                |  |       |  |               |        |               |   |       
|OREO                            |  | 28    |  | $             | 1,595  |               | $ |      
|Paid-Off                        |  | 34    |  |               |       |               |   |      
|                                |  |       |  |               |        |               |   |       
|                                |  | 482   |  | $             | 65,744 |               | $ | 11,264
|                                |  |       |  |               |        |               |   |       

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.Recent Loan Developments, continued.The following table illustrates the payment performance of the 370 Affected Loans that are construction financed at September 30, 2007 ($ in thousands):



|                    |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|------------------- |  | ------- |  | ------------------- | ------ | ------------------- | - | ----- |  | ------------------- |  | ------------------- | ------ |  | - | -----
|                    |  | Current |  | Nonaccrual         
|                    |  | Count   |  | Outstanding Balance |        | Undisbursed Balance |   | Count |  | Outstanding Balance |  | Undisbursed Balance
|Construction        |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|Lot Only            |  | 21      |  | $                   | 1,879  |                     | $ | 3,201 |  | 131                 |  | $                   | 11,033 |  | $ | 4,641
|10% to 90% Complete |  | 15      |  |                     | 2,850  |                     |   | 1,026 |  | 70                  |  |                     | 11,121 |  |   | 1,757
|Over 90% Complete   |  | 50      |  |                     | 11,635 |                     |   | 475   |  | 83                  |  |                     | 16,992 |  |   | 164  
|                    |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|                    |  | 86      |  | $                   | 16,364 |                     | $ | 4,702 |  | 284                 |  | $                   | 39,146 |  | $ | 6,562
|                    |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      

The following table illustrates the payment performance of the 370 Affected Loans that are construction financed
at September 30, 2007. Approximately 70 of the Affected Loans are attributable to a builder affiliated with CCI, which has not ceased construction activities, 10 loans are continuing with various new builders, and 290 loans are not engaged with
a new builder.

($ in thousands):



|                             |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|---------------------------- |  | ------- |  | ------------------- | ------ | ------------------- | - | ----- |  | ------------------- |  | ------------------- | ------ |  | - | -----
|                             |  | Current |  | Nonaccrual         
|                             |  | Count   |  | Outstanding Balance |        | Undisbursed Balance |   | Count |  | Outstanding Balance |  | Undisbursed Balance
|Construction                 |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|Affiliated builer            |  | 35      |  | $                   | 8,374  |                     | $ | 790   |  | 35                  |  | $                   | 3,762  |  | $ | 506  
|Other new builder            |  | 10      |  |                     | 2,399  |                     |   | 31    |  |                    |  |                     |       |  |   |     
|Not engaged with new builder |  | 41      |  |                     | 5,591  |                     |   | 3,881 |  | 249                 |  |                     | 35,384 |  |   | 6,056
|                             |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      
|                             |  | 86      |  | $                   | 16,364 |                     | $ | 4,702 |  | 284                 |  | $                   | 39,146 |  | $ | 6,562
|                             |  |         |  |                     |        |                     |   |       |  |                     |  |                     |        |  |   |      

Lawsuits identified in Part II, Section 1 of this Form 10-Q have been filed against the Company and it is
possible that additional lawsuits may be filed or brought against the Company which, could have an adverse effect on the resolution of the Affected Loans. Coast Bank has and will continue to work proactively towards the resolution of the Affected
Loans. Loans not engaged with a new builder decreased to 290 at September 30, 2007 from 311 at June 30, 2007. Completed residences increased to 36 at September 30, 2007 from 22 at June 30, 2007. Coast Bank continues to promptly
and efficiently implement its strategy related to the resolution of the Affected Loans.

In addition to the Affected Loans, the continuing depression of
the local real estate market has significantly increased our non-performing loan portfolio. In particular, we have seen an increase in non-performance and a decrease in underlying collateral value for residential construction and permanent financed
houses where the purpose of financing by our borrowers was primarily for investment purposes. Including the Affected loans, the outstanding balances for these investment purpose financing loans was $164.5 million, of which $64.5 million are
currently nonaccrual.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

8.Contingencies.

Securities Litigation. - The Holding Company and certain of its
present and former officers were named as defendants in three purported class action complaints filed in the United States District Court for the Middle District of Florida, Tampa Division (the Court) alleging violations of the federal
securities laws, the first of which was filed with the Court in March 20, 2007 (the Securities Actions). On June 22, 2007, the Court entered an order pursuant to which the Court (i) consolidated the Securities Actions,
with the matter proceeding under the docket for Grand Lodge of Pennsylvania v. Brian P. Peters, et al., Case No. 8:07-cv-429-T-26-EAJ and (ii) appointed Troy Ratcliff and Daniel Altenburg (the Lead Plaintiffs) as lead
plaintiffs pursuant to the provisions of the Private Securities Litigation Reform Act of 1995.

Subsequently, on or about August 24, 2007, the Lead
Plaintiffs filed a consolidated amended class action complaint (the Amended Complaint). The Amended Complaint added as defendants (i) the current members of the Holding Companys Board of Directors, (ii) one former member
of the Holding Companys Board of Directors, (iii) the underwriters of the Holding Companys October 5, 2005 public offering of common stock, and (iv) the Holding Companys external auditors

The Amended Complaint is brought on behalf of a putative class of purchasers of the Holding Companys common stock between January 21, 2005 and
January 22, 2007. In general, the Amended Complaint alleges that the Holding Companys SEC filings and public statements contained misstatements and omissions regarding its residential construction-to-permanent lending operations and, more
specifically, regarding CCI and its affiliates and that the Holding Companys financial statements violated GAAP. The Amended Complaint asserts claims under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under.

On August 30, 2007, the Lead Plaintiffs filed a notice with the Court
voluntarily dismissing their claims against Anne V. Lee and Justin D. Locke without prejudice. The remaining defendants are due to respond to the Amended Complaint on or before December 3, 2007.

Borrower Litigation Regarding Affected Loans and Loans with Similar Characteristics. - Beginning in June 2007, Coast Bank was named as a party in numerous
complaints brought by borrowers under the Affected Loans. The lawsuits have been filed in the Florida state courts in Manatee, Sarasota, and Lee Counties. There are presently approximately 143 lawsuits pending, most of which have been filed by a
single law firm representing Borrowers with Affected Loans. In general, these lawsuits allege that Coast Bank made residential construction-to-permanent loans to Borrowers who had contracted for houses to be constructed by CCI and its affiliates
while purportedly knowing that CCI was not in a financial position to complete construction and without disclosing these alleged facts to the Borrowers. The lawsuits further allege that the Bank improperly made disbursements on these loans to CCI
and its affiliates.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

8. Contingencies, continued.

The lawsuits assert claims for rescission, fraud, breach of fiduciary duty, and
violations of Floridas RICO statutes. Certain of the lawsuits also assert claims based upon Coast Banks construction loan agreements and construction lien laws.

As relief, the lawsuits seek rescission of each Borrowers loan documents with Coast Bank, unspecified compensatory damages, unspecified treble damages, the repayment of certain sums paid by each Borrower on the
loans.

In addition to the pending lawsuits described above, Coast Bank was named as a party in eleven complaints brought by borrowers with loans that have
characteristics similar to the Affected Loans, and are asserting similar claims to those described above. In addition, the Holding Company and Coast Bank anticipate that they may become subject to additional lawsuits or claims arising out of or
related to the Affected Loans or loans with similar characteristics. A claim for securities laws violation attendant to the transacting of an Affected Loan has been filed and more are anticipated.

The borrower lawsuits regarding the Affected Loans and loans with similar characteristics are in their early stages. Coast Bank has filed motions to dismiss in the vast
majority of these suits. In addition, on or about October 29, 2007, approximately 100 of these cases that are pending in state court in Sarasota County were consolidated by the court for the limited purpose of discovery and initial motions.

CCI Bankruptcy Claim. - On or about April 3, 2007, CCI filed a Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court for the
Middle District of Florida, Tampa Division, Case No. 8:07-bk-02650-CPM. Schedule B to the petition lists as property of the debtor an $8 million contingent and unliquidated claim against Coast Bank, Phil Coon, John Miller, American
Mortgage Link and Solutions Processing. The disclosure statement accompanying CCIs plan of reorganization, filed on or about June 29, 2007, states an intention to pursue an action against Coast Bank to recover 50% of the loss
from all Coast Bank deals under the theory that every closed loan was a joint venture between Debtor and the Bank. On August 21, 2007, the Debtor filed an action in the United States Bankruptcy Court for the Middle District of Florida,
Tampa Division, Adv. Case No. 8:07-ap-00324-CPM, against Coast Bank, American Mortgage Link Company of Tampa, Solutions Processing, Inc., Solutions Processing Company of Tampa, Inc. and John Miller. In this action, the Debtor asserts that the
Debtor and the various defendants were partners in a joint venture to build and finance homes in Southwest Florida. Through the action, the Debtor seeks a declaration determining the relationship between the Debtor and the various defendants. In
addition, in the action, the Debtor alleges that Coast Bank did not receive sufficient consideration for the interest and fees that it charged borrowers who financed homes constructed by the Debtor and seeks to set aside interest and fee payments
made to Coast Bank in conjunction with these loans as fraudulent transfers. Coast Bank has filed a Motion to Dismiss, seeking to dismiss the Debtors suit against Coast Bank. The Bankruptcy Court has scheduled a pretrial conference in this
action and preliminary hearings on pending motions for January 14, 2008.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

8.Contingencies, continued.

Horelik, et al. v. Palco Group Enterprises, et al. -
Coast Bank has been named as a defendant in this lawsuit, which was filed in the United States District Court for the Middle District of Florida, Fort Myers Division, on or about May 4, 2007 and bears case number 2:07-cv-00288-JES-SPC. The
plaintiffs in this action are a husband and wife who took out a residential construction-to-permanent loan from Coast Bank for a residence to be built by Enchanted Homes, Inc. (Enchanted Homes). Plaintiffs allege violations of the
securities registration provisions and the antifraud provisions of the Securities Act of 1933 in connection with their acquisition of property and loan. As relief, plaintiffs seek rescission of all obligations in connection with the property,
ancillary costs associated with the purchase of their property, and attorney fees and costs. The complaint has not been served on any defendant.

Peter
Raimondi and Donna Raimondi v. Coast Bank of Florida. - Coast Bank is a defendant in this lawsuit, which was filed on June 11, 2007 in the Circuit Court of the Twentieth Judicial Circuit in and for Lee County, Florida and bears Case
No. 07-CA-005671. The plaintiffs in this case are a husband and wife who took out a residential construction-to-permanent loan from the bank for a residence to be built by Enchanted Homes. Plaintiffs allege that they are entitled to a judgment
declaring that Coast Bank is required to accept from them a deed in lieu of foreclosure on their loan.

Rubin, et al. v. Coppenger, et al. - On
May 25, 2007, Coast Bank was named as a defendant in a third-party complaint filed in this action, which is pending in the Court of Common Pleas for Summit County, Ohio and bears case number CV-2006-07-4229. The third-party complaint is filed
by several third-party plaintiffs against Coast Bank and several other third-party defendants alleging that the defendants engaged in a scheme to defraud them into purchasing residences to be constructed on real property in the Florida panhandle at
prices in excess of the true value of the properties, with financing provided by various banks, including Coast Bank.

The third-party complaint alleges
that all defendants are liable to all plaintiffs for the entire alleged scheme. It asserts 17 causes of action based on various state and federal law theories. The third party complaint seeks unspecified compensatory damages, punitive damages, the
rescission or reformation of the loan contract, and attorney fees and costs. However, only one of the third-party plaintiffs is a borrower of the Bank, and that plaintiffs loan was in the amount of roughly $1.3 million. Coast Bank has filed a
motion to dismiss the complaint on both jurisdictional and substantive grounds.

City of Cape Coral v. Muir, et al. - Coast Bank is a defendant in
this eminent domain action commenced by the City of Cape Coral, Florida on or about June 1, 2007 in the Circuit Court of the Twentieth Judicial Circuit in and for Lee County, Florida. The action bears case number 06-CA-005549. In this action
the City of Cape Coral seeks to affect a taking of certain property, including a property upon which Coast holds a mortgage, for the purpose of building a municipal park and recreational facility. There is currently approximately $146,036
outstanding on the Banks mortgage on this property, and that mortgage is past due since June 2007. An initial hearing to consider whether the taking should be authorized is scheduled for January 3, 2008.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

8. Contingencies, continued.

Manatee County v. Hugh
E. McGuire, Jr., et al. - Coast Bank is a defendant in this eminent domain action commenced by the Manatee County on or about July 30, 2007 in the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida. The action bears
Case No. 2007-CA-4921. In this action the Manatee County seeks to affect a taking of certain property, including a property upon which Coast Bank holds a commercial loan, for the purpose of constructing, reconstructing, widening, repairing and
maintaining 17thStreet West, Palmetto-Phase II, and for other right-of-way-purposes, including but not limited to, sidewalks, drainage, retention and
utility facilities, and drainage ditches, improving a public street, road, or highway as part of the public road system in Manatee County, Florida. This loan, which was approved under Regulation O because one of the borrowers is a director of Coast
Bank, has a principal balance of approximately $282,700, and is currently performing.

Because the portion of the property taken by Manatee County
is small and the mortgage continues to be intact for the remainder of the property, Coast Bank has decided to release the mortgage as to the portion of the parcel taken by the County. The action remains pending.

Foreclosure Actions Related to Residential Construction Loans -Coast Bank is, in the routine course of its business, the plaintiff in actions seeking to
foreclose on commercial and residential loans. Coast Bank is currently a plaintiff in 46 foreclosure actions pertaining to Affected Loans and in 58 foreclosure actions related to loans with characteristics similar to those of the Affected Loans. In
certain of these foreclosure matters, the defendants have raised affirmative defenses related to the enforceability of the loans or the circumstances of their making and counterclaims similar to the claims asserted in the above-described Borrower
litigation regarding the Affected Loans.

9.Change in Management.Effective May 25, 2007, the Holding Company and the Bank terminated
Brian F. Grimes from his position as President and Chief Executive Officer of each because, among other things, provisions in the C&D Order required that the Bank have a President and Chief Executive Officer with certain specified qualifications
and experience that we did not believe Mr. Grimes to possess. Mr. Grimes retains his position as a director of both the Holding Company and Coast Bank.

Under the terms of Mr. Grimes employment agreement, he is entitled to three years severance pay and a tax gross-up, or approximately $557,100. However, due to the current status of Coast Bank, any request for post-termination payments
require the approval of the FDIC. In an effort to obtain the necessary approvals, the Company has submitted to the FDIC a negotiated form of Separation Agreement (to be signed only upon receipt of such approvals) which, if approved, would revise the
Companys payment obligations under the employment agreement to provide for two staged payments. The first payment would be in an amount equal to one year of Mr. Grimes base salary of $185,000 and the second payment of $370,000 would
be made only upon a change of control. Because this decision rests solely with the FDIC, the Company cannot determine the likelihood of payment.

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

9.Change in Management, continued.Effective May 25, 2007, the Company and the Bank appointed Anne V. Lee as acting President and Chief Executive Officer of the Holding Company and Coast Bank.
Ms. Lee replaces former President and CEO, Brian F. Grimes. As acting President and CEO, Ms. Lee will continue to supervise the Banks efforts in resolving the issues regarding Affected Loans. She will be chief liaison with the FDIC
and OFR as the Bank continues to work with the regulators to address those matters identified in the C&D Order. In addition to these responsibilities, Ms. Lee will oversee overall Bank operations and expand the management team to support
these efforts.

10.Cease and Desist Order.On or about May 24, 2007 Coast Bank agreed to the entry of a Cease and Desist
order by the FDIC and OFR. The Bank is working diligently to achieve full compliance with the order as quickly as possible. The C&D Order is a formal action by the FDIC or OFR for the Bank to take corrective measures in a number of areas. The
C&D Order does not restrict Coast Bank from transacting banking business. The Bank continues to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits, and processing banking transactions. All
customer deposits remain fully insured to the highest limits set by the FDIC.

The issuance of the C&D Order followed an on-site Safety and Soundness
examination of Coast Bank conducted by the FDIC and OFR after the January 19,2007 announcement of certain issues affecting the Coast Bank residential construction-to-permanent loan portfolio. The C&D Order is based on the findings of this
examination as of January 29, 2007. Coast Bank has worked pro-actively with both the FDIC and OFR since the discovery of the issues regarding the residential construction loan program. As a result, a large number of the corrective actions
outlined in the C& D Order have already been addressed and have been resolved.

11.Deferred Tax Valuation Allowance.Based on the
current operating performance of the Company, we have recorded a full valuation allowance against our $20.9 million deferred tax asset. Due to the declining net interest margin and continuing high levels of noninterest expense that stem primarily
from credit failures in our residential construction lending program, we can no longer assert to the degree required under generally accepted accounting principles that we will be able to realize the future benefit of this asset.

The resulting provision for income taxes does not signify a current of future cash obligation of the Company, and does not impact our capital adequacy for regulatory
purposes.

12.Merger Agreement. On August 3, 2007, First Banks, Inc. (First Banks) and the Holding Company jointly
announced the signing of an Agreement and Plan of Merger (Merger Agreement) providing for First Banks to acquire the Holding Company and the Bank. Under the terms of the Merger Agreement, (i) a to be formed wholly-owned subsidiary
of First Bank (Newco) will be merged with and into the Holding Company (the Merger) in accordance with the provisions of the Florida Business Corporation Act and the separate corporate existence of Newco shall thereupon
cease, and (ii) the Holding Company shall be the successor or surviving corporation in the Merger. Simultaneously with the consummation of Merger, Coast Bank will be merged with and into First Bank (First Bank), a wholly owned
subsidiary of First Banks (the Bank Merger).

(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

12.Merger Agreement, continued. Under the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of the Holding Companys common stock (Coast Stock)
will be converted into and will represent the right to receive an amount equal to (a) $22,130,793.80 (Aggregate Merger Payment) divided by (b) the number of shares of Coast Stock outstanding on the Determination Date (as
defined in the Merger Agreement), or approximately $3.40 in cash, without interest thereon (the Per Share Merger Price).

The Merger Agreement
provides that the Aggregate Merger Payment and, correspondingly, the Per Share Merger Price, shall be reduced if, on the Determination Date (the date that it is determined that all conditions for closing have been satisfied) each of the following
conditions exist:



| |  |  | the Holding Companys allowance for loan losses plus its tangible equity is less than 75% of the Holding Companys non-performing loans and leases plus
other real estate owned (such difference is referred to herein as the Deficiency), and;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Deficiency is greater than $1 million.
| | - |  | ------------------------------------------

If each
of the above conditions exists on the Determination Date, then the Aggregate Merger Payment will be reduced to the nearest $500,000 increment, rounded upward or downward, to the full amount of the Deficiency and the Per Share Merger Price will be
reduced accordingly (this rounded amount being referred to as the Adjustment Amount). If the Deficiency exceeds $10 million, then both the Holding Company and First Banks will have the right to terminate the Merger Agreement. Based on
this formula and depending on the amount of the actual Deficiency existing on the Determination Date, the Per Share Merger Price could be reduced from the initially offered amount of $3.40 to as low as $1.86 prior to triggering such termination
rights. As of September 30, 2007, the Deficiency was approximately $1,286,000, which, based on an Adjustment Amount of $1,500,000, would result in a Per Share Merger Price of approximately $3.17.



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Companys independent registered public accounting firm, has made a limited review of the financial data as
of September 30, 2007, and for the three and nine-month periods ended September 30, 2007 and 2006 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Coast Financial Holdings, Inc.

Bradenton, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of Coast Financial Holdings, Inc. and subsidiary (the Company) as of
September 30, 2007, and the related condensed consolidated statements of operations, Changes in Stockholders Equity and Cash Flows for the three and nine-month periods ended September 30, 2007 and 2006. These interim financial
statements are the responsibility of the Companys management.

We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made
to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2006, and the related consolidated
statements of operations, changes in stockholders equity and cash flows for the year then ended (not presented herein); and in our report dated March 13, 2007, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has
been derived.



|                              
|------------------------------
|                              
|/s/ Hacker, Johnson & Smith PA
|HACKER, JOHNSON & SMITH PA    
|Tampa, Florida                
|October 31, 2007              



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Item 2. Managements Discussion and Analysis

of Financial Condition and Results of Operations

A Note About Forward Looking Statements

This Quarterly Report on Form 10-Q (including the exhibits hereto) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, such as statements relating to our financial condition, results of operations, plans, objectives, future performance or expectations, and business operations. These statements relate to expectations concerning matters that are not
historical fact. Accordingly, statements that are based on managements projections, estimates, assumptions, and judgments constitute forward-looking statements. These forward-looking statements are typically identified by words or phrases such
as believe, expect, anticipate, plan, estimate, approximately, intend, objective, goal, project, and other similar words and
expressions, or future or conditional verbs such as will, should, would, could, and may. These forward-looking statements are based largely on information currently available to our
management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and such statements involve inherent risks and uncertainties. Although we believe our expectations are based on
reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies, and other factors (many of which are outside our control) that could cause actual results
to differ materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our expectations will in fact occur or that our estimates or assumptions will be correct, and we caution investors and
all others not to place undue reliance on such forward-looking statements. Some factors include, but are not limited to those described or referenced under Item 1A. Risk Factors, in the Companys Form 10-K filed with the Securities
and Exchange Commission and the following:



| |  |  | general economic conditions, either nationally or in Florida, may be less favorable than expected, resulting in, among other things, a deterioration in credit
quality or a decreased demand for our services and products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the interest rate environment which could reduce our margins and increase defaults in our loan portfolio;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the adequacy of our credit risk management and the allowance for loan losses, Coast Banks asset quality, and our ability to collect on delinquent loans,
including the Affected Loans and all other residential construction loans;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the value of collateral securing loans that we have made, including the Affected Loans and all other residential construction loans;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the availability of and costs associated with sources of liquidity;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in real estate values generally, either in Florida or those markets within which we generate loans, which could adversely affect the demand for loans and
may adversely affect collateral held on outstanding loans;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

A Note About Forward Looking Statements, continued.



| |  |  | changes in accounting policies and practices, as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to operate our newly opened branches in a cost effective and profitable manner, to integrate our new branches into our existing operating platform, and
to successfully compete in the new market areas within which our new branches are located;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in political conditions or in the legislative or regulatory environment that adversely affects the businesses in which we are engaged, including the impact
of any changes in laws and regulations relating to banking, securities, taxes, and insurance (such as changes in regulatory fees and capital requirements);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes occurring in consumer spending, saving, and borrowing habits;
| | - |  | ---------------------------------------------------------------------



| |  |  | changes in trade, tax, monetary, or fiscal policies, including the interest rate policies of the Federal Reserve Board;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | money market and monetary fluctuations, and changes in inflation and in the securities markets;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in technology;
| | - |  | ----------------------



| |  |  | changes in the Companys organizational structure and in its compensation and benefit plans, including those necessitated by pressures in the labor market for
attracting and retaining qualified personnel;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully defend against claims asserted against us in various law suits arising out of, or related to, our residential construction lending
operations or any regulatory action taken against us, as well as any unanticipated litigation, regulatory, or other judicial proceedings;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully operate under the terms of the C&D Order issued by the FDIC and the OFR;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | our ability to consummate the Merger (described below under the caption The Merger Transactions), including the satisfaction of all closing conditions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully manage our non-performing loans and leases plus other real estate owned so that (a) the decrease in the Aggregate Merger Payment
and, correspondingly, the Per Share Merger Price, will be limited as much as possible under the terms of the Merger Agreement, and (b) the right to terminate as a result thereof will not be triggered;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

A Note About Forward Looking Statements, continued.



| |  |  | our ability to perform under the Loan Agreements (described below under the caption The Merger Transactions) with First Banks and its wholly-owned
subsidiary First Banks and, to the extent that the Merger is not consummated, our ability to identify and obtain commercially reasonable sources of funds for the Holding Company and liquidity for the Bank;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the success of the Company at managing the risks involved in the foregoing; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | other risks which may be described in our future filings with the SEC under the Securities Exchange Act of 1934.
| | - |  | ----------------------------------------------------------------------------------------------------------------

Many of these factors are beyond our control, and you should read carefully the factors described in Risk Factors in the Companys Form
10-K filed with the Securities and Exchange Commission for a description of some, but not all, risks, uncertainties and contingencies. All written or oral forward-looking statements that are made or attributable to us are expressly qualified in
their entirety by this cautionary notice. These forward-looking statements speak only as of the date on which such statement is made. We do not undertake any obligation to update or revise any of these forward-looking statements to reflect events or
circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.

General

The Holding Company is a bank holding company and its principal asset is its ownership of 100% of the outstanding common stock of Coast Bank, a Florida
state chartered commercial bank. Accordingly, the Holding Companys results of operations are primarily dependent on the results of operations of Coast Bank. Coast Bank offers a wide variety of community banking services to individuals and
corporate customers through its twenty branch banking offices located in Hillsborough, Manatee, Pinellas, and Pasco counties in Florida. For purposes of this Form 10-Q, the Holding Company and Coast Bank are referred to collectively as the
Company. At September 30, 2007, the Company had total consolidated assets of $664 million, net loans of $530 million, deposits of $632 million, and total stockholders equity of $22 million.

The Merger Transactions

Merger
Agreement. On August 3, 2007, the Holding Company, Coast Bank, and First Banks, Inc., a Missouri corporation (First Banks), entered into an Agreement and plan of Merger (the Merger Agreement) pursuant to which
(i) a to be formed wholly-owned subsidiary of First Banks (Newco) will be merged with and into the Company (the Merger) and the separate corporate existence of Newco shall thereupon cease, and (ii) the Company shall
be the successor or surviving corporation in the Merger. Simultaneously with the consummation of Merger, Coast Bank will be merged with and into First Bank (First Bank), a wholly owned subsidiary of First Banks (the Bank
Merger).



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Merger
Agreement, continued. Under the terms of the Merger Agreement, at the effective time of the Merger (Effective Time), each outstanding share of the Holding Companys common stock (Coast Stock) will be converted
into and will represent the right to receive an amount equal to (a) $22,130,793.80 (Aggregate Merger Payment) divided by (b) the number of shares of Coast Stock outstanding on the Determination Date (as defined in the Merger
Agreement), or approximately $3.40 in cash, without interest thereon (the Per Share Merger Price).

Aggregate Merger Payment
and, correspondingly, the Per Share Merger Price, shall be reduced if, on the Determination Date (the date that it is determined that all conditions for closing have been satisfied) each of the following conditions exist:



| |  |  | the Companys allowance for loan and lease losses plus its tangible equity is less than 75% of the Companys non-performing loans and leases
plus other real estate owned (such difference is referred to herein as the Deficiency), and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Deficiency is greater than $1 million.
| | - |  | ------------------------------------------

If each of the above conditions exits on the Determination Date, then the Aggregate Merger Payment will be reduced to the nearest $500,000 increment, upward or downward, to the full amount of the Deficiency and the Per Share Merger Price
will be reduced accordingly (this rounded amount being referred to as the Adjustment Amount). If the Deficiency exceeds $10 million, then both the Holding Company and First Banks will have the right to terminate the Merger Agreement.
Based on this formula and depending on the amount of the actual Deficiency existing on the Determination Date, the Per Share Merger Price could be reduced from the initially offered amount of $3.40 to as low as $1.86 prior to triggering such
termination rights.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Merger
Agreement, continued. Set forth below is a chart, which provides the calculation of the Deficiency as if the Determination Date for determining the Adjustment Amount was on September 30, 2007, June 30, 2007, and
December 31, 2006 ($ in thousands).



|                                                                                                                                     |  |                   |        |   |              |   |        |                  |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | - | ------------ | - | ------ | ---------------- |  | - | ------- | -
|                                                                                                                                     |  | September 30,2007 |        |   | June 30,2007 |   |        | December 31,2006 | 
|                                                                                                                                     |  | (Unaudited)       |        |   | (Unaudited)  |   |        |                  | 
|Allowance for loan and lease losses                                                                                                  |  | $                 | 34,798 |   |              | $ | 26,666 |                  |  | $ | 25,710  |  
|Tangible equity                                                                                                                      |  |                   | 22,251 |   |              |   | 36,056 |                  |  |   | 57,176  |  
|                                                                                                                                     |  |                   |        |   |              |   |        |                  |  |   |         |  
|Total ALLL and tangible equity                                                                                                       |  | $                 | 57,049 |   |              | $ | 62,722 |                  |  | $ | 82,886  |  
|                                                                                                                                     |  |                   |       
|Non-performing loans and leases                                                                                                      |  | $                 | 76,018 |   |              | $ | 63,671 |                  |  | $ | 6,043   |  
|Other real estate owned                                                                                                              |  |                   | 1,762  |   |              |   | 1,159  |                  |  |   | 167     |  
|                                                                                                                                     |  |                   |        |   |              |   |        |                  |  |   |         |  
|Total non-performing loans and leases and OREO                                                                                       |  | $                 | 77,780 |   |              | $ | 64,830 |                  |  | $ | 6,210   |  
|                                                                                                                                     |  |                   |       
|Allowance for loan and lease losses plus tangible equity as a percent of non-performing loans and leases and other real estate
owned |  |                   | 73.35  | % |              |   | 96.75  | %                |  |   | 1334.72 | %
|                                                                                                                                     |  |                   |       
|ALLL and tangible equity                                                                                                             |  | $                 | 57,049 |   |              | $ | 62,722 |                  |  | $ | 82,886  |  
|less: 75% of non-performing loans and leases and OREO                                                                                |  |                   | 58,335 |   |              |   | 48,623 |                  |  |   | 4,658   |  
|                                                                                                                                     |  |                   |        |   |              |   |        |                  |  |   |         |  
|Surplus / (Deficiency)                                                                                                               |  | $                 | (1,286 | ) |              | $ | 14,099 |                  |  | $ | 78,228  |  
|                                                                                                                                     |  |                   |        |   |              |   |        |                  |  |   |         |  

For illustration purposes only, set forth is the calculation of the Adjustment Amount and the
resulting Per Share Merger Price based on various Deficiency levels.



|           |            |     |                              |   |                   |  |   |                  |   |                 |   |               |  |   |     
|---------- | ---------- | --- | ---------------------------- | - | ----------------- |  | - | ---------------- | - | --------------- | - | ------------- |  | - | ----
|           |            |     | Aggregate Cash Consideration
|Deficiency |            |     | Before Adjustment            |   | Adjustment Amount |  |   | After Adjustment |   | $ Per Share (1)
|           |            |     |                             
|$          |           |     |                              | $ | 22,130,793.80     |  | $ |                 |   |                 | $ | 22,130,793.80 |  | $ | 3.40
|           | 1,000,000  |     |                              |   | 22,130,793.80     |  |   |                 |   |                 |   | 22,130,793.80 |  |   | 3.40
|           | 1,000,001  |     |                              |   | 22,130,793.80     |  |   | (1,000,001.00    | ) |                 |   | 21,130,792.80 |  |   | 3.25
|           | 2,500,000  |     |                              |   | 22,130,793.80     |  |   | (2,500,000.00    | ) |                 |   | 19,630,793.80 |  |   | 3.02
|           | 5,000,000  |     |                              |   | 22,130,793.80     |  |   | (5,000,000.00    | ) |                 |   | 17,130,793.80 |  |   | 2.63
|           | 7,500,000  |     |                              |   | 22,130,793.80     |  |   | (7,500,000.00    | ) |                 |   | 14,630,793.80 |  |   | 2.25
|           | 10,000,000 |     |                              |   | 22,130,793.80     |  |   | (10,000,000.00   | ) |                 |   | 12,130,793.80 |  |   | 1.86
|           | 12,500,000 | (2) |                              |   | 22,130,793.80     |  |   | (12,500,000.00   | ) |                 |   | 9,630,793.80  |  |   | 1.48

---

|(1) | Based on outstanding Common Shares of 6,509,057.
|--- | ------------------------------------------------

|(2) | A Deficiency exceeding $10,000,000 provides both of the parties a right to terminate the Merger Agreement.
|--- | ----------------------------------------------------------------------------------------------------------

The preceding is only an illustration of how the Adjustment Amount and the corresponding Per Share Merger Price is impacted by the existence of
differing levels of an existing Deficiency. It is not necessarily indicative of the results of operations of Coast Financial now or in future periods or of any level of any future Deficiency.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Merger Transactions, continued.

Merger
Agreement, continued.As of September 30, 2007, the Deficiency was approximately $1,286,000, which, based on an Adjustment Amount of $1,500,000, would have resulted in a Per Share Merger Price of approximately $3.17. In view of our
current and anticipated performance, it is likely that the Deficiency will continue to increase in size and Per Share Merger Price will be further reduced. There can be no assurance that the Deficiency will not increase substantially prior to the
Determination Date (the date the final Per Share Merger Price will be determined).

In addition to our trend of increasing delinquencies in
our residential construction portfolio, we have one large lending relationship that is currently delinquent, and if it deteriorates further, could have a significant impact on our level of non-performing loans and, consequently, on the resulting Per
Share Merger Price. This relationship consists of five loans secured by residential and commercial properties, with total outstanding balances of $9.5 million at September 30, 2007. If these loans should become 90 days delinquent, they will be
considered non-performing loans. Accordingly, if payment is not received prior to the dates set forth below, these loans would become 90 days delinquent as follows: (a) on November 15, 2007, a loan totaling $1.9 million may become 90 days
delinquent, (b) on November 24, 2007, a loan totaling $3.7 million may become 90 days delinquent, and (c) on December 30, 2007, the remaining three loans totaling $3.9 million may become 90 days delinquent. Management is
currently working with this borrower and has not determined these loans to be impaired.

The Board of Directors of the Holding Company, upon
the recommendation of a special committee of independent directors, has determined that the Merger Agreement and the Merger are fair to, and in the best interests of the Company and its stockholders, and, in accordance with that determination, the
Board of Directors approved the Merger Agreement and the transactions contemplated thereby, and resolved to recommend adoption of the Merger Agreement by the Holding Companys stockholders.

The Company has commenced the solicitation of the necessary stockholder approvals of the Merger Agreement to be voted upon at a special meeting to be held
November 26, 2007, unless properly postponed or adjourned to a later time. If approved, the Merger is expected to close in the fourth quarter of 2007.

Consummation of the Merger is subject to a number of conditions, including among others, the following: (i) approval of the Merger Agreement by the Companys stockholders, (ii) receipt of all required
governmental and regulatory approvals of the Merger and the Bank Merger, (iii) there shall not have been certain additional adverse regulatory actions taken by banking regulators or other governmental agencies against the Company or Coast Bank,
(iv) there shall not have been certain additional adverse legal proceedings commenced against the Company or Coast Bank, (v) the Company shall have satisfied certain financial requirements relating to the level of its adversely classified
credits, and minimum levels of total assets, and (vi) the satisfaction of certain other customary closing conditions.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Merger
Agreement, continued.The Merger Agreement contains customary representations, warranties and covenants made by the Company, including, among other things, covenants (i) to conduct its business in the ordinary course consistent with
past practice during the interim period between the execution of the Merger Agreement and consummation of the Merger and (ii) not to engage in certain kinds of transactions during such period. The Merger Agreement also contains certain
termination rights for both the Holding Company and First Banks. The parties have the right to terminate the Merger Agreement if, among other things, the amount of the Deficiency exceeds $10 million.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of
the Merger Agreement which is filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the Commission on August 6, 2007 and which Merger Agreement is incorporated herein by reference.

Concurrently with the execution of the Merger Agreement, the Holding Company and First Banks entered into a Stock Option Agreement (the Stock Option
Agreement) pursuant to which the Holding Company has granted First Banks an option (Stock Option) to purchase up to 1,295,303 shares of Coast Stock (representing approximately 19.9% of the currently outstanding shares of Coast
Stock without giving effect to the exercise of all the currently existing outstanding options to purchase Coast Stock) at a price, subject to certain customary anti-dilution rights and adjustments, equal to the Per Share Merger Price (as adjusted in
accordance with the above, except that such adjustment will determined as of the date of an Exercise Event (defined below)). The Stock Option was granted by the Holding Company as an inducement and condition to First Banks willingness to enter
into the Merger Agreement.

The Stock Option is exercisable, in whole or in part, only upon the occurrence of both a Triggering
Event (as defined in the Stock Option Agreement) and an Exercise Event (as defined in the Stock Option Agreement) prior to termination of the Stock Option.

The Stock Option Agreement will expire upon the earlier of any of the following: (i) the Effective Time of the Merger, or (ii) termination of
the Merger Agreement prior to the occurrence of a Triggering Event, or (iii) termination of the Merger Agreement due to the breach of, or a default under, the Merger Agreement by First Banks or its affiliates or the failure of First Banks or
its affiliates to satisfy a condition to closing of the Merger Agreement, or (iv) termination of the Merger Agreement occurring after the occurrence of a Triggering Event if no Exercise Event has occurred within six months of the occurrence of
the Triggering Event.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Merger
Agreement, continued.A Triggering Event, the occurrence of which serves as a condition precedent to the exercise of the Stock Option, occurs if: (i) any offer or proposal is made to the Company or Coast Bank by any person other than
First Banks or an affiliate of First Banks, without having received First Banks prior written consent, to enter into any transaction or series of transactions that would constitute an Acquisition Proposal (as defined in the Stock Option
Agreement); (ii) any acquisition is made by any person (excluding officers and directors of the Company or its subsidiaries) other than First Banks, any affiliate of First Banks, or any Company subsidiary acting in a fiduciary capacity, of
beneficial ownership or the right to acquire beneficial ownership of 25% or more of the outstanding shares of Coast Stock; (iii) any recommendation is made by the Board of Directors of the Holding Company that the Holding Companys
stockholders approve or accept any Acquisition Proposal other than as contemplated by the Merger Agreement, or any withdrawal is made by the Board of Directors of the Holding Company of its recommendation or any failure to recommend that the
stockholders of the Holding Company approve the Merger Agreement and the Merger; or (iv) a filing of any application or notice is made with the Federal Deposit Insurance Corporation or other federal or state bank regulatory authority by any
person other than First Banks or an affiliate of First Banks, other than in connection with a transaction to which First Banks has given its prior written consent, which application or notice has been accepted for processing, for approval to engage
in an Acquisition Proposal.

An Acquisition Proposal includes any proposal or offer relating to any transaction or series of
related transactions (other than the Merger) involving any (A) acquisition or purchase from the Company by any person or group of more than a 25% interest in the total outstanding voting securities of the Company or any subsidiary, or
(B) exchange or tender offer involving the Company which, if consummated, would result in any person beneficially owning 25% or more of any class of outstanding voting securities of the Company, or (C) merger, consolidation, business
combination or similar transaction involving the Company, or (D) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more
than 25% of the business or assets of the Company, or (E) any dissolution or liquidation of the Company, or (F) any other transaction similar to the foregoing.

Notwithstanding the occurrence of a Triggering Event, the Stock Option will become exercisable thereafter only if an Exercise Event has occurred prior to the termination of the Stock Option. An Exercise Event
generally includes an acquisition by a third party of 50% or more of the outstanding Coast Stock or the consummation of an Acquisition Proposal, except that the percentage referred to above shall be 50%.

As more fully set forth in the Stock Option Agreement, First Banks has the right under specified circumstances to require the Holding Company to
repurchase the Stock Option or such Coast Stock. In addition, the Stock Option Agreement provides the holders of the Stock Option with certain rights to require the Holding Company to register the Coast Stock acquired by or issuable upon the
exercise of the Stock Option under the Securities Act of 1933, as amended.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Merger
Agreement, continued.The foregoing is a summary description of the Stock Option Agreement and does not purport to be complete and is qualified in its entirety by reference to the complete text of the Stock Option Agreement which is filed as
Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on August 6, 2007, which Stock Option Agreement is incorporated herein by reference.

Loan Transactions.As a condition to, and as an inducement to, entering into the Merger Agreement, First Banks and First Bank provided loan commitments to the Holding Company and Coast Bank,
respectively, to provide the funds necessary for the Holding Company to continue operations and consummate the transactions contemplated by the Merger Agreement and to make available to Coast Bank an additional source of liquidity. The Merger
Agreement provides that the parties have the right to terminate the Merger Agreement if, among other things, definitive agreements for the Lines of Credit were not executed within ten business days after execution of the Merger Agreement. On
August 17, 2007, the Holding Company and Coast Bank entered into lending arrangements with First Banks and First Bank pursuant to which a $1 million revolving line of credit was provided to Coast Bank and a revolving credit facility of up to
$75 million was furnished to Coast Bank, respectively (collectively, the Loan Agreements).

Coast Financial Line of
Credit.In connection with these lending arrangements, the Holding Company entered into a revolving credit note with First Banks pursuant to which First Banks has agreed to provide us with a $1 million line of credit (the Company
Note). All amounts advanced under the Company Note bear interest at an annual rate equal to the LIBOR rate plus 2.5% and such interest is payable monthly in arrears. The Company Note matures on the earlier of February 27, 2008 or the
occurrence of an event of default (as defined in the Company Note). Among other things, an event of default shall be deemed to have occurred if (a) we should merge, consolidate or transfer a substantial portion of its properties or assets other
than pursuant to the Merger Agreement, (b) we or Coast Bank should be in default under the Merger Agreement, or (c) the merger should not be consummated (collectively the Merger Events).

The Company Note is secured by a stock pledge agreement pursuant to which all of the outstanding capital stock of Coast Bank is pledged to First Banks as
collateral for our obligations under the Company Note. In the event that Coast Financial should default on its obligations under the Company Note, then First Banks may, at its option:



| |  |  | declare the principal of and interest on any or all of the liabilities due under the Company Note to be immediately due and payable,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | exercise all voting rights with respect to the Coast Bank stock pledged as collateral under the Company Note;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | appropriate and apply toward the payment and discharge of any of liabilities due under the Company Note, any moneys on deposit or otherwise held by First Banks for
the account of, to the credit of or belonging to the Holding Company;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Loan
Transactions, continued.



| |  |  | sell or cause to be sold any of Coast Bank stock pledged as collateral;
| | - |  | -----------------------------------------------------------------------



| |  |  | have transferred to or registered in the name of First Banks, or its nominee or nominees, any Coast Bank stock pledged as collateral and thereafter to exercise all
rights with respect thereto as the absolute owner thereof, without notice or liability to the Holding Company, except to account for money or property actually received by First Banks; provided, however, that First Banks may treat all cash proceeds
as additional collateral and such proceeds need not be applied to the reduction of the liabilities due under the Company Note unless First Banks so elects;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the name of either First Banks or the Holding Company, demand, sue for, collect and receive money, securities or other property which may at any time be payable
or receivable on account of or in exchange for any of the collateral, or make any compromise or settlement that First Banks considers desirable with respect thereto or renew or extend the time of payment or otherwise modify the terms of any
obligation included in the collateral; provided, however, that it is expressly agreed that First Banks shall not be obligated to take any step to preserve rights against prior parties on any of the collateral, and that reasonable care of the
collateral shall not include the taking of any such step;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | exercise any or all of the rights and remedies of a secured party under the Uniform Commercial Code of the State of Missouri or other applicable law.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

The proceeds of any sale, or sales, of the collateral, including the Coast Bank stock, shall be applied in the following
order: (1) to expenses, including attorneys fees and expenses actually incurred, arising from the enforcement of any of the provisions hereof, or of the liabilities due under the Company Note or of any actual or attempted sale;
(2) to the payment or the reduction of any of the liabilities due under the Company Note of the Holding Company to First Banks with the right of First Banks to distribute or allocate such proceeds in such order and manner as First Banks shall
elect; and (3) to the payment of any surplus remaining after payment of the amounts mentioned, to the Holding Company or to whomsoever may be lawfully entitled thereto. If any deficiency arises upon any such sale or sales the Holding Company
has agreed to pay the amount of such deficiency promptly upon demand with interest.

Accordingly, if an event of default occurs, First Banks
may sell the Coast Bank stock that it holds as collateral to pay the principal and interest due on the Company Note and to pay the fees and expenses incurred in connection therewith (the Debt Obligations). In such an event, the Holding
Company and, ultimately, its shareholders will retain value in their ownership of the Coast Bank stock only if such sale of the Coast Bank stock yields proceeds in excess of the Debt Obligations. As of the date of this Form 10-Q, approximately
$501,000 has been advanced to us under the Company Note.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

The Merger Transactions, continued.

Loan
Transactions, continued.

Coast Bank Line of Credit. Concurrently with the execution of the documents providing for
the Holding Company line of credit with First Banks, Coast Bank entered into a revolving credit note with First Bank pursuant to which the Coast Bank was provided with a line of credit of up to $75 million (the Coast Bank Note). The
amount that may be advanced to Coast Bank under the Coast Bank Note may not exceed the lesser of $75 million or the then-current borrowing base (which amount is based on a percentage of the principal balances of the Pledged Loans (defined below)
furnished by Coast Bank as collateral for the Coast Bank Note under the terms of a collateral pledge agreement, which Pledged Loans are weighted for borrowing base purposes according to certain characteristics identified in the Coast Bank Note). As
of the date of this Form 10-Q, the amount of credit available to Coast Bank under the Coast Bank Note is estimated to be approximately $53.3 million, none of which has been advance to Coast Bank. All amounts advanced to Coast Bank under the Coast
Bank Note bear interest at an annual rate equal to the LIBOR plus 2.25% and such interest is payable monthly in arrears. The Coast Bank Note matures on the earlier of February 27, 2008 or the occurrence of an event of default (as defined in the
Coast Bank Note). An event of default includes, among other things, the Merger Events. The Coast Bank Note is secured by a collateral pledge agreement pursuant to which Coast Bank has granted to First Bank a first priority security interest in a
loan portfolio held by Coast Bank (the Pledged Loans). This security interest encumbers, among other things:



| |  |  | the promissory notes payable to the order of Coast Bank with respect to such Pledged Loans (the Pledged Notes);
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | all security deeds, mortgages and/or deeds of trust in favor of Coast Bank which secure the payment of any or all of the Pledged Notes (a Pledged
Mortgage);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all security interests, mortgages and/or other liens on personal or real property securing any of the Pledged Notes and/or any of the Pledged Mortgages;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all supporting obligations for any of the Pledged Notes and/or any of the Pledged Mortgages; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | all cash and non-cash proceeds of any of the foregoing.
| | - |  | -------------------------------------------------------

The foregoing summaries of the Company Note, the stock pledge agreement, the Coast Bank Note, and the collateral pledge agreement do not purport to be complete and are qualified in their entirety by reference to the
complete text of the Company Note, the stock pledge agreement, the Coast Bank Note, and the collateral pledge agreement, copies of which are filed as Exhibits 10.14, 10.15, 10.16, and 10.17, respectively, to our Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 22, 2007.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Trends and Developments Impacting Our Recent Results

Certain trends and developments during the past nine months have occurred that are important to understanding our recent results and that are potentially significant in accessing future performance.

Cease and Desist Order. On or about May 24, 2007, Coast Bank agreed to the entry of a Cease and Desist Order by the FDIC
and the OFR. Coast Bank is working diligently to achieve full compliance with the order as quickly as possible. The C&D Order is a formal action by the FDIC or OFR for Coast Bank to take corrective measures in a number of areas. The C&D
Order does not restrict Coast Bank from transacting banking business. Coast Bank continues to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits, and processing banking transactions. All
customer deposits remain fully insured to the highest limits set by the FDIC.

The
issuance of the C&D Order followed an on-site Safety and Soundness examination of Coast Bank conducted by the FDIC and OFR after the January 19, 2007 announcement of certain issues affecting the Coast Bank residential
construction-to-permanent loan portfolio. The C&D Order is based on the findings of this examination as of January 29, 2007. Coast Bank has worked pro-actively with both the FDIC and OFR since the discovery of the issues regarding the
residential construction loan program.

The Company has complied with the requirements set forth in the C&D Order, which are required to
be satisfied as of the date of this Quarterly Report on Form 10-Q. Among other requirements, the C&D Order specifically directed Coast Bank to retain experienced management, including a new CEO and Senior Lender, with certain qualifications by
July 23, 2007. Due to the pending Merger, Coast Bank has requested and received an extension on this requirement. In the interim it is expected that Anne Lee will continue as the acting President and CEO of the Company and Coast Bank.

Change in Management.Effective May 25, 2007, the Holding Company and the Bank terminated Brian F. Grimes from his
position as President and Chief Executive Officer of each because, among other things, provisions in the C&D Order required that the Bank have a President and Chief Executive Officer with certain specified qualifications and experience that we
did not believe Mr. Grimes to possess. Mr. Grimes retains his position as a director of both the Holding Company and Coast Bank. Under the terms of Mr. Grimes employment agreement, he is entitled to three years severance pay and a tax
gross-up, or approximately $557,100. However, due to the current status of Coast Bank, any request for post-termination payments require the approval of the FDIC. In an effort to obtain the necessary approvals, the Company has submitted to the FDIC
a negotiated form of Separation Agreement (to be signed only upon receipt of such approvals) which, if approved, would revise the Companys payment obligations under the employment agreement to provide for two staged payments. The first payment
would be in an amount equal to one year of Mr. Grimes base salary of $185,000 and the second payment of $370,000 would be made only upon a change of control. Because this decision rests solely with the FDIC, the Company cannot determine
the likelihood of payment.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Trends and Developments Impacting Our Recent Results, continued.

Impact of loan impairment. We posted a provision to Coast Banks allowance for loan losses of $21.0 million in the fourth quarter of 2006, primarily based on our analysis of the residential
construction loan portfolio, including the Affected Loans, as well as the impact that the current local residential real estate market conditions may have on the willingness of our Borrowers to comply with their obligations. For each loan where the
Borrower defaults on their loan agreement, Coast Bank intends to pursue any or all remedies available, pursuant to the loan documents and applicable federal and state laws, including foreclosure and pursuit of deficiencies.

Of that provision, $14 million was specifically attributed to the Affected Loans. This provision was based on an analysis of that group of loans, which
included an estimate of the current value of those properties under construction, the anticipated costs of completion for those properties, the available construction funds remaining to be disbursed on those loans, an estimated range of default for
the Borrowers based on their credit worthiness and construction completion progress, and the associated holding and sale costs of the properties that the Borrowers may default on.

In addition, we analyzed our residential construction portfolio by contemplating additional concentrations of loans for investment purposes, builder
concentrations, product characteristics, local economic conditions, residential real estate market conditions, and credit worthiness of our Borrowers. As of December 31, 2006 we identified $87 million of outstanding balances on performing
residential construction loans where the financing by borrowers was primarily for investment purposes. Due to their product characteristics and the current real estate market conditions, an additional provision of $7 million was made to the
allowance for loan losses in the fourth quarter of 2006. As of September 30, 2007, the outstanding balance of these residential construction loans was $48.1 million, of which $17.9 million are currently non-performing. This nonperformance is
primarily a result of local real estate market conditions hampering the ability of these borrowers to liquidate their investments. Of these 55 non-performing loans, unfunded commitments total $2.3 million. In addition, approximately $52.3 million
have completed construction and modified to permanent financing, of which $7.2 million are currently non-performing.

Although we believe we
use the best information available to make determinations with respect to the allowance for credit losses and that our current allowance for loan losses is adequate for such purposes; future adjustments may be necessary if the assumptions used in
making our initial determinations prove to be incorrect. In determining the appropriate allowance for the Affected Loans, we evaluated each loan on the basis of the status and progress of construction, the amounts needed to complete construction,
the draws available, the deficiencies, if any, and the current performance of the Borrowers under each loan. We then estimated a potential default rate based on construction completion and borrower credit worthiness. If these estimates and the
underlying analyses are not correct, then future adjustments may be necessary for these purposes as well.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Trends and Developments Impacting Our Recent Results, continued.

Impact of loan impairment, continued. This impairment in our residential construction portfolio will continue to have an impact on our profitability in the foreseeable future. In addition to the loan
loss provision, certain expenses related to this impairment will be recorded as incurred. These expenses include legal fees, consulting, public relations and other professional services, salaries and benefits related to the administration and
workout of these loans, and other expenses. For the three and nine-month periods ended September 30, 2007 we have expensed approximately $921,000 and $2.4 million of these related expenses. Because the Company is still evaluating the extent to
which any workouts may be required and have not completed the full investigation of certain other aspects relating to the Affected Loans, the Company continues to be unable to provide any reasonable estimate of the final amount of these
out-of-pocket expenditures. However, we do anticipate that they will be substantial.

Other Non-CCI Related Loans Matters. The
Company has recently provided notice to certain of our borrowers of the cessation of building activities on their homes by a local builder. Approximately 22 loans are impacted, of which 10 related to homes for which a certificate of occupancy has
been issued and 12 of which are under construction, although these homes are substantially complete. With respect to the 10 homes for which a certificate of occupancy has been issued, the total principal amount outstanding is approximately $3.8
million, the total outstanding liens on these properties are approximately $133,000, and the aggregate amount available in the related LIP accounts is approximately $29,000. With respect to the 12 homes for which a certificate of occupancy has not
yet been issued, the total principal amount outstanding is approximately $4.4 million, the total outstanding liens on these properties are approximately $313,000, and the aggregate amount available in the related LIP accounts is approximately
$46,000. The loans to this local builder were a part of the provisions taken for loans with characteristics similar to the Affected Loans. We will work with our borrowers to attempt to resolve these issues in a cost effective manner.

Other Noninterest Expense Items.The Company also has incurred significant professional fees and expenses during the past nine months in
connection with (a) the workout of the Affected Loans and loans with similar characteristics, including expenses related to the negotiation of the workouts and, in certain circumstances, the prosecution of foreclosure actions,
(b) defending legal actions brought against the Holding Company and Coast Bank which relate to, are the result of, or based on the facts surrounding the impairment to our residential construction loan portfolio that we experienced in the first
quarter of 2007 (Loan Impairment), including the Affected Loans and other loans with similar characteristics, which legal actions are identified in greater detail in Part II, Section 1 of this Form 10-Q, (c) the investigation
undertaken by the Special Committee of the Board of Directors charged with reviewing the facts and circumstances underlying the Loan Impairment, including the Affected Loans and other loans with similar characteristics, (d) regulatory
compliance matters relating to the Loan Impairment, including those related to the C&D Order and the corrective actions required thereby, and (e) our evaluation of the strategic alternatives available to the Company and its stockholders,
including the process of soliciting, reviewing, evaluating and considering such alternatives, which expenses included those associated with due diligence reviews and the negotiation of potential transaction.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Trends and Developments Impacting Our Recent Results, continued.

Other Noninterest Expense Items, continued.These expenses have come in the form of legal expenses, financial advisory fees, and other professional fees. These fees have been approximately $1.1 million
and $2.7 million for the three and nine months ended September 30, 2007, of which the legal expenses accounted for approximately $816,000 and $2.1 million, respectively, of such fees.

Other Adverse Developments Relating To Coast Banks Financial Condition.Since the discovery of and the taking of the loan loss
provision following our analysis of the residential construction loan portfolio, including the Affected Loans and other related construction-to-permanent loans with similar characteristics, the on-site Safety and Soundness examination conducted in
January 2007, and the subsequent issuance of the C&D Order, the Bank has experienced the following adverse consequences as a result thereof:



| |  |  | FDIC Premium Increase  Due to Coast Banks rating being lowered and the capital category moving to under capitalized; the FDIC
assessment calculation changed in April 2007 from 28 bps to 43bps. This has substantially increased the amount that the Bank must pay to insure its deposits.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Change in Capital Category  At September 30, 2007, Coast Banks capital category changed from under capitalized at the end
of April 2007,to significantly under capitalized, with a Total Risk Based Capital of 5.56%, a Tier I Risk Based Capital of 4.25%, and a Leverage Ratio of 3.22%. This was due primarily to our provision for loan losses and our high
operating expenses. A notification was submitted to the banking regulators to inform them of the change in capital category.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FHLB  Change in Terms  On June 28, 2007 the FHLB sent a letter to Coast Bank informing it of a change in terms in the provisions in
the FHLB Credit Availability Letter to Coast Bank, dated November 21, 2005. This change states that all future credit applications will be reviewed on a case-by-case basis as provided in the Advances and Security Agreement between Coast Bank
and the FHLB.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FNMAChange in Terms  In July 2007, Coast Bank was notified that upon renewal of its Master Agreement with FNMA, that as of August 1,
2007, FNMA would not honor Coast Banks Alt A variance until Coast Banks capital position returns to a status of well capitalized. Additionally, due to our pending merger with First Banks, FNMA is not renewing our master
agreement, which ends October 31, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This Managements Discussion and Analysis of Financial Condition and
Results of Operations discuss on a consolidated basis the operating results and financial condition of the Company for the three and nine -month periods ended September 30, 2007 and 2006. The discussion and analysis set forth below is intended
to assist you in understanding the financial condition and results of our operations. You should read this discussion together with your review of our condensed consolidated financial statements and the related notes contained herein.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006

Results of Operations

General. For the three months ended September 30, 2007, the
Company reported a net loss of approximately $14.2 million, or basic and diluted losses per share of $2.18 compared to a net loss of approximately $1.5 million, or basic and diluted losses per share of $0.22 for the three months ended
September 30, 2006. The increase in net loss was attributable primarily to an increase in the provision for loan losses in addition to a decrease in net interest income. The decrease in our net interest income was primarily related to the
increase in non-performing loans, as well as an increase in deposit costs. The increase in loan loss provision was primarily due to the continued depression of residential real estate values in the local markets where we have loans, either in
construction or with permanent financing, where the financing by borrowers was primarily for investment purposes.

Net Interest
Income. Net interest income decreased to $1.7 million during the three months ended September 30, 2007, from $4.3 million for the same period in 2006. This decrease was due primarily to an increase in non-performing loans and an
increase in average interest-bearing liabilities to $641 million during the three months ended September 30, 2007, compared to $544 million for the three months ended September 30, 2006. This was partially offset by an increase in average
interest-earning assets to $683 million during the three months ended September 30, 2007, compared to $604 million during the same period in 2006, although our non-performing loans increased to $76 million at September 30, 2007. Interest
on loans for the three months ended September 30, 2007 was $8.6 million, compared to $9.4 million for the three months ended September 30, 2006.

The decrease in interest on loans was primarily due to a reduction in average yield on loans of 5.96% during the three months ended September 30, 2007 compared to 7.35% for the three months ended
September 30, 2006. This reduction was primarily attributable to the $76 million of non-performing loans at September 30, 2007 compared to $814,000 at September 30, 2006.

Interest on securities for the three months ended September 30, 2007 was $972,000, compared to $1.0 million for the same period in 2006. The decrease
in interest income on securities was primarily due to an decrease in the average balance of securities to $76.1 million during the three months ended September 30, 2007, from $86 million for the three months ended September 30, 2006,
offset by an increase in average yield on securities to 5.06% for the three months ended September 30, 2007, compared to 4.66% for the three months ended September 30, 2006.

Interest expense on interest-bearing liabilities increased to $8.3 million during the three months ended September 30, 2007, compared to $6.2 million
during the three months ended September 30, 2006. The increase was primarily due to an increase in the average balance of interest bearing liabilities to $632 million during the three months ended September 30, 2007 from $519 million
during the same period in 2006, in addition to a 0.59% increase in rate for the three months ended September 30, 2007 compared to the three months ended June 30, 2006.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006, Continued

Net Interest Income, continued. The increase in rate was primarily driven by an increase in deposit offering rates necessary to supplement
our funding needs. Included in our interest bearing liabilities for the three months ended September 30, 2007, were average balances of $12 million in brokered deposits with an average rate of 5.50%, as well as average balances of $77 million
in time deposits that have been generated outside of our primary market area through an online trading network, with an average rate of 5.59%. For the three months ended September 30, 2006, Coast Bank did not have any brokered deposits, and
held average balances of $3.4 million in time deposits generated outside of our primary market area through an online trading network, with an average rate of 3.66%.

Provision for Loan Losses. The provision for loan losses was $9.5 million for the three months ended September 30, 2007 compared to $275,000 for the three months ended September 30, 2006. A
significant portion of the increased provision for loan losses was the continued depression of residential real estate values in the local markets where we have loans, either in construction or with permanent financing, where the financing by
borrowers was primarily for investment purposes. Of this provision, $3.6 million was specifically allocated to the Affected Loans. The remaining provision was related to residential construction loans that had similarities in product, primarily
related to the investment purpose of the financing by borrowers. At September 30, 2007, the Company had outstanding balances of approximately $103.6 million of residential construction loans, including $55.5 million of outstanding balances with
respect to the Affected Loans, where the construction was for investment purposes. Additionally, the Bank has approximately $60.9 million of completed residences with permanent financing, where the initial financing by borrowers was primarily for
investment purposes. These loans are predominantly construction loans that have completed and modified to permanent financing. Of this combined $164.5 million in outstanding balance, approximately $70.2 million is in the Cape Coral, Florida market,
which has seen a comparatively steep decline in recent market values. None of the Affected Loans are in this market. Another $52.0 million of this combined $164.5 million are in the North Port, Florida market, including $40.3 million of outstanding
balances with respect to the Affected Loans.

At September 30, 2007 and 2006, we had total net portfolio loans of approximately $530
million and $531 million respectively. The allowance for loan losses was $34.8 million and $3.7 million at September 30, 2007 and 2006, respectively, representing 6.18% and 0.69% of total net loans at the end of each period.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006, Continued

Noninterest Income.Noninterest income decreased to $447,000 for the three months ended September 30, 2007 compared to $561,000
for the three months ended September 30, 2006. The decrease was primarily due to the decrease in gains recognized on the sale of loans held for sale. During the three months period ending September 30, 2007, we sold $10.8 million in loans
for a gain of $293,000 compared to sales of $21.2 million during the three months period ending September 30, 2006 for a gain of $426,000.

Noninterest Expenses.Noninterest expense decreased to $6.8 million for the three months ended September 30, 2007 compared to $6.9 million for the three months ended September 30, 2006. Decreases in
noninterest expense for the three months ended September 30, 2007 compared to the same period in 2006 were primarily attributable to a decrease of $1.1 million in employee compensation and benefits, a decrease of $363,000 in advertising, offset
by an increase of $651,000 in professional fees, and an increase of $686,000 in FDIC and state assessments.

Income Taxes.
There was not an income tax provision for the three months ended September 30, 2007 compared to a tax benefit of $835,000 for the three months ended September 30, 2006, which equates to an effective rate of 36.4%. Due to the declining net
interest margin and continuing high levels of noninterest expense that stem primarily from credit failures in our residential construction lending program, we can no longer assert to the degree required under generally accepted accounting principles
that we will be able to realize the future benefit of our deferred tax asset, so we are continuing to apply a full valuation allowance against this asset.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006, Continued

Average Balances and Average Rates. The following table sets forth, for the three months ended September 30, 2007 and 2006,
information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields, (ii) the total dollar amount of interest expense on interest-bearing
liabilities and the resultant average cost, (iii) net interest income, (iv) interest rate spread, and (v) net interest margin.



|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | ------------------ | -------------- |  | ---- | ------------------ |  | ---------------------- | ------- | -------------- | - | ------ |  | ---- | -
|                                                                                 |  | Three Months Ended     |        
|                                                                                 |  | September 30, 2007     |         |                        | September 30, 2006 |               
|                                                                                 |  | AverageBalance (1)     |         | InterestIncome/Expense |                    | Yield/Rate (2) |  |      | AverageBalance (1) |  | InterestIncome/Expense |         | Yield/Rate (2) |  
|                                                                                 |  | (dollars in thousands) |        
|Interest-earning assets:                                                         |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Loans (3)                                                                        |  | $                      | 570,631 |                        |                    | 8,578          |  | 5.96 | %                  |  | $                      | 505,606 |                |   | 9,367  |  | 7.35 | %
|Investment securities (4)                                                        |  |                        | 76,149  |                        |                    | 972            |  | 5.06 |                    |  |                        | 85,914  |                |   | 1,010  |  | 4.66 |  
|Other interest-earning assets (5)                                                |  |                        | 35,967  |                        |                    | 469            |  | 5.17 |                    |  |                        | 12,885  |                |   | 169    |  | 5.20 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-earning assets                                                    |  |                        | 682,747 |                        |                    | 10,019         |  | 5.82 |                    |  |                        | 604,405 |                |   | 10,546 |  | 6.92 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total noninterest earning assets                                                 |  |                        | 18,283  |                        |                    |                |  |      |                    |  |                        | 46,859  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total assets                                                                     |  | $                      | 701,030 |                        |                    |                |  |      |                    |  | $                      | 651,264 |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Interest-bearing liabilities:                                                    |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|NOW                                                                              |  | $                      | 33,583  |                        |                    | 230            |  | 2.72 |                    |  | $                      | 44,086  |                |   | 303    |  | 2.73 |  
|Money market                                                                     |  |                        | 19,460  |                        |                    | 197            |  | 4.00 |                    |  |                        | 52,060  |                |   | 557    |  | 4.25 |  
|Savings                                                                          |  |                        | 26,143  |                        |                    | 298            |  | 4.52 |                    |  |                        | 4,289   |                |   | 6      |  | 0.51 |  
|Time                                                                             |  |                        | 552,567 |                        |                    | 7,504          |  | 5.39 |                    |  |                        | 418,786 |                |   | 5,125  |  | 4.86 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-bearing deposits                                                  |  |                        | 631,753 |                        |                    | 8,229          |  | 5.17 |                    |  |                        | 519,221 |                |   | 5,991  |  | 4.58 |  
|                                                                                 |  |                        |         |                        |                    |               
|Other borrowings                                                                 |  |                        | 9,365   |                        |                    | 99             |  | 4.20 |                    |  |                        | 25,180  |                |   | 213    |  | 3.35 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-bearing liabilities                                               |  |                        | 641,118 |                        |                    | 8,328          |  | 5.15 |                    |  |                        | 544,401 |                |   | 6,204  |  | 4.52 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total noninterest bearing liabilities                                            |  |                        | 26,721  |                        |                    |                |  |      |                    |  |                        | 35,367  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total liabilities                                                                |  |                        | 667,839 |                        |                    |                |  |      |                    |  |                        | 579,768 |                |   |        |  |      |  
|Stockholders equity                                                             |  |                        | 33,191  |                        |                    |                |  |      |                    |  |                        | 71,496  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total liabilities and shareholders equity                                       |  | $                      | 701,030 |                        |                    |                |  |      |                    |  | $                      | 651,264 |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Net interest income                                                              |  |                        |         |                        | $                  | 1,691          |  |      |                    |  |                        |         |                | $ | 4,342  |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Interest-rate spread (6)                                                         |  |                        |         |                        |                    |                |  | 0.67 | %                  |  |                        |         |                |   |        |  | 2.40 | %
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Net interest margin (7)                                                          |  |                        |         |                        |                    |                |  | 0.98 | %                  |  |                        |         |                |   |        |  | 2.85 | %
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                        | 1.06    |                        |                    |                |  |      |                    |  |                        | 1.11    |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  

---

|(1) | Average balance represents the average daily balance for the quarters ended September 30, 2007 and 2006.
|--- | --------------------------------------------------------------------------------------------------------

|(2) | Annualized for the three months ended.
|--- | --------------------------------------

|(3) | Non-accruing loans are included in computation of average balance.
|--- | ------------------------------------------------------------------

|(4) | Primarily taxable. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders equity. Includes FHLB stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes federal funds sold and securities purchased under agreements to resell.
|--- | --------------------------------------------------------------------------------

|(6) | Interest-rate spread represents the difference between average yield on interest-bearing assets and the average rate of interest-bearing liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Net interest margin is the net interest income divided by average interest earning assets.
|--- | ------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006

General. For the nine months ended September 30, 2007, the Company reported a net loss of approximately $35.3 million, or basic and
diluted losses per share of $5.43 compared to a net loss of approximately $2.5 million, or basic and diluted losses per share of $0.38 for the nine months ended September 30, 2006. The increase in net loss was attributable primarily to a tax
provision to create a valuation allowance for our deferred tax asset. Other reasons are an increase in the provision for loan losses, an increase in noninterest expenses in addition to a decrease in noninterest income. A significant portion of the
increase in loan loss provision was due to the continued depression of residential real estate values in the local markets where we have loans, either in construction or with permanent financing, where the financing by borrowers was primarily for
investment purposes. The increase in noninterest expense was primarily due to the expenses incurred in the nine months ending September 30, 2007 related to the impairment in our residential construction portfolio, and the analysis of our
strategic options. The expenses associated with the impairment in our residential construction portfolio include legal fees, consulting, public relations and other professional services, salaries and benefits related to the administration and
workout of these loans, and other expenses.

Net Interest Income. Net interest income decreased to $7.7 million during the
nine months ended September 30, 2007, from $12.6 million for the same period in 2006. This decrease was due primarily to an increase in average interest-bearing liabilities to $679 million during the nine months ended September 30, 2007,
compared to $495 million for the nine months ended September 30, 2006 and an increase in non-performing loans. This was partially offset by an increase in average interest-earning assets to $729 million during the nine months ended
September 30, 2007, compared to $559 million during the same period in 2006, although our non-performing loans increased by $76 million during the nine months ended September 30, 2007.

Interest on loans for the nine months ended September 30, 2007 was $27.7 million, compared to $24.5 million for the nine months ended
September 30, 2006. The increase in interest on loans was primarily due to an increase in the average loan balance to $586 million, during the nine months ended September 30, 2007 compared to $456 million for the nine months ended
September 30, 2006. The increase in average loan balance was offset by a reduction in average yield on loans of 6.32% during the nine months ended September 30, 2007 compared to 7.19% for the nine months ended September 30, 2006. This
reduction was primarily attributable to the $76 million of non-performing loans at September 30, 2007 compared to $814,000 at September 30, 2006.

Interest on securities increased to $3.6 million during the nine months ended September 30, 2007, from $3.0 million for the same period in 2006. The increase in interest income on securities was primarily due to
an increase in the average balance of securities to $95.7 million during the nine months ended September 30, 2007, from $87.2 million for the nine months ended September 30, 2006, complemented by an increase in average yield on securities
to 5.02% for the nine months ended September 30, 2007, compared to 4.53% for the nine months ended September 30, 2006.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006, Continued

Net Interest Income, continued. Interest expense on interest-bearing liabilities increased to $25.4 million during the nine months ended
September 30, 2007, compared to $15.5 million during the nine months ended September 30, 2006. The increase was primarily due to an increase in the average balance of interest bearing liabilities to $654 million during the nine months
ended September 30, 2007 from $470 million during the same period in 2006, in addition to a 0.79% increase in rate for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. The increase in rate
was primarily driven by an increase in deposit offering rates necessary to supplement our funding needs. Included in our interest bearing liabilities for the nine months ended September 30, 2007, were average balances of $30 million in brokered
deposits with an average rate of 5.50%, as well as average balances of $68 million in time deposits that have been generated outside of our primary market area through an online trading network, with an average rate of 5.59%. For the nine months
ended September 30, 2006, Coast Bank did not have any brokered deposits, and held average balances of $4 million in time deposits generated outside of our primary market area through an online trading network, with an average rate of 3.66%.

Provision for Loan Losses. The provision for loan losses was $11.7 million for the nine months ended September 30, 2007
compared to $582,000 for the nine months ended September 30, 2006. A significant portion of the increased provision for loan losses is due to the continued depression of residential real estate values in the local markets where we have loans,
either in construction or with permanent financing, where the financing by borrowers was primarily for investment purposes. Of this provision, $3.6 million was specifically allocated to the Affected Loans. $2.2 million was for a single commercial
real estate loan in recognition of the depressed real estate market for such properties, based on a current appraisal. The remaining provision was primarily related to residential construction loans that had similarities in product to the Affected
Loans, primarily related to the investment purpose of the financing by borrowers. At September 30, 2007, the Company had outstanding balances of approximately $103.6 million of residential construction loans, including $55.5 million of
outstanding balances with respect to the Affected Loans, where the construction was for investment purposes. Additionally, the Bank has approximately $60.9 million of completed residences with permanent financing, where the initial financing by
borrowers was primarily for investment purposes. These loans are predominantly construction loans that have completed and modified to permanent financing. Of this combined $164.5 million in outstanding balance, approximately $70.2 million is in the
Cape Coral, Florida market, which has seen a comparatively steep decline in recent market values. None of the Affected Loans are in this market. Another $52.0 million of this combined $164.5 million are in the North Port, Florida market, including
$40.3 million of outstanding balances with respect to the Affected Loans.

At September 30, 2007 and 2006, we had total net portfolio
loans of approximately $530 million and $531 million respectively. The allowance for loan losses was $34.8 million and $3.7 million at September 30, 2007 and 2006, respectively, representing 6.18% and 0.69% of total net loans at the end of each
period.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006, Continued

Noninterest Income.Noninterest income decreased to $1.6 million for the nine months ended September 30, 2007 compared to $1.7
million for the nine months ended September 30, 2006. The decrease was primarily due to the decrease in gain on sale of loans held for sale.

Noninterest Expenses. Noninterest expense increased to $20.7 million for the nine months ended September 30, 2007 compared to $17.5 million for the nine months ended September 30, 2006. Increases in noninterest
expense for the nine months ended September 30, 2007 compared to the same period in 2006 were attributable to an increase of $1.9 million in professional fees, an increase of $1.6 million in FDIC and state assessments, and an increase of
$617,000 in net occupancy expenses. This was partially offset by a $751,000 decrease in advertising expense and a $546,000 decrease in employee compensation and benefits. The primary reason for the increase in professional fees for the nine months
ending September 30, 2007 compared to the nine months ending September 30, 2006 was expenses related to assessment and workout of the Affected Loans. The increase in FDIC and state assessments was due to the passing of the Deposit Reform
Act and the resulting assessments based on our risk groupings.

Prior to January 1, 2007, the Company paid a Financing Corporation
(FICO) quarterly debt service assessment fee. With the passing of the Deposit Reform Act taking effect January 1, 2007 the Company, in addition to the FICO service assessment fee, has begun making FDIC Deposit Assessment accruals
for payments that are charged in arrears. The FDIC Deposit Assessment recognized as a result of the January 1, 2007 enactment of the FDIC Deposit Assessment the Company that has been recorded to other noninterest expense in the nine-month
period ending September 30, 2007 was approximately $1.6 million.

Income Taxes. The income tax provision for the
nine months ended September 30, 2007 was $12.3 million, which equates to an effective rate of (53.5)% compared to a tax benefit of $1.4 million for the nine months ended September 30, 2006, which equates to an effective rate of 35.5%. This
provision was the result of a valuation allowance applied against our $15.6 million deferred tax asset, based on the current operating performance of the Company. Due to the declining net interest margin and continuing high levels of noninterest
expense that stem primarily from credit failures in our residential construction lending program, we can no longer assert to the degree required under generally accepted accounting principles that we will be able to realize the future benefit of
this asset.

The resulting provision for income taxes does not signify a current or future cash obligation of the Company, and does not have
an impact our equity for regulatory capital adequacy purposes.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006, Continued

Average Balances and Average Rates. The following table sets forth, for the nine months ended September 30, 2007 and 2006, information
regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields, (ii) the total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost, (iii) net interest income, (iv) interest rate spread, and (v) net interest margin.



|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | ------------------ | -------------- |  | ---- | ------------------ |  | ---------------------- | ------- | -------------- | - | ------ |  | ---- | -
|                                                                                 |  | Nine Months Ended      |        
|                                                                                 |  | September 30, 2007     |         |                        | September 30, 2006 |               
|                                                                                 |  | AverageBalance (1)     |         | InterestIncome/Expense |                    | Yield/Rate (2) |  |      | AverageBalance (1) |  | InterestIncome/Expense |         | Yield/Rate (2) |  
|                                                                                 |  | (dollars in thousands) |        
|Interest-earning assets:                                                         |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Loans (3)                                                                        |  | $                      | 586,463 |                        |                    | 27,713         |  | 6.32 | %                  |  | $                      | 456,034 |                |   | 24,510 |  | 7.19 | %
|Investment securities (4)                                                        |  |                        | 95,654  |                        |                    | 3,591          |  | 5.02 |                    |  |                        | 87,221  |                |   | 2,954  |  | 4.53 |  
|Other interest-earning assets (5)                                                |  |                        | 46,713  |                        |                    | 1,843          |  | 5.28 |                    |  |                        | 15,709  |                |   | 558    |  | 4.75 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-earning assets                                                    |  |                        | 728,830 |                        |                    | 33,147         |  | 6.08 |                    |  |                        | 558,964 |                |   | 28,022 |  | 6.70 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total noninterest earning assets                                                 |  |                        | 28,692  |                        |                    |                |  |      |                    |  |                        | 44,492  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total assets                                                                     |  | $                      | 757,522 |                        |                    |                |  |      |                    |  | $                      | 603,456 |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Interest-bearing liabilities:                                                    |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|NOW                                                                              |  | $                      | 37,897  |                        |                    | 775            |  | 2.73 |                    |  | $                      | 41,177  |                |   | 744    |  | 2.42 |  
|Money market                                                                     |  |                        | 25,685  |                        |                    | 798            |  | 4.15 |                    |  |                        | 48,068  |                |   | 1,360  |  | 3.78 |  
|Savings                                                                          |  |                        | 26,200  |                        |                    | 887            |  | 4.53 |                    |  |                        | 4,514   |                |   | 17     |  | 0.50 |  
|Time                                                                             |  |                        | 563,923 |                        |                    | 22,124         |  | 5.25 |                    |  |                        | 375,390 |                |   | 12,744 |  | 4.54 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-bearing deposits                                                  |  |                        | 653,705 |                        |                    | 24,584         |  | 5.03 |                    |  |                        | 469,149 |                |   | 14,865 |  | 4.24 |  
|                                                                                 |  |                        |         |                        |                    |               
|Other borrowings                                                                 |  |                        | 25,204  |                        |                    | 826            |  | 4.37 |                    |  |                        | 26,079  |                |   | 600    |  | 3.08 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total interest-bearing liabilities                                               |  |                        | 678,909 |                        |                    | 25,410         |  | 5.00 |                    |  |                        | 495,228 |                |   | 15,465 |  | 4.18 |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total noninterest bearing liabilities                                            |  |                        | 31,250  |                        |                    |                |  |      |                    |  |                        | 35,728  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total liabilities                                                                |  |                        | 710,159 |                        |                    |                |  |      |                    |  |                        | 530,956 |                |   |        |  |      |  
|Stockholders equity                                                             |  |                        | 47,363  |                        |                    |                |  |      |                    |  |                        | 72,500  |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Total liabilities and shareholders equity                                       |  | $                      | 757,522 |                        |                    |                |  |      |                    |  | $                      | 603,456 |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Net interest income                                                              |  |                        |         |                        | $                  | 7,737          |  |      |                    |  |                        |         |                | $ | 12,557 |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Interest-rate spread (6)                                                         |  |                        |         |                        |                    |                |  | 1.08 | %                  |  |                        |         |                |   |        |  | 2.52 | %
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Net interest margin (7)                                                          |  |                        |         |                        |                    |                |  | 1.42 | %                  |  |                        |         |                |   |        |  | 3.00 | %
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                        | 1.07    |                        |                    |                |  |      |                    |  |                        | 1.13    |                |   |        |  |      |  
|                                                                                 |  |                        |         |                        |                    |                |  |      |                    |  |                        |         |                |   |        |  |      |  

---

|(1) | Average balance represents the average daily balance for years to date ended September 30, 2007 and 2006.
|--- | ---------------------------------------------------------------------------------------------------------

|(2) | Annualized for the nine months ended.
|--- | -------------------------------------

|(3) | Non-accruing loans are included in computation of average balance.
|--- | ------------------------------------------------------------------

|(4) | Primarily taxable. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders equity. Includes FHLB stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes federal funds sold and securities purchased under agreements to resell.
|--- | --------------------------------------------------------------------------------

|(6) | Interest-rate spread represents the difference between average yield on interest-bearing assets and the average rate of interest-bearing liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Net interest margin is the net interest income divided by average interest earning assets.
|--- | ------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Comparison of Financial Condition at September 30, 2007 and December 31, 2006

Our total assets decreased 1.7% to $664 million at September 30, 2007, compared to $720 million at December 31, 2006. Our decline in assets was
primarily the result of the decrease in net loans during this period. Book value per share at September 30, 2007 was $3.42 compared to $8.78 at December 31, 2006.

Our net loans decreased 32.5%, to $530 million at September 30, 2007, compared to $563 million at December 31, 2006. Of the total, portfolio
loans consisted of approximately $9.8 million in commercial loans, approximately $121.3 million in commercial real estate loans, approximately $220.1 million in residential real estate loans, approximately $155.2 million in residential construction
loans and approximately $56.4 million in consumer and other loans, net of deferred cost and allowance for loan losses of approximately $32.7 million. The allowance for loan losses increased from $25.7 million at December 31, 2006 to $34.8
million at September 30, 2007. The allowance for loan losses at September 30, 2007 was 6.18% of portfolio loans.

Liquidity and Capital
Resources

The Companys primary source of cash during the nine months ended September 30, 2007, was from principal repayments
and calls of securities available for sale of approximately $194 million, net deposit inflows of approximately $27.7 million, and proceeds from Federal Home Loan Bank advances of approximately $1.7 million. Cash was used primarily to purchase
securities of approximately $174.5 million, and to repay Federal Home Loan Bank advances $41.0 million. Management will continue to attempt to acquire short-term deposits and low cost transaction accounts. At September 30, 2007, Coast Bank met
its regulatory liquidity requirements.

During the three month period ended September 30, 2007, the Holding Company obtained and
subsequently repaid a bridge loan from one of its directors to cover operating expenses of the Holding Company. The loan was for $250,000 with a rate of interest fixed at 6%. This loan was paid off with funds obtained from the Company Note between
the Holding Company and First Banks. Under the Company Note, First Banks has provided the Holding Company with a $1 million revolving line of credit. The Company Note has a term of six months with interest payable thereon at LIBOR +2.5%. The Company
Note matures on the earlier of February 27, 2008 or the occurrence of an event of default (as defined in the Company Note). Among other things, an event of default shall be deemed to have occurred if (a) the Holding Company should merge,
consolidate or transfer a substantial portion of its properties or assets other than pursuant to the Merger Agreement, (b) the Holding Company or Coast Bank should be in default under the Merger Agreement, or (c) the merger should not be
consummated (Merger Events). The Company Note is secured by a stock pledge agreement pursuant to which all of the outstanding capital stock of Coast Bank is pledged to First Banks as collateral for our obligations under the Company Note.
Accordingly, if an event of default occurs, First Banks may sell the Coast Bank stock that it holds as collateral to pay the principal and interest due on the Company Note and to pay fees and expenses incurred in connection therewith (the Debt
Obligations). In such an event, the Holding Company and, ultimately, its shareholders will retain value in their ownership of the Coast Bank stock only if such sale of the Coast Bank stock yields proceeds in excess of the Debt Obligations. As
of September 30, 2007, $501,000 has been advanced against this line.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Liquidity and Capital Resources, continued.

As part
of the Companys liquidity management, Coast Bank accepted brokered deposits in January 2007. Coast Bank has obtained a waiver from the FDIC for these deposits. As of September 30, 2007 Coast Bank held $4.3 million in brokered deposits at
an average rate of 5.50%, with a weighted average remaining maturity of 4.1 months. In addition to the brokered deposits, Coast Bank held $70.5 million in time deposits that have been generated outside of our primary market area through an online
trading network, with an average rate of 5.59% and an average maturity of 8.35 months. Coast Bank currently may not generate any additional brokered deposits or deposits generated through the online trading network at this time. Additionally, Coast
Bank does not intend to renew the brokered deposits, and anticipates covering these maturities with available federal funds sold and retail branch deposits.

Coast Bank also has a federal funds purchase line of credit through the Independent Bankers Bank IBB of $4,000,000 available. No amounts are currently outstanding under this line of credit. In addition,
Coast Bank has an agreement with IBB by which we can sell securities under agreement to repurchase substantially identical securities. There currently are no securities outstanding under this agreement.

Under the terms of the Merger Agreement with First Banks, its wholly owned subsidiary has agreed to provide liquidity support for Coast Bank. This support
has been provided through the Coast Bank Note, a revolving line of credit facility, pursuant to which Coast Bank has been provided with a line of credit up to $75 million. The amount that may be advanced to Coat Bank under the Coast Bank Note may
not exceed the lesser of $75 million or the then-current borrowing base furnished by Coast Bank as collateral for the Coast Bank Note under the terms of a collateral pledge agreement. As of September 30, 2007, the amount of credit available to
Coast Bank under the Coast Bank Note is estimated to be approximately $53.3 million, none of which has been advanced to Coast Bank. All amounts advanced to Coast Bank under the Coast Bank Note bear interest at an annual rate equal to the LIBOR plus
2.25% and such interest is payable monthly in arrears. Similar to the Company Note, the Coast Bank Note matures on the earlier of February 27, 2008 or the occurrence of an event of default. An event of default includes, among other things, the
Merger Events. The Coast Bank Note is secured by a collateral pledge agreement pursuant to which Coast Bank has granted to First Bank a first priority security interest in a loan portfolio held by Coast Bank.

Coast Bank also has a limited ability to borrow funds from the FHLB to supplement its liquidity needs. Coast Bank currently has a borrowing capacity with
the FHLB based on the pledge and delivery of investment securities. Coast Bank currently has no outstanding borrowings with the FHLB.

At
September 30, 2007 and December 31, 2006, stockholders equity was approximately $22.2 million (or 3.35% of total assets), and $57.2 (or 7.94% of total assets), respectively. Book value per common share was $3.42 at September 30,
2007, compared to $8.78 at December 31, 2006.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Off-Balance Sheet Financial Instruments

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 include commitments to extend credit, standby letters of credit, unused lines
of credit and unfunded construction loans. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract or notional amounts of
these instruments reflect the extent of the Companys involvement in particular classes of financial instruments.

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, unfunded construction loans, unused lines of credit and standby letters of credit is represented by the
contractual amount of those instruments. To control the credit risk associated with entering into commitments and issuing letters of credit, the Company uses the same credit quality, collateral policies, and monitoring controls in making commitments
and letters of credit as it does with its lending activities.

Commitments to extend 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. Since some of the commitments are expected to expire without being
drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the
Company upon extension of credit, is based on managements credit evaluation of the counter party.

Standby letters of credit are
conditional commitments issued by the Company to guarantee the performance of a customer to a third party and to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The
credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Off-Balance Sheet Financial Instruments, continued.

Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate. The following table is a summary of the amounts of the financial instruments, with off-balance sheet risk, at September 30,
2007 (in thousands):



|                             |  |                |       
|---------------------------- |  | -------------- | ------
|                             |  | ContractAmount
|Commitments to extend credit |  | $              | 530   
|                             |  |                |       
|Standby letters of credit    |  | $              | 108   
|                             |  |                |       
|Unused lines of credit       |  | $              | 43,134
|                             |  |                |       
|Unfunded construction loans  |  | $              | 39,569
|                             |  |                |       

Management believes that the Company has adequate resources to fund all of its commitments and that
substantially all its existing commitments will be funded within the next twelve months with the exception of the Affected Loans. The funding of the Affected Loan commitments will be dependent upon individual resolution efforts with each borrower.

Under the terms of our construction loan agreements, Coast Bank has the right to cancel any remaining commitment to fund any loan that is
in monetary default and has been provided proper notice. Coast Bank has exercised these rights with respect to certain of its loans, including many of the Affected Loans. As a result, commitments on unfunded construction loans have be decreased to
$39.6 million at September 30, 2007, from $83.9 million at June 30, 2007.

Selected Ratios

The following are presented for the dates and periods indicated:



|                                                 |  |                                   |    |  |                            |    |  |                                   |   
|------------------------------------------------ |  | --------------------------------- | -- |  | -------------------------- | -- |  | --------------------------------- | --
|                                                 |  | Nine MonthsEndedSeptember 30,2007 |    |  | Year EndedDecember 31,2006 |    |  | Nine MonthsEndedSeptember 30,2006 |   
|Average equity as a percentage of average assets |  | 6.25                              | %  |  | 11.44                      | %  |  | 12.01                             | % 
|Equity to total assets at end of period          |  | 3.35                              | %  |  | 7.94                       | %  |  | 10.58                             | % 
|Return on average assets(1)                      |  | (6.24                             | )% |  | (2.75                      | )% |  | (0.55                             | )%
|Return on average equity (1)                     |  | (99.74                            | )% |  | (24.01                     | )% |  | (4.56                             | )%
|Dividend payout ratio(2)                         |  | N/A                               |    |  | N/A                        |    |  | N/A                               |   

---

|(1) | Annualized for the nine months ended September 30.
|--- | --------------------------------------------------

|(2) | The Company has not paid dividends on common stock since inception.
|--- | -------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes
in the Companys market risk from December 31, 2006. For information regarding the Companys market risk, please refer to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 4. Controls and Procedures

In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and
15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2007 to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no
significant changes in our internal controls over financial reporting (as defined in Rule 13a-15(4) of the Exchange Act) that occurred during the three months ended September 30, 2007 that has materially affected, or in other factors that could
or is reasonably likely to materially affect, our internal control over financial reporting.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

FDIC and OFR Enforcement Matters.

On or about May 24, 2007, Coast Bank consented to the entry of an Order to Cease and Desist (referred to herein as the C&D Order) issued jointly
by the FDIC and the OFR, which was based upon the findings of an examination of the Bank by the FDIC and OFR as of January 29, 2007. The terms of the C&D Order are summarized in a Form 8-K filed by the Company on May 25, 2007, which is
incorporated herein by reference. The FDIC and OFR have advised counsel to Coast Bank that their investigation of matters related to, or underlying, C&D Order are continuing and that the C&D Order may not be the only enforcement remedy that
the banking regulators may pursue.

Securities and Exchange Commission Inquiry.

On or about May 17, 2007, the staff of the Miami Regional Office of the United States Securities and Exchange Commission (the Staff)
notified the Holding Company that it is conducting an informal inquiry concerning the Company. The Staff has requested that the Holding Company provide it with certain documents and information, including the testimony of its Chief Financial
Officer, relevant to its inquiry. The Company is voluntarily producing documents and information to the Staff.

Grand Jury
Matter.

On or about May 16, 2007 the Company became aware that the United States Attorneys Office for the Middle
District of Florida is conducting a federal grand jury investigation involving matters related to the Affected Loans.

Securities
Litigation.

The Holding Company and certain of its present and former officers were named as defendants in three purported class
action complaints filed in the United States District Court for the Middle District of Florida, Tampa Division (the Court) alleging violations of the federal securities laws, the first of which was filed with the Court in March 20,
2007 (the Securities Actions). On June 22, 2007, the Court entered an order pursuant to which the Court (i) consolidated the Securities Actions, with the matter proceeding under the docket for Grand Lodge of Pennsylvania v.
Brian P. Peters, et al., Case No. 8:07-cv-429-T-26-EAJ and (ii) appointed Troy Ratcliff and Daniel Altenburg (the Lead Plaintiffs) as lead plaintiffs pursuant to the provisions of the Private Securities Litigation Reform Act of
1995.

Subsequently, on or about August 24, 2007, the Lead Plaintiffs filed a consolidated amended class action complaint (the
Amended Complaint). The Amended Complaint added as defendants (i) the current members of the Holding Companys Board of Directors, (ii) one former member of the Holding Companys Board of Directors, (iii) the
underwriters of the Holding Companys October 5, 2005 public offering of common stock, and (iv) the Holding Companys external auditors.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

Item 1. Legal Proceedings, continued

The Amended Complaint is brought on behalf of a putative class of purchasers of
the Holding Companys common stock between January 21, 2005 and January 22, 2007. In general, the Amended Complaint alleges that the Holding Companys SEC filings and public statements contained misstatements and omissions
regarding its residential construction-to-permanent lending operations and, more specifically, regarding CCI and its affiliates and that the Holding Companys financial statements violated GAAP. The Amended Complaint asserts claims under
Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under.

On August 30, 2007, the Lead Plaintiffs filed a notice with the Court voluntarily dismissing their claims against Anne V. Lee and Justin D. Locke without prejudice. The remaining defendants are due to respond to
the Amended Complaint on or before December 3, 2007.

Borrower Litigation Regarding Affected Loans and Loans with Similar
Characteristics.

Beginning in June 2007, Coast Bank was named as a party in numerous complaints brought by borrowers under the
Affected Loans. The lawsuits have been filed in the Florida state courts in Manatee, Sarasota, and Lee Counties. There are presently approximately 143 lawsuits pending, most of which have been filed by a single law firm representing Borrowers with
Affected Loans. In general, these lawsuits allege that Coast Bank made residential construction-to-permanent loans to Borrowers who had contracted for houses to be constructed by CCI and its affiliates while purportedly knowing that CCI was not in a
financial position to complete construction and without disclosing these alleged facts to the Borrowers. The lawsuits further allege that the Bank improperly made disbursements on these loans to CCI and its affiliates.

The lawsuits assert claims for rescission, fraud, breach of fiduciary duty, and violations of Floridas RICO statutes. Certain of the lawsuits also
assert claims based upon Coast Banks construction loan agreements and construction lien laws. As relief, the lawsuits seek rescission of each Borrowers loan documents with Coast Bank, unspecified compensatory damages, unspecified treble
damages, the repayment of certain sums paid by each Borrower on the loans.

In addition to the pending lawsuits described above, Coast Bank
was named as a party in eleven complaints brought by borrowers with loans that have characteristics similar to the Affected Loans, and are asserting similar claims to those described above. In addition, the Holding Company and Coast Bank anticipate
that they may become subject to additional lawsuits or claims arising out of or related to the Affected Loans or loans with similar characteristics. A claim for securities laws violation attendant to the transacting of an Affected Loan has been
filed and more are anticipated.

The borrower lawsuits regarding the Affected Loans and loans with similar characteristics are in their
early stages. Coast Bank has filed motions to dismiss in the vast majority of these suits. In addition, on or about October 29, 2007, approximately 100 of these cases that are pending in state court in Sarasota County were consolidated by the court
for the limited purpose of discovery and initial motions.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

Item 1. Legal Proceedings, continued

CCI Bankruptcy Claim.

On or about April 3, 2007, CCI filed a Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division, Case No. 8:07-bk-02650-CPM. Schedule B to the petition lists as property of the debtor an $8 million contingent and unliquidated claim against Coast Bank, Phil Coon, John Miller, American Mortgage Link and Solutions
Processing. The disclosure statement accompanying CCIs plan of reorganization, filed on or about June 29, 2007, states an intention to pursue an action against Coast Bank to recover 50% of the loss from all Coast Bank deals
under the theory that every closed loan was a joint venture between Debtor and the Bank. On August 21, 2007, the Debtor filed an action in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division, Adv. Case
No. 8:07-ap-00324-CPM, against Coast Bank, American Mortgage Link Company of Tampa, Solutions Processing, Inc., Solutions Processing Company of Tampa, Inc. and John Miller. In this action, the Debtor asserts that the Debtor and the various
defendants were partners in a joint venture to build and finance homes in Southwest Florida. Through the action, the Debtor seeks a declaration determining the relationship between the Debtor and the various defendants. In addition, in the action,
the Debtor alleges that Coast Bank did not receive sufficient consideration for the interest and fees that it charged borrowers who financed homes constructed by the Debtor and seeks to set aside interest and fee payments made to Coast Bank in
conjunction with these loans as fraudulent transfers. Coast Bank has filed a Motion to Dismiss, seeking to dismiss the Debtors suit against Coast Bank. The Bankruptcy Court has scheduled a pretrial conference in this action and preliminary
hearings on pending motions for January 14, 2008.

Horelik, et al. v. Palco Group Enterprises, et al.

Coast Bank has been named as a defendant in this lawsuit, which was filed in the United States District Court for the Middle District of Florida, Fort
Myers Division, on or about May 4, 2007 and bears case number 2:07-cv-00288-JES-SPC. The plaintiffs in this action are a husband and wife who took out a residential construction-to-permanent loan from Coast Bank for a residence to be built by
Enchanted Homes, Inc. (Enchanted Homes). Plaintiffs allege violations of the securities registration provisions and the antifraud provisions of the Securities Act of 1933 in connection with their acquisition of property and loan. As
relief, plaintiffs seek rescission of all obligations in connection with the property, ancillary costs associated with the purchase of their property, and attorney fees and costs. The complaint has not been served on any defendant.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1. Legal Proceedings, continued

Peter Raimondi and Donna Raimondi v. Coast Bank of Florida.

Coast Bank is a defendant in this lawsuit, which was filed on June 11, 2007 in the Circuit Court of the Twentieth Judicial Circuit in
and for Lee County, Florida and bears Case No. 07-CA-005671. The plaintiffs in this case are a husband and wife who took out a residential construction-to-permanent loan from the bank for a residence to be built by Enchanted Homes. Plaintiffs
allege that they are entitled to a judgment declaring that Coast Bank is required to accept from them a deed in lieu of foreclosure on their loan.

Rubin, et al. v. Coppenger, et al.

On May 25, 2007, Coast Bank was named as a defendant in a third-party
complaint filed in this action, which is pending in the Court of Common Pleas for Summit County, Ohio and bears case number CV-2006-07-4229. The third-party complaint is filed by several third-party plaintiffs against Coast Bank and several other
third-party defendants alleging that the defendants engaged in a scheme to defraud them into purchasing residences to be constructed on real property in the Florida panhandle at prices in excess of the true value of the properties, with financing
provided by various banks, including Coast Bank.

The third-party complaint alleges that all defendants are liable to all plaintiffs for the
entire alleged scheme. It asserts 17 causes of action based on various state and federal law theories. The third party complaint seeks unspecified compensatory damages, punitive damages, the rescission or reformation of the loan contract, and
attorney fees and costs. However, only one of the third-party plaintiffs is a borrower of the Bank, and that plaintiffs loan was in the amount of roughly $1.3 million. Coast Bank has filed a motion to dismiss the complaint on both
jurisdictional and substantive grounds.

City of Cape Coral v. Muir, et al.

Coast Bank is a defendant in this eminent domain action commenced by the City of Cape Coral, Florida on or about June 1, 2007 in the Circuit Court of
the Twentieth Judicial Circuit in and for Lee County, Florida. The action bears case number 06-CA-005549. In this action the City of Cape Coral seeks to affect a taking of certain property, including a property upon which Coast holds a mortgage, for
the purpose of building a municipal park and recreational facility. There is currently approximately $146,036 outstanding on the Banks mortgage on this property, and that mortgage is past due since June 2007. An initial hearing to consider
whether the taking should be authorized is scheduled for January 3, 2008.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1. Legal Proceedings, continued

Mantee Count v. Hugh E. McGuire, Jr., et al.

Coast Bank is a defendant in this eminent domain action commenced by the Manatee County on or about
July 30, 2007 in the Circuit Court of the Twelfth Judicial Circuit for Manatee County, Florida. The action bears Case No. 2007-CA-4921. In this action the Manatee County seeks to affect a taking of certain property, including a property
upon which Coast Bank holds a commercial loan, for the purpose of constructing, reconstructing, widening, repairing and maintaining 17thStreet West,
Palmetto-Phase II, and for other right-of-way-purposes, including but not limited to, sidewalks, drainage, retention and utility facilities, and drainage ditches, improving a public street, road, or highway as part of the public road system in
Manatee County, Florida. This loan, which was approved under Regulation O because one of the borrowers is a director of Coast Bank, has a principal balance of approximately $282,700, and is currently performing. Because the portion of the property
taken by Manatee County is small and the mortgage continues to be intact for the remainder of the property, Coast Bank has decided to release the mortgage as to the portion of the parcel taken by the County. The action remains pending.

Coast Bank of Florida v. Opteum Financial Services, LLC.

Coast Bank is a plaintiff in this suit, filed on June 14, 2007 in the Circuit Court for the Twelfth Judicial Circuit in and for Manatee County. In
this suit, Coast Bank alleges that Coast Bank and Opteum Financial Services, LLC (Opteum) had an ongoing business relationship pursuant to which Opteum would underwrite certain residential construction-to-permanent loans, Coast Bank
would administer the loan through construction, and Opteum would fund the final draw and purchase the loans. Coast Bank alleges that Opteum has breached contractual and other obligations to fund the final draw and purchase the loans from Opteum.
This claim involves 51 loans where a senior officer of Opteum Financial Services LLC (Opteum) signed an unconditional guarantee to buy the loans at the point where the home was completed and the loan converts to permanent financing.
Coast Banks complaint asserts counts for specific performance, breach of contract, and other monetary relief.

On or about
July 10, 2007, Opteum  now known as Orchid Island TRS, LLC  filed a motion for removal to the United States District Court for the Middle District of Florida, Tampa Division. This motion has been denied and the case was remanded to
Florida state court in Manatee County for further proceedings. On July 27, 2007, Opteum filed a motion to dismiss Coast Banks complaint. Coast Bank filed a memorandum in opposition to this motion. Their motion to dismiss and our motion in
opposition, were sent back to be heard by a Florida state court judge. These motions will be heard before a trial date is set.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1. Legal Proceedings, continued

Foreclosure Actions Related to Residential Construction Loans

Coast Bank is, in the routine course of its business, the plaintiff in actions seeking to foreclose on commercial and residential loans.
Coast Bank is currently a plaintiff in 46 foreclosure actions pertaining to Affected Loans and in 58 foreclosure actions related to loans with characteristics similar to those of the Affected Loans. In certain of these foreclosure matters, the
defendants have raised affirmative defenses related to the enforceability of the loans or the circumstances of their making and counterclaims similar to the claims asserted in the above-described Borrower litigation regarding the Affected Loans.

General

In
addition to the above, the Holding Company and Coast Bank are periodically a party to or otherwise involved in legal proceedings arising in the normal and ordinary course of business, such as claims to enforce liens, foreclose on loan defaults,
claims involving the making and servicing of real property loans, and other issues incident to our business. Other than as described above and the anticipated institution of additional lawsuits or claims arising out of or related to the Affected
Loans or loans with similar characteristics, management does not believe that there is any proceeding threatened or pending against the Holding Company or Coast Bank which, if determined adversely, would have a material effect on the business,
results of operations, cash flows, or financial position of the Holding Company or Coast Bank.

Item 1A. Risk Factors

An investment in our common shares involves certain risks, including those
identified and described in Item 1A. of the Companys Annual Report of Form 10-K for the fiscal year ended December 31, 2006 (Form 10-K), as well as cautionary statements contained in this Form 10-Q under the caption
A Note About Forward Looking Statements set forth in Part I, Item 2 of this Form 10-Q. There have been no material change in the risk factors previously disclosed in the Companys Form 10-K other than have been described under
the caption A Note About Forward Looking Statements set forth in Part I, Item 2 of this Form 10-Q and as set forth below.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1A. Risk Factors, continued



| |  |  | Our future viability will be significantly affected by the legal and regulatory actions taken against us, as well as those legal actions that we have and may
pursue. During the past few months, the Holding Company and Coast Bank have been sued or named in actions relating to the Affected Loans or other loans with similar characteristics, the Securities Actions, and other lawsuits identified in
Part II, Section 1 of this Form 10-Q. It is possible that additional lawsuits may be filed against the Company, which, if adversely determined, could have a material adverse effect on our consolidated financial position, results of operations,
or cash flows. Further, the Company also has been named in or made a party to a number of regulatory proceedings, including the C&D Order and those regulatory actions or proceeding identified in Part II, Section 1 of this Form 10-Q. Because
we are unable to predict the impact or resolution of the outstanding litigation and regulatory matters or to reasonably estimate the potential loss, if any, and no reserves have yet been established therefore.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In this regard, we may determine in the future that it is necessary to establish such reserves and, if so established, could have a material adverse
impact on our financial condition. Accordingly, our ability to successfully defend against claims asserted against us in various law suits arising out of the circumstances surrounding the Affected Loans or other loans with similar characteristics,
or any regulatory action taken against us, as well as any unanticipated litigation, regulatory, or other judicial proceedings may have a substantial impact on the profitability of the Company.

We also have instituted certain lawsuits and may instate others or make counterclaims, cross-claims, or third party claims in existing suits in an effort
to assert our claims for damages arising out of the Affected Loans and other construction loans that have similarities to the Affected Loans. In particular, Coast Bank intends to, and has commenced actions against borrowers, who have failed to
perform on their loan agreement, and has and will pursue any or all remedies available pursuant to the loan documents and applicable Federal and State laws, including foreclosure and pursuit of deficiencies.

Further, the Bank has commenced an action against Opteum Financial Services LLC (Opteum) seeking specific performance on a contract that the
Bank alleges to require Opteum to buy certain residential construction-to-permanent loans defendant was contractually required to purchase. This claim, as described above in Part II, Section 1 of this Form 10-Q involves 51 loans in which Opteum
has refused to take any of the loans that are converted to a permanent status. Our ability to successfully prosecute this action will have an impact on our results of operations.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1A. Risk Factors, continued



| |  |  | We may be unable to meet all of the steps required to be taken under the C&D Order and the failure to do so could result in further regulatory action and
operating restrictions. Coast Bank is currently operating under the C&D Order issued by the FDIC and OFR. The C&D Order was filed as Exhibit 99.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on
May 25, 2007 and is incorporated herein by reference.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our future viability is subject to our ability to successfully
operate under the terms of the C&D Order issued by the FDIC and the OFR. The C&D Order requires, among other things, that Coast Bank to cease and desist from a number of practices identified therein and requires Coast Bank to take a number
of affirmative steps including, among other things: (i) achieving and maintaining a Tier 1 capital to total assets ratio of 7.5% by November, 2007, (ii) developing a capital plan to maintain Total Risk Based Capital Ratio of at least 10%,
(iii) eliminating or significantly reducing certain assets classified as loss, doubtful, or substandard, (iv) to implement a plan to evaluate certain Special Mention assets and correct
certain deficiencies, and (v) formulating a plan to improve Coast Bank earnings.

In order to comply with its regulatory requirements,
the Company would need to raise substantial additional capital or significantly reduce its asset size. There is no guarantee that sufficient capital would be available at acceptable terms, if at all, when needed, or that the Company would be able to
sell assets at terms favorable enough to accomplish its regulatory capital needs.



| |  |  | Our future viability may be dependant upon our ability to either consummate the Merger or to identify an alternative transaction or financing arrangement.Because of the determination that a sale of the Holding Company at this time was essential in order to continue as a going concern and to provide value to its shareholders for their shares, the board of directors has concluded that the
Merger is in the best interests of its stockholders. The Merger would provide both the Holding Company and Coast Bank with the funds necessary for the Holding Company to maintain its ongoing operational capital needs and to provide Coast Bank with
an additional source of liquidity. We have concluded that the consummation of the Merger is necessary at this time due to, among other things: (a) the significant adverse impact that the Affected Loans have had and are expected to have,
directly and indirectly, on our results of operations, (b) the difficulties that we will have in meeting our obligations under the Cease and Desist Order, (c) our potential exposure with respect to outstanding litigation, and (d) the
likelihood of a regulatory takeover in the absence of such a transaction.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1A. Risk Factors, continued

If the Merger were not to close, in order to comply with its regulatory requirements
and to fund our ongoing operations, the Company would need to raise substantial additional capital or significantly reduce its asset size. There is no guarantee that sufficient capital would be available at acceptable terms, if at all, when needed,
or that the Company would be able to sell assets at terms favorable enough to accomplish its regulatory capital needs. In view of the foregoing, if the Merger were not to close, management of the Company would have substantial doubt about the
Holding Companys ability to continue as a going concern.



| |  |  | Our ability to consummate the Merger will be subject to the satisfaction of all of the closing conditions established in the Merger Agreement.Consummation of the Merger is subject to a number of conditions, including among others, the following: (i) approval of the Merger Agreement by the Companys stockholders, (ii) receipt of all required governmental and
regulatory approvals of the Merger and the Bank Merger, (iii) there shall not have been certain additional adverse regulatory actions taken by banking regulators or other governmental agencies against the Holding Company or Coast Bank,
(iv) there shall not have been certain additional adverse legal proceedings commenced against the Holding Company or Coast Bank, (v) the Company shall have satisfied certain financial requirements relating to the level of its adversely
classified credits, and minimum levels of total assets, and (vi) the satisfaction of certain other customary closing conditions. If we are unable to satisfy these conditions, many of which are outside of our control, the Merger may not be
consummated.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The purchase price to be paid for the Coast Stock in the Merger and the availability of certain termination rights will be directly influenced by our ability
to successfully manage our non-performing loans and leases plus other real estate owned.Under the terms of the Merger Agreement, the Aggregate Merger Payment and, correspondingly, the Per Share Merger Price, may be adjusted if, on the
Determination Date each of the following conditions exist:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys allowance for loan and lease losses plus its tangible equity is less than 75% of the Companys non-performing loans and leases
plus other real estate owned (such difference is referred to herein as the Deficiency), and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Deficiency is greater than $1 million.
| | - |  | ------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 1A. Risk Factors, continued

If each of the above conditions exists on the Determination Date, then the
Aggregate Merger Payment will be reduced to the nearest $500,000 increment, rounded upward or downward, to the full amount of the Deficiency and the Per Share Merger Price will be reduced accordingly (referred to herein as the Adjustment Amount). If
the Deficiency exceeds $10 million, then both the Holding Company and First Banks will have the right to terminate the Merger Agreement. As a result, if we are unsuccessful in managing our loan portfolio, including the Affected Loans, within the
parameters of our current tangible equity and loan loss allowance, the Per Share Merger Price to be paid for the Coast Stockin the Merger could be reduced from the initially offered amount of $3.40 to as low as $1.86 prior to triggering such
termination rights. As of September 30, 2007, the Deficiency was approximately $1,286,000, which would result in a Per Share Merger Price of approximately $3.17. In view of our current and anticipated performance, it is likely that the
Deficiency will continue to increase in size and Per Share Merger Price will be further reduced. There can be no assurance that the Deficiency will not increase substantially prior to the Determination Date (the date the final Per Share Merger Price
will be determined).

Furthermore, there can be no assurance that the Deficiency will not exceed $10 million as of the Determination Date
and that Merger Agreement will not be terminated as a result thereof.



| |  |  | If the Merger is not consummated the Holding Company will need to obtain sources of capital to fund its working capital requirements and to repay the amounts
outstanding under the Company Note. The Holding Company has limited liquid assets available to it to fund its working capital requirements and its primary source of funds is the amounts available under the Company Note. Because of the
regulatory restrictions relating to the payment of dividends by the Bank to the Holding Company, the Bank is unable to serve as a source of working capital. Currently, the Holding Company has approximately $499,000 additional borrowing capacity
under the Company Note. All amounts borrowed under the Company Loan are secured by all of the outstanding capital stock of Coast Bank. If the Merger is not consummated, the Company Note will mature on February 27, 2008, unless earlier due and
payable as a result of a default by the Holding Company. If the Merger is not consummated or the Holding Company should otherwise default on the Company Note, the Holding Company would need to identify alternative sources of financings in order to
repay the amounts due under the Company Note to fund its continued operations. It is highly unlikely that such financing will be available to the Holding Company on a timely basis. Under the terms of the Company Note, in the event that the Holding
Company should default on its obligations under the Company Note, First Banks, among other things, may sell the Coast Bank stock that it holds as collateral to pay the principal and interest due on the Company Note and to pay the fees and expenses
incurred in connection therewith (the Debt Obligations). In such an event the Holding Company an, ultimately, its shareholders will retain value in their ownership of the Coast Bank stock only if such sale of the Cost Bank stock yields
proceeds in excess of the Debt Obligations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are hereby filed with the Securities and Exchange Commission.



|            |  |   |  |                                                                                                                                                                                                                                                                                
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                         
|2.1         |  |  |  | Agreement and Plan of Merger, dated August 3, 2007, by and among Coast Financial Holdings, Inc., Coast Bank of Florida, and First Banks, Inc. incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed with the Commission on August 6, 2007.
|            |  |  
|3.1         |  |  |  | Articles of Incorporation of the Company, incorporated herein by reference to Exhibit 3.1 to the Companys Registration Statement on Form SB-2 (Registration No. 333-108567) previously
filed with the Commission.                                                             
|            |  |  
|3.2         |  |  |  | Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 to the Companys Registration Statement on Form SB-2 (Registration No. 333-108567) previously filed with the
Commission.                                                                          
|            |  |  
|4.1         |  |  |  | See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation and the Bylaws of the Company defining the rights of holders of the Companys Common Stock.                                                                                                               



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 6. Exhibits, continued

The following exhibits are hereby filed with the Securities and Exchange Commission.



|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                      
|10.1        |  |  |  | Employment Agreement, dated July 26, 2006, by and between the Coast Financial Holdings, Inc, Coast Bank of Florida, and Brian F. Grimes, incorporated herein by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K, filed with the Commission on July 27, 2006.                                                                                          
|            |  |  
|10.2        |  |  |  | Employment Agreement, dated July 26, 2006, by and between the Coast Financial Holdings, Inc, Coast Bank of Florida, and Anne V. Lee, incorporated herein by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K, filed with the Commission on July 27, 2006.                                                                                              
|            |  |  
|10.3        |  |   |  | Indemnification Agreement, dated July 26, 2006, by and between Coast Financial Holdings, Inc. and Anne V. Lee, incorporated herein by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K, filed with the Commission on July 27, 2006.                                                                                                                    
|            |  |  
|10.4        |  |  |  | Coast Financial Holdings, Inc. Form of Indemnification Agreement entered into with each of the Companys directors and certain of its officers, incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the Commission on October 27, 2005.                                                                                        
|            |  |  
|10.5        |  |  |  | Coast Financial Holdings, Inc. Amended and Restated 2003 Stock Option Plan, dated September 3, 2003, and Forms of Nonqualified Stock Option Agreement and Incentive Stock Option Agreement,
incorporated herein by reference to Exhibit 10.2 to the to the Companys Registration Statement on Form SB-2 (Registration No. 333-108567) previously filed with the Commission.
|            |  |  
|10.6        |  |  |  | Coast Financial Holdings, Inc. Stock Incentive Plan, dated May 20, 2005 (2005 Plan), incorporated herein by reference to Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q, filed with the Commission on August 12, 2005.                                                                                                                                       



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 6. Exhibits, continued

The following exhibits are hereby filed with the Securities and Exchange Commission.



|            |  |   |  |                                                                                                                                                                                                                                                                                                                    
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description of Exhibit                                                                                                                                                                                                                                                                                             
|10.7        |  |  |  | Form of Nonqualified Stock Option Agreement and Notice of Exercise, and Form of Incentive Stock Option Agreement and Notice of Exercise, under the 2005 Plan, incorporated herein by reference
to Exhibits 10.1 and 10.2 to the Companys Current Report on Form 8-K filed with the Commission on October 14, 2005.
|            |  |  
|10.8        |  |  |  | Coast Financial Holdings, Inc. Stock Incentive Plan, dated May 16, 2006 (2006 Plan), incorporated herein by reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed with the Commission on May 23, 2006.                                                                                     
|            |  |  
|10.9        |  |   |  | Indemnification Agreement, dated August 25, 2006, by and between Coast Financial Holdings, Inc. and Justin D. Locke, incorporated by reference to Exhibit 99.1 to the Companys Current
Report on Form 8-K filed with the Commission on August 25, 2006.                                                           
|            |  |  
|10.10       |  |  |  | Change of Control Agreement, dated October 31, 2006, by and between Coast Financial Holdings, Inc. and Justin D. Locke, incorporated herein by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K, filed with the Commission on November 1, 2006.                                               
|            |  |  
|10.11       |  |  |  | Change of Control Agreement, dated October 31, 2006, by and between Coast Financial Holdings, Inc. and Paul J. Nidasio, incorporated herein by reference to Exhibit 10.4 to the Companys
Current Report on Form 8-K, filed with the Commission on November 1, 2006.                                               
|            |  |  
|10.12       |  |   |  | Consulting Agreement, dated February 20, 2007, by and between Coast Financial Holdings, Inc., Coast Bank of Florida, and Tramm Hudson incorporated herein by reference to Exhibit 10.12 to the
Companys Annual Report on Form 10-K, filed with the Commission on March 15, 2007.                                  



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 6. Exhibits, continued

The following exhibits are hereby filed with the Securities and Exchange Commission.



|            |  |   |  |                                                                                                                                                                                                                                                         
|----------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description of Exhibit                                                                                                                                                                                                                                  
|10.13       |  |   |  | Stock Option Agreement dated August 3, 2007, by and between Coast Financial Holdings, Inc. and First Banks, Inc. incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed with the Commission on August 6, 2007.     
|            |  |  
|10.14       |  |  |  | Revolving Credit Note, dated August 17, 2007, by and between Coast Financial Holdings, Inc. and First Banks, Inc., incorporated by reference to Exhibit 10.14 to the Companys Current
Report on Form 8-K filed with the Commission on August 22, 2007. 
|            |  |  
|10.15       |  |  |  | Stock Pledge Agreement, dated August 17, 2007, by and between Coast Financial Holdings, Inc. and First Banks, Inc., incorporated by reference to Exhibit 10.15 to the Companys Current
Report on Form 8-K filed with the Commission on August 22, 2007.
|            |  |  
|10.16       |  |  |  | Revolving Credit Note, dated August 17, 2007, by and between Coast Bank of Florida and First Bank, incorporated by reference to Exhibit 10.16 to the Companys Current Report on Form 8-K
filed with the Commission on August 22, 2007.                 
|            |  |  
|10.17       |  |  |  | Collateral Pledge Agreement, dated August 17, 2007, by and between Coast Bank of Florida and First Bank, incorporated by reference to Exhibit 10.17 to the Companys Current Report on
Form 8-K filed with the Commission on August 22, 2007.           
|            |  |  
|31.1        |  |  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)). *                                                                                                                              
|            |  |  
|31.2        |  |  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)). *                                                                                                                                  
|            |  |  
|32.1        |  |  |  | Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)). *                                                                                           



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION, CONTINUED

Item 6. Exhibits, continued

The following exhibits are hereby filed with the Securities and Exchange Commission.



|            |  |   |  |                                                                                                                                                              
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description of Exhibit                                                                                                                                       
|32.2        |  |  |  | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)). *

---

|* | Exhibit filed herewith.
|- | -----------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |                                |  |                                 
|---------------------- |  | ------------------------------ |  | --------------------------------
|                       |  | COAST FINANCIAL HOLDINGS, INC.
|                       |  | (Registrant)                  
|                       |  |                               
|Date: November 1, 2007 |  | By:                            |  | /s/ Anne V. Lee                 
|                       |  |                                |  | Anne V. Lee, President and Chief
|                       |  |                                |  | Executive Officer               
|                       |  |                               
|Date: November 1, 2007 |  | By:                            |  | /s/ Justin D. Locke             
|                       |  |                                |  | Justin D. Locke,                
|                       |  |                                |  | Chief Financial Officer         



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