##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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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, 2004



| ̈ | 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 Small Business Issuer 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.)



2412 Cortez Road
West

Bradenton, Florida 34207

(Address of Principal Executive Offices)



(941) 752-5900

(Issuers Telephone Number, Including Area Code)





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



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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ̈



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



|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Common stock, par value $5.00 per share |  | 3,756,050 shares               
|(class)                                 |  | Outstanding at November 4, 2004



Transitional Small Business Format
(Check One):    YES ̈NO  x



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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, 2004 (unaudited) and At December 31, 2003                               |  | 2    
|                                                                                                                               | 
|Condensed Consolidated Statements of Earnings - Three and Nine Months ended September 30, 2004 and 2003 (unaudited)            |  | 3    
|                                                                                                                               | 
|Condensed Consolidated Statements of Changes in Stockholders Equity Nine Months Ended September 30, 2004 and 2003 (unaudited) |  | 4    
|                                                                                                                               | 
|Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2004 and 2003 (unaudited)                    |  | 5-6  
|                                                                                                                               | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                               |  | 7-10 
|                                                                                                                               | 
|Review by Independent Registered Public Accounting Firm                                                                        |  | 11   
|                                                                                                                               | 
|Report of Independent Registered Public Accounting Firm                                                                        |  | 12   
|                                                                                                                               | 
|Item 2.
Managements Discussion and Analysis or Plan of Operation                                                              |  | 13-22
|                                                                                                                               | 
|Item 3.
Controls and Procedures                                                                                                |  | 23   
|                                                                                                                               | 
|PART II.
OTHER INFORMATION                                                                                                     |  |      
|                                                                                                                               | 
|Item 1.
Legal Proceedings                                                                                                      |  | 24   
|                                                                                                                               | 
|Item 6.
Exhibits                                                                                                               |  | 25   
|                                                                                                                               | 
|SIGNATURES                                                                                                                     |  | 26   



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

(Dollars in thousands, except per share amounts)



|                                                                                                                                 |  |                   |         |   |                  |         |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | ------- | -
|                                                                                                                                 |  | September 30,2004 |         |   | December 31,2003 |        
|                                                                                                                                 |  | (Unaudited)       |         |   |                  |        
|Assets                                                                                                                           |  |                   |         |   |                  |         |  
|                                                                                                                                 |  |                  
|Cash and due from banks                                                                                                          |  | $                 | 9,657   |   |                  | 4,667   |  
|Federal funds sold                                                                                                               |  |                   | 185     |   |                  | 3,000   |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Cash and cash equivalents                                                                                                        |  |                   | 9,842   |   |                  | 7,667   |  
|                                                                                                                                 |  |                  
|Securities available for sale                                                                                                    |  |                   | 46,695  |   |                  | 26,972  |  
|Loans, net of allowance for loan losses of $2,839 and $3,163                                                                     |  |                   | 278,986 |   |                  | 214,240 |  
|Federal Home Loan Bank stock, at cost                                                                                            |  |                   | 854     |   |                  | 592     |  
|Premises and equipment, net                                                                                                      |  |                   | 16,751  |   |                  | 8,614   |  
|Accrued interest receivable                                                                                                      |  |                   | 1,497   |   |                  | 1,187   |  
|Deferred income taxes                                                                                                            |  |                   | 2,077   |   |                  | 2,525   |  
|Loan servicing rights                                                                                                            |  |                   |        |   |                  | 1,134   |  
|Other assets                                                                                                                     |  |                   | 1,085   |   |                  | 952     |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Total assets                                                                                                                     |  | $                 | 357,787 |   |                  | 263,883 |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Liabilities and Stockholders Equity                                                                                             |  |                   |         |   |                  |         |  
|                                                                                                                                 |  |                  
|Liabilities:                                                                                                                     |  |                   |         |   |                  |         |  
|Noninterest-bearing demand deposits                                                                                              |  | $                 | 21,967  |   |                  | 20,293  |  
|Savings, NOW and money-market deposits                                                                                           |  |                   | 91,758  |   |                  | 46,934  |  
|Time deposits                                                                                                                    |  |                   | 184,927 |   |                  | 140,513 |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Total deposits                                                                                                                   |  |                   | 298,652 |   |                  | 207,740 |  
|                                                                                                                                 |  |                  
|Federal Home Loan Bank advances                                                                                                  |  |                   | 6,000   |   |                  | 7,500   |  
|Other borrowings                                                                                                                 |  |                   | 16,069  |   |                  | 12,097  |  
|Other liabilities                                                                                                                |  |                   | 2,468   |   |                  | 2,881   |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Total liabilities                                                                                                                |  |                   | 323,189 |   |                  | 230,218 |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Stockholders equity:                                                                                                            |  |                   |         |   |                  |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued or outstanding                                   |  |                   |        |   |                  |        |  
|Common stock, $5 par value; 20,000,000 shares authorized, 3,756,050 and 3,735,450 shares issued and outstanding in 2004 and
2003 |  |                   | 18,780  |   |                  | 18,677  |  
|Additional paid-in capital                                                                                                       |  |                   | 19,448  |   |                  | 19,351  |  
|Accumulated deficit                                                                                                              |  |                   | (3,542  | ) |                  | (4,055  | )
|Accumulated other comprehensive income (loss)                                                                                    |  |                   | (88     | ) |                  | (308    | )
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Total stockholders equity                                                                                                       |  |                   | 34,598  |   |                  | 33,665  |  
|                                                                                                                                 |  |                   |         |   |                  |         |  
|Total liabilities and stockholders equity                                                                                       |  | $                 | 357,787 |   |                  | 263,883 |  
|                                                                                                                                 |  |                   |         |   |                  |         |  



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 Earnings (Unaudited)

($ in thousands, except per share
amounts)



|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|------------------------------------------------------------- |  | ------------------------------- | --------- | ---- | ------------------------------ | - | ---- | --------- | - | ---- | --------- | -
|                                                              |  | Three Months EndedSeptember 30, |           |      | Nine Months EndedSeptember 30, |  
|                                                              |  | 2004                            |           | 2003 |                                |   | 2004 |           |   | 2003 |          
|Interest income:                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Loans                                                         |  | $                               | 4,122     |      | 2,896                          |   |      | 11,587    |   |      | 7,952     |  
|Securities                                                    |  |                                 | 308       |      | 192                            |   |      | 791       |   |      | 743       |  
|Other interest-earning assets                                 |  |                                 | 3         |      | 3                              |   |      | 40        |   |      | 47        |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Total interest income                                         |  |                                 | 4,433     |      | 3,091                          |   |      | 12,418    |   |      | 8,742     |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Interest expense:                                             |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Deposits                                                      |  |                                 | 1,823     |      | 1,301                          |   |      | 4,999     |   |      | 3,906     |  
|Borrowings                                                    |  |                                 | 110       |      | 94                             |   |      | 268       |   |      | 282       |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Total interest expense                                        |  |                                 | 1,933     |      | 1,395                          |   |      | 5,267     |   |      | 4,188     |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Net interest income                                           |  |                                 | 2,500     |      | 1,696                          |   |      | 7,151     |   |      | 4,554     |  
|                                                              |  |                                 |           |     
|Provision for loan losses                                     |  |                                 | 319       |      | 198                            |   |      | 1,139     |   |      | 510       |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Net interest income after provision for loan losses           |  |                                 | 2,181     |      | 1,498                          |   |      | 6,012     |   |      | 4,044     |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Noninterest income:                                           |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Service charges on deposit accounts                           |  |                                 | 118       |      | 80                             |   |      | 320       |   |      | 211       |  
|Gain on sale of loans held for sale                           |  |                                 | 372       |      | 370                            |   |      | 1,034     |   |      | 1,053     |  
|Gain on sale of credit card portfolio                         |  |                                 | 173       |      |                               |   |      | 173       |   |      |          |  
|Gain on sale of securities available for sale                 |  |                                 | 4         |      |                               |   |      | 4         |   |      | 98        |  
|Gain on sale of mortgage loan servicing rights                |  |                                 |          |      |                               |   |      | 118       |   |      |          |  
|Gain on sale of merchant services                             |  |                                 |          |      |                               |   |      | 212       |   |      |          |  
|Net loan servicing (cost) fees                                |  |                                 |          |      | (89                            | ) |      | (159      | ) |      | (99       | )
|Asset management fees                                         |  |                                 |          |      | 92                             |   |      | 71        |   |      | 332       |  
|Other service charges and fees                                |  |                                 | 88        |      | 140                            |   |      | 497       |   |      | 458       |  
|Other                                                         |  |                                 | 11        |      | (22                            | ) |      | 33        |   |      | (14       | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Total noninterest income                                      |  |                                 | 766       |      | 571                            |   |      | 2,303     |   |      | 2,039     |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Noninterest expenses:                                         |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Employee compensation and benefits                            |  |                                 | 1,339     |      | 1,297                          |   |      | 3,950     |   |      | 3,668     |  
|Occupancy and equipment                                       |  |                                 | 403       |      | 300                            |   |      | 1,038     |   |      | 785       |  
|Data processing                                               |  |                                 | 191       |      | 210                            |   |      | 697       |   |      | 640       |  
|Professional fees                                             |  |                                 | 102       |      | 89                             |   |      | 419       |   |      | 293       |  
|Telephone, postage and supplies                               |  |                                 | 168       |      | 142                            |   |      | 504       |   |      | 401       |  
|Advertising                                                   |  |                                 | 90        |      | 98                             |   |      | 246       |   |      | 242       |  
|Settlement on impaired security                               |  |                                 |          |      |                               |   |      |          |   |      | (400      | )
|Other                                                         |  |                                 | 221       |      | 173                            |   |      | 632       |   |      | 613       |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Total noninterest expenses                                    |  |                                 | 2,514     |      | 2,309                          |   |      | 7,486     |   |      | 6,242     |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Earnings (loss) before income taxes                           |  |                                 | 433       |      | (240                           | ) |      | 829       |   |      | (159      | )
|                                                              |  |                                 |           |     
|Income tax provision (benefit)                                |  |                                 | 164       |      | (90                            | ) |      | 316       |   |      | (59       | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Net earnings (loss)                                           |  | $                               | 269       |      | (150                           | ) |      | 513       |   |      | (100      | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Dividends on preferred stock                                  |  |                                 |          |      |                               |   |      |          |   |      | (105      | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Net earnings (loss) applicable to common stockholders         |  | $                               | 269       |      | (150                           | ) |      | 513       |   |      | (205      | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Earnings (loss) per share, basic                              |  | $                               | .07       |      | (0.11                          | ) |      | 0.14      |   |      | (0.15     | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Earnings (loss) per share, diluted                            |  | $                               | .07       |      | (0.11                          | ) |      | 0.14      |   |      | (0.15     | )
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Weighted-average number of common shares outstanding, basic   |  |                                 | 3,753,065 |      | 1,350,450                      |   |      | 3,747,091 |   |      | 1,350,450 |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  
|Weighted-average number of common shares outstanding, diluted |  |                                 | 3,786,223 |      | 1,350,450                      |   |      | 3,773,096 |   |      | 1,350,450 |  
|                                                              |  |                                 |           |      |                                |   |      |           |   |      |           |  



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 (Unaudited)



Nine Months Ended September 30, 2004 and 2003

(Dollars in thousands)



|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|---------------------------------------------------------------------------------------- |  | -------------- | ----- | ----------- | ------ | ------------------------ | ------ | - | ------------------ | ------ | - | ------------------------------------------- | ---- | - | ------------------------ | ------ | -
|                                                                                         |  | PreferredStock |       | CommonStock |        | AdditionalPaid-inCapital |        |   | AccumulatedDeficit |        |   | AccumulatedOther ComprehensiveIncome (Loss) |      |   | TotalStockholdersEquity |       
|Balance at December 31, 2002                                                             |  | $              | 5,995 |             | 6,752  |                          | 5,897  |   |                    | (2,325 | ) |                                             | (58  | ) |                          | 16,261 |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Comprehensive income (loss):                                                             |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Net loss (unaudited)                                                                     |  |                |      |             |       |                          |       |   |                    | (100   | ) |                                             |     |   |                          | (100   | )
|                                                                                         |  |                |       |             |        |                         
|Net change in unrealized loss on securities available for sale, net of taxes (unaudited) |  |                |      |             |       |                          |       |   |                    |       |   |                                             | (251 | ) |                          | (251   | )
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Comprehensive income (loss) (unaudited)                                                  |  |                |      |             |       |                          |       |   |                    |       |   |                                             |     |   |                          | (351   | )
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Dividends on preferred stock (unaudited)                                                 |  |                |      |             |       |                          |       |   |                    | (105   | ) |                                             |     |   |                          | (105   | )
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Balance at September 30, 2003 (unaudited)                                                |  | $              | 5,995 |             | 6,752  |                          | 5,897  |   |                    | (2,530 | ) |                                             | (309 | ) |                          | 15,805 |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Balance at December 31, 2003                                                             |  | $              |      |             | 18,677 |                          | 19,351 |   |                    | (4,055 | ) |                                             | (308 | ) |                          | 33,665 |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Comprehensive income:                                                                    |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Net earnings (unaudited)                                                                 |  |                |      |             |       |                          |       |   |                    | 513    |   |                                             |     |   |                          | 513    |  
|                                                                                         |  |                |       |             |        |                         
|Net change in unrealized loss on securities available for sale, net of taxes (unaudited) |  |                |      |             |       |                          |       |   |                    |       |   |                                             | 220  |   |                          | 220    |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Comprehensive income (unaudited)                                                         |  |                |      |             |       |                          |       |   |                    |       |   |                                             |     |   |                          | 733    |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Offering costs relating to 2003 common stock offering paid in 2004 (unaudited)           |  |                |      |             |       |                          | (7     | ) |                    |       |   |                                             |     |   |                          | (7     | )
|                                                                                         |  |                |       |             |        |                         
|Proceeds from exercise of common stock options (20,600 shares) (unaudited)               |  |                |      |             | 103    |                          | 104    |   |                    |       |   |                                             |     |   |                          | 207    |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  
|Balance at September 30, 2004 (unaudited)                                                |  | $              |      |             | 18,780 |                          | 19,448 |   |                    | (3,542 | ) |                                             | (88  | ) |                          | 34,598 |  
|                                                                                         |  |                |       |             |        |                          |        |   |                    |        |   |                                             |      |   |                          |        |  



See Accompanying Notes to Condensed
Consolidated Financial Statements.



4



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                           |  |                                |         |   |      |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | ------- | -
|                                                                                           |  | Nine Months EndedSeptember 30, |        
|                                                                                           |  | 2004                           |         |   | 2003 |        
|Cash flows from operating activities:                                                      |  |                                |         |   |      |         |  
|Net earnings (loss)                                                                        |  | $                              | 513     |   |      | (100    | )
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |                                |         |   |      |         |  
|Depreciation and amortization                                                              |  |                                | 655     |   |      | 334     |  
|Provision for loan losses                                                                  |  |                                | 1,139   |   |      | 510     |  
|Provision (credit) for deferred income taxes                                               |  |                                | 316     |   |      | (59     | )
|Amortization and accretion of discounts and premiums on securities                         |  |                                | 327     |   |      | 274     |  
|Amortization of loan servicing rights                                                      |  |                                | 274     |   |      | 99      |  
|Gain on sale of securities available for sale                                              |  |                                | (4      | ) |      | (98     | )
|Gain on sale of merchant services                                                          |  |                                | (212    | ) |      |        |  
|Settlement on impaired security                                                            |  |                                |        |   |      | (400    | )
|Provision for foreclosed real estate losses                                                |  |                                |        |   |      | 37      |  
|Gain on sale of loan servicing rights                                                      |  |                                | (118    | ) |      |        |  
|Gain on sale of loans held for sale                                                        |  |                                | (1,034  | ) |      | (1,053  | )
|Originations of loans held for sale                                                        |  |                                | (59,056 | ) |      | (70,327 | )
|Proceeds from sale of loans held for sale                                                  |  |                                | 60,002  |   |      | 70,210  |  
|Gain on sale of credit card portfolio                                                      |  |                                | (173    | ) |      |        |  
|Increase in accrued interest receivable                                                    |  |                                | (310    | ) |      | (207    | )
|Increase in other assets                                                                   |  |                                | (133    | ) |      | (429    | )
|(Decrease) increase in other liabilities                                                   |  |                                | (413    | ) |      | 2,890   |  
|                                                                                           |  |                                |         |   |      |         |  
|Net cash provided by operating activities                                                  |  |                                | 1,773   |   |      | 1,681   |  
|                                                                                           |  |                                |         |   |      |         |  
|Cash flows from investing activities:                                                      |  |                                |         |   |      |         |  
|Purchase of securities available for sale                                                  |  |                                | (31,427 | ) |      | (16,516 | )
|Proceeds from maturities, calls, repayments and sales of securities available for sale     |  |                                | 11,733  |   |      | 19,306  |  
|Net increase in loans                                                                      |  |                                | (66,964 | ) |      | (48,935 | )
|Purchase of premises and equipment                                                         |  |                                | (8,792  | ) |      | (2,136  | )
|Purchase of Federal Home Loan Bank stock                                                   |  |                                | (262    | ) |      | (293    | )
|Proceeds from sale of loan servicing rights                                                |  |                                | 1,066   |   |      |        |  
|Proceeds from sale of merchant services                                                    |  |                                | 212     |   |      |        |  
|Proceeds from sale of credit card portfolio                                                |  |                                | 1,252   |   |      |        |  
|                                                                                           |  |                                |         |   |      |         |  
|Net cash used in investing activities                                                      |  |                                | (93,182 | ) |      | (48,574 | )
|                                                                                           |  |                                |         |   |      |         |  
|Cash flows from financing activities:                                                      |  |                                |         |   |      |         |  
|Net increase in deposits                                                                   |  |                                | 90,912  |   |      | 38,237  |  
|Proceeds from Federal Home Loan Bank advances                                              |  |                                | 12,200  |   |      | 600     |  
|Repayments of Federal Home Loan Bank advances                                              |  |                                | (13,700 | ) |      |        |  
|Net increase in repurchase agreements                                                      |  |                                | 3,972   |   |      | 7,308   |  
|Net increase in line of credit                                                             |  |                                |        |   |      | 303     |  
|Offering costs                                                                             |  |                                | (7      | ) |      |        |  
|Proceeds from exercise of common stock options                                             |  |                                | 207     |   |      |        |  
|Dividends paid on preferred stock                                                          |  |                                |        |   |      | (105    | )
|                                                                                           |  |                                |         |   |      |         |  
|Net cash provided by financing activities                                                  |  |                                | 93,584  |   |      | 46,343  |  
|                                                                                           |  |                                |         |   |      |         |  
|Net increase (decrease) in cash and cash equivalents                                       |  |                                | 2,175   |   |      | (550    | )
|                                                                                           |  |                               
|Cash and cash equivalents at beginning of period                                           |  |                                | 7,667   |   |      | 8,970   |  
|                                                                                           |  |                                |         |   |      |         |  
|Cash and cash equivalents at end of period                                                 |  | $                              | 9,842   |   |      | 8,420   |  
|                                                                                           |  |                                |         |   |      |         |  



(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(Dollars in thousands)



|                                                                                                                        |  |                                |       |      |       |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | ---- | ----- | -
|                                                                                                                        |  | Nine Months EndedSeptember 30, |      
|                                                                                                                        |  | 2004                           |       | 2003 |      
|Supplemental disclosure of cash flow information:                                                                       |  |                                |       |      |       |  
|Cash paid during the period for:                                                                                        |  |                                |       |      |       |  
|Interest                                                                                                                |  | $                              | 5,233 |      | 4,196 |  
|                                                                                                                        |  |                                |       |      |       |  
|Income taxes                                                                                                            |  | $                              |      |      |      |  
|                                                                                                                        |  |                                |       |      |       |  
|Noncash transactions:                                                                                                   |  |                                |       |      |       |  
|Accumulated other comprehensive income (loss), change in unrealized loss on securities available for sale, net of taxes |  | $                              | 220   |      | (251  | )
|                                                                                                                        |  |                                |       |      |       |  
|Originated mortgage loan servicing rights capitalized                                                                   |  | $                              | 88    |      | 409   |  
|                                                                                                                        |  |                                |       |      |       |  



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)
(collectively, the Company). On April 15, 2003, the Banks stockholders approved a Plan of Merger and Merger Agreement under which the Bank became a wholly-owned subsidiary of the Holding Company. The Banks stockholders
exchanged their common stock and preferred stock for shares of the Holding Company. As a result, all (1,350,450 shares) of the previously issued $5 par value common stock of the Bank were exchanged for 1,350,450 shares of the $5 par value common
stock of the Holding Company and all (545,000 shares) of the previously issued $0.01 par value preferred stock of the Bank were exchanged for 545,000 shares of the $0.01 par value preferred stock of the Holding Company. The Holding Companys
merger with the Bank was accounted as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank and Coast Financial Partners, Inc. (CFP).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Holding Companys primary activity is
the operation of the Bank. The Bank is a state (Florida)-chartered commercial bank. The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and
corporate customers through its seven banking offices located in Manatee County, Florida. CFP provided investment advisory services to customers of the Bank. During the three-months ended March 31, 2004, CFP ceased operations and the Bank now
provides these services through an unrelated entity.



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,
2004, the results of operations for the three- and nine-month periods ended September 30, 2004 and 2003 and cash flows for the nine-month periods ended September 30, 2004 and 2003. The results of operations and other data for the three- and
nine-month periods ended September 30, 2004 are not necessarily indicative of results that may be expected for the year ending December 31, 2004.



Reclassification of Accounts.Certain items in the condensed consolidated financial statements for 2003 have been reclassified to conform to
the classifications used for the current period.



|2. | Loan Impairment and Loan Losses.The activity in the allowance for loan losses is as follows ($ in thousands):
|-- | -------------------------------------------------------------------------------------------------------------



|                                |  |                                 |       |   |                                |       |   |      |        |   |      |       |  
|------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | ----- | - | ---- | ------ | - | ---- | ----- | -
|                                |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |      
|                                |  | 2004                            |       |   | 2003                           |       |   | 2004 |        |   | 2003 |      
|Balance at beginning of period  |  | $                               | 2,808 |   |                                | 1,587 |   |      | 3,163  |   |      | 1,350 |  
|Provision for loan losses       |  |                                 | 319   |   |                                | 198   |   |      | 1,139  |   |      | 510   |  
|Net, charge-offs and recoveries |  |                                 | (288  | ) |                                | (153  | ) |      | (1,463 | ) |      | (228  | )
|                                |  |                                 |       |   |                                |       |   |      |        |   |      |       |  
|Balance at end of period        |  | $                               | 2,839 |   |                                | 1,632 |   |      | 2,839  |   |      | 1,632 |  
|                                |  |                                 |       |   |                                |       |   |      |        |   |      |       |  



(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.Impaired collateral dependent loans were as follows ($ in thousands):
|-- | ----------------------------------------------------------------------------------------------------------------



|                                             |  |                                 |     |                                |     |      |     |      |    
|-------------------------------------------- |  | ------------------------------- | --- | ------------------------------ | --- | ---- | --- | ---- | ---
|                                             |  | Three Months EndedSeptember 30, |     | Nine Months EndedSeptember 30,
|                                             |  | 2004                            |     | 2003                           |     | 2004 |     | 2003
|Balance at end of period                     |  | $                               | 171 |                                | 259 |      | 171 |      | 259
|                                             |  |                                 |     |                                |     |      |     |      |    
|Total related allowance for losses           |  | $                               | 29  |                                | 130 |      | 29  |      | 130
|                                             |  |                                 |     |                                |     |      |     |      |    
|Average investment in impaired loans         |  | $                               | 280 |                                | 305 |      | 319 |      | 266
|                                             |  |                                 |     |                                |     |      |     |      |    
|Interest income recognized on impaired loans |  | $                               |    |                                | 8   |      |    |      | 24 
|                                             |  |                                 |     |                                |     |      |     |      |    
|Interest income received on impaired loans   |  | $                               |    |                                | 8   |      |    |      | 10 
|                                             |  |                                 |     |                                |     |      |     |      |    



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



|                                             |  |                  |       |      |    
|-------------------------------------------- |  | ---------------- | ----- | ---- | ---
|                                             |  | At September 30,
|                                             |  | 2004             |       | 2003
|Nonaccrual loans                             |  | $                | 2,036 |      | 211
|Past due ninety days or more, still accruing |  |                  |      |      | 5  
|                                             |  |                  |       |      |    
|                                             |  | $                | 2,036 |      | 216
|                                             |  |                  |       |      |    



|3. | Stock Option Plan.The Company has a stock option plan for certain key employees and directors of the Company. A total of 405,000 shares (amended) of common stock have
been reserved under this plan. 11,600 shares remain available for grant at September 30, 2004. The exercise price of the stock options granted under this plan must at least equal the fair market value of the common stock at the date of grant. The
options have ten year terms and vest over periods of up to three years. A summary of stock option transactions follows ($ in thousands, except per share amounts):
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                  |  |                 |   |  |                                |             |                                 |       |                      |       |  
|--------------------------------- |  | --------------- | - |  | ------------------------------ | ----------- | ------------------------------- | ----- | -------------------- | ----- | -
|                                  |  | Numberof Shares |   |  | Range of Per ShareOption Price |             | Weighted- AveragePer SharePrice |       | AggregateOptionPrice |      
|Outstanding at December 31, 2003  |  | 305,400         |   |  | $                              | 10.00-14.50 |                                 | 12.84 |                      | 3,923 |  
|Granted                           |  | 89,600          |   |  |                                | 13.25       |                                 | 13.25 |                      | 1,187 |  
|Exercised                         |  | (20,600         | ) |  |                                | 10.00       |                                 | 10.00 |                      | (207  | )
|Expired                           |  | (1,600          | ) |  |                                | 10.00-13.25 |                                 | 11.22 |                      | (18   | )
|                                  |  |                 |   |  |                                |             |                                 |       |                      |       |  
|Outstanding at September 30, 2004 |  | 372,800         |   |  | $                              | 10.0014.50  |                                 | 13.11 |                      | 4,885 |  
|                                  |  |                 |   |  |                                |             |                                 |       |                      |       |  



(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



|3. | Stock Option Plan, Continued.The Company accounts for their stock option plan under the recognition and measurement principles of Accounting Principles Board Opinion
No. 25. No stock-based employee compensation cost is reflected in net earnings (loss), as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net earnings (loss) if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure (collectively SFAS No. 123) to stock-based employee compensation ($ in thousands, except per share amounts).
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------ | ----- | - | ---- | ---- | - | ---- | ---- | -
|                                                                                                                                       |  | Three Months EndedSeptember 30, |      |   | Nine Months EndedSeptember 30, |      
|                                                                                                                                       |  | 2004                            |      |   | 2003                           |       |   | 2004 |      |   | 2003 |     
|Net earnings (loss) applicable to common stockholders, as reported                                                                     |  | $                               | 269  |   |                                | (150  | ) |      | 513  |   |      | (100 | )
|Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax
effect |  |                                 | (88  | ) |                                | (3    | ) |      | (263 | ) |      | (8   | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Proforma net earnings (loss) applicable to common stockholders                                                                         |  | $                               | 181  |   |                                | (153  | ) |      | 250  |   |      | (108 | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Earnings (loss) per share:                                                                                                             |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Basic, as reported                                                                                                                     |  | $                               | 0.07 |   |                                | (0.11 | ) |      | 0.14 |   |      | (0.7 | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Basic, proforma                                                                                                                        |  | $                               | 0.05 |   |                                | (0.11 | ) |      | 0.07 |   |      | (0.8 | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Diluted, as reported                                                                                                                   |  | $                               | 0.07 |   |                                | (0.11 | ) |      | 0.14 |   |      | (0.7 | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  
|Diluted, proforma                                                                                                                      |  | $                               | 0.05 |   |                                | (0.11 | ) |      | 0.07 |   |      | (0.8 | )
|                                                                                                                                       |  |                                 |      |   |                                |       |   |      |      |   |      |      |  



There were no options
granted during the three months ended September 30, 2004, however, there was 89,600 options granted during the nine months ended September 30, 2004. These grants were inadvertently not included in the previous 2004 10-QSBs; however, this had
no effect to per share data. Also, there was minimal effect on net earnings of the Company had the fair value recognition of SFAS No. 123 to stock-based employee compensation been applied. The fair value of each option granted in 2004 is estimated
on the date of grant using the Black-Scholes model with the following assumptions:



|                                              |  |                                     |       |  
|--------------------------------------------- |  | ----------------------------------- | ----- | -
|                                              |  | Nine Months EndedSeptember 30, 2004 |      
|Risk-free interest rate                       |  |                                     | 4.32  | %
|Dividend yield                                |  |                                     |      | %
|Expected volatility                           |  |                                     | 13.72 | %
|Expected life in years                        |  |                                     | 10    |  
|Per share fair value of options at grant date |  | $                                   | 4.97  |  
|                                              |  |                                     |       |  



(continued)



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



|4. | Regulatory Capital. The Company and the Bank are required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2004
of the regulatory capital requirements and the Companys and the Banks actual capital on a percentage basis:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                 |  |        |   |  |                       |  
|------------------------------------------------ |  | ------ | - |  | --------------------- | -
|                                                 |  | Actual |   |  | RegulatoryRequirement |  
|Total capital to risk-weighted assets:           |  |        |   |  |                       |  
|Company                                          |  | 14.23  | % |  | 8.00                  | %
|Bank                                             |  | 12.00  | % |  | 8.00                  | %
|Tier I capital to risk-weighted assets:          |  |        |   |  |                       |  
|Company                                          |  | 13.09  | % |  | 4.00                  | %
|Bank                                             |  | 10.86  | % |  | 4.00                  | %
|Tier I capital to total assets - leverage ratio: |  |        |   |  |                       |  
|Company                                          |  | 9.47   | % |  | 4.00                  | %
|Bank                                             |  | 7.86   | % |  | 4.00                  | %



|5. | 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 considered dilutive securities in 2004 for purposes of calculating diluted EPS which is computed using the treasury stock method. Outstanding stock options are not considered dilutive
securities in 2003 due to the net losses incurred by the Company. The following table presents the calculations of the weighted-average number of shares for diluted EPS in 2004.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  |                            
|------------------------------------------------------------------------------------ |  | ---------------------------
|                                                                                     |  | Weighted-AverageShares 2004
|Three Months Ended September 30:                                                     |  |                            
|                                                                                     | 
|For Basic EPS                                                                        |  | 3,753,065                  
|                                                                                     | 
|Effect of dilutive securities- Incremental shares from assumed conversion of options |  | 33,158                     
|                                                                                     |  |                            
|For Diluted EPS                                                                      |  | 3,786,223                  
|                                                                                     |  |                            
|Nine Months Ended September 30:                                                      |  |                            
|                                                                                     | 
|For Basic EPS                                                                        |  | 3,747,091                  
|                                                                                     | 
|Effect of dilutive securities- Incremental shares from assumed conversion of options |  | 26,005                     
|                                                                                     |  |                            
|For Diluted EPS                                                                      |  | 3,773,096                  
|                                                                                     |  |                            



Shares not included in
the computations of diluted earnings per share in 2004 because the options exercise price was not less than the market value for the nine-months ended September 30, 2004 are as follows:



|        |  |                 |  |               |       |            |      |              |     
|------- |  | --------------- |  | ------------- | ----- | ---------- | ---- | ------------ | ----
|        |  | Number ofShares |  | ExercisePrice |       | YearIssued |      | YearExpiring
|Options |  | 190,000         |  | $             | 14.50 |            | 2003 |              | 2013
|        |  |                 |  |               |       |            |      |              |     



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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, have made a limited review of the financial data as of September 30, 2004, and for the three- and nine- month periods
ended September 30, 2004 and 2003 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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Report of Independent Registered Public Accounting Firm



Coast Financial Holdings, Inc.

Bradenton, Florida:



We have
reviewed the accompanying interim condensed consolidated balance sheet of Coast Financial Holdings, Inc. and Subsidiary (the Company) as of September 30, 2004, the related interim condensed consolidated statements of operations for the
three- and nine- month periods ended September 30, 2004 and 2003 and the related interim condensed consolidated statements of changes in stockholders equity and cash flows for the nine-month periods ended September 30, 2004 and 2003. 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, 2003, 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 January 21, 2004, 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, 2003, 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 15, 2004



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Item 2. Managements Discussion and Analysis

or Plan of Operation



Forward Looking Statements



This document contains 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, prospective results of operations, future performance or expectations, plans, objectives,
simulation of changes in interest rates, capital spending and financing sources, and revenue sources. 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 are forward-looking statements. These forward-looking statements are typically identified by words or phrases such as believe, expect,
anticipate, plan, estimate, approximately, intend, and other similar words and expressions, or future or conditional verbs such as will, should, would,
could, and may. In addition, the Company may from time to time make such written or oral forward-looking statements in future filings with the Securities and Exchange Commission (including exhibits thereto), in its reports to
stockholders, and in other communications made by or with the approval of the Company.



These forward-looking statements are based largely on information currently available to our management, and upon current views, expectations, assumptions, plans, estimates, judgments and projections about our
business and our industry, and they involve inherent risks and uncertainties. Although we believe that these forward-looking statements are based upon reasonable estimates, judgments and assumptions, they are not guarantees of future performance and
are subject to known and unknown risks, contingencies, and other factors. Accordingly, we cannot give you any assurance that our expectations will in fact occur or that our estimates, judgments or assumptions will be correct. We caution you that
actual results may differ materially and adversely from those expressed or implied by such forward-looking statements due to a variety of factors, including, but not limited to, those related to the general and local economic environment,
competition and competitive products and pricing, fiscal and monetary policies of the U.S. government, inflation, changes in interest rates, the Companys ability to successfully open and operate new branches and collect on delinquent loans,
changes in the value of collateral securing loans we have made, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability management, changes in technology, changes in the securities markets, and the availability of and the costs associated with sources of liquidity. Accordingly, investors and
all others are cautioned not to place undue reliance on such forward-looking statements.



Many of these factors are beyond our control, and you should read carefully the factors described in Risk Factors in the Companys filings (including its Forms 10-KSB and registration statements) with
the Securities and Exchange Commission for a description of some, but not all, risks, uncertainties and contingencies. These forward-looking statements speak only as of the date of this document. 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.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



General



Coast Financial Holdings, Inc. (the Holding Company) owns 100% of the outstanding common stock of Coast Bank of
Florida (the Bank) (collectively the Company). On April 15, 2003, the Banks stockholders approved a Plan of Merger and Merger Agreement under which the Bank became a wholly-owned subsidiary of the Holding Company. The
Banks stockholders exchanged their common stock and preferred stock for shares of the Holding Company. As a result, all (1,350,450 shares) of the previously issued $5 par value common stock of the Bank were exchanged for 1,350,450 shares of
the $5 par value common stock of the Holding Company and all (545,000 shares) of the previously issued $0.01 par value preferred stock of the Bank were exchanged for 545,000 shares of the $0.01 par value preferred stock of the Holding Company. The
Holding Companys merger with the Bank was accounted as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank. In connection with the initial public
offering of the Holding Companys common stock in November 2003, all outstanding preferred stock was converted into common stock. During the three months ended March 31, 2004, Coast Financial Partners, Inc. ceased operations.



Liquidity and Capital Resources



The Companys primary source of cash during the nine months ended
September 30, 2004, was from net deposit inflows of approximately $91 million, an increase in other borrowings of approximately $4 million and principle repayments and calls of securities available for sale of approximately $12 million. Cash was
used primarily to originate net loans of approximately $67 million, to purchase securities of approximately $31 million, to purchase premises and equipment of approximately $9 million and to repay Federal Home Loan Bank advances of approximately
$1.5 million. At September 30, 2004, the Bank exceeded its regulatory liquidity requirements.



Management is not aware of any material trends, favorable or unfavorable, in our capital resources. Management will continue to attempt to acquire short-term deposits and low cost transaction accounts.



Off-Balance Sheet Arrangements and Aggregate Contractual Obligations



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, unused lines of credit and standby letters of credit. 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.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



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, 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 letter of credit as it does with its lending activities. The Company evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation.



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 many 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. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.



Unused lines of credit and commitments to extend credit typically result in
loans with a market interest rate.



A summary of the amounts of the
Companys financial instruments, with off-balance sheet risk at September 30, 2004, follows (in thousands):



|                             |  |                |        
|---------------------------- |  | -------------- | -------
|                             |  | ContractAmount
|Commitments to extend credit |  | $              | 108,308
|                             |  |                |        
|Unused lines of credit loans |  | $              | 21,857 
|                             |  |                |        
|Standby letters of credit    |  | $              | 2,070  
|                             |  |                |        



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.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Selected Ratios



The following are presented for the dates and periods indicated:



|                                                 |  |                                   |   |  |                            |    |  |                                   |      
|------------------------------------------------ |  | --------------------------------- | - |  | -------------------------- | -- |  | --------------------------------- | -----
|                                                 |  | Nine MonthsEndedSeptember 30,2004 |   |  | Year EndedDecember 31,2003 |    |  | Nine MonthsEndedSeptember 30,2003 |      
|Average equity as a percentage of average assets |  | 10.70                             | % |  | 8.68                       | %  |  | 7.85                              | %    
|Equity to total assets at end of period          |  | 9.67                              | % |  | 12.76                      | %  |  | 7.03                              | %    
|Return on average assets(1)                      |  | 0.22                              | % |  | (0.76                      | )% |  | (0.06                             | )%(2)
|Return on average equity(1)                      |  | 2.01                              | % |  | (8.70                      | )% |  | (0.85                             | )%(2)
|Dividend payout ratio(3)                         |  | N/A                               |   |  | N/A                        |    |  | N/A                               |      

---

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

|(2) | Excluding the after tax settlement on impaired securities during the period, the return on average assets was (0.23)% and the return of average equity was (2.90)%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The Company has not paid dividends on common stock since inception.
|--- | -------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Results of Operations



The following table sets forth, for the periods indicated, 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, |  
|                                                                                 |  |                |         | 2004                             |   | 2003              | 
|                                                                                 |  | AverageBalance |         | InterestandDividends             |   | AverageYield/Rate |  |      | AverageBalance         |  | InterestandDividends |         | AverageYield/Rate |  
|                                                                                 |  |                |         |                                  |   |                   |  |      | (Dollars in thousands) |  |                      |        
|Interest-earning assets:                                                         |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Loans (1)                                                                        |  | $              | 270,242 |                                  |   | 4,122             |  | 6.07 | %                      |  | $                    | 172,080 |                   |   | 2,896 |  | 6.68 | %
|Securities                                                                       |  |                | 47,375  |                                  |   | 308               |  | 2.59 |                        |  |                      | 28,151  |                   |   | 192   |  | 2.70 |  
|Other interest-earning assets (2)                                                |  |                | 963     |                                  |   | 3                 |  | 1.41 |                        |  |                      | 915     |                   |   | 3     |  | 0.98 |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-earning assets                                                    |  |                | 318,580 |                                  |   | 4,433             |  | 5.54 |                        |  |                      | 201,146 |                   |   | 3,091 |  | 6.11 |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Noninterest-earning assets                                                       |  |                | 28,303  |                                  |   |                   |  |      |                        |  |                      | 17,501  |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total assets                                                                     |  | $              | 346,883 |                                  |   |                   |  |      |                        |  | $                    | 218,647 |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Interest-bearing liabilities:                                                    |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Savings, NOW and money-market                                                    |  |                | 91,561  |                                  |   | 401               |  | 1.74 |                        |  |                      | 39,644  |                   |   | 104   |  | 1.04 |  
|Time deposits                                                                    |  |                | 169,309 |                                  |   | 1,422             |  | 3.34 |                        |  |                      | 121,827 |                   |   | 1,197 |  | 3.90 |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing deposits                                                  |  |                | 260,870 |                                  |   | 1,823             |  | 2.78 |                        |  |                      | 161,471 |                   |   | 1,301 |  | 3.20 |  
|                                                                                 |  |                |         |                                  |   |                  
|Other borrowings                                                                 |  |                | 25,831  |                                  |   | 110               |  | 1.69 |                        |  |                      | 20,936  |                   |   | 94    |  | 1.78 |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing liabilities                                               |  |                | 286,701 |                                  |   | 1,933             |  | 2.68 |                        |  |                      | 182,407 |                   |   | 1,395 |  | 3.04 |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Noninterest-bearing liabilities                                                  |  |                | 26,181  |                                  |   |                   |  |      |                        |  |                      | 20,369  |                   |   |       |  |      |  
|Stockholders equity                                                             |  |                | 34,001  |                                  |   |                   |  |      |                        |  |                      | 15,871  |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total liabilities and stockholders equity                                       |  | $              | 346,883 |                                  |   |                   |  |      |                        |  | $                    | 218,647 |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Net interest income                                                              |  |                |         |                                  | $ | 2,500             |  |      |                        |  |                      |         |                   | $ | 1,696 |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Interest-rate spread (3)                                                         |  |                |         |                                  |   |                   |  | 2.86 | %                      |  |                      |         |                   |   |       |  | 3.07 | %
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Net interest margin (4)                                                          |  |                |         |                                  |   |                   |  | 3.12 | %                      |  |                      |         |                   |   |       |  | 3.35 | %
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                | 1.11    |                                  |   |                   |  |      |                        |  |                      | 1.10    |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                  |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  

---

|(1) | Includes non-accrual loans.
|--- | ---------------------------

|(2) | Includes federal funds sold and interest-bearing deposits.
|--- | ----------------------------------------------------------

|(3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is net interest income divided by average interest-earning assets.
|--- | --------------------------------------------------------------------------------------



17



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



The following table sets forth, for the periods indicated, 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, |  
|                                                                                 |  |                |         | 2004                            |   |                   |  | 2003 |                       
|                                                                                 |  | AverageBalance |         | InterestandDividends            |   | AverageYield/Rate |  |      | AverageBalance         |  | InterestandDividends |         | AverageYield/Rate |  
|                                                                                 |  |                |         |                                 |   |                   |  |      | (Dollars in thousands) |  |                      |        
|Interest-earning assets:                                                         |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Loans (1)                                                                        |  | $              | 246,867 |                                 |   | 11,587            |  | 6.27 | %                      |  | $                    | 153,333 |                   |   | 7,952 |  | 6.93 | %
|Securities                                                                       |  |                | 37,627  |                                 |   | 791               |  | 2.81 |                        |  |                      | 29,597  |                   |   | 743   |  | 3.36 |  
|Other interest-earning assets (2)                                                |  |                | 5,658   |                                 |   | 40                |  | 0.95 |                        |  |                      | 5,250   |                   |   | 47    |  | 1.18 |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-earning assets                                                    |  |                | 290,152 |                                 |   | 12,418            |  | 5.72 |                        |  |                      | 188,180 |                   |   | 8,742 |  | 6.21 |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Noninterest-earning assets                                                       |  |                | 26,194  |                                 |   |                   |  |      |                        |  |                      | 16,661  |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total assets                                                                     |  | $              | 316,346 |                                 |   |                   |  |      |                        |  | $                    | 204,841 |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Interest-bearing liabilities:                                                    |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Savings, NOW and money-market                                                    |  |                | 73,273  |                                 |   | 880               |  | 1.60 |                        |  |                      | 40,634  |                   |   | 456   |  | 1.50 |  
|Time deposits                                                                    |  |                | 161,748 |                                 |   | 4,119             |  | 3.40 |                        |  |                      | 112,017 |                   |   | 3,450 |  | 4.12 |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing deposits                                                  |  |                | 235,021 |                                 |   | 4,999             |  | 2.84 |                        |  |                      | 152,651 |                   |   | 3,906 |  | 3.42 |  
|                                                                                 |  |                |         |                                 |   |                  
|Other borrowings                                                                 |  |                | 21,753  |                                 |   | 268               |  | 1.65 |                        |  |                      | 17,554  |                   |   | 282   |  | 2.14 |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total interest-bearing liabilities                                               |  |                | 256,774 |                                 |   | 5,267             |  | 2.74 |                        |  |                      | 170,205 |                   |   | 4,188 |  | 3.29 |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Noninterest-bearing liabilities                                                  |  |                | 25,730  |                                 |   |                   |  |      |                        |  |                      | 18,548  |                   |   |       |  |      |  
|Stockholders equity                                                             |  |                | 33,842  |                                 |   |                   |  |      |                        |  |                      | 16,088  |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Total liabilities and stockholders equity                                       |  | $              | 316,346 |                                 |   |                   |  |      |                        |  | $                    | 204,841 |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Net interest income                                                              |  |                |         |                                 | $ | 7,151             |  |      |                        |  |                      |         |                   | $ | 4,554 |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Interest-rate spread (3)                                                         |  |                |         |                                 |   |                   |  | 2.98 | %                      |  |                      |         |                   |   |       |  | 2.92 | %
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Net interest margin (4)                                                          |  |                |         |                                 |   |                   |  | 3.29 | %                      |  |                      |         |                   |   |       |  | 3.23 | %
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                | 1.13    |                                 |   |                   |  |      |                        |  |                      | 1.11    |                   |   |       |  |      |  
|                                                                                 |  |                |         |                                 |   |                   |  |      |                        |  |                      |         |                   |   |       |  |      |  

---

|(1) | Includes non-accrual loans.
|--- | ---------------------------

|(2) | Includes federal funds sold and interest-bearing deposits.
|--- | ----------------------------------------------------------

|(3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is net interest income divided by average interest-earning assets.
|--- | --------------------------------------------------------------------------------------



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Comparison of the Three-Month Periods Ended September 30, 2004 and 2003



General. Our net earnings for the three
months ended September 30, 2004, were $269,000 or $0.07 earnings per basic and diluted share compared to a net loss of $150,000 or $(0.11) loss per basic and diluted share of the three months ended September 30, 2003. Net earnings increased due to
an increase in net interest income, which was partially offset by an increase in noninterest expenses. Also, there was a net after tax gain of $108,000 due to the sale of our credit card portfolio in 2004.



Net Interest Income. Interest income increased to $4.4 million
during the three months ended September 30, 2004, from $3.1 million in 2003. Interest on loans for the three months ended September 30, 2004 was $4.1 million, resulting from an average yield of 6.07% compared to $2.9 million resulting from an
average yield of 6.68% for 2003. The decline in the average rate earned was the result of the continued decline in the overall interest rates. The increase in interest on loans was primarily due to an increase in the average loan balance to $270.2
million, during the three months ended September 30, 2004 compared to $172.1 million, in 2003. Interest on securities increased to $308,000 during the three months ended September 30, 2004, from $192,000 in 2003. The increase in interest income on
securities was primarily due to an increase in the average portfolio balance to $47.4 million during the three months ended September 30, 2004 from $28.2 million in 2003.



Interest expense on interest bearing liabilities increased to $1.9 million during the three months ended September 30, 2004,
from $1.4 million during the three months ended September 30, 2003. The increase was due to an increase in the average balance of interest bearing liabilities, which was partially offset by a decrease in the average cost of interest bearing
liabilities to 2.68% in 2004 from 3.04% in 2003. The decline in the average rate paid was the result of managements efforts to increase low cost deposit accounts and the continued decline in overall interest rates. Management is intent on
building core deposits for the long-term, which enhance customer retention, and anticipate the mix of deposits to shift throughout the remainder of 2004.



Provision for Loan Losses. Calculating the allowance for loan losses is divided into two primary allocation groups: (1) specific allocation
loans and (2) all other passing grade loans. For specific allocation loans, we have determined an allowance amount to set aside which we believe is sufficient to cover any potential collateral shortfall. Problem loans are identified by the loan
officer, loan review, loan committee or by the examiners. Those loans identified as problem loans are assigned a risk grade. Loans graded special mention are multiplied by an inherent loss factor of 5% to determine the amount to be included in the
allowance. Loans graded substandard are generally multiplied by a loss factor of 15%, loans graded doubtful are generally multiplied by a loss factor of 50% and loans graded loss are multiplied by a loss factor of 100%. In addition to the 5% and 50%
on substandard and doubtful loans, respectively, the loans are individually reviewed for any additional reserve that may by necessary. All other loans, graded pass are multiplied by an historical experience factor to determine the appropriate level
of the allowance for loan losses. In addition to historical experience factors, the Company also provides for losses due to economic factors, concentration of credit and portfolio composition changes.



19



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Comparison of the Three-Month Periods Ended September 30, 2004 and 2003,
Continued



Provision for Loan Losses,
Continued. The provision for loan losses was $319,000 for the three months ended September 30, 2004 compared to $198,000 for the three months ended September 30, 2003. The increase in the provision was due to growth in the loan portfolio and
the changing mix of one loan portfolio. Commercial real estate now comprise 31% of the Banks net loan portfolio at September 30, 2004, compared to 21% in 2003. Residential construction and land loans now account for 49% of net loans, compared
to 44% at September 30, 2003.



The ratio of net charge-offs to
average loans outstanding increased 6 basis points to 0.42% at September 30, 2004, compared to 0.36% at September 30, 2003.



The allowance for loan losses was $2.8 million at September 30, 2004. While management believes that its allowance for loan losses is adequate as of
September 30, 2004, future adjustments to the Companys allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.



Noninterest Income. Noninterest income increased to
$766,000 for the three months ended September 30, 2004 compared to $571,000 for the three months ended September 30, 2003. The increase was due to a $173,000 gain on sale of our credit card portfolio and an increase in service changes on deposit
accounts.



Noninterest Expenses.
Noninterest expense increased to $2.5 million for the three months ended September 30, 2004 compared to approximately $2.3 million for the three months ended September 30, 2003. Noninterest expense increased primarily as a result of increases in
occupancy and equipment expense and other expenses associated with the addition of two new branches.



Income Taxes. The income tax provision for the three months ended September 30, 2004 was $164,000 (an effective rate of 37.9%)
compared to a $90,000 tax benefit for the three months ended September 30, 2003 (an effective rate of 37.5%).



20



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Comparison of the Nine-Month Periods Ended September 30, 2004 and 2003



General. Our net earnings for the nine
months ended September 30, 2004, were $513,000 or $0.14 per basic and diluted earnings per share compared to a net loss applicable to common stockholders of $205,000 or $0.15 loss per basic and diluted share of the nine months ended September 30,
2003. Excluding the net after tax settlement on impaired securities, during the nine months of 2003 there was a net loss applicable to common stockholders for the nine months ended September 30, 2003 of $455,000 or $0.34 loss per basic and diluted
share. Net earnings increased primarily due to an increase in net interest income, which was partially offset by an increase in noninterest expenses, as well as an increase in noninterest income as a result of the sale of merchant service, mortgage
servicing rights, and our credit portfolio. We recorded a net after tax gain of $133,000 on the sale of our merchant services portfolio in the second quarter of 2004 and a net gain of $108,000 on the sale of our credit card portfolio in the third
quarter of 2004.



During the nine months ended September 30,
2004, management made the strategic decision to sell our residential servicing portfolio, and to begin selling residential loans servicing released. The sale resulted in a gain of $118,000.



Net Interest Income. Interest income increased to
approximately $12.4 million during the nine months ended September 30, 2004, from approximately $8.7 million in 2003. Interest on loans for the nine months ended September 30, 2004 was approximately $11.6 million, resulting from an average yield of
6.27% compared to $8.0 million resulting from an average yield of 6.93% for 2003. The decline in the average rate earned was the result of the continued decline in the overall interest rates. The increase in interest on loans was primarily due to an
increase in the average loan balance to approximately $246.9 million, during the nine months ended September 30, 2004 compared to approximately $153.3 million, in 2003. Interest on securities increased to $.8 million during the nine months ended
September 30, 2004, from $.7 million in 2003. The increase in interest income on securities was primarily due to an increase in the average portfolio balance to approximately $37.6 million during the nine months ended September 30, 2004 compared to
approximately $29.6 million in 2003. Interest on other interest earning assets decreased to $40,000 during the nine months ended September 30, 2004, from $47,000 during the nine months ended September 30, 2003.



Interest expense on interest bearing liabilities increased to $5.3 million
during the nine months ended September 30, 2004, from approximately $4.2 million during the nine months ended September 30, 2003. The increase was due to an increase in the average balance of interest bearing liabilities, which was partially offset
by a decrease in the average cost of interest bearing liabilities to 2.74% in 2004 from 3.29% in 2003. The decline in the average rate paid was the result of managements efforts to increase low cost deposit accounts and the continued decline
in overall interest rates. Management is intent on building core deposits for the long-term, which enhance customer retention, and anticipate the mix of deposits to shift throughout the remainder of 2004.



Provision for Loan Losses. Calculating the allowance for loan
losses is divided into two primary allocation groups: (1) specific allocation loans and (2) all other passing grade loans. For specific allocation loans, we have determined an allowance amount to set aside which we believe is sufficient to cover any
potential collateral shortfall. Problem loans are identified by the loan officer, loan review, loan committee or by the examiners. Those loans identified as problem loans are assigned a risk grade. Loans graded special mention are multiplied by an
inherent loss factor of 5% to determine the amount to be included in the allowance. Loans graded substandard are generally multiplied by a loss factor of 15%, loans graded doubtful are generally multiplied by a loss factor of 50% and loans graded
loss are multiplied by a loss factor of 100%. In addition to the 5% and 50% on substandard and doubtful loans, respectively, the loans are individually reviewed for any additional reserve that may by necessary. All other loans, graded pass are
multiplied by an historical experience factor to determine the appropriate level of the allowance for loan losses. In addition to historical experience factors, the Company also provides for losses due to economic factors, concentration of credit
and portfolio composition changes.



21



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Comparison of the Nine-Month Periods Ended September 30, 2004 and 2003,
Continued



Provision for Loan Losses,
Continued. The provision for loan losses was $1,139,000 for the nine months ended September 30, 2004 compared to $510,000 for the nine months ended September 30, 2003. The increase in the provision was due to growth in the loan portfolio and
the changing mix of the loan portfolio. Commercial real estate now comprise 31% of the Banks net loan portfolio at September 30, 2004, compared to 21% in 2003. Residential construction and land loans now account for 49% of net loans, compared
to 44% at September 30, 2003.



The allowance for loan losses
was $2.8 million at September 30, 2004. While management believes that its allowance for loan losses is adequate as of September 30, 2004, future adjustments to the Companys allowance for loan losses may be necessary if economic conditions
differ substantially from the assumptions used in making the initial determination.



Noninterest Income. Noninterest income increased to $2.3 million for the nine months ended September 30, 2004 compared to $2.0 million for the nine months ended September 30, 2003. The increase
was due to a $212,000 gain on sale of merchant services; a $118,000 gain on the sale of mortgage loan servicing rights and a $173,000 gain on sale of our credit card portfolio which was partially offset by an increase in net loan servicing costs and
a decline in asset management fees due to the dissolving of CFP during the nine months ended September 30, 2004.



Noninterest Expenses. Noninterest expense increased to $7.5 million for the nine months ended September 30, 2004 compared to $6.2
million for the nine months ended September 30, 2003. The increase was due to primarily as a result of expenses associated with the addition of new branches opened in the first two quarters of 2004.



Income Taxes. The income tax provision for the nine
months ended September 30, 2004 was $316,000 (an effective rate of 38.1%) compared to a $59,000 tax benefit for the nine months ended September 30, 2003 (an effective rate of 37.1%).



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Item 3. Controls and Procedures



The
Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission, and the such information is accumulated and communicated to the Companys management, including our Chief Executive Officer and Chief Financial Officer
(the Companys Principal Executive Officer and Principal Financial Officer, respectively), as appropriate to allow for timely decisions regarding timely disclosure. In designing and evaluating disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how were designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost/benefit
relationship at possible controls and procedures.



Our management, with the
participation of our President and Chief Executive Office and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Form 10-QSB.



Based on this evaluation of our disclosure controls and procedures, our President and Chief Executive Officer and our Chief Financial Officer have concluded that the
Companys disclosure controls and procedures, subject to the limitations disclosed above, were effective as of September 30, 2004.



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 third
quarter of our 2004 fiscal year that has materially affected, or in other factors that could or is reasonably likely to materially affect, these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief
Financial officers.



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##### Table of Contents

COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



PART II. OTHER INFORMATION



Item 1. Legal Proceedings



Gillian S. Busard v. Coast Bank
of Florida and Coast Financial Partners, Inc.



In April 2003, Gillian
Busard, a former employee of Coast Financial Partners (a former subsidiary of the Bank), instituted a lawsuit against the Bank and Coast Financial Partners by filing a complaint in the Circuit Court for Manatee County, Florida. The complaint alleged
unlawful sexual harassment and sex discrimination under the Florida Civil Rights Act, breach of contract and unfair and deceptive trade practices. The breach of contract and unfair and deceptive trade practices claims alleged that employees of the
Bank and Coast Financial Partners stole clients from Ms. Busard. The complaint did not attach a specific dollar amount to its demand for damages. At that time, the Bank determined that (a) Ms. Busards claims had no merit, (b) the Bank would
vigorously defend against the law suit, and (c) in light of the unspecified damages and lack of merit, the suit was not material. The Bank and Coast Financial Partners responded to the complaint by making a motion to dismiss, or, in the alternative,
compel arbitration of Ms. Busards claims on the basis that Ms. Busards Financial Advisor Agreement with Coast Financial Partners requires binding arbitration of disputes pursuant to the rules of the National Association of Securities
Dealers. In December 2003, Ms. Busard consented to stay the state court action and refer the dispute to arbitration. On February 24, 2004, Ms. Busard initiated an arbitration proceeding asserting the same claims as in the original complaint and
again not making a specific monetary demand. On September 17, 2004, in response to specific questions posed by the Bank and Coast Financial Partners during the course of the arbitrations discovery process, Ms. Busard revealed for the first
time that she was seeking between $623,000 and $880,000 in alleged contractual, back pay, and emotional distress damages, as well as an unspecified sum for attorneys fees and costs and punitive damages. Although Ms. Busard has recently
indicated the magnitude of damages she will seek, the Bank continues to believe that Ms. Busards claims have no merit and vigorously disputes her factual allegations, entitlement to damages and the specific amounts set forth in her responses.
The arbitration hearing is tentatively scheduled for the week of December 13, 2004.



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COAST FINANCIAL HOLDINGS, INC. AND SUBSIDIARY



Item 6. Exhibits



Exhibits. The following exhibits were filed with the Securities and Exchange Commission and are incorporated by reference into this Form 10-QSB.



|            |  |                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                       
|10.5        |  | Separation Agreement by and between Coast Financial Holdings, Inc. and Gerald L. Anthony (Incorporated by reference to Exhibit 5 to Form 8K to be Filed by the Company on February 17,
2004).
|            | 
|10.6        |  | Purchase and Sale Agreement, dated January 13, 2004, by and between 1301 Associates, L.C. and the Company. Filed with the Companies Form 8K on February 14, 2004.                            
|            | 
|31.1        |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                         
|            | 
|31.2        |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                         
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002                                                
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002                                                

|
|



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##### Table of Contents

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 12, 2004 |  | By:                            |  | /s/ Brian P. Peters                          
|                        |  |                                |  | Brian P. Peters, President and Chief         
|                        |  |                                |  | Executive Officer                            
|                        |  |                               
|Date: November 12, 2004 |  | By:                            |  | /s/ Brian F. Grimes                          
|                        |  |                                |  | Brian F. Grimes, Executive Vice President and
|                        |  |                                |  | Chief Financial Officer                      



26