COASTAL FINANCIAL CORPORATION
                               2000 ANNUAL REPORT

                         COASTAL FINANCIAL CORPORATION


                                  ANNUAL REPORT

       ------------ COMMITTED TO OUR CUSTOMERS & COMMUNITIES -------------


<PAGE>

OUR  ONGOING  FOCUS  ON  OUR  QUEST  FOR  EXCELLENCE  OPERATING  PHILOSOPHY  AND
OVERRIDING  COMMITMENT TO OUR CUSTOMERS AND COMMUNITIES HAS CONTINUED TO PRODUCE
OUTSTANDING FINANCIAL RESULTS AND, WE ARE CONVINCED THAT THIS APPROACH WILL HELP
TO INSURE THAT OUR BEST YEARS ARE YET TO COME.

October  4,  2000  marked  the tenth  anniversary  of our  conversion  to public
ownership.  During that period,  we have achieved much in terms of preparing our
organization  for the future  and, in the  process,  have  received  significant
public attention for our outstanding financial performance.

One recent form of national  recognition came with U.S.Banker  Magazine,  in its
July  2000  edition,  ranking  us #1 in the  Southeast  and  #16  nationally  in
financial performance among Community Banks.

And while that is, indeed,  quite impressive,  we felt much more satisfaction in
learning  that our  Customers  had voted us Best of the Beach,  in the Financial
Institution  category of the 2000 Sun News readers' poll,  for an  unprecedented
third year in a row.

It is our belief that this  recognition  is a direct result of our philosophy of
giving back to the Communities we serve.

Being a good neighbor and friend goes far beyond providing  financial  services.
It requires  each of us to get  involved,  to volunteer  our time and to provide
meaningful  contributions to make our Community a better place to live, work and
raise our families.

That's  why,  at  Coastal  Financial,  we  support,  with our time,  talent  and
financial  resources,   over  300  civic  and  charitable  institutions  in  the
Communities we serve.  These  organizations  are important  contributors  to the
quality of life we enjoy.

Coastal Financial has a long history of attracting Associates who care, who are
Committed to Exceeding our Customers' Expectations,  and who build relationships
which last a lifetime.

We believe that when you have good people working  together for the common goals
of the Community, there is no limit to the growth and prosperity we can achieve.


                 [Share Price Performance Graph appears here]

                Initial Public Offering
                 October 4, 1990                       $10.00
                September 30, 1991                     $10.00
                September 30, 1992                     $27.20
                September 30, 1993                     $68.31
                September 30, 1994                     $85.56
                September 30, 1995                     $85.92
                September 30, 1996                    $134.94
                September 30, 1997                    $217.16
                September 30, 1998                    $215.52
                September 30, 1999                    $177.72
                September 30, 2000                    $113.80

The  value  of one  share  of  Coastal  Financial  Corporation's  Capital  Stock
purchased  at $10.00 in the  initial  public  offering,  and  affected  by stock
dividends,  stock splits, and reinvested cash dividends,  was $113.80 based upon
Nasdaq  Quotations at September  30, 2000.  The  foregoing  reflects  historical
results and may not be indicative of future stock prices.

                                       2
<PAGE>


[PHOTO]  Central Community Banking Team

Coastal Federal blends together the full financial resources of Personal Banking
Services, Residential Banking, Business Banking and Investment Services into one
financial team that is motivated to Exceed our Customers'  Expectations.  Thomas
Kennedy oversees the Personal Banking Services offered at Oak Street,  Dunes and
our newest location, the Bi-Lo Supermarket on 38th Avenue North in Myrtle Beach.
Joel Foster leads the Business  Banking  Services  Team,  with Haden Hamilton as
President & CEO of our Investment Services subsidiary.

[PHOTO]  South Strand Community Banking Team

Coastal Federal is strategically  located in one of the fastest growing areas of
our market,  with locations in Murrell's  Inlet,  Socastee and Surfside.  With a
full range of financial services,  including Personal Banking, Business Banking,
Residential Banking and Investment Services,  the South Strand Community Banking
Team is well  positioned  to serve the future needs of this growing  area.  Eric
Keys oversees the delivery of products and services that Exceed the Expectations
of our  Customers.  Lynn Berry will be leading our efforts in expanding  Banking
services into Litchfield, Pawleys Island and Georgetown.

[PHOTO]  Conway Community Banking Team

Conway has a character of its own. Coastal Federal recognizes its uniqueness and
has  assembled  a Banking  Team that can best meet the needs of this  Community.
With a full range of financial  tools  including PC Internet  Banking,  a strong
penetration  of ATM  locations  and 24-hour  Access  Bank-by-Phone  service,  we
provide a combination of friendly, hometown service with round-the-clock account
access that our busy  Customers  demand.  Delan Stevens,  complemented  with the
support of our  newest  Board  Member  Frank  Thompson,  leads the growth of our
products and services in this important market.

[PHOTO]  North Strand Community Banking Team

The  spectacular  growth in the overall  market is  accentuated  in North Myrtle
Beach. This fast growing residential and retail area demands a Banking Team that
can quickly adjust to the needs of our Customers.  Doug Shaffer, who for over 12
years has been  servicing  the needs of Customers in North Myrtle  Beach,  leads
that Team.  Complemented  by strong  support in  Residential  Banking,  Business
Banking,  Investment Services and Personal Banking, Coastal Federal's offices in
North Myrtle  Beach and Little River are well  equipped to meet the future needs
of this fast-paced area.

[PHOTO]  North Carolina Community Banking Team

With continued expansion in strategic coastal markets in North Carolina, Coastal
Federal has built a quality Team to manage that growth.  Led by Scott Lander, we
have  aggressive  plans to  accelerate  growth in our  existing  Sales Center in
Sunset Beach,  strengthen our market penetration in Wilmington and expand with a
new Sales Center in  Southport.  Coastal  Federal will provide its full array of
Personal,  Business,  and  Residential  Banking  products along with  Investment
Services.

                                       3
<PAGE>

                              Financial Highlights

The following  table sets forth  certain  information  concerning  the financial
position of the Company  (including data from operations of its subsidiaries) as
of and for the dates indicated.  The consolidated  data is derived in part from,
and should be read in conjunction with, the Consolidated Financial Statements of
the Company and its subsidiaries presented herein.

<TABLE>
<CAPTION>
                                                                          At or for Years Ended September 30,
                                                                ------------------------------------------------------
                                                                  1996       1997       1998      1999         2000
                                                                --------   --------   --------  --------     ---------
                                                                   (Dollars in thousands, except per share data)
Financial Condition Data:
<S>                                                             <C>        <C>        <C>       <C>          <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . .    $459,712   $494,003   $643,560  $713,013     $768,838
Loans receivable, net . . . . . . . . . . . . . . . . . . .      370,368    403,570    414,264   455,351      511,701
Mortgage-backed securities . . . . . . . . . . . . . . . . .      27,029     23,023    170,181   182,115      189,239
Cash, interest-bearing deposits and investment securities .       38,332     39,582     25,507    30,296       25,715
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . .     313,430    347,116    386,321   399,673      406,217
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . .     109,886    106,337    210,560   262,541      303,151
Stockholder's equity . . . . . . . . . . . . . . . . . . . .      27,681     32,391     37,851    41,237       46,945

Operating Data:
Interest income. . . . . . . . . . . . . . . . . . . . . . .    $ 34,720   $ 38,065   $ 43,894  $ 49,559     $ 58,079
Interest expense . . . . . . . . . . . . . . . . . . . . . .      19,091     20,146     24,451    26,991       33,636
                                                                --------   --------   --------  --------     ---------
Net interest income . . . . . . . . . . . . . . . . . . . .       15,629     17,919     19,443    22,568       24,443
Provision for loan losses . . . . . . . . . . . . . . . . .          790        760        865       750          978
                                                                --------   --------   --------  --------     ---------
Net interest income after provision for loan losses. . . . .      14,839     17,159     18,578    21,818       23,465
                                                                --------   --------   --------  --------     ---------

Other Income:
Fees and service charges on loans and deposit accounts . . .       1,415      1,593      1,639     2,025        2,126
Gain on sales of loans held for sale. . . . . . . . . . . .          990        931      1,579       979          631
Gain (loss) on sales of investment securities. . . . . . . .          (6)         7         96        73          (17)
Gain (loss) on sales of mortgage-backed securities, net . .          189        235        521       191       (1,554)
Real estate operations . . . . . . . . . . . . . . . . . . .         345        141        149       (29)         (64)
Other income . . . . . . . . . . . . . . . . . . . . . . . .       1,699      1,792      1,895     2,334        4,759
                                                                --------   --------   --------  --------     ---------
Total other income. . . . . . . . . . . . . . . . . . . . .        4,632      4,699      5,879     5,573        5,881
Total general and administrative expense . . . . . . . . . .      13,586     12,716     13,618    15,286       16,191
                                                                --------   --------   --------  --------     ---------
Earnings before income taxes. . . . . . . . . . . . . . . .        5,885      9,142     10,839    12,105       13,155
Income taxes . . . . . . . . . . . . . . . . . . . . . . . .       2,164      3,351      3,987     4,390        4,698
                                                                --------   --------   --------  --------     ---------
Net income. . . . . . . . . . . . . . . . . . . . . . . . .     $  3,721   $  5,791    $ 6,852  $  7,715     $  8,457
                                                                ========   ========   ========  ========     =========
Net earnings per common diluted share . . . . . . . . . . .     $    .50   $    .77    $   .90  $   1.02     $   1.13
                                                                ========   ========   ========  ========     =========
Cash dividends per common share. . . . . . . . . . . . . . .    $    .20   $    .23    $   .25  $    .25     $    .26
                                                                ========   ========   ========  ========     =========
Weighted average shares outstanding diluted . . . . . . . .        7,382      7,511      7,605     7,585        7,477
                                                                ========   ========   ========  ========     =========
</TABLE>

All share and per share data have been  restated  to  reflect  two 5 for 4 stock
dividends declared on January 9, 1996 and June 20, 1996, respectively, two 4 for
3 stock  dividends  declared  on  April  30,  1997 and May 6,  1998,  a 5% stock
dividend  declared on November 10, 1999,  and a 10% stock  dividend  declared on
March 14, 2000.

Key Operating Ratios:

The table  below sets forth  certain  performance  ratios of the  Company at the
dates or for the periods indicated.

<TABLE>
<CAPTION>
                                                                         At or for Years Ended September 30,
                                                                 --------------------------------------------------
                                                                   1996       1997      1998      1999       2000
                                                                 --------  ---------  --------  --------  ---------
Other Data:
<S>                                                                <C>        <C>       <C>       <C>        <C>
Return on assets (net income divided by average assets) ...        0.85%      1.21%     1.13%     1.14%      1.13%
Return on average equity (net income divided by average
 equity) ..................................................       13.97%     19.36%    19.52%    19.30%     19.52%
Average equity to average assets ..........................        6.10%      6.24%     6.05%     5.93%      5.80%
Tangible book value per share .............................      $ 3.91     $ 4.53    $ 5.23    $ 5.55     $ 6.44
Dividend payout ratio .....................................       38.51%     27.63%    25.14%    23.28%     22.61%
Interest rate spread (difference between average yield on
 interest-earning assets and average cost of
 interest-bearing liabilities). . ..........................       3.76%      3.89%     3.51%     3.55%      3.50%
Net interest margin (net interest income as a percentage of
 average interest-earning assets) ..........................       3.86%      4.03%     3.64%     3.67%      3.57%
Allowance for loan losses to total loans at end of period ..       1.11%      1.19%     1.33%     1.36%      1.35%
Ratio of non-performing assets to total assets (1) .........       0.17%      0.10%     0.36%     0.21%      0.73%
Tangible capital ratio .....................................       5.93%      6.31%     6.10%     6.29%      6.56%
Core capital ratio .........................................       5.93%      6.31%     6.10%     6.29%      6.56%
Risk-based capital ratio ...................................      10.41%     11.05%    12.67%    12.64%     12.45%
Number of:
  Real estate loans outstanding ............................      5,741      6,752     6,666     6,637      6,748
  Deposit accounts .........................................     41,755     43,544    43,720    41,608     40,788
  Full service offices .....................................          9          9        10        10         12
</TABLE>

(1)  Nonperforming  assets consist of nonaccrual  loans 90 days or more past due
     and real estate acquired through foreclosure.

                                       4
<PAGE>

                            Record Financial Results

                                  Dear Friends

As we look back on the ten years  which have  passed  since  becoming a publicly
owned  company,  we can see and take great pride in the  significant  growth and
progress  that we  have  made  toward  the  attainment  of our  Basic  Corporate
Objective  Of  Maximizing  The  Value Of Our  Shareholders'  Investment  and Our
Long-Term Goal Of Being The Best Financial Services Company In our Marketplace.

In the early fifties, our founders saw the need in our Community for a financial
services  provider which truly  understood and identified with the residents and
businesses of our area. These  civic-minded  individuals  envisioned a Community
based and owned banking  organization,  and established  Coastal Federal to meet
that need in 1954.  This  outgrowth  of a  Community  need was  accomplished  by
soliciting support,  in the form of deposits,  from the residents and businesses
of the Community.  They believed  then, as we do today,  that the success of our
organization  is  inextricably  tied to the  success of our  Community  and that
Coastal  Federal should be a catalyst for enabling our Community,  its residents
and  businesses to reach their full  potential.  And, as we opened our doors for
business in 1954,  it was with a firm belief that we were,  and always would be,
linked as partners with our Community.

That vision has provided great insight to us as we have endeavored to create and
sustain a mission which was in keeping with our founders' intentions of ensuring
that we worked  in  perfect  harmony  with our  Communities  toward  creating  a
mutually beneficial relationship.

The Board of Directors, Leadership Group and Associates which resulted from this
early  guidance  have  continued  to follow that  course and, in so doing,  have
guided this Company  through these ten years of  exceptional  achievement  since
becoming a public  company,  the most current of which  yielded  another year of
record financial results.

Coastal Financial Corporation's net income for the year totaled $8.5 million, or
$1.13 per diluted share, an increase of 9.6% compared to $7.7 million,  or $1.02
per  diluted  share  in  1999.  These  results  produced  a  return  on  average
Shareholders' equity of 19.52% and a return on average assets of 1.13% in fiscal
2000.

Total  assets  increased  over 7.8%,  to $768.8  million at year end,  and asset
quality remained very good compared to industry standards.

Unfortunately,  despite  these  excellent  financial  results,  our stock  price
declined during 2000.  While the market,  as a whole,  has performed poorly over
the past year,  bank stocks,  in general,  have been  particularly  depressed by
fears that rising  interest rates will have an adverse effect on future earnings
and by the  disappointing  results  reported by some banking  companies.  At the
close of this fiscal  year,  the relative  price to earnings  ratio of financial
services  companies,  compared to the Nasdaq,  Dow and S&P 500 indices,  was the
lowest in many years. Our business continues to flourish and we are hopeful that
stock performance for financial  services  companies will improve,  particularly
for high-performing companies such as Coastal Financial.

Since becoming a publicly owned company in 1990, Coastal Financial Corporation's
stock price has grown at a compound  annual rate of over 27%,  taking our market
capitalization  from $4.6 million in October 1990, to $56.5 million at the close
of this fiscal  year.  Put  another  way,  an initial  investment  of $10,000 in
October of 1990 would have grown to approximately $110,000.

Equally as impressive is the fact that, since 1990, our operating  earnings have
increased at a compound annualized rate in excess of 18.8%.

One of the best indicators of performance is Return On Shareholders' Equity, and
this  measure  for  2000  was,  again,   outstanding.   Our  Return  On  Average
Shareholders'  Equity  measure  of  19.52%  continues  to rank us among  the top
performing financial services companies in America.

During fiscal 2000, we continued to receive  significant  public  recognition of
our  progress  toward  the  attainment  of  our  Basic  Corporate  Objective  Of
Maximizing The Value Of Our  Shareholders'  Investment and Our Long-Term Goal Of
Being The Best Financial Services Company In Our Marketplace. Among those were:

     o    U.S.Banker,  in  its  July  2000  edition,  listed  Coastal  Financial
          Corporation  #1 in the  Southeast  and #16 in the  nation  in terms of
          earnings  per share  growth and  return on  equity,  based on the past
          three years averaged.

     o    The State  Newspaper,  in its annual  Palmetto 50 edition,  listed the
          state's  fifty  largest  public   corporations,   and  ranked  Coastal
          Financial 33rd in fiscal 1999 revenue and 19th in percentage change in
          revenue from fiscal 1998 to fiscal 1999.

     o    In its November 14, 1999 edition,  The State  Newspaper,  published an
          article titled "Myrtle Beach-based company is a financial pacesetter -
          Coastal  Financial is fastest  growing new public  financial  services
          company of the 1990s"

     o    Coastal Federal,  for the third consecutive year, placed 1st in voting
          by the  readers  of the  (Myrtle  Beach)  Sun  News  in the  Financial
          Institutions  category  of the Sun News Best Of The Beach  Competition
          for 2000.

We are extremely  proud of the  performance  evidenced by these results  because
they reflect well on our COMMITMENT TO OUR CUSTOMERS AND COMMUNITIES.

                                       5
<PAGE>

                    Our best year yet 2000 Financial Results

This  was  indeed  a year  of  significant  achievement  for  Coastal  Financial
Corporation.  Our ever  increasing  focus on our QUEST FOR EXCELLENCE  Operating
Philosophy continues to pay significant  dividends and has enabled the financial
performance during fiscal 2000 which,  again, met our high expectations and well
positions us to aggressively pursue future  opportunities.  Noteworthy Financial
Results for Fiscal 2000:

EARNINGS PER SHARE

     o    Net earnings of $8.5 million or $1.13 per diluted share.  Earnings per
          share for fiscal 2000 increased 10.8% over the prior year.

     o    Shareholders' equity advanced 13.8% to $46.9 million.

     o    During the year, the Company repurchased  approximately 184,000 shares
          at an  average  price of  $10.65  per  share,  adjusted  for the stock
          dividends.

                    [EARNINGS PER SHARE GRAPH APPEARS HERE]

                $0.50     $0.77      $0.90     $1.02       $1.13
                -----     -----      -----     -----       -----
                1996      1997       1998      1999        2000


BOOK VALUE PER SHARE

     o    Book value per share grew 16.0% to $6.44

                   [BOOK VALUE PER SHARE GRAPH APPEARS HERE]

                $3.91     $4.53      $5.23     $5.55       $6.44
                -----     -----      -----     -----       -----
                1996      1997       1998      1999        2000


ASSETS

     o    A 7.8% growth in total assets to $768.8 million.

     o    Loans receivable increased 10.6% to $521.9 million.

     o    Deposits  rose to $406.2  million,  the highest level in the Company's
          history.


                           [ASSET GRAPH APPEARS HERE]
                                (IN MILLIONS)

              $459.70     $494.00    $643.60   $713.01     $768.80
              -------     -------    -------   -------     -------
               1996        1997       1998      1999        2000


                                       6
<PAGE>

                    Our best year yet 2000 Financial Results


ALLOWANCE FOR LOAN LOSSES TO NET LOANS

     o    Allowance for Loan Losses to Net Loans decreased slightly to 1.35%.

     o    The Company had Loan Charge Offs of .06% in 2000.


           [ALLOWANCE FOR LOAN LOSSES TO NET LOANS GRAPH APPEARS HERE]

              1.11%      1.19%      1.33%       1.36%       1.35%
              -----      -----      -----       -----       -----
              1996       1997       1998        1999        2000


Coastal Financial Corporation's outstanding operating results are the product of
the commitment,  dedication and aligned effort of our exceptional  team and have
been a major factor in the more than  1123.2%  increase in our stock price since
becoming a public  company in  October  of 1990 vs.  approximately  450% for the
Standard & Poors 500 Index.

But,  as good as these  results  are,  it's  always the future  that we are most
interested in, and it always leads to the question we're most often asked:  "Can
we keep it up?"

We continue to believe  the answer is a  resounding  "Yes," as long as we remain
focused on our  COMMITMENT  TO OUR CUSTOMERS  AND  COMMUNITIES  and maintain our
philosophy  of viewing  change and  constant  improvement  as  essential  to the
achievement of our Corporate  Objectives.  That's what really sets us apart from
the competition.

                                       7
<PAGE>

                              A look back at 2000

THIS LEVEL OF  PERFORMANCE IS IN KEEPING WITH OUR BASIC  CORPORATE  OBJECTIVE OF
MAXIMIZING  THE  VALUE OF OUR  SHAREHOLDERS'  INVESTMENT  AND IS THE  RESULT  OF
CONDUCTING OUR  ACTIVITIES IN ALIGNMENT WITH OUR QUEST FOR EXCELLENCE  OPERATING
PHILOSOPHY.

Over the ten years which have passed since we became a publicly  owned  Company,
we have  repositioned  our  organization in order to assure  continued  progress
toward the attainment of Our Basic  Corporate  Objective Of Maximizing The Value
Of Our  Shareholders'  Investment  and Our  Long-Term  Goal Of  Being  The  Best
Financial Services Company In Our Marketplace.

These actions have been rewarded in the financial  markets by a 1123.2% increase
in the price of our shares since October 4, 1990, the date of our initial public
offering.

But the real  question  as to whether we have indeed  made  progress  toward the
attainment  of our Basic  Corporate  Objective  Of  Maximizing  The Value Of Our
Shareholders'   Investment  must  be  answered  by  comparing  the  share  price
performance  of  Coastal  Financial  Corporation,  since the date of its  public
offering, to the share price performance of other established financial services
companies operating within our marketplace and to the markets as a whole. In the
following  graphs,  we have  compared  the share  price  performance  of Coastal
Financial  Corporation to the Nasdaq, S&P 500 and Dow indices, and to (TSFG) The
South Financial  Group, the parent company of Carolina First Bank, (WB) Wachovia
Corporation,  the parent  company of  Wachovia  Bank,  (SNV)  Synovus  Financial
Corporation,  the parent  company of NBSC,  (BBT) BB&T  Corporation,  the parent
company  of BB&T,  (BAC)  Bank of  America  Corporation,  the  parent of Bank of
America,  (FTU)  First Union  Corporation,  the parent  company of First  Union,
(FFCH) First  Financial  Holdings,  Inc., the parent company of Peoples  Federal
Savings and Loan  Association and First Federal Savings and Loan  Association of
Charleston,  and (COOP)  Cooperative  Bankshares,  Inc.,  the parent  company of
Cooperative Bank.

              [10 Year Peer Group Price Performance Appears Here]

As demonstrated  in this graph,  which looks back over our history as a publicly
owned company,  the price of Coastal  Financial's  shares has  outperformed  the
price of the shares of the other publicly  traded banks in our  marketplace,  as
well as the Nasdaq, S&P 500 and Dow indices.

                 [CFCP Relative Price Performance Appears Here]

These  exceptional  results  have not only  served  to  validate  our  QUEST FOR
EXCELLENCE philosophy, but have also given us great confidence that our tactical
strategies  are sound and that the future can be even brighter if we continue to
be passionate about OUR COMMITMENT TO OUR CUSTOMERS AND COMMUNITIES.

In looking back over the past year, we undertook  many  significant  initiatives
designed  to  better  prepare  our  organization  for  the  future.  Some of the
initiatives and  accomplishments  aimed at increasing the long-term value of the
Company by maximizing  our ability to capitalize on  opportunities  in the years
ahead were:

The further  development  of our  organization  to support the attainment of our
Vision 2005 strategic  plan. We experienced  significant  growth and progress in
both the transformational and linear aspects of our development plans.


                                       8
<PAGE>

Our continued  growth  depends upon building  long term  relationships  with our
Customers.

                                 Relationships

The   transformational   element  of  our  plan  deals  with  becoming  a  Sales
Organization  and the linear element of our plans addresses the extension of our
financial services delivery channels.

Initiatives designed to facilitate our transformational progress:

- The continued  expansion of our  curriculum at Coastal  Federal  University to
better  assure that the  development  of our sales and service  culture is based
upon a foundation  which embraces the formation of long-term  relationships.  In
this regard,  I am very pleased that all of the members of our Leadership  Group
have now successfully completed "The 7 Habits of Highly Successful People." This
offering,  made  available  to all of our  Associates  through  Coastal  Federal
University,  presents a method for achieving internal peace of mind within while
building  external  trust  without by  seeking  the roots of human  behavior  in
character and by learning principles rather than merely practices.

Through this  curriculum  offering  and our  foundational  Pledge To  Excellence
course, we are enabling our Associates to transform their understanding of their
roles as Lenders,  Deposit Gatherers or Financial Advisors, to that of arrangers
of financial relationships.

Coastal Federal  University is a critical  ingredient in our recipe for ensuring
that our  culture  is truly  aligned  with our  QUEST FOR  EXCELLENCE  Operating
Philosophy  and  focused on our Mission of  Exceeding  The  Expectations  of our
Customer.

- During this past year,  Coastal Investor Services,  Inc.*,  worked closer than
ever with Coastal Federal to create more relationships with Customers, resulting
in the improvement of Coastal  Investor  Services,  Inc.,  ranking from #21 last
year to #8 this year out of over 600  brokerage  affiliates in the Raymond James
Financial Services system.

This  increased  focus on our Mission and the  opportunities  which were created
through this effort enabled a 41% growth in Assets under management, from $112.3
Million to $158.2 Million, and a corresponding increase of 27% in net income.

At Coastal Investor Services, Inc., our Mission of Exceeding the Expectations of
our Customer is implemented  through empowering our Financial Advisors to select
from a broad  array  of  financial  alternatives  and  services  coupled  with a
compensation  system which ensures that they are incented to make decisions only
in the Client's best interests.

The ability of Coastal  Financial,  through Coastal Federal and Coastal Investor
Services,  to offer our Customers a  comprehensive  financial  planning  service
together with a full array of financial services.  . . from checking and savings
accounts, to annuities, trust services, mortgage lending, securities brokerage*,
commercial lending,  asset management  accounts and insurance products,  through
conveniently  located financial Sales Centers,  drive-up ATMs, 24-hour telephone
or  internet  access well  demonstrates  our  COMMITMENT  TO OUR  CUSTOMERS  AND
COMMUNITIES.  . .because it allows our Customers to conduct their business when,
how and where they wish.

- During 2000, we began a reorganizational initiative, termed "Strategic Teams,"
which is designed to better focus our sales and  servicing  efforts on the great
opportunities  we have to earn more of our  Customers'  business  in each of our
four business lines - Business Banking,  Personal Banking,  Residential  Banking
and Investment Services, Inc.

We serve  more  than  35,000  Customers.  The  vast  majority  consider  Coastal
Financial their primary financial services provider.  On the surface, that seems
impressive.  But,  in taking a closer  look,  on  average,  we have  only  about
one-fourth of the financial  services business of those 35,000  Customers.  That
means every day our own Customers are giving  three-fourths of their business to
our competitors.

Through  the use of these  "Strategic  Teams," we will  explore in depth what it
means to be  "arrangers"  of  financial  relationships  and better  develop  the
understanding  of our role as  "Financial  Partner." It means not just  handling
transactions   for  our  Customers,   it  means  helping  our  Customers  become
financially successful through establishing full-service relationships.

COASTAL FINANCIAL CORPORATION

EXECUTIVE LEADERSHIP GROUP

AT COASTAL  FINANCIAL  CORPORATION,  WE VIEW CHANGE AND CONSTANT  IMPROVEMENT AS
ESSENTIAL TO THE  ACHIEVEMENT  OF OUR LONG-TERM  OBJECTIVES AND BELIEVE THAT OUR
COMMITMENT TO BEING A LEARNING ORGANIZATION WILL PRODUCE THE GREATEST RETURNS OF
ANY INVESTMENT WE HAVE EVER MADE.

                                       9
<PAGE>

Our  commitment  to our  Customers  centers  on the  highest  level of  personal
service.

INITIATIVES FOR GROWTH:

VISION 2005 STRATEGIC PLAN

FOCUS ON LEARNING

COMMUNITY COMMITMENT

CONTINUED EXPANSION

USING TECHNOLOGY TO INCREASE CUSTOMER CONVENIENCE AND ACCESS

Initiatives designed to facilitate our linear progress:

- The continued  expansion of our financial  services franchise during this past
year included the opening of the Carolina Forest and Little River Sales Centers,
the  opening  of our first  grocery  store  Sales  Center,  located in the BI-LO
Supermarket at 38th Avenue North in Myrtle Beach, the establishment of a lending
office  in  Wilmington,  North  Carolina,  and the  subsequent  commencement  of
renovations to our Wilmington lending office in order to offer our full array of
financial services.

During this past year, we also added several features to our PC/Internet Banking
facility,  www.coastalfederal.com,  to make  managing  money even easier for our
Customers.

Through  activities  such as these,  we are  expanding  our  presence and market
awareness along the South Carolina coast and working toward the establishment of
a significant presence in coastal North Carolina.

These  initiatives  are reflective of our culture of viewing change and constant
improvement as essential to the achievement of our long-term objectives.

LOOKING AHEAD

Why are we so confident  that Coastal  Financial has what it takes to capitalize
on significant opportunities in the future? Consider these critical elements:

GEOGRAPHY:  We are  located in one of the best  markets in  America,  with Horry
County being the second fastest growing real estate market in the nation and New
Hanover  County being  ranked  fourth in that  measure.  Add to that the rapidly
growing counties of Georgetown in South Carolina and Brunswick in North Carolina
and you couldn't ask for a better place to do business.

BRAND:  At almost  fifty years of age, it has stood the test of time.  Our brand
COASTAL  FEDERAL  is one of the most  widely  recognized  symbols  of Trust  and
expertise in the  delivery of  financial  services in one of the best markets in
America. Our brand stands for Commitment,  Leadership,  Integrity and Quality in
Exceeding  The  Expectations  of our  Customer.  In other words,  being  totally
COMMITTED TO OUR CUSTOMERS AND COMMUNITIES.

BUSINESS  LINES AND  PRODUCTS:  Our  business  lines and product  offerings  are
designed to meet the needs of our Customers and our Communities. We offer a full
line of Business Banking,  Personal Banking,  Residential Banking and Investment
Services.  Our product  diversification also helps to create earnings stability.
This element of our operational  platform better enables us to weather downturns
that  inevitably  affect  singular  segments  of our  industry.  We  rely  on an
operating  strategy  which  produces a significant  amount of our revenue from a
stream of fees we receive from operations, such as mortgage servicing,  treasury
management and investment security sales.

DELIVERY  CHANNELS:  As important  as products  are,  competitors  can copy them
quickly.  The only method we have to create real value for our  Customers  is in
the way we distribute  products.  We have the best  locations and most extensive
distribution system in our marketplace. We currently have thirteen Sales Centers
and nineteen  ATMs. We have just opened our first  supermarket  Sales Center and
plan to open our second in the Socastee  BI-LO  Supermarket  in fiscal 2001. Our
Bank by Phone delivery  channel last year handled more than 350,000  calls,  and
our  PC/Internet  Banking  facility  handled more than 75,000  Internet  banking
sessions  last  year,  almost  double  the  previous  year.  Also,  last year we
continued to develop  www.coastalfederal.com  as a destination site and plan for
its significant future expansion.

SALES AND SERVICE CULTURE: In the Financial Institution category of the 2000 Sun
News Readers' Poll, for the third consecutive year, our Customers voted us "Best
of the Beach." Recent Customer surveys, conducted by an independent group, shows
that 95% of our Customers, based upon recent transactions,  rank Coastal Federal
"Excellent," in terms of Service Delivery.

                                       10
<PAGE>

                                 Looking ahead

Over the years, we have built a reputation for having a strong sales and service
culture.  This  reputation  is being  reinforced  today  through the addition of
systems for tracking sales,  Customer  profitability and Customer  information -
using  technology  to  personalize  Customer  service.  We intend  to  propagate
effective  technology and a superior sales and service  culture.  Our goal is to
earn all the business of every creditworthy Customer. We intend to sell at least
one more  product  to every  Customer  every  year.  The more  products  we sell
Customers, the better deal they receive, the more loyal they become, the more we
get to know about them in order to serve them better,  and the higher the return
for Coastal Financial  Corporation  Shareholders.  All of our stakeholders win -
our Customers, our Communities, our Associates and our Shareholders.

OUR ASSOCIATES:  As important as all of these  competitive  advantages are, they
are meaningless without talented team members who care. Our brand does not serve
our  Customers.  Our  Associates  serve our  Customers.  Coastal  Financial team
members put their Customers  first.  Products and technology can be duplicated -
but we believe that our Associates  are more  talented,  more motivated and more
energized  than our  competitors.  They care about each other,  care about their
Customers,  care about their  Communities  and care about their Company.  We are
firmly  convinced  that it's our  Associates  who give Coastal  Financial a real
competitive  advantage.  That's why we will continue to invest  significantly in
attracting,  developing  and  retaining  the very best  people in the  financial
services industry for our team.

And we have the best team imaginable. Our 2000 results speak volumes about their
commitment  to Our Basic  Corporate  Objective  Of  Maximizing  The Value Of Our
Shareholders'  Investment  and Our  Long-Term  Goal Of Being The Best  Financial
Services Company In Our Marketplace.

Both sales and earnings  reached  record  levels in 2000 and 1999.  In fact,  in
these two years alone, our net income has grown by over 23%.

And we still have  tremendous  potential  for  further  gains.  In the last five
years,  our net income has more than doubled.  Since  becoming a publicly  owned
Company in 1990, we have roughly doubled our earnings every four years.

Our Coastal Financial team is very proud of these achievements and looks forward
to even  greater  success  in the years  ahead.  And while we  certainly  cannot
predict  the future,  we can take pride in the fact that we have the  Geography,
Brand,  Business  Lines and  Products,  Delivery  Channels,  Sales and Servicing
Culture,  and dedicated Associates who are aligned with our QUEST FOR EXCELLENCE
Operating Philosophy and COMMITTED TO OUR CUSTOMERS AND COMMUNITIES.

These significant  advantages have produced our exceptional  results and give us
great  confidence  and  optimism  that we can  continue  to achieve  even higher
returns for our Shareholders in the future.

All  of  us  at  Coastal   Financial   Corporation   appreciate  your  continued
encouragement, loyalty and support, and look to the future with great enthusiasm
and excitement.


/s/ Michael C. Gerald

Michael C. Gerald
President and Chief Executive Officer


                                       11
<PAGE>


Independent Auditors' Report

The Board of Directors
Coastal Financial Corporation
Myrtle Beach, South Carolina

We have audited the  consolidated  statements of financial  condition of Coastal
Financial  Corporation and subsidiaries (the "Company") as of September 30, 1999
and 2000, and the related consolidated  statements of operations,  stockholders'
equity  and  comprehensive  income,  and cash flows for each of the years in the
three-year  period ended September 30, 2000. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of the Company at
September  30,  1999 and 2000,  and the results of its  operations  and its cash
flows for each of the years in the three-year  period ended  September 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America.

Greenville, South Carolina                    /s/ KPMG LLP
October 25, 2000

                                       12
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                           September 30, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                     1999        2000
                                                                                  ----------   ---------
                                                                                  (Dollars in thousands)
                              ASSETS

<S>                                                                                <C>           <C>
Cash and amounts due from banks . . . . . . . . . . . . . . . . . . . . . . . .    $ 21,988      14,999
Short-term interest-bearing deposits . . . . . . . . . . . . . . . . . . . . .        2,245       2,168
Investment securities available for sale . . . . . . . . . . . . . . . . . . .        6,063       8,548
Mortgage-backed securities available for sale . . . . . . . . . . . . . . . . .     182,115     189,239
Loans receivable (net of allowance for loan losses of $6,430
  at September 30, 1999 and $7,064 at September 30, 2000) . . . . . . . . . . .     455,351     511,701
Loans receivable held for sale . . . . . . . . . . . . . . . . . . . . . . . .       16,636      10,194
Real estate acquired through foreclosure, net . . . . . . . . . . . . . . . . .          96         867
Office property and equipment, net . . . . . . . . . . . . . . . . . . . . . .       11,236      11,518
Federal Home Loan Bank (FHLB) stock, at cost . . . . . . . . . . . . . . . . .        8,201      11,899
Accrued interest receivable on loans . . . . . . . . . . . . . . . . . . . . .        2,861       3,117
Accrued interest receivable on securities.. . . . . . . . . . . . . . . . . . .       1,333       1,555
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,888       3,033
                                                                                  ----------   ---------
                                                                                   $713,013    $768,838
                                                                                  ==========   =========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    399,673     406,217
  Securities sold under agreements to repurchase . . . . . . . . . . . . . . . .     96,948      75,858
  Advances from FHLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    164,024     225,224
  Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,569       2,069
  Drafts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,383       2,475
  Advances by borrowers for property taxes and insurance. . . . . . . . . . . .       1,346       1,257
  Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . .       1,156       2,531
  Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5,677       6,262
                                                                                  ----------   ---------
    Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     671,776     721,893
                                                                                  ----------   ---------

Stockholders' equity:
  Serial preferred stock, 1,000,000 shares authorized and unissued . . . . . . .        --          --
  Common stock $.01 par value, 15,000,000 shares authorized;
    7,426,528 shares at September 30, 1999 and 7,287,498
    shares at September 30, 2000 issued and outstanding . . . . . . . . . . . .          74          73
  Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . .      9,313       9,780
  Retained earnings, restricted . . . . . . . . . . . . . . . . . . . . . . . .      34,288      40,319
  Treasury stock, at cost (23,100 and 161,316) shares, respectively . . . . . .        (356)     (1,702)
  Accumulated other comprehensive loss, net of tax . .  . . . . . . . . . . . .      (2,082)     (1,525)
                                                                                  ----------   ---------
    Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . .     41,237      46,945
                                                                                  ----------   ---------
                                                                                   $713,013    $768,838
                                                                                  ==========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       13
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Operations
                  Years ended September 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>

                                                                               1998        1999          2000
                                                                            ----------   ---------     ---------
                                                                              (In thousands, except share data)
Interest income:
<S>                                                                         <C>             <C>           <C>
  Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . .      $   36,314      38,541        44,005
  Investment securities . . . . . . . . . . . . . . . . . . . . . . . .          1,309       1,476         2,484
  Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .           5,972       9,205        10,987
  Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            299         337           603
                                                                            ----------   ---------     ---------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . . .          43,894      49,559        58,079
                                                                            ----------   ---------     ---------

Interest expense:
  Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          14,559      14,627        15,769
  Securities sold under agreements to repurchase . . . . . . . . . . .           3,404       3,869         6,993
  Advances from FHLB . . . . . . . . . . . . . . . . . . . . . . . . .           6,488       8,495        10,874
                                                                            ----------   ---------     ---------
     Total interest expense . . . . . . . . . . . . . . . . . . . . . .         24,451      26,991        33,636
                                                                            ----------   ---------     ---------
     Net interest income . . . . . . . . . . . . . . . . . . . . . . .          19,443      22,568        24,443
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . .            865         750           978
                                                                            ----------   ---------     ---------
     Net interest income after provision for loan losses . . . . . . .          18,578      21,818        23,465
                                                                            ----------   ---------     ---------

Other income:
  Fees and service charges on loans and deposit accounts . . . . . . .           1,639       2,025         2,126
  Gain on sales of loans held for sale . . . . . . . . . . . . . . . .           1,579         979           631
  Gain (loss) on sales of investment securities, net . . . . . . . . .              96          73           (17)
  Gain (loss) on sales of mortgage-backed securities, net . . . . . . .            521         191        (1,554)
  Gain on sale of deposits . . . . . . . . . . . . . . . . . . . . . .              --          --         1,746
  Loss from real estate acquired through foreclosure . . . . . . . . .             (72)        (29)          (64)
  Income from real estate partnerships. . . . . . . . . . . . . . . . .            221          --            --
  Income from sale of non-depository products . . . . . . . . . . . . .            535         745           834
  Federal Home Loan Bank stock dividends . . . . . . . . . . . . . . .             454         616           711
  Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . .             906         973         1,468
                                                                            ----------   ---------     ---------
     Total other income . . . . . . . . . . . . . . . . . . . . . . . .          5,879       5,573         5,881
                                                                            ----------   ---------     ---------

General and administrative expenses:
  Salaries and employee benefits . . . . . . . . . . . . . . . . . . .           7,355       8,604         9,149
  Net occupancy, furniture and fixtures and data processing expense . .          3,260       3,563         3,946
  FDIC insurance premium . . . . . . . . . . . . . . . . . . . . . . .             213         220           121
  Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .           2,790       2,899         2,975
                                                                            ----------   ---------     ---------
    Total general and administrative expense. . . . . . . . . . . . . .         13,618      15,286        16,191
                                                                            ----------   ---------     ---------
    Income before income taxes . . . . . . . . . . . . . . . . . . . .          10,839      12,105        13,155
  Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          3,987       4,390         4,698
                                                                            ----------   ---------     ---------
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $    6,852       7,715         8,457
                                                                            ==========   =========     =========

  Earnings per common share
    Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $     0.94        1.05          1.15
                                                                            ==========   =========     =========
    Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $     0.90        1.02          1.13
                                                                            ==========   =========     =========
  Average common shares outstanding
    Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7,260,000   7,370,000     7,385,000
                                                                            ==========   =========     =========
    Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7,605,000   7,585,000     7,477,000
                                                                            ==========   =========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       14
<PAGE>


                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                  Years ended September 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         Other
                                                                 Additional                          Comprehensive     Total
                                                         Common   Paid-in     Retained    Treasury      Income      Stockholders'
                                                         Stock    Capital     Earnings     Stock        (Loss)        Equity
                                                         -----    -------     --------    --------   -------------  -------------
                                                                                      (In thousands)

<S>                                                      <C>      <C>         <C>         <C>            <C>          <C>
Balance at September 30, 1997 . . . . . . . . . . .      $72      $8,672      $23,402     $(182)         $427         $32,391
Exercise of stock options . . . . . . . . . . . . .        1         301         (161)      182            --             323
Cash paid for fractional shares . . . . . . . . . .       --          --           (9)       --            --              (9)
Cash dividends . . . . . . . . . . . . . . . . . .        --          --       (1,715)       --            --          (1,715)
Net income . . . . . . . . . . . . . . . . . . . .        --          --        6,852        --            --           6,852
Other comprehensive income, net of tax:
Unrealized gains arising during period,
  net of taxes of $152 . . . . . . . . . . . . . .        --          --           --        --           379              --
Less: reclassification adjustment for gains
  included in net income, net of taxes of $247 . .        --          --           --        --          (370)             --
                                                         -----    -------     --------    --------   -------------  -------------
Other comprehensive income . . . . . . . . . . . .        --          --           --        --             9               9
                                                         -----    -------     --------    --------   -------------  -------------
Comprehensive income . . . . . . . . . . . . . . .        --          --           --        --            --           6,861
                                                         -----    -------     --------    --------   -------------  -------------
Balance at September 30, 1998 . . . . . . . . . . .       73       8,973       28,369        --           436          37,851
                                                         -----    -------     --------    --------   -------------  -------------
Exercise of stock options . . . . . . . . . . . . .        1         340           --        --            --             341
Cash dividends . . . . . . . . . . . . . . . . . .        --          --       (1,796)       --            --          (1,796)
Net income . . . . . . . . . . . . . . . . . . . .        --          --        7,715        --            --           7,715
Other comprehensive income, net of tax:
Unrealized losses arising during period,
  net of taxes of $1,499 . . . . . . . . . . . . .        --          --           --        --        (2,354)             --
Less: reclassification adjustment for gains
  included in net income, net of taxes of $100 . .        --          --           --        --          (164)             --
                                                         -----    -------     --------    --------   -------------  -------------
Other comprehensive loss . . . . . . . . . . . . .        --          --           --        --        (2,518)         (2,518)
                                                         -----    -------     --------    --------   -------------  -------------
Comprehensive income . . . . . . . . . . . . . . .        --          --           --        --            --           5,197
                                                         -----    -------     --------    --------   -------------  -------------
Treasury stock repurchases . . . . . . . . . . . .        --          --           --      (356)           --            (356)
                                                         -----    -------     --------    --------   -------------  -------------
Balance at September 30, 1999 . . . . . . . . . . .       74       9,313       34,288      (356)       (2,082)         41,237
Exercise of stock options . . . . . . . . . . . . .       --         467         (514)      617            --             570
Cash dividends . . . . . . . . . . . . . . . . . .        --          --       (1,912)       --            --          (1,912)
Net income . . . . . . . . . . . . . . . . . . . .        --          --        8,457        --            --           8,457
Other comprehensive income, net of tax:
Unrealized losses arising during period,
  net of taxes of $255 . . . . . . . . . . . . . .        --          --          --         --          (417)             --
Less: reclassification adjustment for losses
  included in net income, net of taxes of $597            --          --          --         --           974              --
                                                         -----    -------     --------   --------    -------------  -------------
Other comprehensive income . . . . . . . . . . . .        --          --          --         --           557             557
                                                         -----    -------     --------   --------    -------------  -------------
Comprehensive income . . . . . . . . . . . . . . .        --          --          --         --            --           9,014
                                                         -----    -------     --------   --------    -------------  -------------
Treasury stock repurchases . . . . . . . . . . . .        (1)         --          --     (1,963)           --          (1,964)
                                                         -----    -------     --------   --------    -------------  -------------
Balance at September 30, 2000 . . . . . . . . . . .      $73      $9,780      $40,319   $(1,702)      $(1,525)        $46,945
                                                         =====    =======     ========   ========    =============  =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       15
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                  Years ended September 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                                       1998       1999         2000
                                                                                    ----------  ---------   ----------
                                                                                               (In thousands)

Cash flows from operating activities:
<S>                                                                                 <C>            <C>         <C>
  Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  6,852       7,715       8,457
  Adjustments to reconcile net income to net cash provided by operating activities:
    Income from real estate partnerships. . . . . . . . . . . . . . . . . . . .         (221)         --          --
    Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,030       1,206       1,419
    Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . .          865         750         978
    (Gain) loss on sale of mortgage-backed securities available for sale . . . .        (521)       (191)      1,554
    Origination of loans receivable held for sale . . . . . . . . . . . . . . .      (69,546)    (66,930)    (27,253)
    Proceeds from sales of loans receivable held for sale . . . . . . . . . . .       71,674      60,781      33,695
    (Increase) decrease in:
       Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (176)     (1,938)      1,855
       Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . .        (604)       (324)       (478)
    Increase (decrease) in:
       Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . .          400        (196)      1,375
       Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (248)      2,744         243
                                                                                    ----------  ---------   ----------
         Net cash provided by operating activities. . . . . . . . . . . . . . .        9,505       3,617      21,845
                                                                                    ----------  ---------   ----------
Cash flows from investing activities:
  Proceeds from sale of investment securities available for sale. . . . . . . .        4,500       9,735      10,283
  Proceeds from maturities of investment securities available for sale . . . . .      25,596       5,165          --
  Purchases of investment securities available for sale . . . . . . . . . . . .      (13,798)    (11,360)    (12,737)
  Purchases of loans receivable. . . . . . . . . . . . . . . . . . . . . . . . .     (10,442)     (9,078)     (4,027)
  Proceeds from sale of mortgage-backed securities available for sale . . . . .       87,068      95,364     106,367
  Purchases of mortgage-backed securities available for sale . . . . . . . . . .    (274,144)   (155,877)   (124,502)
  Principal collected on mortgage-backed securities available for sale . . . . .      45,505      72,177      25,219
  Origination of loans receivable, net. . . . . . . . . . . . . . . . . . . . .     (135,706)   (189,427)   (219,943)
  Principal collected on loans receivable. . . . . . . . . . . . . . . . . . . .     125,289     128,805     139,900
  Disposition of Florence office assets and liabilities, net. . . . . . . . . .           --          --     (13,265)
  Proceeds from sales of real estate acquired through foreclosure . . . . . . .          263          88         180
  Purchases of office properties and equipment . . . . . . . . . . . . . . . . .      (2,470)     (3,441)     (2,392)
  Purchases of FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . .       (1,648)       (935)     (3,698)
  Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . .          193         427          --
                                                                                    ----------  ---------   ----------
         Net cash used by investing activities . . . . . . . . . . . . . . . .      (149,794)    (58,357)    (98,615)
                                                                                    ----------  ---------   ----------
Cash flows from financing activities:
  Increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      39,205      13,352      31,397
  Increase (decrease) in securities sold under agreements to repurchase . . . .       56,548      37,734     (21,090)
  Proceeds from FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . .      242,625     353,900     890,404
  Repayment of FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . .     (199,194)   (334,785)   (829,204)
  Proceeds (repayments) from other borrowings, net . . . . . . . . . . . . . . .       4,244      (4,868)        500
  Increase (decrease) in advance payments by borrowers for property
   taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (80)         17         (89)
  Increase (decrease) in drafts outstanding, net. . . . . . . . . . . . . . . .          597        (232)      1,092
  Repurchase of treasury stock, at cost. . . . . . . . . . . . . . . . . . . . .          --        (356)     (1,964)
  Cash dividends to stockholders and cash for fractional shares . . . . . . . .       (1,724)     (1,796)     (1,912)
  Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . .         323         341         570
                                                                                    ----------  ---------   ----------
         Net cash provided by financing activities. . . . . . . . . . . . . . .      142,544      63,307      69,704
                                                                                    ----------  ---------   ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . .       2,255       8,567      (7,066)
                                                                                    ----------  ---------   ----------
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . .       13,411      15,666      24,233
                                                                                    ----------  ---------   ----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . .    $ 15,666      24,233      17,167
                                                                                    ==========  =========   ==========
Supplemental information:
  Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 24,051      27,187      32,261
                                                                                    ==========  =========   ==========
  Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  4,112       2,085       3,789
                                                                                    ==========  =========   ==========
Supplemental schedule of non-cash investing and financing transactions:
  Securitization of mortgage loans held for sale into mortgage-backed securities    $  4,997      27,713      14,894
                                                                                    ==========  =========   ==========
  Transfer of mortgage loans to real estate acquired through foreclosure . . . .    $     48         149         951
                                                                                    ==========  =========   ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       16
<PAGE>


                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The following is a summary of the more significant accounting policies used
in the preparation and presentation of the accompanying  consolidated  financial
statements. The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions.  These  estimates  and  assumptions  affect the reported  amount of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the financial statements.  In addition,  they affect the reported
amounts of income and expenses during the reporting period. Actual results could
differ from these estimates and assumptions.

     (a) Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
Coastal   Financial   Corporation   (the   "Company"),   and  its   wholly-owned
subsidiaries,  Coastal Federal Mortgage,  Inc., Coastal Investor Services,  Inc.
and Coastal  Federal  Savings  Bank (the  "Bank"),  and the Bank's  wholly-owned
subsidiaries,   Coastal   Federal  Holding  Company  (and  Coastal  Real  Estate
Investment  Corporation)  and Coastal Mortgage Bankers and Realty Co., Inc. (and
Coastal Mortgage Bankers and Realty Co. Inc.'s wholly-owned subsidiaries,  Shady
Forest  Development  Corporation,   Sherwood  Development   Corporation,   Ridge
Development Corporation,  501 Development Corporation,  North Beach Investments,
Inc.  and  North  Strand  Property  Management,  Inc.).  In  consolidation,  all
significant intercompany balances and transactions have been eliminated. Coastal
Financial  Corporation is a unitary thrift holding  company  organized under the
laws of the state of Delaware.

     (b) Cash and Cash Equivalents

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
cash and  amounts  due from  banks,  short-term  interest-bearing  deposits  and
federal funds sold. Cash and cash equivalents have maturities of three months or
less. Accordingly, the carrying amount of such instruments is considered to be a
reasonable estimate of fair value.

     (c) Investment and Mortgage-backed Securities

     Investment and  mortgage-backed  securities are accounted for in accordance
with Statement of Financial  Accounting  Standards ("SFAS") No. 115, "Accounting
for  Certain  Investments  in  Debt  and  Equity  Securities".  Investments  are
classified  into  three  categories  as  follows:  (1) Held to  Maturity  - debt
securities  that the  Company  has the  positive  intent and  ability to hold to
maturity,  which are reported at amortized  cost;  (2) Trading - debt and equity
securities that are bought and held  principally for the purpose of selling them
in the near term,  which are reported at fair value,  with unrealized  gains and
losses  included  in  earnings  and (3)  Available  for Sale - debt  and  equity
securities that may be sold under certain conditions, which are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of income taxes.

     The  Company   determines   investment   and   mortgage-backed   securities
classification at the time of purchase. Premiums and discounts on securities are
accreted or amortized as an adjustment to income over the estimated  life of the
security using a method which  approximates a level yield.  Unrealized losses on
securities, reflecting a decline in value judged by the Company to be other than
temporary, are charged to income in the consolidated statement of operations.

     The cost basis of securities sold is determined by specific identification.
Purchases and sales of securities  are recorded on a trade date basis.  The fair
value of securities is based on quoted market prices or dealer quotes.

     (d) Allowance for Loan Losses

     The Company provides for loan losses on the allowance method.  Accordingly,
all loan losses are charged to the allowance and all  recoveries are credited to
the  allowance.  Additions  to the  allowance  for loan  losses are  provided by
charges to operations based on various factors which, in management's  judgment,
deserve current  recognition in estimating  losses.  Such factors  considered by
management  include the market value of the  underlying  collateral,  growth and
composition of the loan  portfolio,  the  relationship of the allowance for loan
losses to outstanding loans, loss experience,  delinquency trends, and local and
regional economic  conditions.  Management evaluates the carrying value of loans
periodically  and the allowance is adjusted  accordingly.  While management uses
the best information  available to make evaluations,  future  adjustments to the
allowance may be necessary if economic conditions differ  substantially from the
assumptions  used in making the  evaluation.  The  allowance  for loan losses is
subject to periodic  evaluation  by various  regulatory  authorities  and may be
subject to adjustment upon their examination.

                                       17
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued



(1)  SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     (d) Allowance for Loan Losses -Continued

     The Company  follows SFAS No. 114,  "Accounting by Creditors for Impairment
of a Loan," for  determining  impairment  on loans.  SFAS No. 114 requires  that
nonhomogenous  impaired loans and certain  restructured loans be measured at the
present value of expected future cash flows  discounted at the loan's  effective
interest rate, at the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. A specific reserve is set up for
each impaired  loan.  Accrual of interest  income on loans  (including  impaired
loans)  is  suspended  when in  management's  judgment,  doubt  exists as to the
collectibility  of principal and interest.  If amounts are received on loans for
which the accrual of interest has been discontinued,  a determination is made as
to whether payments  received should be recorded as a reduction of the principal
balance or as  interest  income  depending  on  management's  judgment as to the
collectibility  of  principal.  The loan is returned to accrual  status when, in
management's  judgment,  the  borrower  has  demonstrated  the  ability  to make
periodic interest and principal payments on a timely basis.

     (e) Loans Receivable Held for Sale

     Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses  are  provided  for in a  valuation  allowance  by charges to
operations.  At September 30, 1999 and 2000, the Company had approximately $16.6
million and $10.2 million in mortgage loans held for sale, respectively.

     (f) Real Estate Owned

     Real estate  acquired in settlement  of loans is initially  recorded at the
lower of cost or net fair value (less  estimated costs to sell). If cost exceeds
net fair value,  the asset is written down to net fair value with the difference
being charged against the allowance for loan losses.  Subsequent to foreclosure,
such  assets  are  carried  at the  lower  of cost or net  fair  value  with any
additional write downs being charged as real estate losses.

     (g) Office Properties and Equipment

     Office  properties  and  equipment  are  carried  at cost less  accumulated
depreciation.  Depreciation is computed  primarily on the  straight-line  method
over  estimated  useful  lives.  Estimated  lives  range up to thirty  years for
buildings  and  improvements  and up to ten years for  furniture,  fixtures  and
equipment.   Maintenance  and  repairs  are  charged  to  expense  as  incurred.
Improvements  which extend the lives of the respective  assets are  capitalized.
When  property  or  equipment  is sold or  otherwise  disposed  of, the cost and
related  accumulated  depreciation are removed from the respective  accounts and
the resulting gain or loss is reflected in income.

     (h) Uncollected Interest

     The Company  maintains an allowance  for the loss of  uncollected  interest
primarily  on loans which are ninety days or more past due.  This  allowance  is
reviewed  periodically  and necessary  adjustments,  if any, are included in the
determination of current interest income.

     (i) Loan Fees and Discounts

     The net of  origination  fees  received  and direct  costs  incurred in the
origination  of loans are  deferred and  amortized  to interest  income over the
contractual life of the loans adjusted for actual  principal  repayments using a
method approximating a level yield.

     (j) Income Taxes

     Deferred  taxes are provided for  differences  in the  financial  reporting
basis for assets and  liabilities  as compared to their tax basis. A current tax
liability or asset is established for taxes presently  payable or refundable and
a deferred tax liability or asset is established for future taxable items.

                                       18
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued


(1)  SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES -Continued

     (k) Loan Sales

     Gains or losses  on sales of loans are  recognized  when  control  has been
surrendered  over these assets in accordance  with SFAS No. 125  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The resulting  servicing  rights are  amortized in  proportion  to, and over the
period of, estimated net servicing  revenues.  Impairment of mortgage  servicing
rights is assessed based on the fair value of those rights.

     Fair values are estimated  using  discounted  cash flows based on a current
market interest rate. The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights exceed their fair value.

     (l) Drafts Outstanding

     The Company  invests all excess funds on deposit at other banks  (including
amounts on deposit for payment of  outstanding  disbursement  checks) on a daily
basis in an overnight interest-bearing account. Accordingly,  outstanding checks
are reported as a liability.

     (m) Securities Sold Under Agreement to Repurchase

     The Company maintains  collateral for certain customers who wish to deposit
amounts  greater  than  $100,000.  These  agreements  function  similarly  to  a
certificate  of deposit in that the agreement is for a fixed length of time at a
fixed  interest  rate.  However,  these  deposits are not insured by the Federal
Deposit  Insurance  Corporation  (the  "FDIC"),  but  are  collateralized  by an
interest in the pledged securities.  The Company has classified these borrowings
separately from deposits.

     (n) Stock Based Compensation

     In 1996,  the Company  adopted the  disclosure  provisions  of SFAS No. 123
"Accounting for Stock Based Compensation".  The statement permits the Company to
continue accounting for stock based compensation as set forth in APB Opinion No.
25,  "Accounting for Stock Issued to Employees",  provided the Company discloses
the  proforma  effect on net income and  earnings per share of adopting the full
provisions of SFAS No. 123.  Accordingly,  the Company  continues to account for
stock based  compensation under APB Opinion No. 25 and has provided the required
proforma disclosures.

     (o) Comprehensive Income

     On  October  1,  1998,  the  Company  adopted  SFAS  No.  130,   "Reporting
Comprehensive  Income".  SFAS No. 130  established  standards  for reporting and
presentation  of  comprehensive  income  and  its  components  in a full  set of
financial  statements.  Comprehensive  income  consists  of net  income  and net
unrealized  gains  (losses) on securities  and is presented in the statements of
stockholders' equity and comprehensive income.

     (p) Disclosures Regarding Segments

     The  Company  adopted  SFAS No.  131,  "Disclosures  about  Segments  of an
Enterprise and Related Information" in 1998. SFAS No. 131 established  standards
for the way that public businesses report  information about operating  segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services,  geographic areas, and major customers. The Company
adopted  SFAS  No.  131  without  any  impact  on  its  consolidated   financial
statements.

     (q) Reclassifications

     Certain amounts in the 1998 and 1999 consolidated financial statements have
been reclassified to conform with the 2000 presentation.  Such reclassifications
did not change net income or equity as previously reported.

                                       19
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(2) INVESTMENT SECURITIES

     The amortized cost and market value of investment  securities available for
sale at September 30, 1999 is summarized as follows:

<TABLE>
<CAPTION>
                                                                           1999
                                                        -------------------------------------------
                                                                     Gross       Gross
                                                        Amortized  Unrealized  Unrealized   Market
                                                          Cost       Gains       Losses     Value
                                                        ---------  ----------  ----------   ------
                                                                        (In thousands)
U.S. Government and agency obligations:
<S>                                                     <C>                       <C>       <C>
Due after one but within five years .................   $ 2,770       --          (16)      2,754
Due after five years ................................     3,445       --         (136)      3,309
                                                        ---------  ----------  ----------   ------
                                                        $ 6,215       --         (152)      6,063
                                                        =========  ==========  ==========   ======
</TABLE>

     The amortized cost and market value of investment  securities available for
sale at September 30, 2000 is summarized as follows:

<TABLE>
<CAPTION>
                                                                           2000
                                                        -------------------------------------------
                                                                     Gross       Gross
                                                        Amortized  Unrealized  Unrealized   Market
                                                          Cost       Gains       Losses     Value
                                                        ---------  ----------  ----------   ------
                                                                        (In thousands)
U.S. Government and agency obligations:
<S>                                                     <C>           <C>          <C>      <C>
Due after one but within five years .............       $ 1,310        4           (1)      1,313
Due after five years ............................         7,359       32         (156)      7,235
                                                        ---------  ----------  ----------   ------
                                                        $ 8,669       36         (157)      8,548
                                                        =========  ==========  ==========   ======
</TABLE>

      The  Company had gross  realized  gains of $96,000 and there were no gross
realized  losses  for the year  ended  September  30,  1998.  For the year ended
September 30, 1999,  gross  realized  gains were $73,000 and there were no gross
realized  losses.  For the year ended  September 30, 2000,  gross realized gains
were $8,000 and gross realized losses were $25,000.

      Certain  investment and  mortgage-backed  securities are pledged to secure
other borrowed money and customer deposits in excess of FDIC insurance coverage.
The carrying  value of the  securities  pledged at September 30, 2000 was $170.2
million with a market value of $166.5 million.

(3)  MORTGAGE-BACKED SECURITIES

         Mortgage-backed  securities  available  for sale at September  30, 1999
consisted of the following:

<TABLE>
<CAPTION>
                                                                     1999
                                                  -------------------------------------------
                                                               Gross       Gross
                                                  Amortized  Unrealized  Unrealized   Market
                                                    Cost       Gains       Losses     Value
                                                  ---------  ----------  ----------  --------
                                                                  (In thousands)
<S>                                               <C>           <C>          <C>       <C>
Collateralized Mortgage Obligations . . . . . .   $ 23,680       --          (806)     22,874
FNMA  . . . . . . . . . . . . . . . . . . . . .    103,117      282        (1,629)    101,770
GNMA  . . . . . . . . . . . . . . . . . . . . .     23,349       31          (588)     22,792
FHLMC . . . . . . . . . . . . . . . . . . . . .     35,175      202          (698)     34,679
                                                  ---------  ----------  ----------  --------
                                                  $185,321      515        (3,721)    182,115
                                                  =========  ==========  ==========  ========
</TABLE>

                                       20

<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(3)  MORTGAGE-BACKED SECURITIES -Continued

     Mortgage-backed  securities  available  for  sale  at  September  30,  2000
consisted of the following:

<TABLE>
<CAPTION>
                                                                     2000
                                                  -------------------------------------------
                                                               Gross       Gross
                                                  Amortized  Unrealized  Unrealized   Market
                                                    Cost       Gains       Losses     Value
                                                  ---------  ----------  ----------  --------
                                                                  (In thousands)
<S>                                               <C>           <C>       <C>          <C>
Collateralized Mortgage Obligations . . . . . .   $ 31,023      102       (1,035)      30,090
FNMA  . . . . . . . . . . . . . . . . . . . . .    122,665      522       (1,320)     121,867
GNMA  . . . . . . . . . . . . . . . . . . . . .     18,698       86         (139)      18,645
FHLMC . . . . . . . . . . . . . . . . . . . . .     19,191       87         (641)      18,637
                                                  ---------  ----------  ----------  --------
                                                  $191,577      797       (3,135)     189,239
                                                  =========  ==========  ==========  ========
</TABLE>

     For the year ended  September 30, 1998,  there were gross realized gains of
$533,000 and gross  realized  losses of $12,000.  The Company had gross realized
gains of  $336,000  and gross  realized  losses of  $145,000  for the year ended
September 30, 1999. For the year ended September 30, 2000, the Company had gross
realized gains of $370,000 and gross realized losses of $1.9 million.

(4)  LOANS RECEIVABLE, NET

     Loans receivable, net at September 30 consisted of the following:

<TABLE>
<CAPTION>
                                                        1999          2000
                                                      --------      --------
                                                         (In thousands)
First mortgage loans:
<S>                                                   <C>           <C>
  Single family to 4 family units . . . . . . .  . .  $248,433      273,657
  Other, primarily commercial real estate. . . . . .   114,931      133,569
  Construction loans . . . . . . . . . . . . . . . .    46,766       54,905

Consumer and commercial loans:
  Installment consumer loans. . . . . . . . . .  . .    20,026       20,641
  Mobile home loans . . . . . . . . . . . . . . . . .    1,166        1,374
  Savings account loans . . . . . . . . . . . . . . .    1,521        1,063
  Equity lines of credit . . . . . . . . . . . . . .    21,081       23,009
  Commercial and other loans . . . . . . . . . . . .    22,818       23,357
                                                      --------      --------
                                                       476,742      531,575
Less:
  Allowance for loan losses . . . . . . . . . . . . .    6,430        7,064
  Deferred loan fees (costs) . . . . . . . . . . . .      (354)        (519)
  Undisbursed portion of loans in process. . . . . .    15,315       13,329
                                                      --------      --------
                                                      $455,351      511,701
                                                      ========      ========
</TABLE>

The changes in the  allowance  for loan losses for the years ended  September 30
consisted of the following:

                                                1998       1999        2000
                                              --------    -------     ------
                                                      (In thousands)

Beginning allowance . . . . . . . . . . . ..  $ 4,902      5,668       6,430
Provision for loan losses . . . . . . . . ..      865        750         978
Allowance recorded on acquired loans. . . ..      109        112          50
Disposition of Florence office loans . . . .       --         --         (75)
Loan recoveries . . . . . . . . . . . . . ..       64        252          77
Loan charge-offs . . . . . . . . . . . . . .     (272)      (352)       (396)
                                              --------    -------     ------
                                              $ 5,668      6,430       7,064
                                              ========    =======     ======

     Non-accrual   loans  which  were  over  ninety  days   delinquent   totaled
approximately  $1.4  million and $4.8  million at  September  30, 1999 and 2000,
respectively.  In fiscal years 1998, 1999 and 2000,  interest income which would
have been recorded would have been approximately $181,000, $46,000 and $220,000,
respectively,  had  non-accruing  loans been  current in  accordance  with their
original terms.

                                       21
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(4)  LOANS RECEIVABLE, NET - Continued

     At September 30, 2000,  impaired loans totaled $1.4 million.  There were no
impaired loans at September 30, 1999.  Included in the allowance for loan losses
at  September  30,  2000 was  $345,000  related to impaired  loans.  The average
recorded  investment in impaired loans for the year ended September 30, 2000 was
$1.5 million.  No interest  income was  recognized  on impaired  loans in fiscal
2000.

     At September 30, 1999 and 2000, the Company had commitments  outstanding to
originate   loans  totaling   approximately   $5.6  million  and  $4.3  million,
respectively,  (excluding undisbursed portion of loans in process).  Commitments
on loan  originations  are made at prevailing  market  interest  rates,  and are
generally  limited  to 60  days  from  date  of  application.  Additionally,  at
September  30, 1999 and 2000,  the Company  had  undisbursed  lines of credit of
approximately $31.2 million and $33.0 million, respectively.

     Loans serviced for the benefit of others  amounted to  approximately  $88.0
million,  $99.4 million and $106.1 million at September 30, 1998, 1999 and 2000,
respectively. Mortgage servicing rights were not material for any of the periods
presented.

     As  disclosed  in note 8,  certain  mortgage  loans are  pledged  to secure
advances from the Federal Home Loan Bank ("FHLB") of Atlanta.

     The  Bank  offers  mortgage  and  consumer  loans  to  its  directors,  and
Associates for the financing of their personal residences and for other personal
purposes.  The Bank also offers  commercial  loans to companies  affiliated with
directors.  These  loans are made in the  ordinary  course of  business  and, in
management's  opinion,  are  made on  substantially  the same  terms,  including
interest   rates  and   collateral,   prevailing  at  the  time  for  comparable
transactions with other persons and companies. Management does not believe these
loans  involve  more than the normal  risk of  collectibility  or present  other
unfavorable  features.  At  September  30,  2000,  such loans were  current with
respect to their payment terms.

     The following is a summary of the activity of loans  outstanding to certain
executive officers,  directors and their affiliates for the year ended September
30, 2000:

        Balance at September 30, 1999 . . . . . . .  $3,798
        New loans . . . . . . . . . . . . . . . . .     821
        Repayments . . . . . . . . . . . . . . . .       21
                                                     ------
        Balance at September 30, 2000 . . . . . . .  $4,598
                                                     ======

                                       22
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(5)  OFFICE PROPERTY AND EQUIPMENT, NET

     Office  property  and  equipment,  net at  September  30  consisted  of the
following:
                                                        1999       2000
                                                     ---------   --------
                                                         (In thousands)
Land . . . . . . . . . . . . . . . . . . . . . .     $  2,870      2,875
Building and improvements. . . . . . . . . . . .        8,795      8,926
Furniture, fixtures and equipment. . . . . . . .        8,811     10,180
                                                     ---------   --------
                                                       20,476     21,981
Less accumulated depreciation. . . . . . . . . .        9,240     10,463
                                                     ---------   --------
                                                     $ 11,236     11,518
                                                     =========   ========

     The Company leases office space and various equipment. Total rental expense
for the  years  ended  September  30,  1998,  1999 and  2000  was  approximately
$153,000, $212,000 and $213,000, respectively.

     Future  minimum  rental  payments for  operating  leases  having  remaining
noncancelable  lease  terms in excess of one year at  September  30, 2000 are as
follows (In thousands):

        2001 . . . . . . . . . . . . . . .  $ 185
        2002 . . . . . . . . . . . . . . .    146
        2003 . . . . . . . . . . . . . . .    104
        2004 . . . . . . . . . . . . . . .     73
        2005 . . . . . . . . . . . . . . .     68
        Thereafter . . . . . . . . . . . .    370
                                            -----
                                            $ 946
                                            =====

(6)  INVESTMENT REQUIRED BY LAW

     The Bank,  as a member of the FHLB of  Atlanta,  is required to acquire and
hold  shares of capital  stock in the FHLB of Atlanta in an amount  equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each  year,  or (ii)  1/20 of its  advances  (borrowings)  from  the  FHLB of
Atlanta.  The Bank is in compliance with this  requirement with an investment in
FHLB stock of $11.9  million at September  30, 2000.  No ready market exists for
this stock and it has no quoted market value. However,  redemption of this stock
has historically been at par value.

(7)  DEPOSITS

     Deposits at September 30 consisted of the following:

<TABLE>
<CAPTION>
                                            1999                  2000
                                               Weighted                Weighted
                                    Amount       Rate       Amount       Rate
                                  ---------    --------    --------    --------
                                              (Dollars in thousands)
<S>                               <C>            <C>       <C>          <C>
Transaction accounts:
  Noninterest bearing . . . . .   $ 37,256         --%     $ 35,214       --%
  NOW . . . . . . . . . . . . .     50,774       1.16        48,945     0.76
  Money market checking . . . .    138,188       4.25       120,133     4.98
                                  ---------    --------    --------    --------
    Total transaction accounts.    226,218       2.85       204,292     3.11
                                  ---------    --------    --------    --------

Passbook accounts:
  Regular passbooks . . . . . .     37,115       2.67        34,503     2.65
  Money market. . . . . . . . .      2,097       2.22         1,702     2.31
                                  ---------    --------    --------    --------
    Total passbook accounts . .     39,212       2.65        36,205     2.63
                                  ---------    --------    --------    --------

Certificate accounts:
  0.00 -  5.99% . . . . . . . .    133,651                   75,883
  6.00 -  8.00% . . . . . . . .        217                   89,443
  8.00 - 10.00% . . . . . . . .        375                      394
                                  ---------    --------    --------    --------
    Total certificate accounts.    134,243       4.94       165,720     6.03
                                  ---------    --------    --------    --------
                                  $399,673       3.54%     $406,217     4.26%
                                  =========    ========    ========    ========
</TABLE>

                                       23
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(7)  DEPOSITS - Continued

     The aggregate  amount of deposit  accounts with a minimum  denomination  of
$100,000 or more was $115.0 million and $146.6 million at September 30, 1999 and
2000, respectively. Included in certificate accounts were $5.3 million and $31.8
million at September 30, 1999 and 2000, respectively,  originated by brokers for
a fee.

     The amounts and scheduled  maturities of certificate  accounts at September
30, are as follows:

                                                 1999        2000
                                               --------     -------
                                                  (In thousands)

Within 1 year. . . . . . . . . . . . . . . .   $108,135     136,035
After 1 but within 2 years . . . . . . . . .     19,785      23,153
After 2 but within 3 years . . . . . . . . .      5,200       3,934
Thereafter. . . . .. . . . . . . . . . . . .      1,123       2,598
                                               --------     -------
                                               $134,243     165,720
                                               ========     =======

Interest  expense on deposits for the years ended  September 30 consisted of the
following:

                                        1998       1999       2000
                                      -------    --------   --------
                                          (Dollars in thousands)

Transaction accounts. . . . . . . .   $ 5,756      6,368      6,283
Passbook accounts . . . . . . . . .       924        962        909
Certificate accounts. . . . . . . .     7,879      7,297      8,577
                                      -------    --------   --------
                                      $14,559     14,627     15,769
                                      =======    ========   ========

     The fair value of transaction  and passbook  accounts is $265.4 million and
$240.5 million which was the amount currently  payable at September 30, 1999 and
2000,  respectively.  The fair value of certificate  accounts was $133.5 million
and $165.3 million compared to a book value of $134.2 million and $165.7 million
and was estimated by discounting the amounts  payable at the  certificate  rates
currently offered for deposits of similar remaining  maturities.  The fair value
estimates  above did not include the  substantial  benefit that results from the
low cost  funding  provided by the deposit  liabilities  compared to the cost of
borrowing funds in the market.

(8)  ADVANCES FROM FHLB

     Advances from the FHLB at September 30 consisted of the following:

                                          1999                     2000
                                  --------------------    ---------------------
                                             Weighted                 Weighted
                                    Amount     Rate        Amount       Rate
                                  ---------  ---------    --------    ---------
                                             (Dollars in thousands)
Fiscal Year Maturity
2000 . . . . . . . . . . . . . .   $15,461     5.85%      $    --         --%
2001 . . . . . . . . . . . . . .    38,946     5.56        116,476      6.68
2002 . . . . . . . . . . . . . .     4,761     6.82          3,211      6.93
2003 . . . . . . . . . . . . . .    37,357     5.28         12,667      6.39
2004 . . . . . . . . . . . . . .    34,500     5.03          6,000      6.35
2005 or greater. . . . . . . . .    32,999     5.00         86,870      6.13
                                  ---------  ---------    --------    ---------
                                  $164,024     5.33%      $225,224      6.44%
                                  =========  =========    ========    =========

     Stock  in the  FHLB of  Atlanta  and  specific  first  mortgage  loans  and
mortgage-backed securities of approximately $212.1 million and $247.3 million at
September 30, 1999 and 2000,  respectively,  are pledged as collateral for these
advances.  The Bank has  adopted  the policy of pledging  excess  collateral  to
facilitate  future  advances.  At September 30, 2000,  the excess first mortgage
loan  collateral  pledged  to the FHLB will  support  additional  borrowings  of
approximately  $22.1  million.  At September 30, 2000,  included in the four and
five years or greater  maturities were $89.0 million subject to call provisions.
Call provisions are more likely to be exercised by the FHLB when rates rise.

     The  estimated  fair value of the FHLB  advances at September  30, 1999 and
2000 is $160.9 million and $224.4 million. This estimate is based on discounting
amounts  payable at  contractual  rates using current  market rates for advances
with similar maturities.

                                       24

<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(9)  REPURCHASE AGREEMENTS

     The following  tables set forth certain  information  regarding  repurchase
agreements by the Bank at the end of and during the periods indicated:

<TABLE>
<CAPTION>
                                                                               At September 30,
                                                                       --------------------------------
                                                                         1998       1999         2000
                                                                       -------    --------     --------
                                                                            (Dollars in thousands)
Outstanding balance:
<S>                                                                    <C>        <C>          <C>
  Securities sold under agreements to repurchase:
     Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 4,214    $ 4,848      $ 3,825
     Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   55,000     92,100       72,033

Weighted  average rate (at month end) paid on:
  Securities sold under agreements to repurchase:
     Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3.43%      3.37%        5.75%
     Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5.69       5.53         6.59

Maximum amount of borrowings outstanding at any month end:
  Securities sold under agreements to repurchase:
     Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 4,214    $ 4,848      $ 4,196
     Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   86,250     92,100      122,700

Approximate   average   outstanding  with  respect  to:
  Securities  sold  under agreements to repurchase:
     Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 2,989    $ 3,199      $ 2,826
     Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   56,262     67,100      107,737

Weighted  average rate (year to date) paid on:
  Securities sold under agreements to repurchase:
     Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3.61%      3.09%        4.10%
     Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5.68       5.30         6.38
</TABLE>

     Repurchase  agreements  represent borrowings by the Company with maturities
ranging from 1 to 28 months  collateralized  by  securities of the United States
government or its agencies which are held by third-party safekeepers.

(10) INCOME TAXES

     Income tax expense  (benefit) for the years ended September 30 consisted of
the following:

                                           Current   Deferred    Total
                                          --------   --------   -------
                                                 (In thousands)
1998:
           Federal . . . . . . . . . . .. $  3,397      138      3,535
           State . . . . . . . . . . . ..      430       22        452
                                          --------   --------   -------
                                          $  3,827      160      3,987
                                          ========   ========   =======

1999:
           Federal . . . . . . . . . . .. $  1,650    2,305      3,955
           State . . . . . . . . . . . ..      486      (51)       435
                                          --------   --------   -------
                                          $  2,136    2,254      4,390
                                          ========   ========   =======

2000:
           Federal . . . . . . . . . . .. $  4,484     (116)     4,368
           State . . . . . . . . . . . ..      325        5        330
                                          --------   --------   -------
                                          $  4,809     (111)     4,698
                                          ========   ========   =======


                                       25
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(10) INCOME TAXES - Continued

     The tax effect of the Company's temporary differences between the financial
statement  carrying  amounts and tax basis of assets and  liabilities  that give
rise to the net deferred tax asset  (liability)  at September  30, 1999 and 2000
relate to the following:

<TABLE>
<CAPTION>
                                                                                1999        2000
                                                                               -------     ------
                                                                                (In thousands)
Deferred tax assets:
<S>                                                                            <C>         <C>
  Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . .      $ 2,375     2,616
  Accrued medical reserves . . . . . . . . . . . . . . . . . . . . . . . .         124       121
  Other real estate reserves and deferred gains on other real estate . . .          86        58
  Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . .         134       135
  Unrealized loss on securities available for sale . . . . . . . . . . . .       1,307       965
  Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          40        11
                                                                               -------     ------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .      4,066     3,906
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . .        (134)     (135)
                                                                               -------     ------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .      3,932     3,771
                                                                               -------     ------

Deferred tax liabilities:
  Tax bad debt reserve in excess of base year amount . . . . . . . . . . .         484       387
  Property and equipment principally due to differences in depreciation . .        202       168
  FHLB stock, due to stock dividends not recognized for tax purposes . . .         356       356
  Deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . .         356       435
  Book over tax basis in investment in unconsolidated subsidiary . . . . .       2,661     2,772
  Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        429       440
                                                                               -------     ------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . .       4,488     4,558
                                                                               -------     ------
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . .     $  (556)     (787)
                                                                               =======     ======
</TABLE>

     The net deferred  tax  liability  is included in other  liabilities  in the
consolidated financial statements.  The valuation allowance relates to the state
loss carryforwards  which may not be ultimately  realized to reduce taxes of the
Company.  A portion  of the  change in the net  deferred  tax asset  relates  to
unrealized  gains and losses on securities  available for sale. A current period
deferred  tax  expense  of  $342,000  for the  unrealized  gains  on  securities
available  for sale has been  recorded  directly to  stockholders'  equity.  The
balance of the change in the  deferred  tax  liability  results from the current
period deferred tax benefit of $111,000. Income taxes of the Company differ from
the  amounts  computed by  applying  the Federal  income tax rate of 34% for the
years ended September 30 to earnings before income taxes as follows:

                                            1998        1999          2000
                                          -------      ------        ------
                                                    (In thousands)
Computed federal income taxes. . . . . .  $ 3,685       4,116         4,473
State tax, net of federal benefit. . . .      298         287           218
Other, net . . . . . . . . . . . . . . .        4         (13)            7
                                          -------      ------        ------
Total income tax expense . . . . . . . .  $ 3,987       4,390         4,698
                                          =======      ======        ======

     The Bank has been  permitted  under the Internal  Revenue Code to deduct an
annual addition to the tax reserve for bad debts in determining  taxable income,
subject to certain limitations.  This addition may differ significantly from the
bad debt expense for financial  reporting purposes and was based on either 8% of
taxable income (the  "Percentage of Taxable Income  Method") or actual loan loss
experience (the "Experience Method") for the years prior to 1997. As a result of
recent tax  legislation,  the Bank will be  required to  recapture  tax bad debt
reserves in excess of pre-1988 based year amounts over a period of approximately
six to eight years. In addition,  for the period ending  September 30, 1997, the
Bank was required to change its overall tax method of  accounting  for bad debts
to the experience method.

     Retained earnings at September 30, 2000 includes approximately $5.2 million
representing  pre-1988  tax bad debt  base  year  reserve  amounts  for which no
deferred  income tax liability has been  provided  since these  reserves are not
expected to reverse  until  indefinite  future  periods  and may never  reverse.
Circumstances  that  would  require  an  accrual  of a  portion  or all of  this
unrecorded tax liability are a reduction in qualifying  loan levels  relative to
the end of 1987, failure to meet the tax definition of a savings bank,  dividend
payments in excess of current year or accumulated  tax earnings and profits,  or
other  distributions  in  dissolution,  liquidation  or redemption of the Bank's
stock.

                                       26
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(11) Benefit Plans

     The Company  participates  in a  multiple-employer  defined benefit pension
plan covering  substantially all Associates.  Separate actuarial  valuations are
not available for each participating  employer,  nor are plan assets segregated.
Pension expense for the years ended September 30, 1998, 1999 and 2000 was minor.
Plan assets exceeded the present value of accumulated  plan benefits at June 30,
2000, the latest actuarial valuation date.

     The Company has a defined  contribution  plan  covering  substantially  all
Associates.  The Company matches Associate  contributions based upon the Company
meeting certain return on equity operating results.  Matching contributions made
by the Company  were  approximately  $221,000,  $251,000 and $255,000 for fiscal
years 1998, 1999 and 2000, respectively.

(12) REGULATORY MATTERS

     At  September  30,  2000,  the  Bank's  loans-to-one   borrower  limit  was
approximately $8.4 million.  The Bank may apply to have this amount increased to
$16.8 million for borrowers who have loans secured by residential collateral. At
September  30,  2000,  the Bank had  applied for this limit  increase  for three
borrowers with a maximum approved  aggregate  exposure to the three borrowers of
$27.9  million  with  aggregate  outstanding  and  committed  exposure  of $19.9
million.  At  September  30,  2000,  the Bank is in  compliance  with the  core,
tangible and risk-based capital requirements and loans-to-one borrower limits.

     To be categorized as "Well  Capitalized" under the prompt corrective action
regulations  adopted by the Federal Banking  Agencies,  the Bank must maintain a
total  risk-based  capital ratio as set forth in the following  table and not be
subject to a capital directive order. (In thousands)

<TABLE>
<CAPTION>
                                                                                           Categorized as "Well
                                                                                            Capitalized" Under
                                                                       For Capital          Prompt Corrective
                                                    Actual          Adequacy Purposes       Action Provision
                                              ------------------    ------------------    --------------------
                                               Amount     Ratio      Amount     Ratio       Amount     Ratio
                                              --------   -------    --------   -------    ---------   --------
As of September 30, 2000:
<S>                                           <C>         <C>       <C>          <C>       <C>         <C>
  Total Capital: . . . . . . . . . . . . . .  $55,868     12.45%    $35,896      8.00%     $44,870     10.00%
    (To Risk Weighted Assets)
  Tier 1 Capital: . . . . . . . . . . . . .   $50,537     11.26%        N/A       N/A      $26,922      6.00%
    (To Risk Weighted Assets)
  Tier 1 Capital: . . . . . . . . . . . . .   $50,537      6.56%    $30,734      4.00%     $38,417      5.00%
    (To Total Assets)
  Tangible Capital: . . . . . . . . . . . .   $50,537      6.56%    $11,525      1.50%         N/A       N/A
    (To Total Assets)

As of September 30, 1999:
  Total Capital: . . . . . . . . . . . . . .  $49,204     12.64%    $31,131      8.00%     $38,914     10.00%
    (To Risk Weighted Assets)
  Tier 1 Capital: . . . . . . . . . . . . .   $44,930     11.55%        N/A       N/A      $23,348      6.00%
    (To Risk Weighted Assets)
  Tier 1 Capital: . . . . . . . . . . . . .   $44,930      6.30%    $28,520      4.00%     $35,651      5.00%
    (To Total Assets)
  Tangible Capital: . . . . . . . . . . . .   $44,930      6.30%    $10,695      1.50%         N/A       N/A
    (To Total Assets)
</TABLE>

(13) LIQUIDATION ACCOUNT

     In conjunction with the Bank's conversion to stock form on October 6, 1990,
the Bank  established,  as required by Office of Thrift  Supervision (the "OTS")
regulations, a liquidation account and maintains this account for the benefit of
the  remaining  eligible  account  holders as defined  under the Bank's  plan of
conversion.  The initial  balance of this  liquidation  account was equal to the
Bank's  net  worth  defined  by OTS  regulations  as of the  date of the  latest
statement of financial  condition  contained in the final offering circular.  In
the event of a complete  liquidation  of the Bank (and only in such  event) each
eligible  holder shall be entitled to receive a  liquidation  distribution  from
this  account in the amount of the then  current  adjusted  balance for deposits
then held, before any liquidation  distribution may be made to the stockholders.
The Bank is prohibited from declaring cash dividends or repurchasing its capital
stock if it would cause a reduction in the

                                       27
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(13) Liquidation Account - Continued

Bank's net worth  below  either the  balance of the  liquidation  account or the
statutory net worth requirements set by the OTS.

(14) EARNINGS PER SHARE

     Basic  earnings  per share  are  computed  by  dividing  net  income by the
weighted-average number of common shares outstanding. Diluted earnings per share
are  computed by dividing net income by the  weighted  average  number of common
shares and potential common shares outstanding.  Potential common shares consist
of dilutive  stock options  determined  using the treasury  stock method and the
average  market  price of common  stock.  All share and per share data have been
retroactively restated for all common stock dividends.

     The  following is a summary of the earnings per share  calculation  for the
years ended September 30:

<TABLE>
<CAPTION>

(In thousands, except share and per share data)                 1998         1999        2000
-----------------------------------------------              ---------    ---------   ---------

Basic:
<S>                                                          <C>          <C>         <C>
Net income (numerator) . . . . . . . . . . . . . . . . . . . $   6,852    $   7,715   $   8,457
                                                             =========    =========   =========
Average common shares outstanding (denominator). . . . . . . 7,260,000    7,370,000   7,385,000
                                                             =========    =========   =========
Per share amount . . . . . . . . . . . . . . . . . . . . . . $    0.94    $    1.05   $    1.15
                                                             =========    =========   =========

Diluted:
Net Income (numerator) . . . . . . . . . . . . . . . . . . . $   6,852    $   7,715   $   8,457
                                                             =========    =========   =========
Average common shares outstanding  . . . . . . . . . . . . . 7,260,000    7,370,000   7,385,000
Dilutive common stock options. . . . . . . . . . . . . . . .   345,000      215,000      92,000
                                                             ---------    ---------   ---------
Average diluted shares outstanding (denominator) . . . . . . 7,605,000    7,585,000   7,477,000
                                                             =========    =========   =========
Per share amount . . . . . . . . . . . . . . . . . . . . . . $    0.90    $    1.02   $    1.13
                                                             =========    =========   =========
</TABLE>

(15)  STOCK OPTION PLAN

     The  Company's  stock option plan  provides for stock options to be granted
primarily to directors, officers and other key Associates. Options granted under
the stock  option plan may be incentive  stock  options or  non-incentive  stock
options.  The  remaining  shares of stock  reserved for the stock option plan at
September 30, 2000 amounted to  approximately  592,000  shares.  All outstanding
options  have been  retroactively  restated to reflect the effects of the common
stock dividends.  The stock option plan is administered by three  non-management
directors of the Company.  At September 30, 2000,  the Company had the following
options outstanding:
                                            Options
                               Options    Available for    Option    Expiration
Grant Date (Calendar Year)     Granted      Exercise       Price        Date
--------------------------     -------    -------------    ------    ----------
1992 . . . . . . . . . . . . .   1,478        100%        $ 1.84        2002
1994 . . . . . . . . . . . . .   5,335        100           6.21        2004
1995 . . . . . . . . . . . . . 123,309        100           5.75        2005
1996 . . . . . . . . . . . . .  58,828         80           9.93        2006
1997 . . . . . . . . . . . . . 173,740         60          14.21        2007
1998 . . . . . . . . . . . . . 173,494         40          15.28        2008
1999 . . . . . . . . . . . . . 130,340         20          12.34        2009
2000 . . . . . . . . . . . . .  37,383         --          10.78        2010


     During the years  ended  September  30,  1998,  1999 and 2000,  options for
71,048,  217,541,  and 48,025  shares,  at an average  exercise  price of $4.54,
$1.97, and $6.18 per share, respectively, were exercised.

                                       28
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(15) STOCK OPTION PLAN - Continued

     The  following  is a summary of the  activity of the stock option plans for
the years 1998, 1999, and 2000.

<TABLE>
<CAPTION>
                                        1998                    1999                   2000
                                --------------------    --------------------    -------------------
                                            Weighted                Weighted               Weighted
                                            Average                 Average                Average
                                            Exercise                Exercise               Exercise
                                Shares       Price      Shares       Price      Shares      Price
                                -------     --------    -------     --------    -------    --------
<S>                             <C>          <C>        <C>          <C>        <C>         <C>
Outstanding, October 1 . . . .  594,618      $ 7.38     731,840      $10.15     669,449     $14.15
Granted. . . . . . . . . . . .  227,006       15.66     161,664       15.84     154,913      11.16
Cancelled. . . . . . . . . . .  (18,736)      10.32      (6,514)      13.52     (72,430)     12.86
Exercised. . . . . . . . . . .  (71,048)       4.54    (217,541)       1.97     (48,025)      6.18
                                -------     --------    -------     --------    -------    --------
Outstanding, September 30. . .  731,840      $10.15     669,449      $14.15     703,907     $14.17
                                =======     ========    =======     ========    =======    ========
</TABLE>

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting for its plan.  Accordingly,  no compensation cost has been recognized
for its fixed  stock  option  plans.  Had  compensation  cost for the  Company's
stock-based  compensation  plans been determined  consistent with SFAS Statement
No. 123, the Company's net income and earnings per share would have been reduced
to the proforma amounts indicated below (in thousands except per share data):

                                               1998         1999         2000
                                            ---------    ---------    ---------
Net income                  As reported     $   6,852    $   7,715    $   8,457
                            Proforma            6,516        7,222        7,879

Diluted earnings per share  As reported     $    0.90    $    1.02    $   1.13
                            Proforma             0.86         0.95        1.05

     The weighted  average fair value per share of options granted in 1998, 1999
and 2000  amounted to $5.27,  $5.27 and $4.58,  respectively.  The fair value of
each option  grant is  estimated  on the date of grant  using the  Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
grants in 1998,  1999 and 2000,  respectively:  dividend yield of  approximately
1.65%, 2.00% and 3.35%,  expected  volatility of approximately 30%, 33% and 44%,
risk-free  interest rate of 4.70%,  5.90% and 6.06%,  expected lives of 10 years
and a vesting period of 5 years.

(16) COMMON STOCK DIVIDENDS

     On April 30, 1997 and May 6, 1998,  the  Company  declared a four for three
stock  split  in the form of a 33%  stock  dividend,  aggregating  approximately
1,547,000 and 1,562,000 shares, respectively.  On November 10, 1999, the Company
declared a 5% stock dividend aggregating  approximately 321,000 shares. On March
14, 2000, the Company  declared a 10% stock dividend  aggregating  approximately
671,000 shares. All share data has been retroactively restated to give effect to
the common stock dividends.

(17) CASH DIVIDENDS

     On December 16, 1997,  and March 25, 1998, the Company  declared  quarterly
cash  dividends of $.058,  respectively.  On June 24, 1998,  September 23, 1998,
December 16, 1998,  March 24, 1999,  June 30, 1999 and September  22, 1999,  the
Company declared quarterly cash dividends of $.06, respectively. On December 23,
1999 the Company declared a quarterly cash dividend of $.063. On March 31, 2000,
June 23, 2000 and  September  29,  2000,  the Company  declared  quarterly  cash
dividends of $.065, respectively.

(18) LEGAL MATTERS

     The  Company is not a  defendant  in any  lawsuits.  The  subsidiaries  are
defendants in lawsuits arising out of the normal course of business. None of the
lawsuits would have a material impact on the Company's financial status.

                                       29
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(19) QUARTERLY FINANCIAL DATA (UNAUDITED)

     Quarterly  operating data for the years ended September 30 is summarized as
follows (in thousands, except share data):

<TABLE>
<CAPTION>
                                                       First       Second        Third       Fourth
                                                      Quarter      Quarter      Quarter      Quarter
                                                     ---------    ---------    ---------    ---------
1999:
<S>                                                  <C>             <C>          <C>          <C>
  Total interest income . . . . . . . . . . . . .    $  11,931       12,452       12,434       12,741
  Total interest expense . . . . . . . . . . . .         6,828        6,692        6,641        6,829
                                                     ---------    ---------    ---------    ---------
  Net interest income . . . . . . . . . . . . . .        5,103        5,760        5,793        5,912
  Provision for loan losses . . . . . . . . . . .          185          225          190          150
                                                     ---------    ---------    ---------    ---------
  Net interest income after provision for
    loan losses . . . . . . . . . . . . . . . . .        4,918        5,535        5,603        5,762
  Other income . . . . . . . . . . . . . . . . .         1,482        1,515        1,316        1,260
  General and administrative expenses . . . . . .        3,604        3,994        3,775        3,913
                                                     ---------    ---------    ---------    ---------
  Earnings before income taxes . . . . . . . . .         2,796        3,056        3,144        3,109
  Income taxes . . . . . . . . . . . . . . . . .         1,006        1,117        1,159        1,107
                                                     ---------    ---------    ---------    ---------
  Net income . . . . . . . . . . . . . . . . . .     $   1,790        1,939        1,985        2,002
                                                     =========    =========    =========    =========
  Earnings per common share - diluted . . . . .      $     .23          .26          .26          .26
                                                     =========    =========    =========    =========
  Weighted average shares outstanding-diluted .      7,625,000    7,557,000    7,597,000    7,560,000
                                                     =========    =========    =========    =========
<CAPTION>

                                                       First       Second        Third       Fourth
                                                      Quarter      Quarter      Quarter      Quarter
                                                     ---------    ---------    ---------    ---------
2000:
<S>                                                  <C>             <C>          <C>          <C>
  Total interest income . . . . . . . . . . . .      $  13,643       14,098       14,886       15,452
  Total interest expense . . . . . . . . . . .           7,619        7,966        8,737        9,315
                                                     ---------    ---------    ---------    ---------
  Net interest income . . . . . . . . . . . . .          6,024        6,132        6,149        6,137
  Provision for loan losses . . . . . . . . . .            245          225          283          225
                                                     ---------    ---------    ---------    ---------
  Net interest income after provision for
    loan losses . . . . . . . . . . . . . . . .          5,779        5,907        5,866        5,912
  Other income . . . . . . . . . . . . . . . .           1,463        1,469        1,439        1,511
  General and administrative expenses . . . . .          4,109        4,133        3,953        3,995
                                                     ---------    ---------    ---------    ---------
  Earnings before income taxes . . . . . . . .           3,133        3,243        3,352        3,428
  Income taxes . . . . . . . . . . . . . . . .           1,128        1,153        1,200        1,218
                                                     ---------    ---------    ---------    ---------
  Net income . . . . . . . . . . . . . . . . .       $   2,005        2,090        2,152        2,210
                                                     =========    =========    =========    =========
  Earnings per common share - diluted . . . . .      $     .27          .28          .29          .30
                                                     =========    =========    =========    =========
  Weighted average shares outstanding-diluted .      7,536,000    7,471,000    7,437,000    7,382,000
                                                     =========    =========    =========    =========
</TABLE>

                                       30
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(20) COASTAL FINANCIAL CORPORATION FINANCIAL STATEMENTS (PARENT COMPANY ONLY)

     The  following  is condensed  financial  information  of Coastal  Financial
Corporation  (parent company only), the primary asset of which is its investment
in its bank subsidiary, for the periods indicated. (In thousands):

                         Coastal Financial Corporation
                            Condensed Balance Sheets
                          September 30, 1999 and 2000

                                                             1999        2000
                                                          ----------   --------
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . .  . .   $      98        472
Investment in subsidiaries . . . . . . . . . . . .  . .      43,203     49,182
Deferred tax asset . . . . . . . . . . . . . . . .  . .          78         98
Other assets . . . . . . . . . . . . . . . . . . .  . .         114        100
                                                          ----------   --------
    Total assets . . . . . . . . . . . . . . . . .  . .   $  43,493     49,852
                                                          ==========   ========

Liabilities and Stockholders' Equity
Accounts payable (principally dividends) . . . . .  . .         687        838
Note payable . . . . . . . . . . . . . . . . . . .  . .       1,569      2,069
Total stockholders' equity . . . . . . . . . . . .  . .      41,237     46,945
                                                          ----------   --------
    Total liabilities and stockholders' equity . .  . .   $  43,493     49,852
                                                          ==========   ========

                          Coastal Financial Corporation
                       Condensed Statements of Operations
                  Years ended September 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                               1998        1999        2000
                                                              -------     ------      ------
Income:
<S>                                                           <C>          <C>         <C>
  Interest income . . . . . . . . . . . . . . . . . . . .     $    --          6           5
  Management fees . . . . . . . . . . . . . . . . . . . .         244        331         304
  Dividends from subsidiary . . . . . . . . . . . . . . .         850      2,793       3,090
  Equity in undistributed earnings of subsidiaries  . . .       6,033      4,934       5,423
                                                              -------     ------      ------
    Total income . . . . . . . . . . . . . . . . . .  . .       7,127      8,064       8,822
                                                              -------     ------      ------

Expenses:
  Amortization of organization cost . . . . . . . . . . .          16         --          --
  Professional fees . . . . . . . . . . . . . . . . . . .          75         64          71
  Supplies and printing . . . . . . . . . . . . . . . . .          11         56          62
  Other expenses. . . . . . . . . . . . . . . . . . . . .         191        239         252
  Income tax benefit (credit) . . . . . . . . . . . . . .         (18)       (10)        (20)
                                                              -------     ------      ------
    Total expenses . . . . . . . . . . . . . . . . .  . .         275        349         365
                                                              -------     ------      ------
Net income . . . . . . . . . . . . . . . . . . . . .  . .     $ 6,852      7,715       8,457
                                                              =======     ======      ======
</TABLE>

                                       31
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(20) COASTAL FINANCIAL  CORPORATION  FINANCIAL STATEMENTS (PARENT COMPANY ONLY),
     CONTINUED

                         Coastal Financial Corporation
                       Condensed Statement of Cash Flows
                 Years ended September 30, 1998, 1999 and 2000

<TABLE>
<CAPTION>
                                                                     1998        1999        2000
                                                                   --------    --------    --------
Operating activities:
<S>                                                                <C>           <C>         <C>
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . .   $  6,852      7,715       8,457
  Adjustments to reconcile net income to net cash provided by:
    Equity in undistributed net income of subsidiary . . . . . .     (6,033)    (4,934)     (5,423)
    (Decrease) in other assets . . . . . . . . . . . . . . . . .        (87)       (38)         (6)
    Increase (decrease) in other liabilities . . . . . . . . . .       (289)       (52)        151
                                                                   --------    --------    --------
       Total cash provided by operating activities . . . . . . .        443      2,691       3,179
                                                                   --------    --------    --------

Financing activities: . . . . . . . . . . . . . . . . . . . . . .
  Capital contributions to subsidiary . . . . . . . . . . . . . .    (2,000)        --          --
  Cash dividend to shareholders . . . . . . . . . . . . . . . . .    (1,715)    (1,796)     (1,912)
  Proceeds from stock options . . . . . . . . . . . . . . . . . .       323        341         570
  Proceeds (repayments) from line of credit . . . . . . . . . . .     2,069     (1,000)        500
  Other financing activities, net . . . . . . . . . . . . . . . .      (108)      (358)     (1,963)
                                                                   --------    --------    --------
       Total cash used by financing activities . . . . . . . . .     (1,431)    (2,813)     (2,805)
                                                                   --------    --------    --------

Net increase (decrease) in cash and cash equivalents . . . . . .       (988)      (122)        374
Cash and cash equivalents at beginning of the year . . . . . . .      1,208        220          98
                                                                   --------    --------    --------
Cash and cash equivalents at end of the years . . . . . . . . .    $    220         98         472
                                                                   ========    ========    ========
</TABLE>

(21) CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  and  fair  value  of  financial  instruments  as of
September 30, 1999 and 2000 are summarized below:

<TABLE>
<CAPTION>
                                                   1999                       2000
                                          -----------------------    -------------------------
                                           Carrying    Estimated      Carrying     Estimated
                                            Amount     Fair Value      Amount      Fair Value
                                          ----------  -----------    ----------   ------------
                                               (In thousands)             (In thousands)
Financial Assets
<S>                                        <C>           <C>          <C>            <C>
  Cash and cash equivalents. . . . . .     $ 24,233       24,233       17,167         17,167
  Investment securities. . . . . . . .        6,063        6,063        8,548          8,548
  Mortgage-backed securities . . . . .      182,115      182,115      189,239        189,239
  Loans receivable held for sale . . .       16,636       16,636       10,194         10,194
  Loans receivable, net. . . . . . . .      455,351      459,852      511,701        514,855
  FHLB stock . . . . . . . . . . . . .        8,201        8,201       11,899         11,899
                                          ----------  -----------    ----------   ------------
                                           $692,599      697,100      748,748        751,902
                                          ==========  ===========    ==========   ============

Financial Liabilities
 Deposits:
   Demand accounts . . . . . . . . . .      265,430      265,430      240,497        240,497
   Certificate accounts. . . . . . . .      134,243      133,438      165,720        165,306
Advances from Federal Home Loan Bank        164,024      160,855      225,224        224,391
Securities sold under agreements to
  repurchase . . . . . . . . . . . . .       96,948       96,948       75,858         75,858
Other borrowings . . . . . . . . . . .        1,569        1,569        2,069          2,069
                                          ----------  -----------    ----------   ------------
                                           $662,214      658,240      709,368        708,121
                                          ==========  ===========    ==========   ============
</TABLE>

     Management  has made  estimates of fair value  discount rates and estimated
prepayment  rates that it believes to be  reasonable  based upon present  market
conditions. Changes in market interest and prepayment

                                       32
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
             Notes to Consolidated Financial Statements - Continued

(21) CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

rates since September 30, 1999 and 2000, could have a significant  impact on the
fair value  presented and should be considered  when  analyzing  this  financial
data.

     The Company had $60.7 million of off-balance sheet financial commitments as
of September 30, 2000, which are commitments to originate loans, unused consumer
lines of  credit  and  undisbursed  portion  of loans in  process.  Since  these
obligations are based on current market rates, the carrying amount is considered
to be a reasonable estimate of fair value.

     The Bank has entered  into one  interest  rate cap  agreement of $7 million
notional  amount  with an  interest  rate cap on the 10 year  treasury  of 6.50%
expiring  in  January  2001 to  protect  the  value of  certain  mortgage-backed
securities.  In  addition,  the  Bank  has  entered  into  interest  rate  floor
agreements  with  correspondent  banks to protect certain  callable  liabilities
negative  effects  in the  event of a  decreasing  rate  environment.  The total
notional  amount of all agreements is $55 million.  The  agreements  require the
correspondent  banks to pay to the Bank the difference between the floor rate of
interest and the market rate of interest at each  calendar  year end. The Bank's
exposure to credit risk is limited to the  ability of the  counterparty  to make
potential  future  payments  to the  Bank  that  are  required  pursuant  to the
agreements.  At September 30, 2000,  the fair value of these  agreements was not
material. The agreements are summarized as follows:

Expiration Date          Notional Amount   Floor Rate        Index
-----------------        ---------------   ----------    ---------------
February 26, 2001          $20 million       4.50%       3 month LIBOR
February 25, 2001          $15 million       4.75%       5 Year Treasury
April 16, 2001             $10 million       4.50%       3 month LIBOR
December 31, 2001          $10 million       6.00%       3 month LIBOR

     Fair value estimates are made at, based on relevant market  information and
information about the financial  instrument.  These estimates do not reflect any
premium or discount  that could  result  from  offering  for sale the  Company's
entire holdings of a particular financial  instrument.  Because no active market
exists for a significant  portion of the Company's financial  instruments,  fair
value  estimates  are  based  on  judgments   regarding   future  expected  loss
experience,  current economic conditions,  current interest rates and prepayment
trends,  risk  characteristics  of  various  financial  instruments,  and  other
factors.  These estimates are subjective in nature and involve uncertainties and
matters  of  significant  judgment  and  therefore  cannot  be  determined  with
precision.  Changes in any of these  assumptions  used in calculating fair value
would also significantly affect the estimates.  Changes in market interest rates
and prepayment assumptions could significantly change the fair value.

     Fair  value  estimates  are  based on  existing  on and  off-balance  sheet
financial  instruments  without  attempting to estimate the value of anticipated
future business and the value of assets and liabilities  that are not considered
financial  instruments.  For  example,  the Company has  significant  assets and
liabilities that are not considered  financial  assets or liabilities  including
deposit franchise value,  loan servicing  portfolio,  real estate,  deferred tax
liabilities,  premises  and  equipment,  and  goodwill.  In  addition,  the  tax
ramifications  related to the realization of the unrealized gains and losses can
have a significant  effect on fair value  estimates and have not been considered
in any of these estimates.

(22) SALE OF FLORENCE OFFICE

     In the second fiscal quarter of 2000, the Company sold its Florence,  South
Carolina  office  to  First  Federal  Savings   Association  of  Cheraw  ("First
Federal").  The office had  deposits of $24.9  million.  The Company  received a
deposit premium from First Federal and recorded a gain, net of selling expenses,
of $1.7 million. The Company funded the sale of the deposits through the sale of
loans,  associated  with this office of $10.9 million and increased  borrowings,
primarily  through  brokered  deposits.  The Company  recorded a gain on sale of
loans of  $60,000  related  to this sale.  In  conjunction  with the sale of the
Florence  office,  the Company has agreed not to compete in the Florence  market
for a period of four years.

(23) COMMITMENTS AND CONTINGENCIES

     The  Company  has a  $16.0  million  outstanding  line  of  credit  with  a
commercial bank. The line of credit is secured by 100% of the stock of the Bank.
At September 30, 2000, the outstanding balance was approximately $2.1 million.

                                       33
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                      Management's Discussion and Analysis

Forward Looking Statements

     This report may contain  certain  "forward-looking  statements"  within the
meaning of Section 27A of the Securities Exchange Act of 1934, as amended,  that
represent  Coastal  Financial  Corporation's  (the  "Company")  expectations  or
beliefs  concerning  future events.  Such  forward-looking  statements are about
matters that are  inherently  subject to risks and  uncertainties.  Factors that
could  influence  the matters  discussed in certain  forward-looking  statements
include the timing and amount of revenues that may be recognized by the Company,
continuation of current revenue and expense trends  (including  trends affecting
charge-offs),  absence of unforeseen changes in the Company's markets, legal and
regulatory changes, and general changes in economy  (particularly in the markets
served by the  Company).  Because  of the risks and  uncertainties  inherent  in
forward looking statements, readers are cautioned not to place undue reliance on
them, whether included in this report or made elsewhere from time to time by the
Company  or on its  behalf.  The  Company  assumes no  obligation  to update any
forward looking statements.

General

     The  Company  reported  $8.5  million  in net  income  for the  year  ended
September  30, 2000,  compared to $7.7 million for the year ended  September 30,
1999.  Net  interest  income  increased  $1.9  million as a result of  increased
interest  income  of $8.5  million  offset by an  increase  of $6.6  million  in
interest expense. Provision for loan losses increased from $750,000 for the year
ended  September  30, 1999,  to $978,000 for the year ended  September 30, 2000.
Other income  increased  from $5.6  million in fiscal  1999,  to $5.9 million in
2000. General and administrative expenses increased $905,000 or 5.9%, for fiscal
2000, as compared to fiscal 1999.

     Total assets  increased from $713.0 million at September 30, 1999 to $768.8
million at September  30, 2000,  or 7.8%.  Liquid  assets,  consisting  of cash,
interest-bearing  deposits,  and  securities,  increased  from $212.4 million at
September 30, 1999, to $215.0  million at September 30, 2000.  Loans  receivable
increased  12.4% from $455.4 million at September 30, 1999, to $511.7 million at
September 30, 2000. Total loan  originations for fiscal 2000 were $247.2 million
as compared to $256.4 million for fiscal 1999.

     The growth in loans  receivable  and liquid  assets was funded by increased
deposits of $6.5 million, and increased advances from the Federal Home Loan Bank
("FHLB") of Atlanta of $61.2  million.  During fiscal 2000,  deposits  increased
from $399.7  million at September 30, 1999,  to $406.2  million at September 30,
2000.  During this same period,  transaction  deposits  (defined as  noninterest
bearing  checking  accounts,  NOW accounts and money market  checking  accounts)
decreased $21.9 million and certificate  accounts  increased $31.5 million.  The
increase in  certificate  accounts is primarily due to a $31.8 million growth in
brokered deposits.  In the second fiscal quarter, the Company sold its Florence,
South  Carolina  office to First Federal  Savings  Association of Cheraw ("First
Federal").  The office had  deposits of $24.9  million.  The Company  received a
deposit premium from First Federal and recorded a gain, net of selling expenses,
of $1.7 million. The Company funded the sale of the deposits through the sale of
loans,  associated with this office, of $10.9 million and increased  borrowings,
primarily  through  brokered  deposits.  The Company  recorded a gain on sale of
loans of  $60,000  related  to this sale.  In  conjunction  with the sale of the
Florence  office,  the Company has agreed not to compete in the Florence  market
for a period of four years.

     As a result of $8.5 million in net income,  less the cash dividends paid to
shareholders  of  approximately  $1.9 million,  treasury  stock  repurchases  of
approximately  $2.0  million,  and the net change in  unrealized  gain (loss) on
securities  available  for sale,  net of income tax of  $557,000,  stockholders'
equity  increased  from $41.2  million at September 30, 1999 to $46.9 million at
September 30, 2000.

Liquidity and Capital Resources

     Historically,  the Company has maintained its liquidity at levels  believed
by  management  to be  adequate  to  meet  requirements  of  normal  operations,
potential  deposit  outflows  and strong loan demand and still allow for optimal
investment of funds and return on assets.

     The  principal  sources  of  funds  for the  Company  are cash  flows  from
operations,   consisting  mainly  of  mortgage,  consumer  and  commercial  loan
payments,  retail Customer deposits,  brokered deposits,  repurchase  agreements
securitized by mortgage-backed securities and advances from the FHLB of Atlanta.

     The principal use of cash flows is the origination of loans receivable. The
Company originated loans receivable of

                                       34
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

$205.3 million,  $256.4 million and $247.2 million for the years ended September
30,  1998,  1999  and  2000,  respectively.   A  large  portion  of  these  loan
originations  were financed through loan principal  repayments which amounted to
$125.3 million,  $128.8 million and $139.9 million for the years ended September
30, 1998, 1999 and 2000,  respectively.  In addition,  the Company has generally
sold   conforming   fixed  rate  mortgage  loans  to   correspondent   financial
institutions in the secondary  market to finance future loan  originations.  For
the years ended  September  30,  1998,  1999 and 2000,  the  Company  sold loans
amounting to $71.7 million, $60.8 million and $33.7 million,  respectively.  The
Company  experienced  reduced sales as a result of rising  interest rates during
fiscal  2000.  Should  interest  rates  continue  to  increase,  this  trend may
continue.

     During 2000, the Company used deposit growth (primarily  brokered deposits)
to fund its loan  growth.  In fiscal  2000,  including  the sale of the Florence
office  deposits of $24.9  million,  deposits  increased  from $399.7 million at
September 30, 1999, to $406.2 million at September 30, 2000.

     At  September  30, 2000,  the Company had  commitments  to  originate  $4.3
million in loans and $33.0 million in unused lines of credit,  which the Company
expects to fund from normal operations.  Traditionally, a significant portion of
the unused lines of credit may never be used by the Customer.

     At September 30, 2000,  the Company had $136.0 million of  certificates  of
deposit  which  were  due  to  mature  within  one  year.  Based  upon  previous
experience, the Company believes that a major portion of these certificates will
be redeposited. At September 30, 2000, the Company had excess collateral pledged
to the FHLB which would  support  additional  FHLB advance  borrowings  of $22.1
million.  Additionally,  at  September  30,  2000,  the Company  had  repurchase
agreement  lines of credit and  available  collateral  consisting  of investment
securities  and  mortgage-backed  securities of $24.9 million as well as federal
funds lines available of $10.0 million.

     As a condition of deposit insurance,  current FDIC regulations require that
Coastal  Federal  Savings  Bank (the  "Bank")  calculate  and maintain a minimum
regulatory capital requirement on a quarterly basis and satisfy such requirement
at the calculation date and throughout the ensuing quarter.  The Bank's tangible
and core capital approximated $50.5 million at September 30, 2000, exceeding the
Bank's  tangible  and core  requirements  by $39.0  million  and $19.7  million,
respectively.  At September 30, 2000,  the Bank's  capital  exceeded its current
risk-based minimum capital requirement by $20.0 million.  The risk-based capital
requirement  may  increase  in the  future.  Also  see  Note 12 of the  Notes to
Consolidated Financial Statements.

Results of Operations
Comparison of the Years Ended September 30, 1999 and 2000

General

     Net earnings were $8.5 million ($1.13 per diluted share) for the year ended
September  30, 2000,  an increase of 9.6%  compared to $7.7  million  ($1.02 per
diluted  share) for the year ended  September  30,  1999.  Net  interest  income
increased $1.9 million  primarily as a result of an increase in interest  income
of $8.5  million  which was offset by an increase  in  interest  expense of $6.6
million.

Interest Income

     Interest income for the year ended  September 30, 2000,  increased 17.2% to
$58.1 million as compared to $49.6 million for the year ended September 30, 1999
primarily due to a 10.7% increase in average  interest-earning assets. The yield
on  interest-earning  assets for the year  ended  September  30,  1999 was 7.88%
compared to 8.34% for the year ended  September  30, 2000.  The average yield on
loans  receivable  for fiscal year 2000 was 8.74% compared to 8.55% in 1999. The
yield on investments  which includes  Investments,  Mortgage-Backed  Securities,
Overnight  Funds and Federal Funds,  increased to 7.33% for the fiscal year 2000
from 6.15% for fiscal year 1999. Total  interest-earning  assets for fiscal year
2000  averaged  $705.0  million  compared  to $637.0  million for the year ended
September 30, 1999. The increase in average interest-earning assets is due to an
increase  in  average  loans  receivable  of  approximately  $52.4  million  and
mortgage-backed and investment securities of approximately $10.0 million.

                                       35
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

Interest Expense

     Interest expense on interest-bearing  liabilities was $33.6 million for the
year ended  September 30, 2000, as compared to $27.0 million in fiscal 1999. The
cost of interest-bearing  liabilities was 4.84% for the year ended September 30,
2000,  compared to 4.32% in fiscal year 1999.  The average  cost of deposits for
the year ended  September  30,  2000,  was 3.88%  compared to 3.77% for the year
ended  September  30, 1999.  The cost of FHLB  advances  and reverse  repurchase
agreements for fiscal 2000 was 6.12% and 6.38%, respectively,  compared to 5.28%
and  5.30%,  respectively,  for  fiscal  1999.  Total  average  interest-bearing
liabilities increased 12.1% from $619.4 million at September 30, 1999, to $694.5
million  at  September  30,  2000.  The  increase  in  average  interest-bearing
liabilities  is due to an increase in average  deposits of  approximately  $18.0
million,  FHLB  advances of $16.8 million and reverse  repurchase  agreements of
$40.6 million.

Net Interest Income

     Net  interest  income was $24.4  million for the year ended  September  30,
2000, an increase of $1.9 million,  compared to $22.6 million for the year ended
September  30, 1999.  The net interest  margin  decreased  slightly to 3.50% for
fiscal 2000 compared to 3.55% for fiscal 1999. Average  interest-earning  assets
increased  $67.9 million while average  interest-bearing  liabilities  increased
$75.1 million. During fiscal 2000, interest rates have increased  significantly.
At September  30, 1999 and  September  30, 2000,  the prime rate of interest was
8.25% and 9.50%,  respectively.  Should  interest  rates  continue to  increase,
certain of the Bank's  adjustable  rate loans may reach their lifetime  interest
rate change cap. At September  30, 2000,  $3.8 million of the Bank's  adjustable
rate  loans were  within 200 basis  points of their  cap.  In  addition,  a high
percentage  of the Company's  assets are  adjustable  rate mortgage  loans which
reprice annually;  whereas,  many of the Company's  liabilities reprice in 60 to
180 days. The Company  expects that as a result of this rapidly rising  interest
rate  environment,  its net interest  margin may decrease  materially  in fiscal
2001.

Provision for Loan Losses

     The Company's  provision for loan losses increased from $750,000 for fiscal
1999 to $978,000 for fiscal 2000.  The allowance for loan losses as a percentage
of loans was 1.35% at  September  30, 2000,  compared to 1.36% at September  30,
1999. Loans delinquent 90 days or more were .92% of total loans at September 30,
2000,  compared to .30% at September 30, 1999. The allowance for loan losses was
148% of loans  delinquent  more than 90 days at September 30, 2000,  compared to
449% at September  30, 1999.  Management  believes that the current level of the
allowance for loan losses is adequate  considering  the  composition of the loan
portfolio, the portfolio's loss experience, delinquency trends, current regional
and local economic conditions and other factors. Also see "Nonperforming Assets"
and "Allowance for Loan Losses."

Other Income

     In fiscal  2000,  total other  income  increased  from $5.6 million for the
period ended  September 30, 1999, to $5.9 million for the period ended September
30,  2000.  Fees and  service  charges on loans and  deposit  accounts  was $2.1
million for fiscal 2000,  compared to $2.0  million for fiscal  1999.  Due to an
increasing  long-term  interest rate environment which has resulted in decreased
mortgage  originations,  gain on sale of loans was  $631,000  for the year ended
September 30, 2000,  compared to $979,000 for the year ended September 30, 1999.
Loss on sale of securities  was $1.6 million for fiscal 2000,  compared to gains
of $264,000 for fiscal 1999. This is a result of the  restructuring of a portion
of the available for sale investment portfolio. The losses were offset by a gain
on the sale of the  Florence  office  deposits  of $1.7  million.  Other  income
increased  from $973,000 for the year ended  September 30, 1999, to $1.5 million
for the year ended September 30, 2000.

Other Expense

     General and  administrative  expenses were $16.2 million for fiscal 2000 as
compared to $15.3  million  for fiscal  1999.  Salaries  and  employee  benefits
increased  from $9.1 million for fiscal 2000 to $8.6 million for fiscal 1999, or
6.3%,  primarily  due to staffing for four new offices.  Also as a result of the
four office additions, net occupancy, furniture and fixtures and data processing
expense  increased  $383,000 for fiscal 2000, as compared to fiscal 1999.  Other
expenses increased slightly from $2.9 million in 1998 to $3.0 million in 2000.

Income Taxes

     Income taxes  increased from $4.4 million in fiscal 1999 to $4.7 million in
fiscal 2000 as a result of increased earnings before income taxes.

                                       36
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

Results of Operations
Comparison of the Years Ended September 30, 1998 and 1999

General

     Net earnings were $7.7 million ($1.02 per diluted share) for the year ended
September  30, 1999,  an increase of 12.6%  compared to $6.9 million  ($0.90 per
diluted  share) for the year ended  September  30,  1998.  Net  interest  income
increased $3.1 million  primarily as a result of an increase in interest  income
of $5.7  million  which was offset by an increase  in  interest  expense of $2.5
million.

Interest Income

     Interest income for the year ended  September 30, 1999,  increased 12.9% to
$49.6 million as compared to $43.9 million for the year ended September 30, 1998
primarily due to a 16.6% increase in average  interest-earning assets. The yield
on  interest-earning  assets for the year  ended  September  30,  1998 was 8.11%
compared to 7.88% for the year ended  September  30, 1999.  The average yield on
loans  receivable  for  fiscal  year 1999 was 8.55%  compared  to 8.75% in 1998.
Yields on loans receivable  decreased primarily due to the downward repricing of
adjustable  rate  mortgages  in the first  half of  fiscal  1999.  The  constant
maturity yield of the one-year treasury was 5.26% in fiscal 1998 versus 4.82% in
fiscal   1999.   The   yield  on   investments   which   includes   Investments,
Mortgage-Backed  Securities,  Overnight  Funds and Federal  Funds,  decreased to
6.15%  for the  fiscal  year  1999  from  6.69%  for  fiscal  year  1998.  Total
interest-earning assets for fiscal year 1999 averaged $637.0 million compared to
$546.6  million for the year ended  September 30, 1998.  The increase in average
interest-earning  assets is due to an increase in average  loans  receivable  of
approximately  $36.0 million and  mortgage-backed  and investment  securities of
approximately $51.5 million.

Interest Expense

     Interest expense on interest-bearing  liabilities was $27.0 million for the
year ended  September 30, 1999, as compared to $24.5 million in fiscal 1998. The
cost of interest-bearing  liabilities was 4.32% for the year ended September 30,
1999,  compared to 4.60% in fiscal year 1998.  The average  cost of deposits for
the year ended  September  30,  1999,  was 3.77%  compared to 4.10% for the year
ended September 30, 1998. The average cost of deposits  decreased due to healthy
growth in low cost  transaction  deposits  which  increased  16.7%  and  general
declining  deposit  rates in the  first  half of fiscal  1999.  The cost of FHLB
advances and reverse repurchase  agreements for fiscal 1999 was 5.28% and 5.30%,
respectively,  compared to 5.62% and 5.68%, respectively, for fiscal 1998. Total
average  interest-bearing  liabilities  increased  16.5% from $531.7  million at
September  30, 1998, to $619.4  million at September  30, 1999.  The increase in
average  interest-bearing  liabilities is due to an increase in average deposits
of  approximately  $32.8  million,  FHLB  advances of $45.6  million and reverse
repurchase agreements of $8.9 million.

Net Interest Income

     Net  interest  income was $22.6  million for the year ended  September  30,
1999, an increase of $3.1 million,  compared to $19.4 million for the year ended
September  30, 1998.  The net interest  margin  increased  slightly to 3.55% for
fiscal 1999 compared to 3.51% for fiscal 1998. Average  interest-earning  assets
increased  $90.5 million while average  interest-bearing  liabilities  increased
$87.7 million.

Provision for Loan Losses

     The Company's  provision for loan losses decreased from $865,000 for fiscal
1998 to $750,000 for fiscal 1999.  The allowance for loan losses as a percentage
of loans was 1.36% at  September  30, 1999,  compared to 1.33% at September  30,
1998. Loans delinquent 90 days or more were .30% of total loans at September 30,
1999,  compared to .54% at September 30, 1998. The allowance for loan losses was
449% of loans  delinquent  more than 90 days at September 30, 1999,  compared to
251% at September  30, 1998.  Management  believes that the current level of the
allowance for loan losses is adequate  considering  the  composition of the loan
portfolio, the portfolio's loss experience, delinquency trends, current regional
and local economic conditions and other factors. Also see "Nonperforming Assets"
and "Allowance for Loan Losses."
                                       37
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

Other Income

     In fiscal  1999,  total other  income  decreased  from $5.9 million for the
period ended  September 30, 1998, to $5.6 million for the period ended September
30, 1999. Primarily as a result of a 17% increase in transaction accounts,  fees
and service  charges on loans and deposit  accounts  was $2.0 million for fiscal
1999,  compared to $1.6 million for fiscal 1998. Due to an increasing  long-term
interest rate environment which has resulted in decreased mortgage originations,
gain on sale of loans  was  $979,000  for the year  ended  September  30,  1999,
compared to $1.6 million for the year ended  September 30, 1998. Gain on sale of
securities  was $264,000 for fiscal 1999,  compared to $617,000 for fiscal 1998.
Other income  increased from $906,000 for the year ended  September 30, 1998, to
$973,000 for the year ended  September  30,  1999.  This was offset by decreased
income from real  estate held for  investment  which was  $221,000  for the year
ended  September  30,  1998.  This was due to a land  sale by one of the  Bank's
subsidiaries.  As of  October  1,  1998,  all  remaining  real  estate  held for
investment  had been  sold.  Consequently,  there was no income  from land sales
during the year ended September 30, 1999.

Other Expense

     General and  administrative  expenses were $15.3 million for fiscal 1999 as
compared to $13.6 million for fiscal 1998.  Salaries and employee  benefits were
$8.6 million for fiscal 1999 as compared to $7.4  million for fiscal 1998,  or a
17.0%  increase.  During fiscal 1999, the Company staffed for the preparation of
opening the Little River office.  Other  staffing  additions  include  increased
lending  personnel  and several  additions in  operations.  The remainder of the
increase  in  compensation  is due to normal  salary  increases  which  averaged
approximately  five  percent.  Net  occupancy,  furniture  and fixtures and data
processing  expense  increased  $303,000 for fiscal 1999,  as compared to fiscal
1998. This is primarily attributed to increased  depreciation expense due to the
addition of the  Coastal  Federal  University  facility  and the North  Carolina
Office in Sunset Beach, NC. Other expenses  increased slightly from $2.8 million
in  1998  to  $2.9  million  in  1999,  primarily  due  to  increased  marketing
expenditures of brand awareness and new product brochures.

Income Taxes

     Income taxes  increased from $4.0 million in fiscal 1998 to $4.4 million in
fiscal 1999 as a result of increased earnings before income taxes.

Non-performing Assets

     Non-performing  assets were $5.6 million at September  30, 2000 compared to
$1.5 million at September  30,  1999.  Loans past due 90 days or more  increased
from $1.4 million at September  30, 1999, to $4.8 million at September 30, 2000.
This is primarily due to two commercial  real estate lending  relationships  for
which foreclosure proceedings have been initiated.  Real estate acquired through
foreclosure  increased  from  $96,000 at  September  30,  1999,  to  $867,000 at
September 30, 2000.

     At September 30, 2000,  impaired loans totaled $1.4 million.  There were no
impaired loans at September 30, 1999.  Included in the allowance for loan losses
at  September  30,  2000 was  $345,000  related to impaired  loans.  The average
recorded  investment in impaired loans for the year ended September 30, 2000 was
$1.5 million.  No interest  income was  recognized  on impaired  loans in fiscal
2000.

     Loans are reviewed on a regular  basis and an allowance  for  uncollectible
interest is established  on loans where  collection is  questionable,  generally
when such loans become 90 days  delinquent.  Loan  balances  for which  interest
amounts have been reserved and all loans more than 90 days delinquent are placed
on non-accrual  status.  Typically,  payments received on a non-accrual loan are
applied to the  outstanding  principal or recognized as interest  based upon the
collectibility of the loan as determined by management.

Allowance for Loan Losses

     The  Company's  management  evaluates  the  need  to  establish  additional
allowances  against  losses on loans  quarterly.  Such an evaluation  includes a
review of all loans for which full  collectibility may not be reasonably assured
and considers, among other matters, the estimated market value of the underlying
collateral  of problem  loans,  composition  of the loan  portfolio,  prior loss
experience, economic conditions, etc.


                                       38
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

Allowance for Loan Losses - Continued

     The  Company  established  provisions  for loan  losses for the years ended
September  30,  1998,  1999  and  2000,  of  $865,000,  $750,000  and  $978,000,
respectively. For the years ended September 30, 1998, 1999 and 2000, the Company
had net charge-offs of $208,000, $100,000 and $319,000, respectively. Net charge
offs as a percentage of average  outstanding loans were .05%, .02%, and .06% for
fiscal years ended 1998,  1999 and 2000. At September 30, 2000,  the Company had
an  allowance  for loan  losses  of $7.1  million,  which was 1.35% of net loans
compared to 1.36% at September 30, 1999.

     Management believes that the current level of the allowance for loan losses
is adequate  considering the composition of the loan portfolio,  the portfolio's
loss  experience,  delinquency  trends,  current  regional  and  local  economic
conditions  and  other  factors.  While  management  uses the  best  information
available  to make  evaluations,  future  adjustments  to the  allowance  may be
necessary if economic conditions differ  substantially from the assumptions used
in making the  evaluation.  The allowance for loan losses is subject to periodic
evaluation by various  regulatory  authorities  and may be subject to adjustment
upon their examination.

Interest Rate Risk Disclosure

     The Bank's  Asset  Liability  Management  Committee  ("ALCO")  monitors and
considers methods of managing exposure to interest rate risk. The ALCO committee
consists  of members of the Board of  Directors  and  Senior  Leadership  of the
Company  and meets  quarterly.  The Bank's  exposure  to  interest  rate risk is
reviewed on at least a quarterly basis by the ALCO.  Interest rate risk exposure
is measured  using  interest rate  sensitivity  analysis to determine the Bank's
change in net portfolio value in the event of  hypothetical  changes in interest
rates.  The ALCO is charged  with the  responsibility  to maintain  the level of
sensitivity of the Bank's net portfolio value within Board approved limits.

     Net portfolio value (NPV)  represents the market value of portfolio  equity
and is  equal  to  the  market  value  of  assets  minus  the  market  value  of
liabilities,  with adjustments made for off-balance  sheet items over a range of
assumed  changes in market  interest  rates.  The Bank's Board of Directors  has
adopted  an  interest  rate risk  policy  which  establishes  maximum  allowable
decreases  in NPV in the event of a sudden  and  sustained  one  hundred to four
hundred basis point increase or decrease in market interest rates. The following
table  presents  the Bank's  projected  change in NPV for the various rate shock
levels as of September 30, 2000.

<TABLE>
<CAPTION>
                           Board Limit       Board Limit       Market Value    Market Value
                           Minimum NPV        Maximum           Of Assets    Portfolio Equity     NPV
Change in Interest Rates     Ratio         Decline in NPV        9/30/00         9/30/00         Ratio
------------------------   -----------     --------------      ------------  ----------------   -------
<S>                          <C>              <C>               <C>             <C>              <C>
300 basis point rise         5.00%            400 BPS           $ 746,692       $ 41,661         5.58%
200 basis point rise         6.00%            300 BPS           $ 761,044       $ 51,952         6.83%
100 basis point rise         6.00%            250 BPS           $ 774,678       $ 61,394         7.93%
No Change                    6.00%                              $ 786,821       $ 69,379         8.82%
100 basis point decline      6.00%            250 BPS           $ 796,575       $ 75,694         9.50%
200 basis point decline      6.00%            300 BPS           $ 804,666       $ 80,277         9.98%
300 basis point decline      6.00%            350 BPS           $ 813,641       $ 85,728        10.54%
</TABLE>

     The preceding table indicates that at September 30, 2000, in the event of a
sudden and sustained  increase in prevailing  market interest rates,  the Bank's
NPV would be expected to decrease, and that in the event of a sudden decrease in
prevailing  market  interest  rates,  the Bank's NPV would be expected to change
minimally.  At September  30,  2000,  the Bank's  estimated  changes in NPV were
within the limits established by the Board of Directors.

     Computation of prospective  effects of  hypothetical  interest rate changes
are based on numerous assumptions,  including relative levels of market interest
rates,  loan  prepayments  and deposit  decay,  and should not be relied upon as
indicative of actual results.  Further,  the computations do not contemplate any
actions  the ALCO could  undertake  in  response  to sudden  changes in interest
rates.

     The Bank also uses  interest rate  sensitivity  gap analysis to monitor the
relationship between the maturity and repricing of its  interest-earning  assets
and  interest-bearing  liabilities.  Interest rate sensitivity gap is defined as
the difference

                                       39
<PAGE>

                 COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
                Management's Discussion and Analysis - Continued

Interest Rate Risk Disclosure - Continued

between the amount of  interest-earning  assets  maturing or repricing  within a
specific time period and the amount of interest-bearing  liabilities maturing or
repricing  within the same time period.  A gap is  considered  positive when the
amount   of    interest-rate-sensitive    assets    exceeds    the   amount   of
interest-rate-sensitive liabilities. Generally, during a period of rising rates,
a positive gap would result in an increase in net interest  income.  Conversely,
during a period of falling  interest  rates,  a positive  gap would  result in a
decrease in net interest income. It is management's goal to maintain  reasonable
balance between exposure to interest rate fluctuations and earnings.

Impact of New Accounting Pronouncements

     SFAS 133,  "Accounting for Derivative  Instruments and Hedging Activities",
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB  Statement No. 133-an  amendment of FASB Statement
No. 133",  and SFAS 138,  "Accounting  for Certain  Derivative  Instruments  and
Certain Hedging  Activities-an  amendment of FASB Statement No. 133",  establish
accounting and reporting standards for derivative instruments, including certain
derivative  instruments  embedded in other contracts and hedging activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  in  the  statement  of  financial   position,   and  measure  those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  designated  as (a) a hedge of the  exposure to changes in the fair
value of a recognized  asset or liability or a firm  commitment,  (b) a hedge of
the exposure to variable cash flows of a forecasted transaction,  or (c) a hedge
of the foreign currency  exposure of a net investment in a foreign  corporation.
SFAS 137 amends SFAS 133 to delay the required  adoption date by one year.  SFAS
138 amends SFAS 133 to address a limited number of issues causing implementation
difficulties.  This  statement is effective for fiscal  quarters in fiscal years
beginning  after June 15, 2000. The Company  adopted this  statement  October 1,
2000, with no material impact on its financial statements.

Effects of Inflation and Changing Prices

     The consolidated financial statements have been prepared in accordance with
generally  accepted  accounting  principles  which  require the  measurement  of
financial  position and results of operations  in terms of  historical  dollars,
without  consideration of change in the relative  purchasing power over time due
to inflation. Unlike most industrial companies,  virtually all of the assets and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than the effect of  inflation.  Interest  rates do not  necessarily
change in the same magnitude as the price of goods and services.

Capital Standards and Regulatory Matters

     The Bank's capital  standards  include:  (1) a leverage limit requiring all
OTS chartered  financial  institutions to maintain core capital in an amount not
less than 4% of the financial institution's total assets; (2) a tangible capital
requirement of not less than 1.5% of total assets;  and (3) a risk-based capital
requirement  of not  less  than  8.0%  of  risk  weighted  assets.  For  further
information  concerning  the Bank's capital  standards,  refer to Note 12 of the
Notes to the Consolidated Financial Statements.

                                       40
<PAGE>

                               Board of Directors
         Coastal Financial Corporation and Coastal Federal Savings Bank

James C. Benton                         James C. Benton
President, C.L. Benton & Sons, Inc.     President, C.L. Benton & Sons, Inc.

G. David  Bishop                        G. David  Bishop
Chairman,  WCI                          Chairman,  WCI
Management Group Inc.                   Management  Group Inc.

James T. Clemmons                       James T. Clemmons
Chairman                                Chairman
Coastal Financial Corporation           Coastal Federal Savings Bank

James P. Creel                          James P. Creel
President                               President
Creel Corporation                       Creel Corporation

James H. Dusenbury                      James H. Dusenbury
Retired - Attorney                      Retired - Attorney
Dusenbury and Clarkson Law Firm         Dusenbury and Clarkson Law Firm

Michael C. Gerald                       Michael C. Gerald
President and Chief Executive Officer   President and Chief Executive Officer
Coastal Financial Corporation           Coastal Federal Savings Bank

Frank A. Thompson, II                   Frank A. Thompson, II
President                               President
Peoples Underwriters, Inc.              Peoples Underwriters, Inc.

                        Coastal Investor Services, Inc.

G. David  Bishop
Chairman,  WCI
Management  Group Inc.

James P. Creel
President, Creel Corporation

James H. Dusenbury
Retired - Attorney
Dusenbury and Clarkson Law Firm

Michael C. Gerald
President and Chief Executive Officer
Coastal Financial Corporation

E. Haden Hamilton, Jr.
President and Chief Executive Officer
Coastal Investor Services, Inc.

Jerry L. Rexroad, CPA
Chief Financial Officer
Coastal Investor Services, Inc.

Phillip G. Stalvey
Executive Vice President
Coastal Financial Corporation

Frank A. Thompson, II
President
Peoples
Underwriters, Inc.

                                       41
<PAGE>

                          COASTAL FEDERAL SAVINGS BANK
                                Leadership Group

<TABLE>
<CAPTION>
<S>                            <C>                                <C>                               <C>
Sherri J. Adams                J. Daniel Fogle                    Edward L. Loehr                   Douglas E. Shaffer
Personal Banking Leader        Vice President                     Vice President                    Senior Vice President
N. Myrtle Beach                Residential Banking Leader         Budgeting and Treasury            Area Leader
                               West Community                                                       North and West Communities
James R. Baker, MCP                                               Sandy L. Louden
Assistant Vice President       Joel P. Foster                     Personal Banking Leader           Steven J. Sherry
Systems Engineer               Vice President                     Socastee                          Executive Vice President
                               Business Banking Leader                                              Chief Marketing Officer
Jeffrey A. Benjamin            Myrtle Beach Community             Kathleen M. Lutes
Senior Vice President                                             Senior Loan Underwriter           Cathe P. Singleton
Credit Administration Leader   Mary  L.  Geist                                                      Assistant Vice President
                               Vice  President                    Sherry A. Maloni                  Personal Banking Leader
Lynn U. Berry                  Data  Services Leader              Assistant Vice President          Murrells Inlet
Vice President                                                    Personal Banking Leader
Community Banking Leader       Michael C. Gerald                  Conway                            Ashley M. Smith
Litchfield Community           President and Chief                                                  Vice President
                               Executive Officer                  Michael C. Mauney                 Community Banking Leader
                                                                  Collections Group Leader          Sunset Beach
Rebecca L. Brown               Kenan D. Godwin
Senior Closing Specialist      Personal Banking Leader            Marcus G. McDowell                J. Marcus Smith, Jr.
                               Oak Street                         Vice President                    Vice President
Cynthia L. Buffington                                             Business Banking Leader           Account Servicing Leader
Assistant Vice President       Jimmy R. Graham                    Little River
Item Processing Leader         Executive Vice President                                             Phillip G. Stalvey
                               CIO                                Amy E. McLaurin                   Executive Vice President
Richard N. Burch                                                  Personal Banking Leader           Sales Leader
Senior Vice President          Nancy C. Hall                      Sunset Beach
IT Planning                    Assistant  Vice  President                                           H. Delan Stevens
                               Personal  Banking Leader           Janice B. Metz                    Vice President
Glenn T. Butler, MCSE          Dunes                              Marketing Programs                Community Banking Leader
Vice President                                                    Coordinator                       West Community
Network Services Leader        Lisa B. James
                               Vice President                     Lauren E. Miller                  Sandra J. Szarek
Anne R. Caldwell               Account Servicing Leader           Assistant Vice President          Business Banking Servicing
Deposit Servicing Leader                                          Dean of Associate                 Leader
                               Ruth S. Kearns                     Development
Shonda C. Chestnut             Senior Vice President              Coastal Federal University        Regina  C. Taylor
Personal Banking Leader        Customer Recognition Officer                                         Marketing Systems Analyst
Surfside                       Assistant Corporate Secretary      Ronald A. Nolan
                                                                  Security Officer                  Donna P. Todd
Susan J. Cooke                 Thomas W. Kennedy                                                    Assistant  Vice  President
Vice President                 Vice President                     John T. Powell                    Associate Dean of Career
Corporate Support Leader       Senior Personal Banking            Assistant Vice President          Development
Corporate Secretary            Leader                             Community Banking Leader
                               Myrtle Beach Community             Wilmington                        Matthew J. Towns
Robert D. Douglas                                                                                   Assistant Vice President
Executive Vice President       L. Eric Keys                       Jerry L. Rexroad, CPA             Credit Administration
Human Resources Leader         Vice President                     Executive Vice President
                               Community Banking Leader           Chief Financial Officer           C. Scott Tripp
S. Lynn Dyson                  South Strand Community                                               Personal Banking Leader
Personal Banking Leader                                           W. Bryan Rountree                 38th Avenue/Bi-Lo
Waccamaw                       Gregory J. Kreger                  Personal Banking Leader
                               Corporate Services Leader          Southport                         Douglas W. Walters
Barbara R. Faber, CPA                                                                               Vice President
Assistant Vice President       Scott W. Lander                    Eulette W. Sauls                  Residential Banking Leader
Banking Administration         Senior Vice President              Customer Account                  N. Myrtle Beach
Leader                         Area Leader                        Relationship System Leader
                               North Carolina Communities
Rita E. Fecteau                                                   Sherry G. Schoolfield
Vice President                 Stacey M. Lee                      Assistant Vice President
Controller                     Personal Banking Leader            Compliance Officer
                               Carolina Forest
Trina S. Ferguson
Vice President
Residential Loan
Administration
Leader
</TABLE>
                                       42
<PAGE>

                                   Locations


<TABLE>
<CAPTION>
Coastal Federal Savings Bank                                             Coastal Investor Services, Inc.

<S>                                   <C>                                <C>
38th Avenue Office                    North Myrtle Beach Office          Cynthia M. Clark
1245 38th Avenue North                521 Main Street                    Registered Sales Assistant
Myrtle Beach, SC  29577               North Myrtle Beach, SC 29582       843.918.7600
843.205.2041                          843.205.2002
                                                                         Susan J. Cooke
Oak Street Office                     Socastee Office                    Corporate Secretary
2619 Oak Street                       4801 Socastee Boulevard            843.205.2000
Myrtle Beach, SC 29577-3129           Myrtle Beach, SC 29575
843.205.2000                          843.205.2007                       John L. Creamer
                                                                         Vice President and Financial Advisor
Carolina Forest Office                Sunset Beach Office                843.918.7610
3894 Renee Drive                      1625 Seaside Road S.W.
Myrtle Beach, SC 29579                Sunset Beach, NC 28468             E. Haden Hamilton, Jr.
843.205.2016                          843.205.2012                       President, Chief Executive Officer
                                      910.579.8160                       and Financial Advisor
Conway Office                                                            843.918.7603
310 Highway 378                       Surfside Office
Conway, SC 29526                      112 Highway 17 South               John Michael Hill
843.205.2005                          & Glenns Bay Road                  Vice President and Financial Advisor
                                      Surfside Beach, SC 29575           843.918.7602
Dunes Office                          843.205.2003
7500 North Kings Highway                                                 Debra Hinson
Myrtle Beach, SC 29572                Waccamaw Medical Park Office       Sales Assistant
843.205.2001                          112 Waccamaw Medical Park Drive    843.918.7600
                                      Conway, SC 29526
Little River Office                   843.205.2009                       Jerry L. Rexroad, CPA
1602 Highway 17                                                          Chief Financial Officer
Little River, SC 29566                Wilmington Office                  843.205.2000
843.205.2014                          Lending Center
                                      5710 Oleander Drive, Suite 209     Kaye S. Williamson
Murrells Inlet Office                 Wilmington, NC 28403               Financial Advisor
3348 Highway 17 South                 843.205.2031                       843.918.7609
& Inlet Crossing                      910.313.1161
Murrells Inlet, SC 29576
843.205.2008
</TABLE>

                                       43
<PAGE>

                             Corporate Information

Common Stock and  Dividend  Information

     The common stock of Coastal  Financial  Corporation  is quoted  through the
NASDAQ Stock Market under the symbol CFCP. For information contact:

        Herzog, Heine, Geduld, Inc. at 1.800.523.4936

        First Union Capital Markets at 1.800.446.1016

        Knights Securities at 212.336.8690

        Sprear, Leeds & Kellogg at 1.800.526.3160

        Edgar M. Norris & Company at 864.235.5991

        Trident Securities at 1.800.222.2618

     As of November 30, 2000, the Corporation had 918 shareholders and 7,267,018
shares of common stock outstanding.  This does not reflect the number of persons
or  entities  who hold stock in nominee or "street  name".  The prices have been
adjusted to reflect stock dividends.

Market Price of Common Stock

     The table below  reflects  the high and low bid stock  prices  published by
NASDAQ for each quarter.

                           HIGH       LOW       CASH
                           BID        BID     DIVIDEND

Fiscal Year 2000:
First Quarter            $13.71     $10.23    $0.063
Second Quarter            12.11       8.33     0.065
Third Quarter             11.58       9.44     0.065
Fourth Quarter            11.50       5.00     0.065

Fiscal Year 1999:
First Quarter             20.17      15.23     0.06
Second Quarter            18.41      13.64     0.06
Third Quarter             16.76      11.94     0.06
Fourth Quarter            15.40      11.48     0.06

Form 10-K

     A copy of Coastal  Financial  Corporation's  Annual Report on Form 10-K, as
filed with the Securities  Exchange  Commission for the year ended September 30,
2000, may be obtained  without a charge by writing to the Shareholder  Relations
Officer at the Corporate Address.

Annual Meeting of Shareholders

     The Annual Meeting of Shareholders of Coastal Financial Corporation will be
held at the Myrtle Beach Martinique,  7100 North Ocean Boulevard,  Myrtle Beach,
South Carolina,  on Wednesday,  January 24, 2001 at 2:00 p.m.,  Eastern Standard
Time.

Additional Information

     If you are  receiving  duplicate  mailing  of  shareholder  reports  due to
multiple  accounts,  we can  consolidate  the mailings  without  affecting  your
account  registration.  To do this, or for additional  information,  contact the
Shareholder Relations Office, at the Corporate address shown below.

Corporate Offices
Coastal Financial Corporation
2619 Oak Street
Myrtle Beach, South Carolina 29577
843.205.2000

Transfer Agent and Registrar
Registrar and Transfer Company
P.O. Box 1010
Cranford, NJ  07016
1.800.866.1340 Ext. 2511

Independent Certified Public Accountants
KPMG LLP
55 Beattie Place, Suite 900
Greenville, South Carolina 29601

Special Counsel
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue
Washington, DC  20016

Shareholder Relations Officer
Susan J. Cooke
Coastal Financial Corporation
2619 Oak Street Myrtle Beach,
South Carolina 29577
843.205.2000

Coastal Financial Corporation is an equal opportunity employer and pledges equal
opportunities without regard to religion,  citizenship, race, color, creed, sex,
age, national origin, disability or status as a disabled or Vietnam-Era veteran.