EXHIBIT 13

                      ANNUAL REPORT TO STOCKHOLDERS FOR THE

                      FISCAL YEAR ENDED SEPTEMBER 30, 1998
<PAGE>











                                     Coastal
                              Financial Corporation

                                      1998
                                     Annual
                                     Report

<PAGE>
The Coastal Federal Customer

Continued  growth  depends upon Coastal  Federal's  ability to uncover  customer
needs and meet those needs with the right  products and  services,  delivered by
well-trained Associates.

Personal Banking

Coastal Banker Checking, Savings and Investments

Our  Customers  enjoy the  benefits of one of our four COASTAL  BANKER  Checking
options.  They can add long term growth to their  financial plans with a Coastal
Federal  savings  account  or tap the broad  resources  available  from  Coastal
Investor  Services,   Inc.,  the  securities  brokerage  subsidiary  of  Coastal
Financial  Corporation.*

Easy Access

In  addition  to the  knowledgeable  personnel  at  Coastal  Federal  locations,
Customers can access their  Checking  accounts,  Savings and credit  accounts 24
hours a day using  their  touch-tone  telephones.  Or with their  computers  and
Coastal  Federal PC Banking,  they can take advantage of the  convenience of the
Internet to manage their  finances.  When they're in a hurry,  our Customers can
stop by any of our conveniently  located ATMs, or use our ATM/VISA(R) Check Card
to eliminate the  check-writing  hassles of presenting  multiple IDs and waiting
for approval.

Ruetilla Ford

Mrs. Ford has been a Coastal  Federal  Customer  since the days when she climbed
the stairs to the Bank's original second-floor location at the Colonial Building
in downtown  Myrtle  Beach - that's  more than 45 years.  She still lives in the
home that she and her late husband Charles built themselves,  with the help of a
Coastal  Federal  mortgage.   Now  that  Mrs.  Ford  is  retired  from  the  AVX
Corporation,  Coastal  Federal  is there for  savings,  financial  planning  and
investment  advice.  A tireless  gardener and enthusiastic  traveler,  Mrs. Ford
enjoys the people she  encounters  at her  part-time job at The Breakers and the
organizations of which she is an active member.  And Coastal Federal runs in the
family. "Both my sons are Coastal Federal Customers," she says.

---------------------
*Securities offered through Robert Thomas Securities, Inc., Member NASD/SIPC
-- NOT FDIC  Insured
-- NOT GUARANTEED by Coastal Federal Savings Bank
-- Subject to risk and may lose value
<PAGE>
The Coastal Federal Customer

Coastal  Federal  offers a wide  array  of  time-saving,  added-value  financial
advantages that are right for our Customers.

Personal Banking

Loans and Other Credit Products

When our  Customers are ready to buy or build a home, or purchase a lot to build
on later, Coastal Federal has a mortgage specialist at every location to deliver
personal  attention.  Our specialists have a keen understanding of the community
real  estate  market,  and have  local  decision-making  authority  to speed the
approval process.

For big  expenses,  our  Customers  can lower the cost of credit  with a Coastal
Federal Home Equity Line or Loan.  (Home Equity products may be tax de-ductible;
Customers should check with their tax advisors.) Our Consumer Loans can make the
money  available for buying a vehicle or taking  advantage of a great deal.  And
our  Customers  enjoy the  purchasing  power and  worldwide  convenience  of our
popular Fly Free on Us(R) VISA(R) Credit Card.

We make it simple.

Our  All-in-One  Application  makes it easy for our  Customers  to sign up for a
broad range of services,  all at one time. No lengthy forms, no hassle.  Then as
they add future  services,  we simply  up-date the data.  It's part of the added
convenience our Customers can count on from Coastal Federal.


Tom & Bonnie Black

As an ERA Winner's Circle Realtor,  Bonnie Black knows the real estate market in
the  coastal  Carolina  area.  When she and  husband  Tom  bought  their home in
Calabash, North Carolina, Coastal Federal was their choice as a Mortgage Lender.
"We like Coastal Federal's personal  attention," Tom said. So when they recently
decided to refinance and renovate their home,  Coastal  Federal was their choice
once again.  When they renovated their home, Tom built a wide,  comfortable deck
so they could make the most of the coastal climate.  Both Tom and Bonnie grew up
in military families,  with frequent moves and traveling, so they appreciate the
friendliness  and quiet of Calabash.  Now that Tom and Bonnie are planning their
own real  estate  ventures,  Coastal  Federal  is  helping  them  with  personal
attention to define the right options for their business as well.
<PAGE>

                                        Quest for
                                        Excellence

Our Mission:
Exceeding the
Expectations of
Our Customer

                                        Coastal
                                        Financial
                                        Corporation

                                        1998
                                        Annual
                                        Report








                                                                         Coastal
                                                                       Financial
                                                                     Corporation
<PAGE>
Our Values 
Values we follow in carrying forth the Bank's Mission Statement.

Commitment
We pledge to Exceed the  Expectations  of our Customer and adhere to the Guiding
Principles of the Bank.

Leadership
Continuously developing and communicating the correct visions and ensuring their
reality.

Integrity
Retaining Trust and Respect.

Quality
Doing the Right things Right.
<PAGE>
Dedication

Quest for Excellence

Shortly  after  becoming  a public  company  in 1990,  we set out to  develop  a
foundation  which would support the  significant  changes we would,  and should,
experience.

Our vision then, and today, is that change is necessary for growth and progress.
However,  no matter how,  or in what  magnitude,  the change  should  occur,  we
believed that our foundation principles had to be unchanging. 

The result of this initiative  produced a clearly defined set of values which we
refer to as our Quest for Excellence operating philosophy.

This Guiding Vision, in the big picture,  links our Basic Corporate Objective of
Maximizing The Value Of Our Shareholders'  Investment with our Long Term Goal of
Being The Best  Financial  Services  Company In Our  Marketplace  by  constantly
focusing  our  attention  on the fact that this  result may only be  achieved by
providing  exceptional  Customer  service.  We firmly believe that this level of
commitment to Exceeding the  Expectations  of our Customer can only be delivered
by motivated Career Associates, working as part of a group which is well focused
on  established  goals.  And  further,  that the degree of our  success  will be
significantly  influenced by our ability to contribute to the improvement of the
Communities we serve.

Our overriding  commitment to our QUEST FOR EXCELLENCE  operating philosophy has
again produced  outstanding  results for our  Shareholders and we are absolutely
convinced  that this approach will help to insure that our best years are yet to
come.
<PAGE>
Share Price Performance

[GRAPHIC -- SHARE PRICE PERFORMANCE GRAPH PLOTTED TO POINTS IN CHART BELOW]

Initial Public Offering
October 4, 1990 .................................................$10.00

Sept. 30, 1991 ..................................................$10.00

Sept. 30, 1992 ..................................................$27.20

Sept. 30, 1993 ..................................................$68.31

Sept. 30, 1994 ..................................................$85.56

Sept. 30, 1995 ..................................................$85.92

Sept. 30, 1996 ..................................................$134.94

Sept. 30, 1997 ..................................................$217.16

Sept. 30, 1998 ..................................................$215.52

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 $215.52 based upon
NASDAQ  Quotations at September  30, 1998.  The  foregoing  reflects  historical
results and may not be indicative of future stock prices.
<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 SEPTEMBER 30,
                                                                     ---------------------------
                                                                          1994          1995
                                                                     ------------- -------------
                                                                       (DOLLARS IN THOUSANDS,
                                                                       EXCEPT PER SHARE DATA)
<S>                                                                    <C>           <C>      
FINANCIAL CONDITION DATA:
Total assets .......................................................   $ 374,980     $ 401,201
Loans receivable, net ..............................................     331,175       356,819
Mortgage-backed securities .........................................         794        12,776
Cash, interest-bearing deposits and investment securities ..........      29,316        13,530
Deposits ...........................................................     247,385       273,099
Borrowings .........................................................      98,446        95,997
Stockholders' equity ...............................................      23,104        24,820
OPERATING DATA:
Interest income ....................................................   $  24,562     $  30,328
Interest expense ...................................................      11,548        17,272
                                                                       ---------     ---------
Net interest income ................................................      13,014        13,056
Provision for loan losses ..........................................         510           202
                                                                       ---------     ---------
Net interest income after provision for loan losses ................      12,504        12,854
                                                                       ---------     ---------
OTHER INCOME:
Fees and service charges on loans and deposit accounts .............       1,001         1,051
Gain on sales of loans held for sale ...............................         411            39
Gain (loss) on sales of investment securities ......................          --            --
Gain on sales of mortgage-backed securities, net ...................          54            --
Real estate operations .............................................         341           876
Other income .......................................................       1,022         1,284
                                                                       ---------     ---------
Total other income .................................................       2,829         3,250
Total general and administrative expense ...........................      10,279        10,152
                                                                       ---------     ---------
Earnings before income taxes .......................................       5,054         5,952
Income taxes .......................................................       1,906         2,232
                                                                       ---------     ---------
Net earnings before cumulative effect of adopting FASB 109 .........       3,148         3,720
                                                                       ---------     ---------
Cumulative effect of adopting FASB 109 .............................         664            --
                                                                       ---------     ---------
Net income .........................................................   $   3,812     $   3,720
                                                                       =========     =========
Net earnings per common diluted share before cumulative effect of
 adopting FASB 109 .................................................   $     .48     $     .59
Cumulative effect of adopting FASB 109 .............................         .10            --
                                                                       ---------     ---------
Net earnings per common diluted share ..............................   $     .58     $     .59
                                                                       =========     =========
Cash dividends per common share ....................................   $     .11     $     .21
                                                                       =========     =========
Weighted average shares outstanding ................................       6,508         6,320
                                                                       =========     =========
<PAGE>
<CAPTION>
                                                                                  AT SEPTEMBER 30,
                                                                     ------------------------------------------
                                                                          1996           1997          1998
                                                                     -------------- ------------- -------------
                                                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
                                                                                        DATA)
<S>                                                                    <C>            <C>           <C>      
FINANCIAL CONDITION DATA:
Total assets .......................................................   $459,712       $ 494,003     $ 643,560
Loans receivable, net ..............................................    370,368         403,570       414,264
Mortgage-backed securities .........................................     27,029          23,023       170,181
Cash, interest-bearing deposits and investment securities ..........     38,332          39,582        25,507
Deposits ...........................................................    313,430         347,116       386,321
Borrowings .........................................................    109,886         106,337       210,560
Stockholders' equity ...............................................     27,681          32,391        37,851
OPERATING DATA:
Interest income ....................................................    $34,720       $  38,065     $  43,894
Interest expense ...................................................     19,091          20,146        24,451
                                                                        --------      ---------     ---------
Net interest income ................................................     15,629          17,919        19,443
Provision for loan losses ..........................................        790             760           865
                                                                        --------      ---------     ---------
Net interest income after provision for loan losses ................     14,839          17,159        18,578
                                                                        --------      ---------     ---------
OTHER INCOME:
Fees and service charges on loans and deposit accounts .............      1,415           1,593         1,639
Gain on sales of loans held for sale ...............................        990             931         1,579
Gain (loss) on sales of investment securities ......................         (6)              7            96
Gain on sales of mortgage-backed securities, net ...................        189             235           521
Real estate operations .............................................        345             141           149
Other income .......................................................      1,699           1,792         1,895
                                                                        ---------     ---------     ---------
Total other income .................................................      4,632           4,699         5,879
Total general and administrative expense ...........................     13,586          12,716        13,618
                                                                        ---------     ---------     ---------
Earnings before income taxes .......................................      5,885           9,142        10,839
Income taxes .......................................................      2,164           3,351         3,987
                                                                        ---------     ---------     ---------
Net earnings before cumulative effect of adopting FASB 109 .........      3,721           5,791         6,852
                                                                        ---------     ---------     ---------
Cumulative effect of adopting FASB 109 .............................         --              --            --
                                                                        ---------     ---------     ---------
Net income .........................................................    $ 3,721       $   5,791     $   6,852
                                                                        =========     =========     =========
Net earnings per common diluted share before cumulative effect of
 adopting FASB 109 .................................................    $   .58       $     .89     $    1.04
Cumulative effect of adopting FASB 109 .............................         --              --            --
                                                                        ---------     ---------     ---------
Net earnings per common diluted share ..............................    $   .58       $     .89     $    1.04
                                                                        =========     =========     =========
Cash dividends per common share ....................................    $   .23       $     .26     $     .28
                                                                        =========     =========     =========
Weighted average shares outstanding ................................      6,391           6,503         6,563
                                                                        =========     =========     =========
</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, and
two 4 for 3 stock dividends declared on April 30, 1997 and May 6, 1998.
<PAGE>
KEY OPERATING RATIOS:

     The table below sets forth  certain  performance  ratios of the Company for
the periods indicated.
<TABLE>
<CAPTION>
                                                                                       AT OR FOR YEARS ENDED
                                                                                           SEPTEMBER 30,
                                                                                     -------------------------
                                                                                         1994         1995
                                                                                     ------------ ------------
<S>                                                                                  <C>          <C>
Other Data:
Return on assets (net income divided by average assets) ............................      0.92%        0.94%
Return on average equity (net income divided by average equity) ....................     13.88%       15.54%
Average equity to average assets ...................................................      6.66%        6.08%
Tangible book value per share ......................................................    $ 3.84       $ 4.16
Dividend payout ratio ..............................................................     16.19%       34.46%
Interest rate spread (difference between average yield on interest-earning assets
 and average cost of interest-bearing liabilities) .................................      4.09%        3.52%
Net interest margin (net interest income as a percentage of average interest-
 earning assets) ...................................................................      4.12%        3.62%
Allowance for loan losses to total loans at end of period ..........................      1.01%        1.00%
Ratio of non-performing assets to total assets (1) .................................      0.56%        0.53%
Tangible capital ratio .............................................................      5.94%        6.13%
Core capital ratio .................................................................      5.94%        6.13%
Risk-based capital ratio ...........................................................     10.11%       10.45%
Number of:
 Real estate loans outstanding .....................................................     6,614        6,688
 Deposit accounts ..................................................................    33,618       39,881
 Number of full service offices ....................................................         8            8

<CAPTION>
                                                                                      AT OR FOR YEARS ENDED SEPTEMBER 30,
                                                                                     -------------------------------------
                                                                                         1996         1997         1998
                                                                                     ------------ ------------ -----------
<S>                                                                                  <C>          <C>          <C>
Other Data:
Return on assets (net income divided by average assets) ............................      0.85%        1.21%        1.13%
Return on average equity (net income divided by average equity) ....................     13.97%       19.36%       19.52%
Average equity to average assets ...................................................      6.10%        6.24%        6.05%
Tangible book value per share ......................................................    $ 4.52       $ 5.23       $ 6.04
Dividend payout ratio ..............................................................     38.51%       27.63%       25.14%
Interest rate spread (difference between average yield on interest-earning assets
 and average cost of interest-bearing liabilities) .................................      3.76%        3.89%        3.51%
Net interest margin (net interest income as a percentage of average interest-
 earning assets) ...................................................................      3.86%        4.03%        3.64%
Allowance for loan losses to total loans at end of period ..........................      1.11%        1.19%        1.33%
Ratio of non-performing assets to total assets (1) .................................      0.17%        0.10%        0.36%
Tangible capital ratio .............................................................      5.93%        6.31%        6.10%
Core capital ratio .................................................................      5.93%        6.31%        6.10%
Risk-based capital ratio ...........................................................     10.41%       11.05%       12.67%
Number of:
 Real estate loans outstanding .....................................................     5,741        6,752        6,666
 Deposit accounts ..................................................................    41,755       43,544       43,720
 Number of full service offices ....................................................         9            9           10
</TABLE>

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

Record financial results

The year  1998 was the best in  Coastal  Financial  Corpora-tion's  history.  We
achieved record  financial  results and accomplished  many strategic  objectives
aimed at maximizing  our ability to capitalize on  opportunities  in the future.
Net income for the year totaled $6.9  million,  or $1.04 per diluted  share,  an
increase of 18% compared to $5.8  million,  or $0.89 per diluted  share in 1997.
These results produced a return on average  Shareholders' equity of 19.52% and a
return on average assets of 1.13%.

Our balance sheet continues to be very strong.  Total assets increased over 30%,
or $149.6 million, for the year. This growth enabled us to achieve a better risk
balance in terms of asset/liability mix and geographic dispersion. Asset quality
remained excellent compared to both industry standards and historical norms.

While our operating results for 1998 met our high expectations, the market price
of Coastal  Financial  Corporation's  shares remained  steady.  Despite the very
challenging global economy, the market price of Coastal Financial  Corporation's
common stock remained at 99.24% of the market price at September 30, 1997.  This
level of share price  performance,  while  quite a contrast  compared to the 60%
increase in 1997 and the 56%  increase in 1996,  compares  favorably  to the Dow
Jones Industrial Average which, at September 30, 1998, was at 98.7% of its value
at September 30, 1997.

Since  becoming  a  public   company  in  October,   1990,   Coastal   Financial
Corporation's  stock has grown at a compound annual rate of over 46%, taking our
market  capitalization  from $4.6 million in October 1990, to $106.5  million at
the close of this fiscal year. Put another way, an initial  investment of $1,000
in  October  of 1990 would  have  grown to  $21,552.  We  believe  this level of
performance to be a record for the banking industry.

Equally as impressive is the fact that, since 1990, our operating  earnings have
increased at a compound annualized rate in excess of 17%.

During 1998,  the quarterly cash dividend was increased 3.7% to $0.07 per share,
marking the  continuation of increased  dividends each year since 1992, the year
we began paying cash dividends.

One of the best indicators of performance is Return On Shareholders' Equity, and
this  measure  for  1998  was,  again,   outstanding.   Our  Return  On  Average
Shareholders'  Equity  measure  of  19.52%  ranks  us among  the top  performing
financial  services  companies in the nation.

Progress toward  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  was further  evidenced  by the
following public recognition: 

Coastal Financial  Corporation was recently listed as #1 in Return on Equity for
all  publicly-held  financial  institutions  in North and South  Carolina in the
1998/1999  edition of Corporate  Carolina,  published by the editors of Business
North Carolina.

Coastal  Federal  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 1998.

Coastal  Federal was ranked #1 by the 1998  Sheshunoff  Market Share Report,  in
deposit  market  share for Horry  County,  South  Carolina,  the second  fastest
growing  Metropolitan  Statistical Area in the nation.

We are  extremely  proud of the  performance  evidenced by these results and are
especially proud of our Associates who worked so hard to achieve them.
<PAGE>
1998

Our best year yet

This  was  indeed  a year  of  significant  achievement  for  Coastal  Financial
Corporation.  The ongoing  restructuring  of our operations to create a stronger
focus on the sales and marketing of financial services,  an initiative for which
we began the allocation of  substantial  resources in 1996, has continued to pay
significant dividends, particularly in the areas of loan, deposit and investment
product sales.

Our financial performance during fiscal 1998 again met our high expectations and
well positions us to aggressively pursue future opportunities.

Noteworthy Financial Results for Fiscal 1998:

PERFORMANCE GRAPH 1998

-- The value of Coastal Financial Corporation's common stock has grown at a
   compound annual rate of over 25% during the past five years.

-- A 3.7% increase in cash dividends paid per common share.

-- The payment of a 4 for 3 stock split in the form of a 33% stock dividend.

[GRAPHIC -- Performance Graph]

EARNINGS PER SHARE

-- Net earnings of $6.9 million or $1.04 per diluted share. Net earnings for
   fiscal 1998 increased 18% over the prior year.

-- Shareholders' equity advanced 16.9% to $37.9 million.

[GRAPHIC -- Bar Graph plotted to numbers in chart below]

1994 ........................ $0.48

1995 ........................ $0.59

1996 ........................ $0.58

1997 ........................ $0.89

1998 ........................ $1.04

BOOK VALUE PER SHARE

-- Book value per share grew 15.5% to $6.04.

[GRAPHIC -- Bar Graph plotted to numbers in chart below]

1994 ........................ $3.84
                              
1995 ........................ $4.16
                              
1996 ........................ $4.52
                              
1997 ........................ $5.23
                              
1998 ........................ $6.04
<PAGE>
ASSETS

-- A 30.3% growth in total assets to $643.6 million.

-- Loans receivable increased 3.11% to $424.8 million.

-- Deposits were up 11.3% to the highest level in the Company's history.

-- Transaction deposits grew by 16.1% in fiscal 1998.

[GRAPHIC -- Bar Graph plotted to numbers in chart below]

(in millions)

1994 ........................ $375.00
                              
1995 ........................ $401.20
                              
1996 ........................ $459.70
                              
1997 ........................ $494.00
                              
1998 ........................ $643.60


ALLOWANCE FOR LOAN LOSSES TO NET LOANS

-- Allowance for Loan Losses to Net Loans increased to 1.33%.

-- The Company had Net Loan Charge Offs of .05% in 1998.

[GRAPHIC -- Bar Graph plotted to numbers in chart below]

1994 ........................ 1.01%
                              
1995 ........................ 1.00%
                              
1996 ........................ 1.11%
                              
1997 ........................ 1.19%
                              
1998 ........................ 1.33%



Coastal  Financial   Corporation's   outstanding  operating  results  have  been
recognized  by the  financial  markets  and  have  been a  major  factor  in the
achievement of a compound annual growth rate of more than 46% in our stock price
since becoming a public company in October of 1990.

As good as these results are, it's the future that we are really  interested in.
The question we're most often asked at Coastal Financial is the same question we
continually ask ourselves: "Can we keep it up?"

We  believe  the  answer  is a  resounding  "Yes,"  as long as we  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.
<PAGE>
A Look Back at 1998

Winston Churchill once said, "The further backward you look, the further forward
you can see." Churchill was describing the process of analyzing and interpreting
the elements of change and  continuous  improvement  ... two elements  which are
essential to the future success of both organizations and individuals.

At Coastal Financial Corporation,  we embrace change as the essential ingredient
of continuous improvement,  and, when interwoven with the changeless core values
imbedded in our Quest for Excellence Operating Philosophy,  we are con-fident in
our belief that our formula will continue to produce exceptional results.

As we rapidly approach the change of the century and millennium, we are stronger
than ever and truly believe the future looks great. While we expect 1999 to be a
challenging and difficult year, with a likely continued  slowing of the economy,
we are very excited about the opportunities which lie ahead.

In  continuing to prepare our  organization  for the future,  we undertook  many
significant initiatives during 1998. 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 expansion of Coastal Federal  University to assure that we remain focused
   on leadership development offerings such as our Pledge To Excellence Program.
   We believe that the  ultimate  test for a leader is not whether they can make
   smart  decisions  and take  decisive  action,  which  are two  very  valuable
   attributes,  but,  rather,  whether  they can teach  others to be leaders and
   build an organization that remains successful even when they are not present.
   The key to our  ability  to  remain  a high  performance  organization,  with
   exceptional  leadership,  is  our  ever-increasing  capacity  to  create  new
   leaders.

-- The continued  development of our franchise in Horry,  Florence and Brunswick
   counties.  Our newest Sales Center in Sunset Beach, North Carolina, and plans
   for the  development  of other Sales  Centers  throughout  our  existing  and
   contiguous market areas is consistent with our efforts to build a significant
   presence  in coastal  North  Carolina as well as to expand our  presence  and
   market awareness along the South Carolina coast and throughout the robust and
   growing Pee Dee region.

   We view de novo Sales  Center  development  as a strategic  line of business.
   And, while there is some dilution to earnings per share, as there is with any
   major capital  investment,  such as a new computer  system,  we believe these
   additions,  in the long  term,  will  contribute  significantly  to growth in
   earnings  per share and  enhance  the  franchise  value of Coastal  Financial
   Corporation.

-- Preparation  for the  Year  2000.  A  significant  amount  of time  has  been
   allocated,  over the past  two  years,  toward  preparing  Coastal  Financial
   Corporation  for  dealing  with the  challenge  posed by the Year 2000  (Y2K)
   computer problem which affects all businesses,  nationwide and worldwide. Our
   Leadership  Group and Board of Directors are acutely aware of the seriousness
   of this issue for our  Customers and our  organization,  and have engaged the
   services of a highly  qualified  consultant to work with our project team. It
   is our goal to have all affected  areas in  compliance  by calendar  year-end
   1998,  thus  providing the entire year of 1999 for testing and validating our
   efforts.

-- The    further     development    of    our    internet    web    site    at:
   http://www.coastalfederal.com  to include PC Banking.  This web site  employs
   the most secure encryption  technology  permitted by the Federal  government.
   Through this web site, our Customers may, for their accounts,  verify current
   deposit or loan balances,  print up-to-date  statements,  determine  interest
   information,  transfer funds between accounts or make a loan payment.  In the
   near  future,  we will offer our PC Bill Pay  product  which is unique to our
   market in that it does not require any optional software.


[GRAPHIC -- Photo]

Michael C. Gerald
President and Chief Executive Officer
<PAGE>
OUR CONTINUED GROWTH DEPENDS UPON BUILDING LONG TERM RELATIONSHIPS
WITH OUR CUSTOMERS

-- The  reorganization  of Coastal Investor Services to ensure greater alignment
   with  Corporate  objectives.  This  initiative  resulted in a higher level of
   leadership  being devoted to this very important  segment of our business and
   created  greater  geographic  coverage  to the  markets we serve  through the
   addition of Investment  Advisors to our Florence and Brunswick County banking
   offices.

-- A re-alignment of our product offerings into four categories: Personal Lines,
   Business Lines,  Investment Services and Residential Mortgages.  Our capacity
   to compete effectively and continue to experience substantial growth rests in
   our  ability to uncover  Customer  needs and meet those  needs with the right
   products and services, delivered by a well-trained and highly motivated group
   of Associates.  To better enable us to achieve that result, we have developed
   a   relationship    selling    approach   which   allows   for    competitive
   relationship-based  pricing as well as added new  products and sales tools to
   assist in the selling effort.

-- The further decentralization of decision-making. Our future success is firmly
   rooted in the  Communities  we serve,  and the  ability  to be  flexible  and
   responsive  to those needs is a  cornerstone  of our  competitive  advantage.
   Community  support,  pricing,  lending decisions and mix of product offerings
   are largely  determined  by our Regional  Leaders.  This focus  provides both
   increased  speed of  decisions  as well as the  ability  to better  match our
   services and actions to specific Customer and Community needs.

-- The development of a Customer For Life Relationship  Building  program.  Like
   any sales  organization,  we commit significant  resources,  in both time and
   dollars,  in  prospecting  for  Customers.  During 1998, we began  developing
   approaches,  processes and procedures designed to better define our long term
   Customers,  and provide  added-value  services which will enhance and sustain
   the relationship. Continued growth is dependent upon retaining good Customers
   while adding new ones and, through the successful implementation of this very
   valuable  program,  we will be well positioned to retain valued Customers for
   life.

   These  initiatives  well  reflect our culture of viewing  change and constant
   improvement as essential to the achievement of our long term objectives.

Prepared for the Future

Our two primary  strengths at Coastal  Financial  Corporation are our Associates
and our QUEST FOR EXCELLENCE  Operating  Philosophy.  These powerful  attributes
have allowed us to achieve  record levels of  performance  and provide the solid
foundation for helping to assure that our best years are yet to come.

While the  financial  services  industry  is, and will  continue to be,  rapidly
changing and highly  competitive,  our plan going forward is, quite  simply,  to
build on this  solid  foundation  and our  powerful  record of  achievement  and
success.

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

OUR COMMITMENT TO SERVICE FOR OUR CUSTOMERS IS EXTENDED BY NEW TECHNOLOGIES THAT
ALLOW 24 HOUR ACCESS TO ACCOUNTS.
<PAGE>
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 the Company's  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).


GENERAL

     Coastal Financial  Corporation (the "Company") reported $6.9 million in net
income for the year ended  September 30, 1998,  compared to $5.8 million for the
year ended September 30, 1997. Net interest  income  increased $1.5 million as a
result of increased  interest  income of $5.8  million  offset by an increase of
$4.3  million in interest  expense.  Provision  for loan losses  increased  from
$760,000 for the year ended  September  30, 1997, to $865,000 for the year ended
September 30, 1998.  Other income increased from $4.7 million in fiscal 1997, to
$5.9 million in 1998. General and administrative expenses increased $902,000 for
fiscal 1998, as compared to fiscal 1997.

     Total assets  increased from $494.0 million at September 30, 1997 to $643.6
million at September  30, 1998,  or 30.3%.  Liquid  assets,  consisting of cash,
interest-bearing  deposits,  and  securities,  increased  from $62.6  million at
September  30, 1997 to $195.7  million at  September  30,  1998.  This  increase
primarily  resulted from the Company's  decision to significantly  increase it's
investment in mortgage-backed  securities.  Mortgage-backed securities increased
from $23.0  million at September  30, 1997,  to $170.2  million at September 30,
1998. Loans receivable increased 2.6% from $403.6 million at September 30, 1997,
to $414.3 million at September 30, 1998. Total loan originations for fiscal 1998
were $205.3 million as compared to $178.5 million for fiscal 1997.

     The growth in  mortgage-backed  securities was funded by increased deposits
of  $39.2  million,  increased  advances  from the  FHLB of  $43.4  million  and
increased  repurchase  agreements of $56.5 million. The increase in advances and
repurchase  agreements  were used  primarily  to fund  growth in the  investment
portfolio.  During  fiscal  1998,  deposits  increased  from  $347.1  million at
September  30, 1997, to $386.3  million at September 30, 1998.  During this same
period,  transaction  deposits increased $26.9 million and certificate  accounts
increased $14.5 million.  The Company's  strategy is to increase its reliance on
core transaction deposits as opposed to certificates of deposits.

     As a result of $6.9 million in net earnings,  less the cash  dividends paid
to shareholders of approximately  $1.7 million,  stockholders'  equity increased
from $32.4 million at September 30, 1997 to $37.9 million at September 30, 1998.


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,   repurchase  agreements  securitized  by
mortgage-backed securities and advances from the Federal Home Loan Bank ("FHLB")
of Atlanta.

     The principal use of cash flows is the origination of loans receivable. The
Company originated loans receivable of $160.4 million, $178.5 million and $205.3
million for the years ended September 30, 1996, 1997 and 1998,  respectively.  A
large portion of these loan  originations  were financed  through loan principal
repayments  which amounted to $93.6  million,  $109.9 million and $130.3 million
for the  years  ended  September  30,  1996,  1997 and  1998,  respectively.  In
addition,  the Company has generally sold  conforming  fixed rate mortgage loans
which are sold to correspondent  financial  institutions in the secondary market
to finance future loan originations.  For the year ended September 30, 1998, the
Company's mortgage  subsidiary  originated $68.6 million of loans and sold $64.8
million of loans.  For the years ended  September 30, 1996,  1997 and 1998,  the
Company sold loans amounting to $40.7 million,  $44.2 million and $71.7 million,
respectively.

     During 1998,  the Company used deposit  growth to fund its loan growth.  In
fiscal 1998,  deposits  increased  from $347.1 million at September 30, 1997, to
$386.3 million at September 30, 1998. The increase was attributed to transaction
accounts which increased  approximately $26.9 million,  and certificate accounts
which  increased  $14.5  million.  This was  offset by a  decrease  in  passbook
accounts of $2.2 million.


                                       1
<PAGE>
     At  September  30, 1998,  the Company had  commitments  to originate  $11.5
million in loans and $35.1 million in unused lines of credit,  which the Company
expects to fund from normal operations.

     At September 30, 1998,  the Company had $127.2 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, 1998, the Company had excess collateral pledged
to the FHLB which would  support  additional  FHLB advance  borrowings  of $28.5
million.  Additionally,  at  September  30,  1998,  the Company  had  repurchase
agreement  lines of credit and  available  collateral  consisting  of investment
securities and  mortgage-backed  securities of $104.2 million as well as federal
funds available of $15.0 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 $39.0 million at September 30, 1998, exceeding the
Bank's  tangible  and core  requirements  by $26.2  million  and $13.4  million,
respectively.  At September 30, 1998,  the Bank's  capital  exceeded its current
risk-based minimum capital requirement by $15.9 million.  The risk-based capital
requirement may increase in the future.


RESULTS OF OPERATIONS

     COMPARISON OF THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998


GENERAL

     Net earnings were $6.9 million ($1.04 per diluted share) for the year ended
September  30, 1998 compared to $5.8 million  ($0.89 per diluted  share) for the
year ended  September  30, 1997.  Net  interest  income  increased  $1.5 million
primarily as a result of an increase in interest  income of $5.8  million  which
was offset by an increase in interest expense of $4.3 million.


INTEREST INCOME

     Interest income for the year ended  September 30, 1998,  increased 15.3% to
$43.9 million as compared to $38.1 million for the year ended September 30, 1997
primarily due to a 20.8% increase in average  interest-earning  assets.  The net
yield on interest-earning assets for the year ended September 30, 1997 was 8.46%
compared to 8.11% for the year ended  September  30, 1998.  The average yield on
loans  receivable  for fiscal year 1998 was 8.75% compared to 8.70% in 1997. The
yield on investments  which includes  Investments,  Overnight  Funds and Federal
Funds,  decreased  slightly  to 6.69% for the  fiscal  year 1998 from  6.70% for
fiscal year 1997.  Total  interest-earning  assets for fiscal year 1998 averaged
$546.6 million compared to $452.5 million for the year ended September 30, 1997.
The increase in average interest-earning assets is due to an increase in average
loans receivable of approximately $27.9 million and  mortgage-backed  securities
of approximately $68.9 million.


INTEREST EXPENSE

     Interest expense on interest-bearing  liabilities was $24.5 million for the
year ended  September 30, 1998, as compared to $20.1 million in fiscal 1997. The
cost of interest-bearing  liabilities was 4.60% for the year ended September 30,
1998,  compared to 4.57% in fiscal year 1997.  The average  cost of deposits for
the year ended  September  30,  1998,  was 4.10%  compared to 4.15% for the year
ended  September  30, 1997.  The cost of FHLB  advances  and reverse  repurchase
agreements for fiscal 1998 was 5.62% and 5.68%, respectively,  compared to 5.95%
and  5.60%,  respectively,  for  fiscal  1997.  Total  average  interest-bearing
liabilities increased 21.2% from $438.6 million at September 30, 1997, to $531.7
million  at  September  30,  1998.  The  increase  in  average  interest-bearing
liabilities  is due to an increase in average  deposits of  approximately  $26.2
million,  FHLB  advances of $25.2 million and reverse  repurchase  agreements of
$40.9 million.


NET INTEREST INCOME

     Net  interest  income was $19.4  million for the year ended  September  30,
1998,  compared to $17.9 million for the year ended  September 30, 1997. The net
interest margin  decreased to 3.51% for fiscal 1998 compared to 3.89% for fiscal
1997. During the second quarter of fiscal 1998, the Bank entered into a leverage
strategy  by  purchasing  ARM  mortgage-backed  securities  which were funded by
repurchase agreements and short-term advances. This strategy has had an expected
spread of  approximately  fifty to  seventy-five  basis points  during the first
year. Should the yield curve continue to flatten and mortgage  prepayment speeds
continue to increase, the net spread on this strategy could decline.

     Average  interest-earning  assets  increased  $94.1  million  while average
interest-bearing liabilities increased $93.1 million. At September 30, 1998, the
yield on the one year  treasury  security was  approximately  4.6%,  compared to
approximately 4.7% which was the yield on the 10 year treasury security.  Should
the yield curve continue to remain  relatively flat, the Company may continue to
experience a high amount of mortgage loan  repayments and  refinancings  and may
experience a declining net interest margin in fiscal 1999.


                                       2
<PAGE>
PROVISION FOR LOAN LOSSES

     The Company's  provision for loan losses increased from $760,000 for fiscal
1997 to $865,000 for fiscal 1998.  The allowance for loan losses as a percentage
of loans was 1.33% at  September  30, 1998,  compared to 1.19% at September  30,
1997. Loans delinquent 90 days or more were .54% of total loans at September 30,
1998,  compared to .06% at September 30, 1997. The allowance for loan losses was
251% of loans  delinquent  more than 90 days at September 30, 1998,  compared to
1,906% at September 30, 1997.  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  1998,  total other  income  increased  from $4.7 million for the
period ended  September 30, 1997, to $5.9 million for the period ended September
30, 1998.  Due to a decreasing  long-term  interest rate  environment  which has
resulted  in  increased  mortgage  originations,  gain on sale of loans was $1.6
million for the year ended September 30, 1998, compared to $931,000 for the year
ended  September 30, 1997.  Gain on sale of  securities  was $617,000 for fiscal
1998, compared to $242,000 for fiscal 1997. Other income increased slightly from
$1.8 million for the year ended September 30, 1997, to $1.9 million for the year
ended September 30, 1998.


OTHER EXPENSE

     General and  administrative  expenses were $13.6 million for fiscal 1998 as
compared to $12.7 million for fiscal 1997.  Salaries and employee  benefits were
$7.4 million for fiscal 1998 as compared to $6.8  million for fiscal 1997,  or a
7.5% increase. Normal salary increases and increased lending personnel accounted
for a  significant  portion  of this  increase.  Net  occupancy,  furniture  and
fixtures and data  processing  expense  increased  $369,000 for fiscal 1998,  as
compared to fiscal 1997. This is primarily attributed to increased  depreciation
expense  on Coastal  Federal  University  and the North  Carolina  office.  FDIC
insurance premiums decreased from $283,000 for the year ended September 30, 1997
to $213,000 for the year ended  September  30, 1998.  Other  expenses  increased
slightly from $2.7 million in 1997 to $2.8 million in 1998.


RESULTS OF OPERATIONS

     COMPARISON OF THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997


GENERAL

     Net  earnings  were $5.8  million  for the year ended  September  30,  1997
compared to $3.7 million for the year ended September 30, 1996.  Included in net
earnings   for   1996,   is  a  special   assessment   from  the  FDIC  for  the
recapitalization of the SAIF of $1.6 million,  and a related reduction in income
taxes of $615,000.  Excluding this special assessment,  net income increased 23%
in 1997. Net interest income increased $2.3 million  primarily as a result of an
increase in interest  income of $3.3 million  which was offset by an increase in
interest expense of $1.1 million.


INTEREST INCOME

     Interest  income for the year ended  September 30, 1997,  increased 9.6% to
$38.1 million as compared to $34.7 million for the year ended September 30, 1996
primarily  due to the  constant  yield on assets and a 8.9%  increase in average
interest-earning  assets. The net yield on interest-earning  assets for the year
ended  September  30,  1996 and  1997  was  8.46%.  The  average  yield on loans
receivable  for  fiscal  year  1997 was  8.70%  compared  to 8.57% in 1996.  The
increase in yield on loans  receivables  resulted  from the  repricing of teaser
rate  ARMs  originated  in  previous  years  and  the  continued  growth  of the
commercial real estate loan portfolio which has a higher yield than the mortgage
loan portfolio.  The yield on investments which includes Investments,  Overnight
Funds and Federal Funds,  increased to 6.70% for the fiscal year 1997 from 6.55%
for  fiscal  year 1996.  Total  interest-earning  assets  for  fiscal  year 1997
averaged $452.5 million  compared to $415.5 million for the year ended September
30, 1996.


INTEREST EXPENSE

     Interest expense on interest-bearing  liabilities was $20.1 million for the
year ended  September 30, 1997, as compared to $19.1 million in fiscal 1996. The
cost of interest-bearing  liabilities was 4.57% for the year ended September 30,
1997, compared to 4.70% in fiscal year 1996. The increase in interest expense of
5.5%  primarily  resulted  from a growth in  deposits  and a slight  increase in
overall market rates paid on deposits. The average cost of deposits for the year
ended  September  30,  1997,  was 4.15%  compared  to 4.08%  for the year  ended
September 30, 1996. The cost of FHLB advances for fiscal 1997 was 5.95% compared
to 6.27% for fiscal 1996. Total average  interest-bearing  liabilities increased
8.0% from $406.2  million at September 30, 1996, to $438.6  million at September
30, 1997.


                                       3
<PAGE>
NET INTEREST INCOME

     Net  interest  income was $17.9  million for the year ended  September  30,
1997,  compared to $15.6 million for the year ended  September 30, 1996. The net
interest margin  increased to 3.89% for fiscal 1997 compared to 3.76% for fiscal
1996.  Average  interest-earning  assets  increased  $37.0 million while average
interest-bearing liabilities increased $32.4 million. At September 30, 1997, the
yield on the one year  treasury  security was  approximately  5.5%,  compared to
approximately 6.1% which was the yield on the 10 year treasury security.  Should
the yield curve continue to remain  relatively flat, the Company may continue to
experience a high amount of mortgage loan  repayments and  refinancings  and may
experience a declining net interest margin in fiscal 1998.


PROVISION FOR LOAN LOSSES

     The Company's  provision for loan losses  decreased  slightly from $790,000
for fiscal 1996 to $760,000 for fiscal 1997.  The allowance for loan losses as a
percentage  of loans was  1.19% at  September  30,  1997,  compared  to 1.11% at
September 30, 1996. Loans delinquent 90 days or more were .06% of total loans at
September 30, 1997,  compared to .12% at September  30, 1996.  The allowance for
loan losses was 1,906% of loans  delinquent  more than 90 days at September  30,
1997,  compared to 938% at September  30,  1996.  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 1997, total other income increased slightly from $4.6 million for
the period  ended  September  30,  1996,  to $4.7  million for the period  ended
September  30,  1997.  Fees and service  charges on loans and  deposit  accounts
increased $178,000, or 12.6%, for the year ended September 30, 1997, as a result
of growth in core  deposits  and  loans.  Income  from  real  estate  operations
decreased  $204,000 from the prior fiscal year due to expenses related to a real
estate owned commercial property.  This was partially offset by a gain on a land
sale that  occurred  in the first  quarter  of fiscal  1997 by one of the Bank's
subsidiaries.  Other  income  increased  from $1.7  million  for the year  ended
September  30,  1996,  to $1.8  million  for the year ended  September  30, 1997
primarily  as a  result  of  increased  fees  related  to  ATM  and  debit  card
transactions.


OTHER EXPENSE

     General and  administrative  expenses were $12.7 million for fiscal 1997 as
compared   to  $13.6   million  for  fiscal   1996.   Included  in  general  and
administrative expense in 1996 is the $1.6 million assessment for capitalization
of the SAIF. Salaries and employee benefits were $6.8 million for fiscal 1997 as
compared to $6.2 million for fiscal 1996, or a 10.8%  increase.  Approximately a
third of this increase is attributable to increased group insurance costs,  401K
benefits, and increased bonuses and incentives due to increased return on equity
and increased loan  production.  Normal salary  increases and increased  lending
personnel  accounted for a significant  portion of the remaining  increase.  Net
occupancy,  furniture and fixtures and data processing expense increased $60,000
for fiscal 1997, as compared to fiscal 1996. FDIC insurance  premiums  decreased
from  $622,000  for the year ended  September  30, 1996 to $283,000 for the year
ended September 30, 1997 as a result of the SAIF assessment paid in fiscal 1996.
Other expenses increased from $2.3 million in 1996 to $2.7 million in 1997. This
increase  is  primarily  related to  increased  marketing  expense,  legal fees,
employment  services,  expenses  related to debit cards and expenses  related to
transaction accounts.


INCOME TAXES

     Income taxes  increased from $2.2 million in fiscal 1996 to $3.4 million in
fiscal 1997 as a result of increased earnings before income taxes.


NON-PERFORMING ASSETS

     Non-performing  assets were $2.3 million at September  30, 1998 compared to
$507,000 at September 30, 1997.  Loans past due 90 days or more  increased  from
$257,000 at September 30, 1997, to $2.3 at September 30, 1998.  This increase is
primarily  attributable  to the  initiation of  foreclosure  proceedings  on one
commercial  real estate loan totaling  approximately  $2.0 million.  The loan is
secured by  commercial  property as well as a large tract of  undeveloped  land.
Management  does not expect a material loss from this loan. Real estate acquired
through foreclosure decreased from $250,000 at September 30, 1997, to $35,000 at
September 30, 1998.

     Loans are reviewed on a regular  basis and an allowance  for  uncollectable
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
considered  to be on a  non-accrual  basis.  Typically,  payments  received on a
non-accrual  loan are applied to the  outstanding  principal  or  recognized  as
interest based upon the collectability of the loan as determined by management.



                                       4
<PAGE>
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  collectability 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.

     The  Company  established  provisions  for loan  losses for the years ended
September  30,  1996,  1997  and  1998,  of  $790,000,  $760,000  and  $865,000,
respectively. For the years ended September 30, 1996, 1997 and 1998, the Company
had net  charge-offs  of  $196,000,  $140,000  and  $208,000,  respectively.  At
September  30,  1998,  the  Company  had an  allowance  for loan  losses of $5.7
million, which was 1.33% of net loans compared to 1.19% at September 30, 1997.

     Management believes that the current level of the allowance for loan losses
is presently  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 possible  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 words: anticipate, estimate, expect, project, target, goal, and similar
expressions,  when  used in  disclosure  documents,  are  intended  to  identify
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933.  Such  forward-looking  statements  are  subject to certain  risks,
uncertainties,  and assumptions  including those set forth below.  Should one or
more  of  these  risks  or  uncertainties  materialize,   or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
expected or projected.  These  forward-looking  statements  speak only as of the
date of the document. The Bank expressly disclaims any obligation or undertaking
to publicly  release any updates or revisions to any  forward-looking  statement
contained herein to reflect any change in the Bank's expectations with regard to
any change in events, conditions or circumstances on which any such statement is
based.

     The Bank's  Asset  Liability  Management  Committee  ("ALCO")  monitors and
considers  methods of  managing  exposure  to  interest  rate  risk.  The Bank's
exposure to interest rate risk is reviewed on at least a quarterly  basis by the
Board of Directors and 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  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,
1998.
<TABLE>
<CAPTION>
                                                 MARKET VALUE OF
  CHANGE IN INTEREST RATES      BOARD LIMIT     PORTFOLIO EQUITY     PERCENT CHANGE
----------------------------   -------------   ------------------   ---------------
                                                 (In Thousands)
<S>                                <C>              <C>                   <C>
   400 basis point rise            -44.00%           $46,526              -21%
   300 basis point rise            -32.00%           $52,456              -11%
   200 basis point rise            -20.00%           $56,798               -4%
   100 basis point rise            -11.00%           $58,827                0%
   No Change                           00%           $58,981
   100 basis point decline         -18.00%           $59,143                0%
   200 basis point decline         -22.00%           $60,141                2%
   300 basis point decline         -37.00%           $62,565                6%
   400 basis point decline         -55.00%           $65,804               12%
</TABLE>

     The preceding table indicates that at September 30, 1998, 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,  1998,  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


                                       5
<PAGE>
as the  difference  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.  Management's  goal is to maintain
reasonable  balance between exposure to interest rate fluctuations and earnings.
The Company's  one-year  cumulative gap is a positive $30.1 million,  or 4.7% of
the Company's total assets of $643.6 million at September 30, 1998.


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     In June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial   Accounting   Standards  (SFAS)  No.  130,   Reporting
Comprehensive  Income  (Statement  130). SFAS No. 130 establishes  standards for
reporting and display of  comprehensive  income and its components in a full set
of general purpose  financial  statements.  Enterprises are required to classify
items of "other comprehensive income" by their nature in the financial statement
and display the balance of other  comprehensive  income separately in the equity
section of a statement of  financial  position.  SFAS No. 130 is  effective  for
fiscal  periods  beginning  after  December 15,  1997.  Earlier  application  is
permitted.  Comparative  financial  statements  provided for earlier periods are
required to be reclassified to reflect the provisions of this statement.

     In June 1997, the FASB issued SFAS No. 131,  Disclosures  about Segments of
an Enterprise and Related  Information.  SFAS No. 131 establishes  standards for
the way public business  enterprises are to report  information  about operating
segments in annual financial statements and requires those enterprises to report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  SFAS No. 131 is effective for financial  statements for
fiscal  periods  beginning  after  December 15,  1997.  Earlier  application  is
encouraged.  In the initial year of  application,  comparative  information  for
earlier years is to be restated, unless it is impractical to do so. SFAS No. 131
need not be applied to interim  financial  statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application shall be reported in financial  statements for interim periods in
the second year of application.  It is not  anticipated  that this standard will
materially effect the Company.

     SFAS 133,  Accounting for  Derivative  Instruments  and Hedging  Activities
establishes  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 and 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.
This statement is effective for fiscal  quarters  beginning after June 15, 1999.
The Company has not determined the impact of adopting this statement.


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.


                                       6
<PAGE>
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.

     The following  table  summarizes  the capital  requirements  and the Bank's
capital position at September 30, 1998 (dollars in thousands):

                                                                   PERCENT
                                                      AMOUNT      OF ASSETS
                                                    ----------   ----------
Tangible capital (1) ............................    $38,989         6.10%
Tangible capital requirement ....................     12,774         1.50
                                                     -------        -----
Excess ..........................................     26,215         4.60%
                                                     =======        =====
Core capital ....................................    $38,989         6.10%
Core capital requirement ........................     25,547         4.00
                                                     -------        -----
Excess ..........................................    $13,442         2.10%
                                                     =======        =====
Risk-based capital ..............................    $43,116        12.67%
Minimum risk-based capital requirements .........     27,215         8.00
                                                     -------        -----
Excess ..........................................    $15,901         4.67%
                                                     =======        =====


                                                                 PERCENT
                                                    AMOUNT      OF ASSETS
                                                  ----------   ----------
Tier I leverage ratio .........................    $38,989         6.10%
Tier I leverage ratio requirement .............     25,742         5.00
                                                   -------        -----
Excess ........................................     13,247         1.10%
                                                   =======        =====
Tier I risk-based capital .....................    $38,989        11.46%
Tier I risk-based capital requirement .........     13,607         6.00
                                                   -------        -----
Excess ........................................    $25,382         5.46%
                                                   =======        =====
Total risk-based capital ......................    $43,116        12.67%
Total risk-based capital requirements .........     27,215        10.00
                                                   -------        -----
Excess ........................................    $15,901         2.67%
                                                   =======        =====

(1) Equals the Bank's stockholders' equity


YEAR 2000 COMPLIANCE

     The  Company  is a user  of  computers,  computer  software  and  equipment
utilizing embedded microprocessors that will be effected by the year 2000 issue.
The year 2000 issue exists because many computer  systems and  applications  use
two-digit  date fields to designate a year.  As the century date change  occurs,
date-sensitive  systems may recognize the year 2000 as 1900, or not at all. This
inability  to  recognize  or  properly  treat the year 2000 may cause  erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.

     The Company's year 2000 committee  consists of the Chief Executive Officer,
three Executive Vice Presidents, two Vice Presidents, and one associate from the
Internal Audit Group. The committee makes a monthly progress report to the Board
of Directors.  The committee has developed and is  implementing a  comprehensive
plan to make all information  and  non-information  technology  assets year 2000
compliant. The plan is comprised of the following phases:

     1. Awareness --  Educational  initiatives on year 2000 issues and concerns.
This phase is ongoing,  especially  as it relates to informing  Customers of the
Company's year 2000 preparedness.

     2. Assessment -- Inventory of all technology  assets and  identification of
third-party  vendors and service  providers.  This phase was completed as August
31, 1998.

     3.  Renovation -- Review of vendor and service  providers  responses to the
Company's year 2000 inquires and development of a follow-up plan and timeline.
This phase was completed as of October 15, 1998.

     4. Validation -- Testing all systems and third-party  vendors for year 2000
compliance.  The Company is currently  in this phase of its plan. A  third-party
service bureau processes all Customer transactions and has completed upgrades to
its systems to be year 2000  compliant.  The Company  will test the  third-party
systems by reviewing the results of  transactions  at six  different  test dates
before and after the year 2000 date change covering all of the applications used
by the Company. Testing was completed as of November 16, 1998. In the event that
testing  reveals that the third-party  systems are not year 2000 compliant,  the
Company's service bureau intends to either transfer the Company to other systems
that are year 2000  compliant  and provide  additional  resources to resolve the
year 2000  issues.  Other  parties  whose  year 2000  compliance  may affect the
Company


                                       7
<PAGE>
include the FHLB of Atlanta,  brokerage firms, the operator of the Company's ATM
network and the Company's 401K administrator. These third-parties have indicated
their  compliance  or  intended  compliance.  Where it is possible to do so, the
Company has  scheduled  testing with these  third-parties.  Where testing is not
possible,  the  Company  will rely on  certifications  from  vendors and service
providers.

     5. Implementation -- Replacement or repair of non-compliant  technology. As
the Company  progresses  through the validation  phase,  the Company  expects to
determine necessary remedial actions and provide for their  implementation.  The
Company has already  implemented a new year 2000 compliant  computerized  teller
system and has verified the year 2000  compliance  of its computer  hardware and
other equipment containing embedded microprocessors. The Company's plan provides
for year 2000 readiness to be completed by December 31, 1998.

     The  Company  estimates  its  total  cost to  replace  computer  equipment,
software programs or other equipment  containing embedded  microprocessors  that
were not year 2000 compliant to be $118,000,  of which $41,156 has been incurred
as of September 30, 1998. System  maintenance or modification  costs are charged
to  expense  as  incurred,  while the cost of new  hardware,  software  or other
equipment is capitalized  and amortized over their estimated  useful lives.  The
Company  does not  separately  track  the  internal  costs and time that its own
Associates spend on year 2000 issues, which are principally payroll costs.

     Because the Company depends substantially on its computer systems and those
of  third-parties,  the failure of these systems to be year 2000 compliant could
cause substantial disruption of the Company's business and could have a material
adverse  financial  impact on the  Company.  Failure to resolve year 2000 issues
presents  the  following  risks  to the  Company;  (1) the  Company  could  lose
Customers to other financial  institutions,  resulting in a loss of revenue,  if
the Company's  third-party service bureau is unable to properly process Customer
transactions;  (2) governmental agencies, such as the Federal Home Loan Company,
and correspondent institutions could fail to provide funds to the Company, which
could materially impair the Company's liquidity and affect the Company's ability
to fund loans and deposit  withdrawals;  (3)  concern on the part of  depositors
that year 2000 issues  could impair  access to their  deposit  account  balances
could result in the Company  experiencing deposit outflows prior to December 31,
1999; and (4) the Company could incur  increased  personnel  costs if additional
staff is required  to perform  functions  that  inoperative  systems  would have
otherwise performed. Management believes that it is not possible to estimate the
potential  lost revenue due to the year 2000 issue,  as the extent and longevity
of any potential problem cannot be predicted.  Because  substantially all of the
Company's loan portfolio consists of loans to individuals rather than commercial
enterprises,  management  believes  that year 2000  issues  will not  impair the
ability of the Company's borrowers to repay their debt.

     There  can  be no  assurances  that  the  Company's  year  2000  plan  will
effectively  address the year 2000 issues,  that the Company's  estimates of the
timing and costs of completing the plan will  ultimately be accurate or that the
impact of any  failure of the  Company or its  third-party  vendors  and service
providers to be year 2000 compliant  will not have a material  adverse effect on
the Company's business, financial condition or results of operations.


                                       8
<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,  1997 and 1998,  and the  related  consolidated  statements  of  operations,
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period  ended   September  30,  1998.   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  generally  accepted  auditing
standards.  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, 1997 and 1998,  and the results of its  operations and its cash
flows for each of the years in the three-year  period ended  September 30, 1998,
in conformity with generally accepted accounting principles.


                                                        /s/KPMG Peat Marwick LLP

Greenville, South Carolina
October 30, 1998


                                       9
<PAGE>
<TABLE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
      SEPTEMBER 30, 1997 AND 1998

<CAPTION>
                                                                                             1997           1998
                                                                                         ------------   -----------
                                                                                           (Dollars in thousands)
<S>                                                                                        <C>            <C>   
                                       ASSETS
Cash and amounts due from banks ......................................................     $ 12,852       11,978
Short-term interest-bearing deposits .................................................          559        3,688
Investment securities available for sale .............................................       26,171        9,841
Mortgage-backed securities available for sale ........................................       23,023      170,181
Loans receivable (net of allowance for loan losses of $4,902 at September 30, 1997
 and $5,668 at September 30, 1998)....................................................      403,570      414,264
Loans receivable held for sale .......................................................        8,359       10,486
Real estate acquired through foreclosure, net ........................................          250           35
Office property and equipment, net ...................................................        7,561        9,001
Federal Home Loan Bank (FHLB) stock, at cost .........................................        5,618        7,266
Accrued interest receivable on loans .................................................        2,814        2,546
Accrued interest receivable on investment securities .................................          452        1,324
Other assets .........................................................................        2,774        2,950
                                                                                           --------      -------
                                                                                           $494,003     $643,560
                                                                                           ========     ========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
 Deposits ............................................................................      347,116      386,321
 Securities sold under agreements to repurchase ......................................        2,666       59,214
 Advances from FHLB ..................................................................      101,478      144,909
 Other borrowings ....................................................................        2,193        6,437
 Drafts outstanding ..................................................................        1,018        1,615
 Advances by borrowers for property taxes and insurance ..............................        1,409        1,329
 Accrued interest payable ............................................................          952        1,352
 Other liabilities ...................................................................        4,780        4,532
                                                                                           --------     --------
   Total liabilities .................................................................      461,612      605,709
                                                                                           --------     --------
Stockholders' equity:
 Serial preferred stock, 1,000,000 shares authorized and unissued ....................           --           --
 Common stock $.01 par value, 15,000,000 shares authorized; 6,195,379 shares at
   September 30, 1997 and 6,263,777 shares at September 30, 1998 issued and
   outstanding, ......................................................................           62           63
 Additional paid-in capital ..........................................................        8,682        8,983
 Retained earnings, restricted .......................................................       23,402       28,369
 Treasury stock, at cost (9,760 shares) ..............................................         (182)          --
 Unrealized gain on securities available for sale, net of income tax .................          427          436
                                                                                           --------     --------
   Total stockholders' equity ........................................................       32,391       37,851
                                                                                           --------     --------
                                                                                           $494,003     $643,560
                                                                                           ========     ========
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       10
<PAGE>
<TABLE>
<CAPTION>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
      YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998

                                                                          1996             1997            1998
                                                                       -----------      -----------      -----------
                                                                              (In thousands, except share data)
<S>                                                                    <C>              <C>              <C>      
Interest income:
 Loans receivable ................................................     $    31,698           33,769           36,314
 Investment securities ...........................................             721            1,574            1,309
 Mortgage-backed securities ......................................           1,805            2,446            5,972
 Other ...........................................................             496              276              299
                                                                       -----------      -----------      -----------
   Total interest income .........................................          34,720           38,065           43,894
                                                                       -----------      -----------      -----------
Interest expense:
 Deposits ........................................................          11,689           13,650           14,559
 Securities sold under agreements to repurchase ..................             323            1,130            3,404
 Advances from FHLB ..............................................           7,079            5,366            6,488
                                                                       -----------      -----------      -----------
   Total interest expense ........................................          19,091           20,146           24,451
                                                                       -----------      -----------      -----------
   Net interest income ...........................................          15,629           17,919           19,443
Provision for loan losses ........................................             790              760              865
                                                                       -----------      -----------      -----------
   Net interest income after provision for loan losses ...........          14,839           17,159           18,578
                                                                       -----------      -----------      -----------
Other income:
 Fees and service charges on loans and deposit accounts ..........           1,415            1,593            1,639
 Gain on sales of loans held for sale ............................             990              931            1,579
 Gain (loss) on sales of investment securities, net ..............              (6)               7               96
 Gain on sales of mortgage-backed securities, net ................             189              235              521
 Income (loss) from real estate acquired through foreclosure .....             202             (137)             (72)
 Income from real estate partnerships ............................             143              278              221
 Other income ....................................................           1,699            1,792            1,895
                                                                       -----------      -----------      -----------
   Total other income ............................................           4,632            4,699            5,879
                                                                       -----------      -----------      -----------

<PAGE>

<CAPTION>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
      YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998

                                                                          1996             1997            1998
                                                                       -----------      -----------      -----------
                                                                              (In thousands, except share data)
<S>                                                                    <C>              <C>              <C>      
General and administrative expenses:
 Salaries and employee benefits ..................................           6,174            6,841            7,355
 Net occupancy, furniture and fixtures and data processing expense           2,831            2,891            3,260
 FDIC insurance premium ..........................................             622              283              213
 FDIC insurance premium to recapitalize the SAIF .................           1,620             --               --
 Other expense ...................................................           2,339            2,701            2,790
                                                                       -----------      -----------      -----------
   Total general and administrative expense ......................          13,586           12,716           13,618
                                                                       -----------      -----------      -----------
   Earnings before income taxes ..................................           5,885            9,142           10,839
Income taxes .....................................................           2,164            3,351            3,987
                                                                       -----------      -----------      -----------
Net income .......................................................     $     3,721            5,791            6,852
                                                                       ===========      ===========      ===========
Earnings per common share
 Basic ...........................................................     $      0.61             0.93             1.09
                                                                       ===========      ===========      ===========
 Diluted .........................................................     $      0.58             0.89             1.04
                                                                       ===========      ===========      ===========
Average common shares outstanding
 Basic ...........................................................       6,100,000        6,227,000        6,264,000
                                                                       ===========      ===========      ===========
 Diluted .........................................................       6,391,000        6,503,000        6,563,000
                                                                       ===========      ===========      ===========

</TABLE>
         See accompanying notes to consolidated financial statements.

                                       11
<PAGE>
<TABLE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
      YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998

<CAPTION>
                                                          ADDITIONAL                                                  TOTAL
                                               COMMON       PAID-IN        RETAINED       TREASURY                STOCKHOLDERS'
                                                STOCK       CAPITAL        EARNINGS         STOCK       OTHER        EQUITY
                                              --------   ------------   -------------   ------------   -------   --------------
                                                                               (In thousands)
<S>                                              <C>        <C>           <C>             <C>           <C>         <C>    
Balance at September 30, 1995 .............      $62        $8,682        $18,674         $ (2,598)       --        $24,820
Exercise of stock options .................       --            --           (863)             970        --            107
Issuance of shares in acquisition .........       --            --            (67)             443        --            376
Cash paid for fractional shares ...........       --            --            (17)              --        --            (17)
Cash dividend .............................       --            --         (1,433)              --        --         (1,433)
Unrealized gain on securities available for
  sale, net of income taxes ...............       --            --             --               --       107            107
Net income ................................       --            --          3,721               --        --          3,721
                                                 ---        ------        --------        --------       ---        -------
Balance at September 30, 1996 .............       62         8,682         20,015           (1,185)      107         27,681
Exercise of stock option ..................       --            --           (786)           1,003        --            217
Cash paid for fractional shares ...........       --            --            (18)              --        --            (18)
Cash dividend .............................       --            --         (1,600)              --        --         (1,600)
Unrealized gain on securities available for
  sale, net of income taxes ...............       --            --             --               --       320            320
Net income ................................       --            --          5,791               --                    5,791
                                                 ---        ------        --------        --------                  -------
Balance at September 30, 1997 .............       62         8,682         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)
Unrealized gain on securities available for
  sale, net of income taxes ...............       --            --             --               --         9              9
Net income ................................       --            --          6,852               --        --          6,852
                                                 ---        ------        ---------       --------       ---        ---------
Balance at September 30, 1998 .............      $63        $8,983        $28,369         $     --      $436        $37,851
                                                 ===        ======        =========       ========      ====        =========

</TABLE>
          See accompanying notes to consolidated financial statements.

                                       12
<PAGE>
<TABLE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
      YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<CAPTION>
                                                                                  1996           1997           1998
                                                                               ---------      ---------      ---------
                                                                                            (In thousands)
<S>                                                                            <C>            <C>            <C>   
Cash flows from operating activities:
  Net earnings ...........................................................     $   3,721          5,791          6,852
  Adjustments to reconcile net earnings to net cash provided by
   operating activities:
   Income from real estate partnerships ..................................          (143)          (278)          (221)
   Depreciation ..........................................................           740            865          1,030
   Provision for loan losses .............................................           790            760            865
   Origination of loans receivable held for sale .........................       (45,082)       (45,717)       (69,546)
   Proceeds from sales of loans receivable held for sale .................        40,672         44,160         71,674
   (Increase) decrease in:
    Other assets .........................................................          (587)           149           (176)
    Accrued interest receivable ..........................................          (553)          (296)          (604)
   Increase (decrease) in:
    Accrued interest payable .............................................            31            154            400
    Other liabilities ....................................................         1,960            220           (248)
                                                                               ---------      ---------      ---------
      Net cash provided by operating activities ..........................         1,549          5,808         10,026
                                                                               ---------      ---------      ---------
Cash flows from investing activities:
  Proceeds from sale of investment securities available for sale .........         7,000          5,693          4,500
  Proceeds from maturities of investment securities available for sale ...         1,999         17,839         25,596
  Purchases of investment securities available for sale ..................       (24,331)       (32,022)       (13,798)
  Purchases of loans receivable ..........................................       (12,448)        (9,948)       (10,442)
  Proceeds from sale of mortgage-backed securities available for sale ....        13,220         25,678         86,547
  Purchases of mortgage-backed securities available for sale .............       (11,867)       (26,636)      (279,141)
  Principal collected on mortgage-backed securities ......................         4,129          4,850         45,505
  Origination of loans receivable, net ...................................      (115,288)      (132,786)      (135,706)
  Principal collected on loans receivable ................................        93,560        109,946        130,286
  Proceeds from sales of real estate acquired through foreclosure ........           937            456            263
  Proceeds from sales of office properties and equipment .................           192           --             --
  Purchases of office properties and equipment ...........................        (1,253)        (2,690)        (2,470)
  Purchases of FHLB stock ................................................          (502)          (390)        (1,648)
  Other investing activities, net ........................................           447            914            193
                                                                               ---------      ---------      ---------
      Net cash used by investing activities ..............................       (44,205)       (39,096)      (150,315)
                                                                               ---------      ---------      ---------

<PAGE>
<CAPTION>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
      YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998

                                                                                  1996           1997           1998
                                                                               ---------      ---------      ---------
                                                                                            (In thousands)
<S>                                                                            <C>            <C>            <C>   
Cash flows from financing activities:
  Increase in deposits ...................................................        40,331         33,686         39,205
  Increase (decrease) in securities sold under agreements to repurchase ..           688         (2,666)        56,548
  Proceeds from FHLB advances ............................................        75,850        198,170        242,625
  Repayment of FHLB advances .............................................       (64,617)      (201,245)      (199,194)
  Proceeds from other borrowings, net ....................................         1,968            224          4,244
  Decrease in advance payments by borrowers for property taxes and
   insurance .............................................................          (194)           (26)           (80)
  Increase (decrease) in drafts outstanding, net .........................          (367)          (904)           597
  Cash dividends to stockholders and cash for fractional shares ..........        (1,450)        (1,618)        (1,724)
  Exercise of stock options ..............................................           107            217            323
                                                                               ---------      ---------      ---------
      Net cash provided by financing activities ..........................        52,316         25,838        142,544
                                                                               ---------      ---------      ---------
Net increase (decrease) in cash and cash equivalents .....................         9,660         (7,450)         2,255
                                                                               ---------      ---------      ---------
Cash and cash equivalents at beginning of year ...........................        11,201         20,861         13,411
                                                                               ---------      ---------      ---------
Cash and cash equivalents at end of year .................................     $  20,861         13,411         15,666
                                                                               =========      =========      =========
Supplemental information:
  Interest paid ..........................................................     $  19,060         19,992         24,051
                                                                               =========      =========      =========
  Income taxes paid ......................................................     $   3,030          2,687          4,112
                                                                               =========      =========      =========
Supplemental schedule of non-cash investing and financing transactions:
  Securitization of mortgage loans into mortgage-backed securities .......     $  19,366           --            4,997
                                                                               =========      =========      =========
  Transfer of mortgage loans to real estate acquired through foreclosure .     $     471            383             48
                                                                               =========      =========      =========
  Transfer of investment securities held to maturity to available for sale     $  14,775           --             --
                                                                               =========      =========      =========

</TABLE>
         See accompanying notes to consolidated financial statements.

                                       13
<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 Investment Services, Inc.
and Coastal  Federal  Savings  Bank (the  "Bank"),  and the Bank's  wholly-owned
subsidiaries,  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 statements of operations.

     In November 1995, the FASB issued a guide to implementation of SFAS No. 115
on accounting for certain investments in debt and equity securities which allows
for the one time transfer of certain investments  classified as held to maturity
to available for sale. The Company  reclassified  its investments  classified as
held to maturity to the available for sale  classification  in the first quarter
of fiscal 1996.

     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.


                                       14
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

         (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

     (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  portfolios,  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.

     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.


     (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, 1997 and 1998, the Company had approximately  $8.4
million and $10.5 million in mortgage loans held for sale. The aggregate  market
value of loans receivable held for sale exceeded the aggregate carrying value at
September 30, 1997 and 1998.


     (F) REAL ESTATE OWNED

     Real estate acquired through foreclosure is initially recorded at the lower
of cost or estimated fair value.  Subsequent to the date of  acquisition,  it is
carried at the lower of cost or fair value, less selling costs. Market values of
real  estate  owned  are  reviewed  regularly  and  allowances  for  losses  are
established when it is determined that the carrying value of real estate exceeds
the fair value  less  selling  costs.  Costs  relating  to the  development  and
improvement  of such property are  capitalized,  whereas those costs relating to
holding the property are charged to expense.


     (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.


                                       15
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

         (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued

     (J) INCOME TAXES

     Deferred  taxes are provided for  differences  in the  financial  reporting
bases for assets and  liabilities  as compared to their tax bases. 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. A
valuation  allowance,  if applicable,  is established for deferred tax assets to
reflect an amount that will more likely than not be realized.


     (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 to 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 amounts
separately from deposits.


     (N) RECLASSIFICATIONS

     Certain amounts in the 1996 and 1997 consolidated financial statements have
been reclassified to conform with the 1998 presentation.


     (O) 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 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 25 and has  provided  the  required
proforma disclosures.


                                       16
<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, 1997 is summarized as follows:
<TABLE>
<CAPTION>
                                                                               1997
                                                       -----------------------------------------------------
                                                                         GROSS          GROSS
                                                        AMORTIZED     UNREALIZED     UNREALIZED      MARKET
                                                           COST          GAINS         LOSSES        VALUE
                                                       -----------   ------------   ------------   ---------
                                                                          (In thousands)
<S>                                                    <C>              <C>             <C>         <C>
      U.S. Government and agency obligations:
       Due within one year .........................     $    --         --             --              --
       Due after one but within five years .........       9,996         17             --          10,013
       Due after five years ........................      16,128         30             --          16,158
                                                         -------         --             --          ------
                                                         $26,124         47             --          26,171
                                                         =======         ==             ==          ======
</TABLE>

     The amortized cost and market value of investment  securities available for
sale at September 30, 1998 is summarized as follows:
<TABLE>
<CAPTION>
                                                                              1998
                                                       ---------------------------------------------------
                                                                         GROSS          GROSS
                                                        AMORTIZED     UNREALIZED     UNREALIZED     MARKET
                                                           COST          GAINS         LOSSES       VALUE
                                                       -----------   ------------   ------------   -------
                                                                         (In thousands)
<S>                                                       <C>             <C>               <C>    <C>
      U.S. Government and agency obligations:
       Due within one year .........................      $   --          --                --         --
       Due after one but within five years .........       3,053          44                --      3,097
       Due after five years ........................       6,699          45                --      6,744
                                                          ------          --                --      -----
                                                          $9,752          89                --      9,841
                                                          ======          ==                ==      =====
</TABLE>

     The Company had gross  realized  losses of $18,000 and gross realized gains
of $12,000 for the year ended  September 30, 1996. For the year ended  September
30,  1997,  gross  realized  losses were $58,000 and gross  realized  gains were
$65,000.  For the year ended  September  30,  1998,  gross  realized  gains were
$96,000 and there were no realized losses.

     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, 1998 was $83.1
million with a market value of $83.4 million.


(3) MORTGAGE-BACKED SECURITIES

     Mortgage-backed  securities  available  for  sale  at  September  30,  1997
consisted of the following:
<TABLE>
<CAPTION>
                                                  1997
                          -----------------------------------------------------
                                            GROSS          GROSS
                           AMORTIZED     UNREALIZED     UNREALIZED      MARKET
                              COST          GAINS         LOSSES        VALUE
                          -----------   ------------   ------------   ---------
                                             (In thousands)
<S>                         <C>              <C>               <C>     <C>  
  FNMA ................     $ 1,861            2               --       1,863
  GNMA ................       6,471           26               --       6,497
  FHLMC ...............      14,048          615               --      14,663
                            -------          ---               --      ------
                            $22,380          643               --      23,023
                            =======          ===               ==      ======
</TABLE>

                                       17
<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,  1998
consisted of the following:
<TABLE>
<CAPTION>
                                                1998
                        -----------------------------------------------------
                                          GROSS          GROSS
                         AMORTIZED     UNREALIZED     UNREALIZED      MARKET
                            COST          GAINS         LOSSES        VALUE
                        -----------   ------------   ------------   ---------
                                           (In thousands)
<S>                     <C>                <C>           <C>        <C>   
  FNMA ..............   $ 95,024           413           (156)       95,281
  GNMA ..............     49,586            68            (95)       49,559
  FHLMC .............     24,901           479            (39)       25,341
                        --------           ---           ----        ------
                        $169,511           960           (290)      170,181
                        ========           ===           ====       =======
</TABLE>

     For the year ended  September 30, 1996,  there were gross realized gains of
$189,000  and no  realized  losses.  The  Company  had gross  realized  gains of
$258,000 and realized  losses of $23,000 for the year ended  September 30, 1997.
For the year ended  September 30, 1998,  the Company had gross realized gains of
$533,000 and realized losses of $12,000.


(4) LOANS RECEIVABLE, NET

     Loans receivable, net at September 30 consisted of the following:
<TABLE>
<CAPTION>
                                                                  1997         1998
                                                              -----------   ----------
                                                                   (In thousands)
<S>                                                            <C>           <C>    
         First mortgage loans:
          Single family to 4 family units .................    $237,964      248,781
          Other, primarily commercial real estate .........      97,680       95,420
          Construction loans ..............................      34,216       31,261
         Consumer and commercial loans:
          Installment consumer loans ......................      24,378       19,489
          Mobile home loans ...............................       1,291          990
          Savings account loans ...........................       1,336        1,078
          Equity lines of credit ..........................      15,294       18,655
          Commercial and other loans ......................      10,939       14,848
                                                               --------      -------
                                                                423,098      430,522
         Less:
          Allowance for loan losses .......................       4,902        5,668
          Deferred loan fees (costs) ......................        (458)        (702)
          Undisbursed portion of loans in process .........      15,084       11,292
                                                               --------      -------
                                                               $403,570      414,264
                                                               ========      =======
</TABLE>

     The changes in the allowance for loan losses for the years ended  September
30 consisted of the following:
<TABLE>
<CAPTION>
                                                             1996        1997        1998
                                                          ---------   ---------   ---------
                                                                   (In thousands)
<S>                                                        <C>          <C>         <C>  
         Beginning allowance ..........................    $3,578       4,172       4,902
         Provision for loan losses ....................       790         760         865
         Allowance recorded on acquired loans .........        --         110         109
         Loan recoveries ..............................        82          72          64
         Loan charge-offs .............................      (278)       (212)       (272)
                                                           ------       -----       -----
                                                           $4,172       4,902       5,668
                                                           ======       =====       =====
</TABLE>

                                       18
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

         (4) LOANS RECEIVABLE, NET -- Continued

     Non-accrual   loans  which  were  over  ninety  days   delinquent   totaled
approximately  $257,000  and $2.3  million  at  September  30,  1997  and  1998,
respectively. For the year ended September 30, 1998, interest income which would
have been recorded  would have been  approximately  $181,000,  had  non-accruing
loans been current in accordance with their original terms.

     The carrying  amounts and fair values of loans  receivable at September 30,
1997 and 1998 are as follows (In thousands):
<TABLE>
<CAPTION>
                                                       1997                         1998
                                            ---------------------------   ------------------------
                                              CARRYING      CALCULATED     CARRYING     CALCULATED
                                               AMOUNT       FAIR VALUE      AMOUNT      FAIR VALUE
                                            ------------   ------------   ----------   -----------
<S>                                           <C>            <C>           <C>           <C>    
      Mortgage loans ....................     $369,662       378,964       382,572       393,667
      Consumer loans ....................       12,622        12,310        10,513        10,587
      Equity lines of credit ............       17,902        18,260        18,655        18,468
      Commercial loans ..................        8,286         8,208         8,192         8,280
      Allowance for loan losses .........       (4,902)       (4,902)       (5,668)       (5,668)
                                              --------       -------       -------       -------
                                              $403,570       412,840       414,264       425,334
                                              ========       =======       =======       =======
</TABLE>

     Management  has made  estimates of fair value  discount rates and estimated
prepayment rates that it believes to be reasonable based upon market  conditions
at the dates indicated.  However,  because there is no active market for many of
the above  financial  instruments,  management  believes such  information is of
limited  value and has no basis to  determine  whether the fair value  presented
above  would be  indicative  of the value which  could be  negotiated  during an
actual sale. Furthermore, this information is as of September 30, 1997 and 1998.
Changes in market  interest and  prepayment  rates since  September 30, 1997 and
1998 would have  significant  impact on the fair value  presented  and should be
considered when analyzing this financial data.

     A portion of the credit  lines and  commercial  loans  have  interest  rate
floors which may  increase the value of these loans.  No increase in fair market
value was assigned for these interest rate floors.

     At September 30, 1998, excluding single family home loans and the fact that
the majority of the loan portfolio is located in the Company's  immediate market
area,  there were no  concentrations  of loans in any type of industry,  type of
property,  or to one  borrower  that  exceeded 10% of the  Company's  total loan
portfolio.  The  Company  does have 178  loans  aggregating  approximately  $8.7
million which were originated on individual  income producing  condominium units
in two projects in which the Bank's subsidiaries were a partner. The majority of
these loans have been  outstanding  greater than four years and management  does
not  believe  that they  represent  a  significant  risk in the loan  portfolio.
Approximately  $1.5  million of these  loans  have been sold to other  financial
institutions.

     At September 30, 1997 and 1998, the Company had commitments  outstanding to
originate  loans  totaling   approximately   $5.4  million  and  $11.5  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, 1997 and 1998,  the Company  had  undisbursed  lines of credit of
approximately $31.4 million and $35.1 million, respectively.

     Loans serviced for the benefit of others amounted to  approximately  $115.1
million,  $104.5 million and $88.0 million at September 30, 1996, 1997 and 1998,
respectively.

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


                                       19
<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:
<TABLE>
<CAPTION>
                                                   1997       1998
                                                ---------   --------
                                                   (In thousands)
<S>                                              <C>         <C>  
  Land ......................................    $ 1,981      2,311
  Building and improvements .................      5,647      7,395
  Furniture, fixtures and equipment .........      7,105      7,398
                                                 -------      -----
                                                  14,733     17,104
  Less accumulated depreciation .............      7,172      8,103
                                                 -------     ------
                                                 $ 7,561      9,001
                                                 =======     ======
</TABLE>

     The Company leases office space and various equipment. Total rental expense
for the  years  ended  September  30,  1996,  1997 and  1998  was  approximately
$138,000, $112,000, and $153,000 respectively.

     Future  minimum  rental  payments for  operating  leases  having  remaining
noncancelable  lease  terms in excess of one year at  September  30, 1998 are as
follows (In thousands):


  1999 .........    $156
  2000 .........     155
  2001 .........     131
  2002 .........      85
  2003 .........      62
                    ----
                    $589
                    ====

(6) INVESTMENT REQUIRED BY LAW

     Investment  in stock of the FHLB of  Atlanta  is  required  by law of every
Federally-insured savings institution. No ready market exists for this stock and
it has no quoted market value. However, redemption of this stock has been at par
value.

     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 of Atlanta stock of $7.3 million at September 30, 1998.


                                       20
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

(7) DEPOSITS
     Deposits at September 30, consisted of the following:
<TABLE>
<CAPTION>
                                                          1997                      1998
                                                 -----------------------   ----------------------
                                                               WEIGHTED                  WEIGHTED
                                                   AMOUNT        RATE        AMOUNT        RATE
                                                 ----------   ----------   ----------   ---------
                                                              (Dollars in thousands)
<S>                                               <C>            <C>       <C>             <C>  
       Transaction accounts:
        Noninterest bearing ..................    $ 23,765         --%     $ 27,285          --%
        NOW ..................................      38,773       1.27        42,434        1.19
        Money market checking ................     104,476       4.47       124,207        4.47
                                                  --------       ----      --------        ----
          Total transaction accounts .........     167,014       3.10       193,926        3.12
                                                  --------       ----      --------        ----
       Passbook accounts:
        Regular passbooks ....................      36,652       2.63        34,652        2.53
        Money market .........................       2,793       2.38         2,590        2.35
                                                  --------       ----      --------        ----
          Total passbook accounts ............      39,445       2.62        37,242        2.52
                                                  --------       ----      --------        ----
       Certificate accounts:
        0.00 -  5.99% ........................     110,606                  128,727
        6.00 -  8.00% ........................      29,683                   26,017
        8.00 - 10.00% ........................         368                      409
                                                  --------                 --------
          Total certificate accounts .........     140,657       5.58       155,153        5.38
                                                  --------       ----      --------        ----
                                                  $347,116       4.02%     $386,321        3.96%
                                                  ========       ====      ========        ====
</TABLE>

     The aggregate  amount of deposit  accounts with a minimum  denomination  of
$100,000 or more was $80,691,000 and $95,493,000 at September 30, 1997 and 1998,
respectively.

     The amounts and scheduled  maturities of certificate  accounts at September
30, are as follows:
<TABLE>
<CAPTION>
                                                       1997         1998
                                                   -----------   ----------
                                                         (In thousands)
<S>                                                 <C>           <C>    
  Within 1 year ................................    $111,942      127,206
  After 1 but within 2 years ...................      23,704       20,943
  After 2 but within 3 years ...................       3,630        5,001
  Thereafter ...................................       1,381        2,003
                                                    --------      -------
                                                    $140,657      155,153
                                                    ========      =======
</TABLE>
     Interest  expense on deposits for the years ended September 30 consisted of
the following:
<TABLE>
<CAPTION>
                                      1996       1997       1998
                                   ---------   --------   --------
                                       (Dollars In thousands)
<S>                                 <C>         <C>        <C>   
  Transaction accounts .........    $ 3,162      4,894      5,756
  Passbook accounts ............      1,599      1,015        924
  Certificate accounts .........      6,928      7,741      7,879
                                    -------      -----      -----
                                    $11,689     13,650     14,559
                                    =======     ======     ======
</TABLE>

     The fair value of transaction  and passbook  accounts is $206.5 million and
$231.2 million which was the amount currently  payable at September 30, 1997 and
1998,  respectively.  The fair value of certificate  accounts was $142.6 million
and $156.0 million compared to a book value of $140.7 million and $155.2 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.


                                       21
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

(8) ADVANCES FROM FHLB
     Advances from the FHLB at September 30 consisted of the following:
<TABLE>
<CAPTION>
                                            1997                      1998
                                   -----------------------   -----------------------
                                                 WEIGHTED                   WEIGHTED
                                     AMOUNT        RATE         AMOUNT        RATE
                                   ----------   ----------   -----------   ---------
                                                (Dollars in thousands)
       FISCAL YEAR MATURITY
<S>                                 <C>            <C>       <C>              <C>  
       1998 ....................    $ 24,820       6.13      $     --           --%
       1999 ....................      27,235       5.77        28,235         5.74
       2000 ....................       6,761       6.45         6,961         6.19
       2001 ....................       7,646       5.91        32,146         4.83
       2002 ....................      30,061       5.36         4,261         6.62
       2003 or greater .........       4,955       7.03        73,306         5.21
                                    --------       ----      --------         ----
                                    $101,478       5.86%     $144,909         5.13%
                                    ========       ====      ========         ====
</TABLE>

     Stock  in the  FHLB  of  Atlanta  and  specific  first  mortgage  loans  of
approximately  $213.9 million and $231.2 million at September 30, 1997 and 1998,
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, 1998,  the excess first  mortgage loan  collateral  pledged to the
FHLB will support additional borrowings of approximately $28.5 million.

     The  estimated  fair value of the FHLB  advances at September  30, 1997 and
1998 is $101.0 million and $145.3 million. This estimate is based on discounting
amounts  payable at  contractual  rates using current  market rates for advances
with similar maturities.


(9) INCOME TAXES

     Income tax  expense  for the years  ended  September  30  consisted  of the
following:
<TABLE>
<CAPTION>
                       CURRENT     DEFERRED      TOTAL
                      ---------   ----------   --------
                               (In thousands)
  1996:
<S>                    <C>           <C>        <C>  
  Federal .........    $2,528        (646)      1,882
  State ...........       403        (121)        282
                       ------        ----       -----
                        2,931        (767)      2,164
                       ======        ====       =====
  1997:
  Federal .........    $2,646         331       2,977
  State ...........       311          63         374
                       ------        ----       -----
                        2,957         394       3,351
                       ======        ====       =====
  1998:
  Federal .........    $3,397         138       3,535
  State ...........       430          22         452
                       ------        ----       -----
                        3,827         160       3,987
                       ======        ====       =====
</TABLE>

     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 at September 30, 1997 and 1998 related to the
following:


                                       22
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

         (9) INCOME TAXES -- Continued
<TABLE>
<CAPTION>
                                                                                      1997       1998
                                                                                   ---------   --------
                                                                                      (In thousands)
<S>                                                                                 <C>         <C>  
    Deferred tax assets:
     Allowance for loan losses .................................................    $1,858      2,140
     Accrued medical reserves ..................................................       123        121
     Other real estate reserves and deferred gains on other real estate ........        81         87
       Net operating loss carryforwards ........................................       135        135
     Other .....................................................................       122        121
                                                                                    ------      -----
    Total deferred tax assets ..................................................     2,319      2,604
    Less valuation allowance ...................................................      (135)      (135)
                                                                                    ------      -----
    Net deferred tax assets ....................................................     2,184      2,469
                                                                                    ======      =====
    Deferred tax liabilities:
     Tax bad debt reserve in excess of base year amount ........................       484        581
     Property and equipment principally due to differences in depreciation .....       237        237
     FHLB stock, due to stock dividends not recognized for tax purposes ........       356        356
     Unrealized gain on securities available for sale ..........................       263        292
     Deferred loan fees ........................................................       318        335
     Book over tax basis in investment in unconsolidated subsidiary ............        --        309
     Other .....................................................................       237        260
                                                                                    ------      -----
    Total deferred tax liabilities .............................................     1,895      2,370
                                                                                    ------      -----
    Net deferred tax asset .....................................................    $  289         99
                                                                                    ======      =====
</TABLE>

     The net deferred tax asset is included in other assets 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 $29,000 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 asset  results from the current  period  deferred tax
expense of $161,000.

     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:
<TABLE>
<CAPTION>
                                                   1996        1997        1998
                                                ---------   ----------   --------
                                 (In thousands)
<S>                                              <C>          <C>         <C>  
  Computed federal income taxes .............    $2,001       3,108       3,685
  State tax, net of federal benefit .........       173         247         298
  Other, net ................................       (10)         (4)          4
                                                 ------       -----       -----
  Total income tax expense ..................    $2,164       3,351       3,987
                                                 ======       =====       =====
</TABLE>

     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 ended September 30, 1995 and
1996.  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, 1998 includes  approximately  $5,200,000
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


                                       23
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

         (9) INCOME TAXES -- Continued

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 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.


(10) BENEFIT PLANS

     The Company  participates  in a  multiple-employer  defined benefit pension
plan covering substantially all employees. Separate actuarial valuations are not
available  for each  participating  employer,  nor are plan  assets  segregated.
Pension expense for the years ended September 30, 1996, 1997 and 1998 was minor.
Plan assets exceeded the present value of accumulated  plan benefits at June 30,
1998, the latest actuarial valuation date.

     The Company has a defined  contribution  plan  covering  substantially  all
employees.  The Company matches  employee  contributions  based upon the Company
meeting certain return on equity operating results.  Matching contributions made
by the Company  were  approximately  $149,000,  $245,000 and $221,000 for fiscal
years 1996, 1997 and 1998, respectively.


(11) REGULATORY MATTERS

     At  September  30,  1998,  the  Bank's  loans-to-one   borrower  limit  was
approximately $6.5 million.  The Bank may apply to have this amount increased to
$13.0 million for borrowers who have loans secured by  residential  lending.  At
September  30,  1998,  the Bank had  applied  for this limit  increase  for four
borrowers.  At September  30,  1998,  the Bank is in  compliance  with the core,
tangible and risk-based capital requirements and loans-to-one borrower limits.

     On September 30, 1996, the Bank recorded a $1.6 million special  assessment
to the FDIC for the  recapitalization of the Savings Association  Insurance Fund
(the  "SAIF").  Beginning  January 1, 1997,  the Bank began paying 6.4 cents per
$100 of deposits insured.  Previously the Bank had been paying  approximately 23
cents per $100 of deposits insured.  It is expected that the Bank Insurance Fund
("BIF")  members  and SAIF  members  will begin  paying  the same  amount to the
insurance fund in fiscal year 2000.


                                       24
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

         (11) REGULATORY MATTERS -- Continued

     The regulatory  requirements  for the Bank and the Bank's  compliance  with
such requirements at September 30, 1997 and 1998 are as follows.
<TABLE>
<CAPTION>


                                                                                PERCENT
                                                                 AMOUNT        OF ASSETS
                                                              ------------   ------------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                             <C>          <C>  
         1997:
          Tangible capital (1) ............................       31,193      6.31%
          Tangible capital requirement ....................        7,365      1.50
                                                                  ------     -----
          Excess ..........................................     $ 23,828      4.81%
                                                                ========     =====
          Core capital ....................................       31,193      6.31%
          Core capital requirement ........................       14,730      3.00
                                                                --------     -----
          Excess ..........................................     $ 16,463      3.31%
                                                                ========     =====
          Risk-based capital ..............................       34,749     11.05%
          Minimum risk-based capital requirements .........       25,147      8.00
                                                                --------     -----
          Excess ..........................................     $  9,602      3.05%
                                                                ========     =====
          Tier I leverage ratio ...........................       31,193      6.31%
          Tier I leverage ratio requirement ...............       19,760      5.00
                                                                --------     -----
          Excess ..........................................     $ 11,433      1.31%
                                                                ========     =====
          Tier I risk-based capital .......................       31,193      9.92%
          Tier I risk-based capital requirement ...........       12,574      6.00
                                                                --------     -----
          Excess ..........................................     $ 18,619      3.92%
                                                                ========     =====
<PAGE>
<CAPTION>
                                                                              PERCENT
                                                                AMOUNT       OF ASSETS
                                                               --------      ------------
                                                                  (DOLLARS IN THOUSANDS)
         1998:
<S>                                                           <C>           <C>  
          Tangible capital (1) ............................     $ 38,989      6.10%
          Tangible capital requirement ....................       12,774      1.50
                                                              ----------     -----
          Excess ..........................................     $ 26,215      4.60%
                                                              ==========     =====
          Core capital ....................................     $ 38,989      6.10%
          Core capital requirement ........................       25,547      4.00
                                                              ----------     -----
          Excess ..........................................     $ 13,442      2.10%
                                                              ==========     =====
          Risk-based capital ..............................     $ 43,116     12.67%
          Minimum risk-based capital requirements .........       27,215      8.00
                                                              ----------     -----
          Excess ..........................................     $ 15,901      4.67%
                                                              ==========     =====
          Tier I leverage ratio ...........................       38,989      6.10%
          Tier I leverage ratio requirement ...............       25,742      5.00
                                                              ----------     -----
          Excess ..........................................     $ 13,247      1.10%
                                                              ==========     =====
          Tier I risk-based capital .......................       38,989     11.46%
          Tier I risk-based capital requirement ...........       13,607      6.00
                                                              ----------     -----
          Excess ..........................................     $ 25,382      5.46%
                                                              ==========     =====
          Total risk-based capital ........................       43,116     12.67%
          Total risk-based capital requirements ...........       27,215     10.00
                                                              ----------     -----
          Excess ..........................................     $ 15,901      2.67%
                                                              ==========     =====
</TABLE>

(1) Equals the Bank's stockholders' equity

                                       25
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

(12) LIQUIDATION ACCOUNT

     In conjunction with the Bank's conversion to stock form on October 4, 1990,
as required by Office of Thrift  Supervision (the "OTS")  regulations,  the Bank
established,  on that date, a liquidation account and will maintain this account
for the benefit of the remaining  eligible account holders.  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 Bank's net worth below either the  liquidation  account or the
statutory net worth requirements set by the OTS.


(13) EARNINGS PER SHARE

     The Company has adopted the  provisions  of SFAS 128,  "Earnings per Share"
("EPS"),  for the year ended September 30, 1998. The presentation of primary and
fully-diluted EPS has been replaced with basic and diluted EPS. All prior-period
EPS data have been restated to reflect the adoption of SFAS 128.  Basic earnings
per share are computed by dividing net income applicable to common  shareholders
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
shares of common  stock and  common  stock  equivalents  outstanding  during the
period,  with common stock  equivalents  calculated  based on the average market
price.  Common share  equivalents  include,  if applicable,  dilute stock option
share equivalents  determined by using the treasury stock method.  All share and
per share data have been retroactively restated for all common stock dividends.
<PAGE>
     The  following is a summary of the earnings per share  calculation  for the
years ended September 30:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)                                     1996             1997             1998
--------------------------------------------------------------   --------------   --------------   --------------
<S>                                                               <C>             <C>              <C>  
    BASIC:
    Net income (numerator) ...................................    $     3,721            5,791            6,852
                                                                  ===========            =====            =====
    Average common shares outstanding (denominator) ..........      6,100,000        6,227,000        6,264,000
                                                                  ===========        =========        =========
    Per share amount .........................................    $      0.61      $      0.93      $      1.09
                                                                  ===========      ===========      ===========
    DILUTED:
    Net income (numerator) ...................................    $     3,721            5,791            6,852
                                                                  ===========      ===========      ===========
    Average common shares outstanding ........................      6,100,000        6,227,000        6,264,000
    Dilutive common stock options ............................        291,000          276,000          299,000
                                                                  -----------      -----------      -----------
    Average diluted shares outstanding (denominator) .........      6,391,000        6,503,000        6,563,000
                                                                  ===========      ===========      ===========
    Per share amount .........................................    $      0.58      $      0.89      $      1.04
                                                                  ===========      ===========      ===========
</TABLE>

(14) 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, 1998 amounted to  approximately  604,000  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, 1998,  the Company had the following
options outstanding:


                                       26
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

        (14) STOCK OPTION PLAN -- Continued
<TABLE>
<CAPTION>
                                               OPTIONS
                                OPTIONS     AVAILABLE FOR      OPTION
GRANT DATE (CALENDAR YEAR)      GRANTED        EXERCISE         PRICE      EXPIRATION DATE
----------------------------   ---------   ---------------   ----------   ----------------
<S>                             <C>             <C>           <C>               <C> 
     1990 ..................    152,215         100 %         $   .80           2000
     1992 ..................     14,919         100              2.12           2002
     1994 ..................      9,358         80               6.69           2004
     1995 ..................    161,333         60               7.29           2005
     1996 ..................     69,351         40              11.54           2006
     1997 ..................    185,642         20              16.29           2007
     1998 ..................     66,398         --              16.84           2008
</TABLE>
                                                
     During the years  ended  September  30,  1996,  1997 and 1998,  options for
102,484, 80,631, and 62,067 shares, at an average of $1.09, $2.71, and $4.20 per
share, respectively, were exercised.

     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 FASB 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 date):
<TABLE>
<CAPTION>
                                          1996          1997          1998
                                      -----------   -----------   -----------
<S>                                     <C>           <C>           <C>    
  Net income          As reported       $ 3,721       $ 5,791       $ 6,852
                      Proforma            3,704         5,693         6,516
  Diluted earnings
  per share           As reported       $  0.58       $  0.89          1.04
                      Proforma             0.58          0.88           .99
</TABLE>

     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 1996, 1997 and 1998, respectively: dividend yield
of approximately  1.60%, 1.57% and 1.65%,  expected  volatility of approximately
27%, 35% and 30%, risk-free  interest rate of 6.08%,  6.08% and 4.70%,  expected
lives of 10 years and a vesting period of 5 years.


(15) COMMON STOCK DIVIDENDS

     On January 9, 1996 and June 20, 1996, the Company  declared a five for four
stock  split  in the form of a 25%  stock  dividend,  aggregating  approximately
723,000 and 916,000 shares respectively.  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.
All share  data has been  retroactively  restated  to give  effect to the common
stock dividends.


(16) CASH DIVIDENDS

     On December 18, 1996, and March 26,1997 the Company declared quarterly cash
dividends  of  $.0619,  respectively.  On June 25,  1997,  September  24,  1997,
December  16, 1997,  and March 25, 1998,  the Company  declared  quarterly  cash
dividends of $.0675,  respectively.  On June 24, 1998 and September 23, 1998 the
Company declared quarterly cash dividends of $.07, respectively.


(17) LEGAL MATTERS

     The Company is not a defendant in any lawsuits.  The Bank is a defendant in
one  significant  lawsuit.  The action  commenced  on December 1, 1997,  and the
Plaintiffs are seeking  approximately  $1.5 million in actual damages as well as
punitive damages. The cause of action is breach of fiduciary duties, negligence,
fraud,  civil  conspiracy  and  breach  of  contract  arising  out of a  lending
relationship. At this date, the Bank does not know if or when the action will go
to trial. The Bank will vigorously  defend this suit and does not anticipate any
settlement discussion. The Bank does not expect the results of this action to be
material to its financial results.


                                       27
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

(18) 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
                                                                 ------------   ------------   ------------   ------------
<S>                                                              <C>             <C>            <C>            <C>      
1997:
 Total interest income .......................................   $   8,997           9,229          9,806         10,033
 Total interest expense ......................................       4,810           4,852          5,213          5,271
                                                                 ---------           -----          -----         ------
 Net interest income .........................................       4,187           4,377          4,593          4,762
 Provision for loan losses ...................................         230             120            190            220
                                                                 ---------           -----          -----         ------
 Net interest income after provision for loan losses .........       3,957           4,257          4,403          4,542
 Other income ................................................       1,363             971            994          1,370
 General and administrative expenses .........................       3,308           3,062          2,999          3,346
                                                                 ---------           -----          -----         ------
 Earnings before income taxes ................................       2,012           2,166          2,398          2,566
 Income taxes ................................................         734             790            882            945
                                                                 ---------           -----          -----         ------
 Net earnings ................................................   $   1,278           1,376          1,516          1,621
                                                                 =========           =====          =====         ======
 Earnings per common share -- diluted ........................   $     .20             .21            .23            .25
                                                                 =========           =====          =====         ======
 Weighted average shares outstanding -- diluted ..............   6,455,000       6,473,000      6,531,000      6,553,000
                                                                 =========       =========      =========      =========
<PAGE>
<CAPTION>
                                                                     FIRST         SECOND          THIRD         FOURTH
                                                                    QUARTER        QUARTER        QUARTER        QUARTER
                                                                 ------------   ------------   ------------   ------------
<S>                                                              <C>             <C>            <C>            <C>      
1998:
 Total interest income .......................................   $  10,177          10,773         11,294         11,648
 Total interest expense ......................................       5,447           5,955          6,329          6,719
                                                                 ---------          ------         ------         ------
 Net interest income .........................................       4,730           4,818          4,965          4,929
 Provision for loan losses ...................................         190             250            240            185
                                                                 ---------          ------         ------         ------
 Net interest income after provision for loan losses .........       4,540           4,568          4,725          4,744
 Other income ................................................       1,515           1,576          1,521          1,438
 General and administrative expenses .........................       3,478           3,504          3,444          3,361
                                                                 ---------          ------         ------         ------
 Earnings before income taxes ................................       2,577           2,640          2,802          2,821
 Income taxes ................................................         950             961          1,040          1,038
                                                                 ---------          ------         ------         ------
 Net earnings ................................................   $   1,627           1,679          1,762          1,783
                                                                 =========          ======         ======         ======
 Earnings per common share -- diluted ........................   $     .25             .26            .27            .27
                                                                 =========          ======         ======         ======
 Weighted average shares outstanding -- diluted ..............   6,548,000       6,552,000      6,581,000      6,583,000
                                                                 =========       =========      =========      =========
</TABLE>

                                       28
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

(19) 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):
<TABLE>
                         COASTAL FINANCIAL CORPORATION
                           CONDENSED BALANCE SHEETS
                          SEPTEMBER 30, 1997 AND 1998
<CAPTION>
                                                                   1997        1998
                                                                ---------   ---------
<S>                                                              <C>         <C>   
     ASSETS
     Cash ...................................................    $ 1,208        220
     Investment in subsidiaries .............................     32,644     40,785
     Deferred tax asset .....................................         49         68
     Other assets ...........................................         18         86
                                                                 -------     ------
         Total assets .......................................    $33,919     41,159
                                                                 =======     ======
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Accounts payable (principally dividends) ...............      1,028        739
     Note payable ...........................................        500      2,569
     Total stockholders' equity .............................     32,391     37,851
                                                                 -------     ------
         Total liabilities and stockholders' equity .........    $33,919     41,159
                                                                 =======     ======

<CAPTION>
                         COASTAL FINANCIAL CORPORATION
                      CONDENSED STATEMENTS OF OPERATIONS
                 YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998



                                                                    1996       1997       1998
                                                                  --------   --------   --------
<S>                                                                <C>        <C>        <C>  
   Income:
     Interest income ..........................................    $   --         1         --
     Management fees ..........................................       108       108        244
     Dividends from subsidiary ................................     1,090     1,850        850
     Equity in undistributed earnings of subsidiaries .........     2,616     3,969      6,033
                                                                   ------     -----      -----
        Total income ..........................................     3,814     5,928      7,127
                                                                   ------     -----      -----
   Expenses:
     Amortization of organization cost ........................        14        16         16
     Professional fees ........................................        38        40         75
     Supplies and printing ....................................         7        29         11
     Other expenses ...........................................        32        66        191
     Income tax (benefit) expense .............................         2       (14)       (18)
                                                                   ------     -----      -----
        Total expenses ........................................        93       137        275
                                                                   ------     -----      -----
   Net income .................................................    $3,721     5,791      6,852
                                                                   ======     =====      =====
</TABLE>

                                       29
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

         (19) COASTAL FINANCIAL CORPORATION FINANCIAL STATEMENTS (PARENT
COMPANY ONLY) -- Continued
<TABLE>
                         COASTAL FINANCIAL CORPORATION
                       CONDENSED STATEMENT OF CASH FLOWS
                 YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<CAPTION>
                                                                     1996          1997          1998
                                                                 -----------   -----------   -----------
Operating activities:
<S>                                                               <C>            <C>           <C>  
  Net income .................................................    $  3,721         5,791         6,852
  Adjustments to reconcile net income to net cash provided by:
   Equity in undistributed net income of subsidiary ..........      (2,616)       (3,969)       (6,033)
   Increase (decrease) in other assets .......................          27             3           (87)
   Increase (decrease) in other liabilities ..................         (79)          639          (289)
                                                                  --------        ------        ------
     Total cash provided by operating activities .............       1,053         2,464           443
                                                                  --------        ------        ------
Financing activities:
  Capital contributions to subsidiary ........................          --          (500)       (2,000)
  Cash dividend to shareholders ..............................      (1,433)       (1,600)       (1,715)
  Proceeds from stock options ................................         107           217           323
  Proceeds from line of credit advance .......................          --           500         2,069
  Other financing activities, net ............................         (24)          (18)         (108)
                                                                  --------        ------        ------
     Total cash used by financing activities .................      (1,350)       (1,401)       (1,431)
                                                                  --------        ------        ------
Net increase (decrease) in cash and cash equivalents .........        (297)        1,063          (988)
Cash and cash equivalents at beginning of the year ...........         442           145         1,208
                                                                  --------        ------        ------
Cash and cash equivalents at end of the year .................    $    145         1,208           220
                                                                  ========        ======        ======
</TABLE>

(20) CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  and  fair  value  of  financial  instruments  as of
September 30, 1997 and 1998 are summarized below:
<TABLE>
<CAPTION>
                                                                         1997                         1998
                                                              ---------------------------   ------------------------
                                                                CARRYING       ESTIMATED     CARRYING     ESTIMATED
                                                                 AMOUNT       FAIR VALUE      AMOUNT      FAIR VALUE
                                                              ------------   ------------   ----------   -----------
                                                                    (IN THOUSANDS)               (IN THOUSANDS)
<S>                                                            <C>              <C>          <C>           <C>    
  Financial Assets
   Cash and cash equivalents ..............................    $  13,411         13,411       15,666        15,666
   Investment securities ..................................       26,171         26,171        9,841         9,841
   Mortgage-backed securities .............................       23,023         23,023      170,181       170,181
   Loans receivable held for sale .........................        8,359          8,359       10,486        10,486
   Loans receivable, net ..................................      403,570        412,840      414,264       425,334
   FHLB stock .............................................        5,618          5,618        7,266         7,266
                                                               ---------        -------      -------       -------
                                                               $ 480,152        489,422      627,704       638,774
                                                               =========        =======      =======       =======
  Financial Liabilities
   Deposits:
     Demand accounts ......................................      206,459        206,459      231,168       231,168
     Certificate accounts .................................      140,657        142,615      155,153       156,037
   Advances from Federal Home Loan Bank ...................      101,478        100,971      144,909       145,298
   Securities sold under agreements to repurchase .........        2,666          2,666       59,214        59,214
   Other borrowings .......................................        2,193          2,193        6,437         6,437
                                                               ---------        -------      -------       -------
                                                               $ 453,453        454,904      596,881       598,154
                                                               =========        =======      =======       =======
</TABLE>
                                       30
<PAGE>
      COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED.....................-

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

     The Company had $51.8 million of off-balance sheet financial commitments as
of September 30, 1998, 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.

     Fair  value  estimates  are made at the  dates  indicated  above,  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.


(21) 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, 1998, the outstanding balance was approximately $2.5 million.


                                       31
<PAGE>
Board of Directors

Coastal Financial Corporation and Subsidiaries

Coastal Financial Corporation
Directors
James C. Benton
President
C.L. Benton & Sons, Inc.

G. David Bishop
Chairman
WCI Management Group Inc.

Harold D. Clardy
President
Chapin Company

James T. Clemmons
Chairman
Coastal Financial Corporation

James P. Creel
President
Creel Corporation

James H. Dusenbury
Dusenbury, Hendrix & Little, 
Attorneys at Law

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

Samuel A. Smart
Retired
United States Department of Defense

Wilson B. Springs
Owner
H.B. Springs Company

Advisory Director
William J. Sigmon, Sr.
Former President and
Chief Executive Officer
Burroughs & Chapin Company

Coastal Federal Savings Bank
Directors
James C. Benton
President
C.L. Benton & Sons, Inc.

G. David Bishop
Chairman
WCI Management Group Inc.

Harold D. Clardy
President
Chapin Company

James T. Clemmons
Chairman
Coastal Federal Savings Bank

James P. Creel
President
Creel Corporation

James H. Dusenbury
Dusenbury, Hendrix & Little, 
Attorneys at Law

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

Samuel A. Smart
Retired
United States Department of Defense

Wilson B. Springs
Owner
H.B. Springs Company

Director Emeritus
William J. Sigmon, Sr.
Former President and
Chief Executive Officer
Burroughs & Chapin Company

Coastal Investor Services, Inc.
Directors
G. David Bishop
Chairman
WCI Management Group Inc.

James P. Creel
President
Creel Corporation

James H. Dusenbury
Attorney
Dusenbury, Hendrix & Little,
Attorneys at Law

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
<PAGE>
Leadership Group

Coastal Federal Savings Bank

Sherri J. Adams
Personal Banking Leader
North Myrtle Beach

Ginger Allen
Senior Loan Underwriter

James R. Baker
Assistant Vice President
Systems Engineer

Jeffrey A. Benjamin
Senior Vice President
Credit Administration Leader

Denise F. Brown
Assistant Vice President
Personal Banking Leader
Surfside

Stephen L. Brunson, Jr.
Assistant Vice President
Residential Banking Leader

Cynthia L. Buffington
Item Processing Leader

Glenn T. Butler
Vice President
Management Information Systems
Leader

Susan R. Cammons
Residential Banking Leader
Surfside

Pamela D. Collins
Personal Banking Leader
Dunes

Susan J. Cooke
Vice President
Corporate Support Leader
Corporate Secretary

Patricia A. Coveno
Personal Banking Leader
Conway

Robert D. Douglas
Senior Vice President
Human Resources Leader

Miriam E. Evans
Corporate Services Leader

Barbara R. Faber, CPA
Assistant Vice President
Banking Administration Leader

James T. Faulk
Assistant Vice President
Collections Leader

Rita E. Fecteau
Vice President
Controller

Trina S. Ferguson
Vice President
Residential Loan Administration
Leader

J. Daniel Fogle
Vice President
Regional Banking Leader
West Region

Joel P. Foster
Assistant Vice President
Business Banking Officer

Mary L. Geist
Vice President
Data Services Leader

Michael C. Gerald
President and Chief Executive Officer

Belinda B. Gillespie
Assistant Vice President
Personal Banking Leader
Florence

Jimmy R. Graham
Executive Vice President
Information Systems Leader

Richard L. Granger
Vice President
Residential Banking Leader
Florence

Allen W. Griffin
Senior Vice President
Regional Banking Leader
Florence Region

Lisa B. James
Assistant Vice President
Deposit Servicing Leader

Ruth S. Kearns
Senior Vice President
Director of Public Relations
Assistant Corporate Secretary

Cecil H. Kennedy
Facilities/Maintenance Leader

Scott W. Lander
Vice President
Regional Banking Leader
North Carolina Region

Edward L. Loehr
Vice President
Budgeting and Treasury

Sandy L. Louden
Personal Banking Leader
Socastee

Sherry A. Maloni
Assistant Vice President
Personal Banking Leader
Waccamaw Medical Park

Janice B. Metz
Marketing Programs Coordinator

Cindy L. Milardo
Assistant Vice President
Loan Servicing Leader

Lauren E. Miller
Assistant Vice President
Dean of Associate Development
Coastal Federal University

Erin P. Mitchell
Assistant Vice President
Business Banking Officer

Jerry L. Rexroad, CPA
Executive Vice President
Chief Financial Officer

Douglas E. Shaffer
Senior Vice President
Regional Banking Leader
North Strand Region

Steven J. Sherry
Executive Vice President
Chief Marketing Officer

Cathe P. Singleton
Assistant Vice President
Personal Banking Leader
Murrells Inlet

Ashley M. Smith
Assistant Vice President
Personal Banking Leader
South Brunswick

J. Marcus Smith, Jr.
Vice President
Account Servicing Leader

Phillip G. Stalvey
Executive Vice President
Sales Leader

H. Delan Stevens
Assistant Vice President
Business Banking Leader
West Region

Donna P. Todd
Assistant Vice President
Personal Banking Support Leader

John L. Truelove
Vice President
Regional Banking Leader
South Strand Region

Jerry A. Vereen
Vice President
Regional Banking Leader
Central Region

Douglas W. Walters
Assistant Vice President
Residential Banking Leader
North Myrtle Beach

David E. Williams
Personal Banking Leader
Oak Street



Locations

Coastal Federal
Savings Bank Offices

Oak Street Office
2619 Oak Street
Myrtle Beach, SC 29577-3129
843.448.5151

Conway Office
310 Highway 378
Conway, SC 29526
843.444.0225

Dunes Office
7500 North Kings Highway
Myrtle Beach, SC 29572
843.444.0241

Florence Office
1385 Alice Drive
Florence, SC 29505
843.444.1299

Murrells Inlet Office
3348 Highway 17 South
& Inlet Crossing
Murrells Inlet, SC 29576
843.444.0200

North Myrtle Beach Office
521 Main Street
North Myrtle Beach, SC 29582
843.444.0265

Socastee Office
4801 Socastee Boulevard
Myrtle Beach, SC 29575
843.444.0281

Surfside Office
112 Highway 17 South
& Glenns Bay Road
Surfside Beach, SC 29575
843.444.0250

Waccamaw Medical Park Office
112 Waccamaw Medical Park Drive
Conway, SC 29526
843.444.0216

South Brunswick Office
1625 Seaside Road, SW
Sunset Beach, NC 28468
843.444.1258
910.579.8160

Coastal Investor Services, Inc.
843.918.7600

Susan J. Cooke
Corporate Secretary
Myrtle Beach Investment Center
843.448.5151

Victoria J. Damore
Financial Advisor
Conway Investment Center
843.918.7604

Fred Elmore
Financial Advisor
Florence Investment Center
843.679.9041

E. Haden Hamilton, Jr.
President, Chief Executive Officer and Financial Advisor
Myrtle Beach Investment Center
843.918.7603

John Michael Hill
Vice President and Financial Advisor
Myrtle Beach Investment Center
843.918.7602

Deborah Hinson
Sales Assistant
Myrtle Beach Investment Center
843.918.7600

Jennifer Ivey
Sales Assistant
Myrtle Beach Investment Center
843.918.7600

Jerry L. Rexroad, CPA
Chief Financial Officer
Myrtle Beach Investment Center
843.448.5151

Scott Sensenig
Financial Advisor
South Brunswick Investment Center
843.918.7607
<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:

J.C. Bradford at 1.800.829.4522,

Trident Financial Corporation at 1.800.222.2618,

Robinson-Humphrey at 1.800.241.0077,

Herzog, Heine, Geduld, Inc. at 1.800.523.4936,

Raymond James & Associates, Inc. at 1.800.441.4103,

Edgar M. Norris and Co., Inc. at 1.800.476.3662

or Wheat First Union at 1.800.678.3232.


As of November 30, 1998,  the  Corporation  had 916  shareholders  and 6,264,467
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 the stock dividends discussed below.

Market Price of Common Stock

The table below  reflects the high and low bid stock prices  published by NASDAQ
for each quarter.
                    High      Low
                    Bid       Bid
                    ---       ---
Fiscal Year 1998:
First Quarter      $18.38  $15.38
Second Quarter      18.00   14.53
Third Quarter       20.69   16.50
Fourth Quarter      20.69   16.63

Fiscal Year 1997:
First Quarter       12.38   10.41
Second Quarter      14.35   12.38
Third Quarter       17.35   15.85
Fourth Quarter      18.94   17.16

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, 1998,
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 Monday, January 25, 1999 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
843.448.5151

Transfer Agent and Registrar

Registrar and Transfer Company
P.O. Box 1010
Cranford, NJ 07016
800.866.1340 Ext. 2511

Independent Certified Public Accountants

KPMG Peat Marwick LLP
P.O. Box 10529
Greenville, South Carolina 29603

General Counsel

James H. Dusenbury
Dusenbury, Hendrix & Little
602 27th Avenue
Myrtle Beach, South Carolina 29577

Special Counsel

Muldoon, Murphy & Faucette
5101 Wisconsin Avenue
Washington, DC 20016

Shareholder Relations Officer

Susan J. Cooke
Coastal Financial Corporation
2619 Oak Street
Myrtle Beach, South Carolina 29577
843.448.5151

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.
<PAGE>
The Coastal Federal Customer

The sign of a good community bank is helping local  businesses  grow with a wide
range of innovative products and services that best meet their needs.

Business Banking

Business Checking

If the  owners are the brains of a  company,  then the  checking  account is its
heart.  Our  Customers can choose the benefits of the Business  Checking  option
that best suits their needs:  Min-imum  Balance,  Business  Plus,  Commercial or
Non-Profit.

Money Management

Coastal  Federal  has the right  assort-ment  of  financial  options to help our
Customers'  businesses  thrive.  Business Customers can enjoy the flexibility of
accessing  their funds daily with our Money Market Gold Business Cash Management
account or lock in on an  attractive  rate of return with one of our  fixed-rate
Certificates of Deposit.  And with desktop Coastal Federal PC Banking,  they can
control and access funds directly from their computers.

Arnold Johnson

"I don't feel like a number at Coastal  Federal," says Arnold Johnson,  owner of
Arnold's Pools in Myrtle Beach. "And they are efficient;  I've never had to wait
to get  things in  order."  

Since the early 1980s,  Mr. Johnson has had both business and personal  accounts
with Coastal  Federal;  most of his employees bank here,  too.

As Arnold's  Pools has grown,  Mr.  Johnson has taken  advantage of the business
financing and other  commercial  services  Coastal Federal offers. 

He likes the range of services,  and the way we keep up with  technological  and
security advances. As a Shareholder, Mr. Johnson has found Coastal Federal to be
a good  investment. 

He has  confidence in the knowledge  and integrity of Coastal  Federal  leaders.
"The  Board  members  all  have  good  reputations.  They  are  businessmen  who
understand business."

The Coastal Federal Customer

Regardless  of the  size  of the  company,  Coastal  Federal  offers  the  right
assortment of financial options to make it easy to help businesses succeed.

Business Banking

Business Financing

Customers  can keep  their  businesses  growing  using  Coastal  Federal's  wide
selection of loans and lines of credit.  Or conveniently  extend their operating
capital with our  Preferred  Prime  Business  Credit Card,  which offers  credit
limits up to $50,000. Most importantly,  our Business Customers can be confident
that our  attention to service  doesn't  stop when the loan closes.  Alternative
Investments  Business and personal  investment  services are  available  through
Coastal Investor Services,  Inc., the securities brokerage subsidiary of Coastal
Financial Corporation.* Customers have access to financial planners that provide
corporate retirement programs,  wealth management plans for owners, and personal
investment planning.

Wayne Cole

When you ask Wayne Cole what he thinks about  Coastal  Federal,  you will get an
immediate answer:  "Coastal Federal changed my life!"

Mr. Cole says that Coastal  Federal is responsive when  opportunities  arise for
local business people.  When Mr. Cole decided to open his jewelry store in North
Myrtle Beach,  things moved fast.  On Monday,  he applied for a business loan at
Coastal Federal. Tuesday, the loan was approved. Wednesday, he resigned from his
job. Thursday,  he purchased  inventory,  display cases,  insurance,  a safe and
security system.  Friday, he started renovating the building. 

Within two weeks,  everything was finished,  polished and in place.  The door of
Cole's Jewelers opened May 1, 1990. "Since then, there's never been a day when I
didn't make a sale.  Our  business  is based on  service,"  Mr. Cole said.  "And
that's just what Coastal Federal provides."

Mr. Cole puts his trust in Coastal Federal's expertise and community commitment.
"I'm a shareholder - of course!"

*Securities offered through Robert Thomas Securities, Inc., Member NASD/SIPC

-- NOT FDIC  Insured
-- NOT  GUARANTEED  by Coastal  Federal  Savings Bank
-- Subject to risk and may lose value
<PAGE>
Coastal
Financial
Corporation



Corporate Office:       2619 Oak Street
                        Myrtle Beach, South Carolina 29577-3129
                        (843) 448-5151