Coastal
Financial Corporation

1999

Annual
Report


<PAGE>
Dedicated to the Coastal Federal Customer

Our Mission  Statement  says it all . . . We are totally  committed to Exceeding
the Expectations of our Customer. And while there are thousands of words in this
annual  report,  you  only  need  to  remember  three  .  . .  BUILDING  LASTING
RELATIONSHIPS. They summarize well the meaning of our Mission Statement and link
it to the exciting future of our Company.

Relationships  are built on trust,  which  exists only when the  individuals  or
entities  involved  are  trustworthy.   Trustworthiness   is  comprised  of  two
indivisible  and balanced  components . . .  Character,  that is, who we are and
what we stand for, and Competency, that is, what we can do.

Our QUEST FOR EXCELLENCE  Operating  Philosophy  clearly  defines our Values and
Guiding Principles,  which are unchanging,  and provides a strong foundation for
the achievement 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.

BUILDING  LASTING  RELATIONSHIPS  is the result of  melding  our  character,  as
defined by our QUEST FOR EXCELLENCE Operating Philosophy, with our competency in
delivering  more value to our Customers  than our  competitors,  attracting  new
Customers and serving our Customers when, where and how they want to be served.

Our ongoing commitment to our QUEST FOR EXCELLENCE

operating philosophy and overriding focus on building lasting  relationships has
continued  to  produce  outstanding  financial  results,  and we are  absolutely
convinced  that this approach will help to insure that our best years are yet to
come.

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 $177.72 based upon
Nasdaq  Quotations at September  30, 1999.  The  foregoing  reflects  historical
results and may not be indicative of future stock prices.

[GRAPHIC-GRAPH DEPICTING SHARE PRICE PERFORMANCE]

2
<PAGE>
[GRAPHIC-PICTURE OF ROBERT AND ARLENE ARMSTRONG]

Robert and Arlene Armstrong

"We vacationed  here three or four times a year since 1962," said Bob Armstrong.
"So we knew  where we wanted to live  when we  retired."  When they are not busy
with friends, church and community activities,  the Armstrongs are on the water,
boating and fishing for flounder and trout.

In 1992, Mr. and Mrs.  Armstrong  moved to Surf-side  Beach and opened  accounts
with a branch of a large national bank. They were  immediately  unhappy with its
distant,  impersonal  service.  A friend suggested  Coastal Federal,  where they
found the personal attention they wanted.

Mr. and Mrs.  Armstrong  do all their  Personal  Banking  at Coastal  Federal of
Surfside  Beach.  "It's all about  knowing the bank and  knowing the people.  At
Coastal  Federal,  you feel like a neighbor.  Everybody  knows who you are,  and
they're happy to see you."


[GRAPHIC-PICTURE OF BOB BARBOUR]
Bob Barbour

Bob  Barbour  likes the  friendly,  helpful  people at  Coastal  Federal.  "They
recently  opened their Little River office," he said. "And the very first time I
walked in there, I found people I knew. Coastal Federal planned it that way."

Mr. Barbour finds that Coastal  Federal's  approach to business banking is based
on long-term  relationships  between bankers and business people, as well as our
commitment to providing the services and resources businesses need.

Horry County is one of the fastest  growing real estate markets in the U.S., and
that means growing  businesses,  too. New  neighborhoods  such as Fairway Oaks &
Shorehaven Villas, where Mr. Barbour is Sales Executive,  are drawing people who
want to enjoy golfing, the beaches, and the relaxed pace of life.

"I tell the people who move in here to go to Coastal Federal," Mr. Barbour says.
"I know they'll be well taken care of."


[GRAPHIC-PICTURE OF DALE AND DEBRA CHADWICK]

Dale and Debra Chadwick

"We do our business  banking and personal  banking with Coastal  Federal,"  said
Dale Chadwick.  "Our Residential  Home Loan is with Coastal Federal.  The Sunset
Beach office is convenient, and Scott Lander is a friend."

Mrs. Chadwick is Vice President of The Winds, on Ocean Isle Beach, where Coastal
Federal recently  financed an addition to the hotel. Mr. Chadwick is a principal
with Carolina Golf Coast  Properties,  a leader in commercial real estate,  golf
and  waterfront  properties  in  Brunswick  County,  and is  developing  the new
150-acre Sunset Park project, with shopping, professional and residential areas.

Business Financing from Coastal Federal lets Mr. and Mrs. Chadwick make the most
of their  opportunities.  "We rely on  Coastal  Federal  for all our  commercial
banking.  They're  the first bank we refer  customers  and  clients to for their
commercial and other financial needs. We invest in Coastal Federal,  too - we're
shareholders."

                                                                               3
<PAGE>
Financial Highlights

The following  table sets forth  certain  information  concerning  the financial
position of the Company  (including data from operations of its subsidiaries) as
of and for the dates indicated.  The consolidated  data is derived in part from,
and should be read in conjunction with, the Consolidated Financial Statements of
the Company and its subsidiaries presented herein.
<TABLE>
<CAPTION>
                                                                            At or for Years Ended September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                1995          1996         1997        1998           1999
                                                              --------      --------     --------    --------      --------
                                                                (Dollars in thousands, except per share data)

Financial Condition Data:
<S>                                                           <C>           <C>          <C>         <C>           <C>
Total assets ............................................     $401,201      $459,712     $494,003    $643,560      $713,013
Loans receivable, net ...................................      356,819       370,368      403,570     414,264       455,351
Mortgage-backed securities ..............................       12,776        27,029       23,023     170,181       182,115
Cash, interest-bearing deposits and investment securities       13,530        38,332       39,582      25,507        30,296
Deposits ................................................      273,099       313,430      347,116     386,321       399,673
Borrowings ..............................................       95,997       109,886      106,337     210,560       262,541
Stockholders' equity ....................................       24,820        27,681       32,391      37,851        41,237
Operating Data:

Interest income .........................................     $ 30,328     $ 34,720      $ 38,065     $ 43,894     $ 49,559
Interest expense ........................................       17,272       19,091        20,146       24,451       26,991
                                                              --------      --------     --------    --------      --------
Net interest income .....................................       13,056       15,629        17,919       19,443       22,568
Provision for loan losses ...............................          202          790           760          865          750
                                                              --------      --------     --------    --------      --------
Net interest income after provision for loan losses .....       12,854       14,839        17,159       18,578       21,818
                                                              --------      --------     --------    --------      --------
Other Income:

Fees and service charges on loans and deposit accounts ..        1,051        1,415         1,593        1,639        2,025
Gain on sales of loans held for sale ....................           39          990           931        1,579          979
Gain (loss) on sales of investment securities ...........         --             (6)            7           96           73
Gain on sales of mortgage-backed securities, net ........         --            189           235          521          191
Real estate operations ..................................          876          345           141          149          (29)
Other income ............................................        1,284        1,699         1,792        1,895        2,334
                                                              --------      --------     --------    --------      --------
Total other income ......................................        3,250        4,632         4,699        5,879        5,573
Total general and administrative expense ................       10,152       13,586        12,716       13,618       15,286
                                                              --------      --------     --------    --------      --------
Earnings before income taxes ............................        5,952        5,885         9,142       10,839       12,105
Income taxes ............................................        2,232        2,164         3,351        3,987        4,390
                                                              --------      --------     --------    --------      --------
Net income ..............................................      $ 3,720      $ 3,721       $ 5,791     $  6,852        7,715
                                                               =======      =======       =======     ========        =====
Net earnings per common diluted share ...................      $   .56      $   .55       $   .85     $    .99      $  1.12
                                                               =======      =======       =======     ========      =======
Cash dividends per common share .........................      $   .20      $   .22       $   .25     $    .27      $   .27
                                                               =======      =======       =======     ========      =======
Weighted average shares outstanding .....................        6,636        6,711         6,828        6,914        6,895
                                                               =======      =======       =======     ========      =======
</TABLE>
<PAGE>
All share and per share data have been  restated  to  reflect  two 5 for 4 stock
dividends declared on January 9, 1996 and June 20, 1996, respectively, two 4 for
3 stock  dividends  declared on April 30,  1997 and May 6, 1998,  and a 5% stock
dividend declared on November 10, 1999.

Key Operating Ratios:

The table  below sets forth  certain  performance  ratios of the  Company at the
dates or for the periods indicated.
<TABLE>
<CAPTION>
                                                                                      At or for Years Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1995       1996        1997       1998        1999
Other Data:
<S>                                                                          <C>        <C>         <C>        <C>         <C>
Return on assets (net income divided by average assets) ..................      0.94%      0.85%       1.21%      1.13%       1.14%
Return on average equity (net income divided by average equity) ..........     15.54%     13.97%      19.36%     19.52%      19.30%
Average equity to average assets .........................................      6.08%      6.10%       6.24%      6.05%       5.93%
Tangible book value per share ............................................   $  3.96    $  4.30     $  4.98     $ 5.75      $ 6.10
Dividend payout ratio ....................................................     34.46%     38.51%      27.63%     25.14%      23.28%
Interest rate spread (difference between average yield on interest-earning
  assets and average cost of interest-bearing liabilities) ...............      3.52%      3.76%       3.89%      3.51%       3.55%
Net interest margin (net interest income as a percentage of average
  interest-earning assets) ...............................................      3.62%      3.86%       4.03%      3.64%       3.67%
Allowance for loan losses to total loans at end of period ................      1.00%      1.11%       1.19%      1.33%       1.36%
Ratio of non-performing assets to total assets (1) .......................      0.53%      0.17%       0.10%      0.36%       0.21%
Tangible capital ratio ...................................................      6.13%      5.93%       6.31%      6.10%       6.29%
Core capital ratio .......................................................      6.13%      5.93%       6.31%      6.10%       6.29%
Risk-based capital ratio .................................................     10.45%     10.41%      11.05%     12.67%      12.64%
Number of:
  Real estate loans outstanding ..........................................     6,688     5,741       6,752      6,666        6,637
  Deposit accounts .......................................................    39,881    41,755      43,544     43,720       41,608
  Full service offices (2) ...............................................         8         9           9         10           10
</TABLE>
(1)  Nonperforming  assets consist of nonaccrual  loans 90 days of more past due
and real estate acquired through  foreclosure.
(2) On October 6, 1999,  the Bank opened its Little River  office,  bringing the
number of full service offices to 11.

4
<PAGE>
Dear Friends

Record Financial Results

The most fundamental and critical part of a successful  future is a clear vision
of that future.

As we began our business  planning  process back in the summer of 1995,  we were
faced with many  options  and  potential  courses of action to follow in working
toward the attainment of our Basic  Corporate  Objective Of Maximizing The Value
Of Our  Shareholders'  Investment  and Our  Long-Term  Goal Of  Being  The  Best
Financial Services Company In Our Marketplace.

My  challenge  to our Senior  Leaders  assembled  to  discuss  the future of our
Company was to consider all of the  possibilities  which were available to us at
that  particular  point in time and develop the proper  strategies to assure the
attainment of our goals.

During  that  session,  I posed a number  of  scenarios  to our team in order to
convey a sense of urgency,  a sense of personal  accountability and the need for
action.  The product of my questions was not a set of inflexible  answers,  but,
rather,  a paradigm  shift  relating to our view of the planning  process itself
and, subsequently, the creation of what we call "discovery based planning."

The team that  responded to that challenge in 1995 has since guided this Company
through four exceptional years of achievement, the most current of which yielded
another year of record financial results.

Coastal Financial Corporation's net income for the year totaled $7.7 million, or
$1.12 per diluted  share,  an increase of 13% compared to $6.9 million,  or $.99
per  diluted  share  in  1998.  These  results  produced  a  return  on  average
Shareholders' equity of 19.30% and a return on average assets of 1.14%.

Total assets  increased over 10%, to $713 million at year end, and  importantly,
core deposits grew by over 14%.  Asset quality  remained  excellent  compared to
both industry standards and historical norms.

While our operating results for 1999 again met our high expectations, the market
price of Coastal Financial's common stock, at September 30, 1999, was 17.7% less
than the market price at September 30, 1998. While bank stocks, in general, have
been depressed this year,  Coastal  Financial's  share price decline in 1999 has
been quite a contrast to its 0.76%  decrease in 1998,  60%  increase in 1997 and
56% increase in 1996.

Since becoming a publicly owned company in 1990, Coastal Financial Corporation's
stock  has  grown at a  compound  annual  rate of over 37%,  taking  our  market
capitalization  from $4.6 million in October 1990, to $90.0 million at the close
of this fiscal  year.  Put  another  way,  an initial  investment  of $10,000 in
October of 1990 would have grown to $164,300 at September 30, 1999.
<PAGE>
Equally as impressive is the fact that, since 1990, our operating  earnings have
increased at a compound annualized rate in excess of 19%.

One of the best indicators of performance is Return On Shareholders' Equity, and
this  measure  for  1999  was,  again,   outstanding.   Our  Return  On  Average
Shareholders'  Equity  measure  of  19.30%  ranks  us among  the top  performing
financial services companies in America.

While we  certainly  believe  that  financial  results  such as these  are worth
cheering,   during  fiscal  1999  we  continued  to  receive  even  more  public
recognition  of our  progress  toward  the  attainment  of our  Basic  Corporate
Objective  Of  Maximizing  The  Value Of Our  Shareholders'  Investment  and Our
Long-Term Goal Of Being The Best Financial Services Company In Our Marketplace:

In its  November  17, 1998  edition,  The State  newspaper  published an article
titled "Myrtle Beach bank leads US," describing Coastal Financial Corporation as
the nation's best savings bank investment this decade.

Coastal Financial Corporation, for the second consecutive year, was listed as #1
in Return on Equity for all publicly  held banks in North and South  Carolina in
the  1999/2000  edition  of  Corporate  Carolina,  published  by the  editors of
Business North Carolina.

Coastal Federal,  for the second  consecutive  year, placed 1st in voting by the
readers of the (Myrtle Beach) SUN NEWS in the Financial Institutions category of
the SUN NEWS Best Of The Beach Competition for 1999.

Coastal  Federal  placed  1st in  voting by the  readers  of the SUN NEWS in the
Mortgage  Company  category  of the SUN NEWS Best of The Beach  Competition  for
1999.

We are extremely  proud of the  performance  evidenced by these results  because
they are indicative of how our Associates  feel about our commitment to them and
to our Customers.

                                                                               5
<PAGE>
Our best year yet

This  was  indeed  a year  of  significant  achievement  for  Coastal  Financial
Corporation. Our ongoing commitment to our Associates, Customers and Communities
continues to pay significant dividends and has enabled the financial performance
during fiscal 1999 which, again, met our high expectations and well positions us
to aggressively pursue future opportunities.

Noteworthy Financial Results
for Fiscal 1999:

EARNINGS PER SHARE
[GRAPHIC-GRAPH DEPICTING NUMBERS BELOW]
o Net  earnings of $7.7  million or $1.12 per diluted  share.  Net  earnings for
fiscal 1999 increased 12.6% over the prior year.

BOOK VALUE PER SHARE
[GRAPHIC-GRAPH DEPICTING NUMBERS BELOW]
o Book value per share grew 6.1% to $6.10.

o Shareholders' equity advanced 9.0% to $41.2
million.

ASSETS
[GRAPHIC-GRAPH DEPICTING NUMBERS BELOW]
o A 10.8% growth in total assets to $713.0 million.

o Loans receivable increased 11.1% to $472.0
million.

o Deposits were up 3.5% to the highest level in the  Company's  history,  led by
core deposit growth of 14%.

o Transaction deposits grew by 16.7% in fiscal 1999.

6
<PAGE>
[GRAPHIC-THREE PHOTOS]
TOURISM, RETIREMENT AND BUSINESS CONTINUE TO FUEL THE AREA'S GROWTH

[GRAPHIC-GRAPH DEPICTING ALLOWANCE FOR LOAN LOSSES]
ALLOWANCE FOR LOAN LOSSES
TO NET LOANS

o Allowance for Loan Losses to Net Loans
increased to 1.36%.

o The Company had Net Loan Charge Offs of .02%
in 1999.

Coastal Financial Corporation's outstanding operating results are the product of
the  commitment,  dedication  and aligned  effort of our wonderful team and have
been a major  factor in the more than  1,643%  increase in our stock price since
becoming a public  company in October of 1990 vs. 412% for the  Standard & Poors
500 Index.

These results put Coastal Financial among the top performing  financial services
companies in the nation and, when  considered  in the context of our  impressive
record of performance over the past decade,  it is easy to see why I am so proud
of this great Company.

It  really  was  quite  a  year.  Our  business  prospered  and  our  Associates
flourished,  growing both personally and professionally as never before. But, as
good as these  results are,  it's always the future that we are most  interested
in, and it always leads to the question we're most often asked:  "Can we keep it
up?"

We continue to believe  the answer is a  resounding  "Yes," as long as we remain
focused on BUILDING  LASTING  RELATIONSHIPS  with our Associates,  Customers and
Communities. That's what really sets us apart from the competition.

                                                                               7
<PAGE>
A look back at 1999

  Albert Einstein once said, "The  significant  problems we face today cannot be
  solved  at the  same  level  of  thinking  we were at when we  created  them."
  Einstein  was  describing  paradigms  .  . .  the  way  individuals  perceive,
  understand and interpret the surrounding world. In that we are all products of
  what we have learned and experienced, we are all different,  because no two of
  us share the the same learning or life experiences.  Therefore,  no two people
  share identical paradigms.

  Our culture,  as a learning  organization,  embraces  change as the  essential
  ingredient for growth and progress.  Consequently, we have learned that, if we
  want to achieve significant change, we must first change our paradigms.

  A significant  element of the Five Year Plan,  which was developed in the 1995
  strategic planning session, related to our need to build a workplace which was
  designed to teach our Leadership Group and Associates the principles which are
  essential in better  serving our Customers and in assuring  their own personal
  and  professional  success.  This paradigm shift has enabled our Associates to
  grow, both personally and professionally,  toward the attainment of their full
  potential and further leveraged our  ever-increasing  ability to work together
  as a team.  And  though  we are still far from  being the ideal  workplace  we
  intend to be, we endeavor  daily to make our work  environment  a better place
  for our Associates, to make sure they know we care about them personally,  and
  to assure that they understand how critical they are to our team's success. We
  believe this approach is both  fundamental  and essential to assuring that our
  best days are yet to come.

  This  formula  for  success  is clearly  defined  in our QUEST FOR  EXCELLENCE
  Operating  Philosophy  and is  fully  developed  and  masterfully  articulated
  through our course offerings at Coastal Federal University.  This well focused
  and  in-depth  curriculum  teaches  our  Leaders  that it all begins  with our
  commitment  to  BUILDING  LASTING  RELATIONSHIPS,  with  our  Associates,  our
  Customers,  and our  Communities,  and ends  with  added  value for all of our
  stakeholders.

  And while there are those who say that a success  formula can't possibly be as
  simple as our QUEST FOR  EXCELLENCE  Operating  Philosophy,  our results  have
  absolutely convinced us that it is just that simple.

  During fiscal 1999, we established The Pledge To Excellence Program at Coastal
  Federal  University  and began  offering the renowned  course "The 7 Habits of
  Highly Effective  People," in conjunction  with the Covey Learning  Institute.
  These two  leadership  development  opportunities  are designed to assure that
  every Leader in our  organization  can effectively  deliver our most important
  message  - that  exceeding  the  expectations  of our  internal  and  external
  Customers is our first consideration in every decision we make.

  These  curriculum  offerings have become the cornerstones of our initiative of
  making  Coastal  Financial  Corporation a learning  organization.  That is, an
  organization  which views change and constant  improvement as essential to the
  achievement of its long-term objectives.


[GRAPHIC-PHOTO OF COASTAL FINANCIAL CORPORATION CORPORATE GROUP LEADERS]
<PAGE>
  I was extremely  pleased when the first Pledge To Excellence class convened in
  late 1998, and began teaching our Leaders the skills they need to successfully
  respond to the challenges they face. In that course, we teach them the history
  of our  Company  and the  values  on which it is built.  They  learn to commit
  themselves  to their team members and share with their team our vision for the
  future and the goals we have established. We show them how to effectively lead

8
<PAGE>
  their teams toward the  successful  execution of their parts of our  business,
  and, very  importantly,  how each piece is an essential part of the whole. And
  we help them  understand  that  their  success  is highly  dependent  upon the
  success of their teams and that it is incumbent upon them, as leaders, to make
  others  successful  so  that  we  might,  in the  future,  pass  along  a very
  successful  and  continuously  improving  Company  to the next  generation  of
  leaders.

  I  believe  that  Coastal  Federal  University,  and the  curriculum  which is
  constantly  being  developed  and  updated,   are  among  the  most  important
  investments  Coastal  Financial will ever make. And because these  initiatives
  will enable each of our Leaders and Associates to reach their full  potential,
  it is my firm belief that Coastal  Federal  University  and our  commitment to
  becoming a learning  organization  will  produce the  greatest  returns of any
  investment we have ever made.

  Those  returns will be achieved by teaching our leaders  principles  which can
  shift  their  paradigms  and  leverage  their  potential,  such  as . . .  our
  philosophy  that the single most  important  thing they must do is to attract,
  develop and retain the very best  people.  This  principle is  fundamental  to
  attracting,  developing and retaining profitable Customer  relationships.  The
  list of principles could go on and on, but the point is that every offering in
  our  curriculum  is designed to equip our team members to serve our  Customers
  better . . . to BUILD LASTING RELATIONSHIPS.

  Over four  years have  passed  since I  challenged  this  exceptional  team to
  explore our options and,  during that time,  many good things have happened in
  preparing our Company for the future.

  In continuing to better position our  organization for the challenges that lie
  ahead,  we undertook  many  significant  endeavors  during  1999.  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:

o The  development and adoption of our Vision 2005 strategic plan. This document
provides us with a broad and in-depth strategic framework,  delineating both the
transformational  and linear aspects of our development  designs,  from which to
develop annual  tactical  plans in support of the attainment of those  long-term
objectives.

o The further  expansion of Coastal Federal  University to assure that we remain
focused on  becoming a learning  organization.  The  Mission of Coastal  Federal
University  is  to  foster  a  learning  environment,  centered  around  Coastal
Financial  Corporation's QUEST FOR EXCELLENCE Operating Philosophy.  The success
of  this  endeavor  to-date  has  significantly  increased  our  individual  and
organizational  production  capability  and created an empowered  culture with a
true competitive distinction.

o Our recent partnership with the Waccamaw Community  Foundation in sponsoring a
Flood  Relief  Fund  for  flood   victims.   This  effort,   together  with  the
approximately  300 other  charitable  causes which we support  annually with our
time,  talent and resources,  reflects our strong belief that community  members
have a basic responsibility to take care of their communities and each other.
<PAGE>
o The continued expansion of our financial services franchise.  Our newest Sales
Center in Little River, South Carolina,  the commencement of construction on our
Carolina  Forest Sales Center,  the  acquisition of a Sales Center site in North
Conway with plans to begin construction in fiscal 2000, and the acquisition of a
location for a lending  office in  Wilmington,  North  Carolina,  are activities
consistent  with our efforts to expand our presence and market  awareness  along
the South  Carolina  coast and build a  significant  presence  in coastal  North
Carolina.


                                                                               9
<PAGE>
Our commitment to our customers  combines the  efficiencies of new  technologies
with the highest level of personal service.

o Insuring  that we are ready for the Year 2000.  Our Coastal Year 2000 Team has
spent more than  three  years,  with the  outside  assistance  of one of the top
accounting/information  systems consulting firms in the nation, assuring that we
are totally prepared for Year 2000. Our Team has identified equipment, products,
services and programs that depend on date-related data to function,  both within
the Coastal  Financial  family of  companies,  as well as verifying the same for
outside  vendors  and  subcontractors.  Those  efforts  have  included  personal
computers,  copiers, printers,  vaults, elevators,  heating and cooling systems,
facsimile  machines and much, much more. We have tested,  confirmed,  validated,
retested, reconfirmed and revalidated. We are ready.

o The  repositioning  of Coastal Investor  Services to create more  connectivity
with Bank Associates and Customers resulted in Coastal Investor Services ranking
#21 out of over 600 brokerage affiliates in the Raymond James Financial Services
system.  The ability of Coastal Financial to offer our Customers a comprehensive
financial  planning service together with a full array of financial services . .
 . from checking and savings  accounts,  to annuities,  trust services,  mortgage
lending, securities brokerage, commercial lending, asset management accounts and
insurance  products,  through  conveniently  located  financial  Sales  Centers,
drive-up  ATMs,  telephones or internet  access is critical to BUILDING  LASTING
RELATIONSHIPS  . . . because it allows our Customers to conduct  their  business
when they wish, how they wish and where they wish.

o Our  organization  was  fundamentally  realigned in 1999 to better  enable our
concept of operating as a series of community  banks.  Jerry Rexroad now directs
the Company's Operations and Finance Groups, and Phil Stalvey,  Doug Shaffer and
Scott Lander lead the sales efforts in the three market areas which were created
during fiscal 1999. We believe this realignment provides new clarity,  focus and
direction  for the entire  Company and will  provide  even more  support for our
commitment to local decision-making and more responsive, reliable and empathetic
Customer service.  These  individuals are a part of the most  experienced,  most
effective team of senior leaders our Company has ever had.

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

  Directors

  Our extraordinary success over the years is the result of many things, not the
  least of which is an excellent Board of Directors. Let me say just a few words
  about two wonderful  directors who retire this year and a new outside director
  who joins us:

o Wilson  Springs,  Vice  Chairman,  is retiring after  thirty-two  years on our
Board.  Next to our  founders,  Wilson  probably  had the most to do with making
Coastal  Financial  Corporation the Company it is today. He has been a source of
great vision, excellent judgment and wonderful good cheer.

o Harold  Clardy is retiring  from our Board after having  provided  twenty-four
years of exemplary  leadership.  Harold has been a reliable source of historical
perspective, sound wisdom and good advice.

  We will greatly miss the service of these fine gentlemen who symbolized  those
  ideals and values  which we strive  daily to live up to. We thank each of them
  for all they have done,  and continue to do on our behalf,  and know that they
  will always be among our best ambassadors.


10
<PAGE>
Looking ahead

o Frank Thompson, President of Peoples Underwriters,  joins us as a new director
in 2000.  Frank is an outstanding  executive who brings unique  experience and a
special  viewpoint to our Board and we are  extremely  pleased to welcome him to
what I consider the best Board of Directors in America.

  On a sad note, just prior to the publication of this report,  Samuel A. Smart,
  a member of our Board of Directors  for the past sixteen  years,  passed away.
  Sam made many  significant  contributions  and  provided  sound  guidance  and
  responsible oversight to our efforts. He was an extraordinary  gentleman and a
  great friend.

  Looking Ahead

  The future looks good. Consider these two critical elements: We are located in
  one of the best markets in America, with Horry County being the second fastest
  growing real estate  market in the nation and New Hanover  County being ranked
  fourth in that measure. And we have the best team imaginable. Our 1999 results
  speak  volumes  about their  commitment  to Our Basic  Corporate  Objective Of
  Maximizing The Value Of Our Shareholders' Investment and Our Long-Term Goal Of
  Being The Best Financial Services Company In Our Marketplace.

  Both sales and earnings  reached  record  levels in 1999 and 1998. In fact, in
 these two years alone, our net income has surged 33%.

  And we still have tremendous  potential for further  growth.  In the last four
  years,  our net income has more than doubled.  Since becoming a publicly owned
  Company in 1990, we have roughly doubled our earnings every 4 years.

  Everyone in the Coastal Financial family relishes these achievements and looks
  forward  to even  greater  accomplishments  in the years  ahead.  And while we
  certainly  have no  crystal  ball,  we do  have  dedicated  Associates,  great
  markets, excellent products,  tremendous momentum and unshakable confidence in
  our ability, as a team, to BUILD LASTING  RELATIONSHIPS with our Customers and
  Communities  and achieve  even  higher  returns  for our  Shareholders  in the
  future.

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

  /s/Michael C. Gerald
  --------------------
  Michael C. Gerald
  President and Chief Executive Officer

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

Consolidated Statements of Financial Condition
  September 30, 1998 and 1999
                                                                                           1998          1999
                                                                                         ---------    ----------
                                                                                         (Dollars in thousands)
                                       ASSETS
<S>                                                                                      <C>              <C>
Cash and amounts due from banks                                                          $  11,978        21,988
Short-term interest-bearing deposits                                                         3,688         2,245
Investment securities available for sale                                                     9,841         6,063
Mortgage-backed securities available for sale                                              170,181       182,115
Loans receivable (net of allowance for loan losses of $5,668
   at September 30, 1998 and $6,430 at September 30, 1999)                                 414,264       455,351
Loans receivable held for sale                                                              10,486        16,636
Real estate acquired through foreclosure, net                                                   35            96
Office property and equipment, net                                                           9,001        11,236
Federal Home Loan Bank (FHLB) stock, at cost                                                 7,266         8,201
Accrued interest receivable on loans                                                         2,546         2,861
Accrued interest receivable on securities                                                    1,324         1,333
Other assets                                                                                 2,950         4,888
                                                                                         ---------    ----------
                                                                                         $ 643,560    $  713,013
                                                                                         =========    ==========
                        LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Deposits                                                                                386,321       399,673
   Securities sold under agreements to repurchase                                           59,214        96,948
   Advances from FHLB                                                                      144,909       164,024
   Other borrowings                                                                          6,437         1,569
   Drafts outstanding                                                                        1,615         1,383
   Advances by borrowers for property taxes and insurance                                    1,329         1,346
   Accrued interest payable                                                                  1,352         1,156
   Other liabilities                                                                         4,532         5,677
                                                                                         ---------    ----------
     Total liabilities                                                                     605,709       671,776
                                                                                         ---------    ----------

Stockholders' equity:
   Serial preferred stock, 1,000,000 shares authorized and unissued                              --           --
   Common stock $.01 par value, 15,000,000 shares authorized;
     6,576,966 shares at September 30, 1998 and 6,751,389
     shares at September 30, 1999 issued and outstanding                                        66            67
   Additional paid-in capital                                                                8,980         9,320
   Retained earnings, restricted                                                            28,369        34,288
   Treasury stock, at cost (23,100 shares)                                                      --           (356)
   Accumulated other comprehensive income (loss), net of tax                                   436         (2,082)
                                                                                         ---------    ----------
     Total stockholders' equity                                                             37,851        41,237
                                                                                         ---------    ----------
                                                                                         $ 643,560    $  713,013
                                                                                         =========    ==========
</TABLE>
          See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
   Years ended September 30, 1997, 1998 and 1999

                                                                            1997            1998          1999
                                                                        ------------     ---------     ---------
                                                                            (In thousands, except share data)
<S>                                                                     <C>              <C>           <C>
Interest income:
   Loans receivable                                                     $     33,769        36,314        38,541
   Investment securities                                                       1,574         1,309         1,476
   Mortgage-backed securities                                                  2,446         5,972         9,205
   Other                                                                         276           299           337
                                                                         ------------     ---------     ---------
Total interest income                                                         38,065        43,894        49,559
                                                                        ------------     ---------     ---------
Interest expense:
   Deposits                                                                   13,650        14,559        14,627
   Securities sold under agreements to repurchase                              1,130         3,404         3,869
   Advances from FHLB                                                          5,366         6,488         8,495
                                                                        ------------     ---------     ---------
     Total interest expense                                                   20,146        24,451        26,991
                                                                         ------------     ---------     ---------
     Net interest income                                                      17,919        19,443        22,568
Provision for loan losses                                                        760           865           750
                                                                         ------------     ---------     ---------
     Net interest income after provision for loan losses                      17,159        18,578        21,818
                                                                        ------------     ---------     ---------

Other income:
   Fees and service charges on loans and deposit accounts                      1,593         1,639         2,025
   Gain on sales of loans held for sale                                          931         1,579           979
   Gain on sales of investment securities, net                                     7            96            73
   Gain on sales of mortgage-backed securities, net                              235           521           191
   Loss from real estate acquired through foreclosure                           (137)          (72)          (29)
   Income from real estate partnerships                                          278           221            --
   Income from sale of non-depository products                                   797           535           745
   Federal Home Loan Bank stock dividends                                        342           454           616
   Other income                                                                  653           906           973
                                                                        ------------     ---------     ---------
     Total other income                                                        4,699         5,879         5,573
                                                                        ------------     ---------     ---------
General and administrative expenses:
   Salaries and employee benefits                                              6,841         7,355         8,604
   Net occupancy, furniture and fixtures and data processing expense           2,891         3,260         3,563
   FDIC insurance premium                                                        283           213           220
   Other expense                                                               2,701         2,790         2,899
                                                                        ------------     ---------     ---------
     Total general and administrative expense                                 12,716        13,618        15,286
                                                                        ------------     ---------     ---------
     Income before income taxes                                                9,142        10,839        12,105
Income taxes                                                                   3,351         3,987         4,390
                                                                        ------------     ---------     ---------
Net income                                                              $      5,791         6,852         7,715
                                                                        ============     =========     =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                     <C>              <C>           <C>
Earnings per common share
   Basic                                                                $       0.89          1.04          1.15
                                                                        ============     =========     =========
   Diluted                                                              $       0.85          0.99          1.12
                                                                        ============     =========     =========
Average common shares outstanding
   Basic                                                                   6,538,000     6,600,000     6,700,000
                                                                        ============     =========     =========
   Diluted                                                                 6,828,000     6,914,000     6,895,000
                                                                        ============     =========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                              13
<PAGE>
<TABLE>
<CAPTION>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
  Years ended September 30, 1997, 1998 and 1999

                                                                                             Accumulated
                                                                                                Other
                                                            Additional                      Comprehensive        Total
                                                     Common   Paid-in  Retained   Treasury     Income      Stockholders'
                                                      Stock   Capital  Earnings     Stock      (Loss)          Equity
                                                      -----   -------  --------     -----      ------          ------
                                                                    (In thousands)
<S>                                                    <C>    <C>       <C>        <C>            <C>           <C>
Balance at September 30, 1996                          $65    $8,679    $20,015    $(1,185)       107           $27,681
Exercise of stock options                               --        --       (786)     1,003         --               217
Cash paid for fractional shares                         --        --        (18)        --         --               (18)
Cash dividends                                          --        --     (1,600)        --         --            (1,600)
Net income                                              --        --      5,791         --         --             5,791
Other comprehensive income, net of tax:
Unrealized gains arising during period, net of
   taxes of $186                                        --        --         --         --        465                --
Less: reclassification adjustment for gains
   included in net income, net of taxes of $97          --        --         --         --       (145)               --
                                                       ---    ------    -------      -----    -------           -------
Other comprehensive income                              --        --         --         --        320               320
                                                       ---    ------    -------      -----    -------           -------
Comprehensive income                                    --        --         --         --         --             6,111
                                                       ---    ------    -------      -----    -------           -------
Balance at September 30, 1997                           65     8,679     23,402       (182)       427            32,391
Exercise of stock options                                1       301       (161)       182         --               323
Cash paid for fractional shares                         --        --         (9)        --         --                (9)
Cash dividends                                          --        --     (1,715)        --         --            (1,715)
Net income                                              --        --      6,852         --         --             6,852
Other comprehensive income, net of tax:
Unrealized gains arising during period,
   net of taxes of $152                                 --        --         --         --        379                --
Less: reclassification adjustment for gains
   included in net income, net of taxes of $247         --        --         --         --       (370)               --
                                                       ---    ------    -------      -----    -------           -------
Other comprehensive income                              --        --         --         --          9                 9
                                                       ---    ------    -------      -----    -------           -------
Comprehensive income                                    --        --         --         --         --             6,861
                                                       ---    ------    -------      -----    -------           -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                    <C>    <C>       <C>        <C>            <C>           <C>
Balance at September 30, 1998                           66     8,980     28,369         --        436            37,851
Exercise of stock options                                1       340         --         --         --               341
Cash dividends                                          --        --     (1,796)        --         --            (1,796)
Net income                                              --        --      7,715         --         --             7,715
Other comprehensive income, net of tax:
Unrealized losses arising during period,
   net of taxes of $1,499                               --        --         --         --     (2,354)               --
Less: reclassification adjustment for gains
   included in net income, net of taxes of $100         --        --         --         --       (164)              --
                                                       ---    ------    -------      -----    -------           -------
Other comprehensive loss                                --        --         --         --     (2,518)           (2,518)
                                                       ---    ------    -------      -----    -------           -------
Comprehensive income                                    --        --         --         --         --             5,197
                                                       ---    ------    -------      -----    -------           -------
Treasury stock repurchases                              --        --         --       (356)        --              (356)
                                                       ---    ------    -------      -----    -------           -------
Balance at September 30, 1999                          $67    $9,320    $34,288      $(356)   $(2,082)          $41,237
                                                       ===    ======    =======      =====    =======           =======
</TABLE>
          See accompanying notes to consolidated financial statements.

14
<PAGE>
<TABLE>
<CAPTION>
  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
  Years ended September 30, 1997, 1998 and 1999

                                                                                         1997           1998           1999
                                                                                      ---------       --------       --------
                                                                                                   (In thousands)

<S>                                                                                   <C>              <C>         <C>
Cash flows from operating activities:
   Net income ...................................................................     $   5,791          6,852          7,715
   Adjustments to reconcile net income to net cash provided
   by operating activities:
     Income from real estate partnerships .......................................          (278)          (221)          --
     Depreciation ...............................................................           865          1,030          1,206
     Provision for loan losses ..................................................           760            865            750
     Origination of loans receivable held for sale ..............................       (45,717)       (69,546)       (66,930)
     Proceeds from sales of loans receivable held for sale ......................        44,160         71,674         60,781
     (Increase) decrease in:
       Other assets .............................................................           149           (176)        (1,938)
       Accrued interest receivable ..............................................          (296)          (604)          (324)
     Increase (decrease) in:
       Accrued interest payable .................................................           154            400           (196)
       Other liabilities ........................................................           220           (248)         2,744
                                                                                      ---------       --------       --------
         Net cash provided by operating activities ..............................         5,808         10,026          3,808
Cash flows from investing activities:
   Proceeds from sale of investment securities available for sale ...............         5,693          4,500          9,735
   Proceeds from maturities of investment securities available for sale .........        17,839         25,596          5,165
   Purchases of investment securities available for sale ........................       (32,022)       (13,798)       (11,360)
   Purchases of loans receivable ................................................        (9,948)       (10,442)        (9,078)
   Proceeds from sale of mortgage-backed securities available for sale ..........        25,678         86,547         95,173
   Purchases of mortgage-backed securities available for sale ...................       (26,636)      (279,141)      (183,590)
   Principal collected on mortgage-backed securities available for sale .........         4,850         45,505         72,177
   Origination of loans receivable, net .........................................      (132,786)      (135,706)      (189,427)
   Principal collected on loans receivable ......................................       109,946        130,286        156,518
   Proceeds from sales of real estate acquired through foreclosure ..............           456            263             88
   Purchases of office properties and equipment .................................        (2,690)        (2,470)        (3,441)
   Purchases of FHLB stock ......................................................          (390)        (1,648)          (935)
   Other investing activities, net ..............................................           914            193            427
                                                                                      ---------       --------       --------
         Net cash used by investing activities ..................................       (39,096)      (150,315)       (58,848)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                   <C>              <C>         <C>
Cash flows from financing activities:
   Increase in deposits .........................................................        33,686         39,205         13,352
   Increase (decrease) in securities sold under agreements to repurchase ........        (2,666)        56,548         37,734
   Proceeds from FHLB advances ..................................................       198,170        242,625        353,900
   Repayment of FHLB advances ...................................................      (201,245)      (199,194)      (334,785)
   Proceeds (repayments) from other borrowings, net .............................           224          4,244         (4,868)
   Increase (decrease) in advance payments by borrowers for property
     taxes and insurance ........................................................           (26)           (80)            17
   Increase (decrease) in drafts outstanding, net ...............................          (904)           597           (232)
   Repurchase of treasury stock, at cost ........................................          --             --             (356)
   Cash dividends to stockholders and cash for fractional shares ................        (1,618)        (1,724)        (1,796)
   Exercise of stock options ....................................................           217            323            341
                                                                                      ---------       --------       --------
         Net cash provided by financing activities ..............................        25,838        142,544         63,307
                                                                                      ---------       --------       --------
Net increase (decrease) in cash and cash equivalents ............................        (7,450)         2,255          8,567
                                                                                      ---------       --------       --------
Cash and cash equivalents at beginning of year ..................................        20,861         13,411         15,666
                                                                                      ---------       --------       --------
Cash and cash equivalents at end of year ........................................     $  13,411         15,666         24,233
                                                                                      =========       ========       ========

Supplemental information:
   Interest paid ................................................................     $  19,992         24,051         27,187
                                                                                      =========       ========       ========
   Income taxes paid ............................................................     $   2,687          4,112          2,085
                                                                                      =========       ========       ========
Supplemental schedule of non-cash investing and financing transactions:
   Securitization of mortgage loans held for sale into mortgage-backed securities     $    --            4,997         27,713
                                                                                      =========       ========       ========
   Transfer of mortgage loans to real estate acquired through foreclosure .......     $     383             48            149
                                                                                      =========       ========       ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                                                              15
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     (a) Principles of Consolidation

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

     (b) Cash and Cash Equivalents

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

     (c) Investment and Mortgage-Backed Securities

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

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

     (d) Allowance for Loan Losses

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


16
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
     (d) Allowance for Loan Losses - Continued

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

     (e) Loans Receivable Held for Sale

     Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses  are  provided  for in a  valuation  allowance  by charges to
operations.  At September 30, 1998 and 1999, the Company had approximately $10.5
million and $16.6 million in mortgage loans held for sale, respectively.

     (f) Real Estate Owned

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

     (g) Office Properties and Equipment

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

     (h) Uncollected Interest

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

     (i) Loan Fees and Discounts

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

     (j) Income Taxes

     Deferred  taxes are provided for  differences  in the  financial  reporting
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.
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     (k) Loan Sales

     Gains or losses  on sales of loans are  recognized  when  control  has been
surrendered  over these assets in accordance  with SFAS No. 125  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The resulting  servicing  rights are  amortized in  proportion  to, and over the
period of, estimated net servicing  revenues.  Impairment of mortgage  servicing
rights is  assessed  based on the fair value of those  rights.  Fair  values are
estimated  using  discounted cash flows based on a current market interest rate.
The  amount of  impairment  recognized  is the  amount by which the  capitalized
mortgage servicing rights exceed their fair value.

     (l) Drafts Outstanding

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

     (m) Securities Sold Under Agreement to Repurchase

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

     (n) Reclassifications

     Certain amounts in the 1997 and 1998 consolidated financial statements have
been reclassified to conform with the 1999 presentation.  Such reclassifications
did not change net income or equity as previously reported.

     (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 No.
25,  "Accounting for Stock Issued to Employees,"  provided the Company discloses
the  proforma  effect on net income and  earnings per share of adopting the full
provisions of SFAS No. 123.  Accordingly,  the Company  continues to account for
stock based  compensation under APB Opinion No. 25 and has provided the required
proforma disclosures.

     (p) Comprehensive Income

     On  October  1,  1998,  the  Company  adopted  SFAS  No.  130,   "Reporting
Comprehensive  Income".  SFAS No. 130  established  standards  for reporting and
presentation  of  comprehensive  income  and  its  components  in a full  set of
financial  statements.  Comprehensive  income  consists  of net  income  and net
<PAGE>
unrealized  gains  (losses) on securities  and is presented in the statements of
stockholders'  equity and  comprehensive  income.  The  Statement  requires only
additional  disclosures in the consolidated  financial  statements;  it does not
affect the Company's  financial  position or results of  operations.  Prior year
financial  statements have been  reclassified to conform to the  requirements of
SFAS No. 130.

     The Company's other comprehensive  income for the years ended September 30,
1999 and 1998 and  accumulated  other  comprehensive  income as of September 30,
1999 and 1998 are  comprised  solely of  unrealized  gains and losses on certain
investments in debt and equity securities.

     (q) Disclosures Regarding Segments

     The  Company  adopted  SFAS No.  131,  "Disclosures  about  Segments  of an
Enterprise  and  Related   Information"  in  fiscal  year  1999.  SFAS  No.  131
established  standards  for the way that public  businesses  report  information
about operating segments in annual financial  statements and requires that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about products and services,  geographic  areas, and major
customers.  The  Company  adopted  SFAS No.  131  without  any  impact  on their
consolidated financial statements.


18
<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, 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 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 amortized cost and market value of investment  securities available for
sale at September 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
                                                                                             1999
                                                                       ----------------------------------------------
                                                                                    Gross           Gross
                                                                       Amortized Unrealized      Unrealized   Market
                                                                         Cost       Gains           Losses     Value
                                                                         ----       -----           ------     -----
                                                                                         (In thousands)
<S>                                                                    <C>             <C>           <C>     <C>
         U.S. Government and agency obligations:
           Due after one but within five years ....................    $  2,770        --             (16)    2,754
           Due after five years ...................................       3,445        --            (136)    3,309
                                                                       --------        --             ---     -----
                                                                       $  6,215        --            (152)    6,063
                                                                       ========        ==             ===     =====

</TABLE>

     The Company had gross  realized  losses of $58,000 and gross realized gains
of $65,000 for the year ended  September 30, 1997. For the year ended  September
30, 1998,  gross realized gains were $96,000 and there were no realized  losses.
For the year ended  September 30, 1999,  gross  realized  gains were $73,000 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, 1999 was $110.4
million with a market value of $109.0 million.
<PAGE>
(3)  MORTGAGE-BACKED SECURITIES

         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>
                                                                              19

<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,  1999
consisted of the following:
<TABLE>
<CAPTION>
                                                                                             1999
                                                                       ----------------------------------------------
                                                                                    Gross           Gross
                                                                       Amortized Unrealized      Unrealized   Market
                                                                         Cost       Gains           Losses     Value
                                                                         ----       -----           ------     -----
                                                                                          (In thousands)
<S>                                                                    <C>            <C>           <C>     <C>
         Collateralized Mortgage Obligations ......................    $  23,680        --            (806)    22,874
         FNMA .....................................................      103,117       282          (1,629)   101,770
         GNMA .....................................................       23,349        31            (588)    22,792
         FHLMC ....................................................       35,175       202            (698)    34,679
                                                                       ---------       ---          ------    -------
                                                                       $ 185,321       515          (3,721)   182,115
                                                                       =========       ===          ======    =======
</TABLE>
     For the year ended  September 30, 1997,  there were gross realized gains of
$258,000 and realized losses of $23,000. The Company had gross realized gains of
$533,000 and realized  losses of $12,000 for the year ended  September 30, 1998.
For the year ended  September 30, 1999,  the Company had gross realized gains of
$336,000 and realized losses of $145,000.

(4)  LOANS RECEIVABLE, NET

     Loans receivable, net at September 30 consisted of the following:
<TABLE>
<CAPTION>
                                                                                             1998       1999
                                                                                          --------     -------
                                                                                            (In thousands)
<S>                                                                                       <C>          <C>
         First mortgage loans:
              Single family to 4 family units ........................................    $248,781     248,433
              Other, primarily commercial real estate ................................      95,420     114,931
              Construction loans .....................................................      31,261      46,766
         Consumer and commercial loans:
              Installment consumer loans .............................................      19,489      20,026
              Mobile home loans ......................................................         990       1,166
              Savings account loans ..................................................       1,078       1,521
              Equity lines of credit .................................................      18,655      21,081
              Commercial and other loans .............................................      14,848      22,818
                                                                                          --------     -------
                                                                                           430,522     476,742
         Less:
              Allowance for loan losses ..............................................       5,668       6,430
              Deferred loan fees (costs) .............................................        (702)       (354)
              Undisbursed portion of loans in process ................................      11,292      15,315
                                                                                          --------     -------
                                                                                          $414,264     455,351
                                                                                          ========     =======
</TABLE>
<PAGE>
     The changes in the allowance for loan losses for the years ended  September
30 consisted of the following:

<TABLE>
<CAPTION>
                                                                                1997        1998        1999
                                                                             ---------      -----       -----
                                                                                       (In thousands)
<S>                                                                          <C>             <C>         <C>
         Beginning allowance ...........................................     $   4,172       4,902       5,668
         Provision for loan losses .....................................           760         865         750
         Allowance recorded on acquired loans ..........................           110         109         112
         Loan recoveries ...............................................            72          64         252
         Loan charge-offs ..............................................          (212)       (272)       (352)
                                                                             ---------       -----       -----
                                                                             $   4,902       5,668       6,430
                                                                             =========       =====       =====
</TABLE>

     Non-accrual   loans  which  were  over  ninety  days   delinquent   totaled
approximately  $2.3  million and $1.4  million at  September  30, 1998 and 1999,
respectively.  In fiscal years 1997, 1998 and 1999,  interest income which would
have been recorded would have been approximately  $9,000,  $181,000 and $46,000,
respectively,  had  non-accruing  loans been  current in  accordance  with their
original  terms.  At September 30, 1998 and 1999 and during the years then ended
there are no loans considered to be impaired.

20
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(4)  LOANS RECEIVABLE, NET - Continued

     The carrying  amounts and fair values of loans  receivable at September 30,
1998 and 1999 are as follows (In thousands):
<TABLE>
<CAPTION>
                                                                          1998                    1999
                                                                 ----------------------   ---------------------
                                                                  Carrying    Estimated   Carrying    Estimated
                                                                   Amount    Fair Value    Amount    Fair Value
                                                                 ---------     -------     -------     -------
<S>                                                              <C>           <C>         <C>         <C>
         Mortgage loans ....................................     $ 382,572     393,667     395,169     398,330
         Consumer loans ....................................        10,513      10,587      22,713      23,440
         Equity lines of credit ............................        18,655      18,468      21,081      21,397
         Commercial loans ..................................         8,192       8,280      22,818      23,115
         Allowance for loan losses .........................        (5,668)     (5,668)     (6,430)     (6,430)
                                                                 ---------     -------     -------     -------
                                                                 $ 414,264     425,334     455,351     459,852
                                                                 =========     =======     =======     =======
</TABLE>

     Management  has made  estimates of fair value  discount rates and estimated
prepayment  rates that it believes to be  reasonable  based upon present  market
conditions.  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, 1998 and 1999.  Changes in
market  interest and  prepayment  rates since  September 30, 1998 and 1999 could
have a 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 value
was assigned for these interest rate floors.

     At September 30, 1998 and 1999, the Company had commitments  outstanding to
originate  loans  totaling   approximately   $11.5  million  and  $5.6  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, 1998 and 1999,  the Company  had  undisbursed  lines of credit of
approximately $35.1 million and $31.2 million, respectively.

     Loans serviced for the benefit of others amounted to  approximately  $104.5
million,  $88.0 million and $99.4 million at September 30, 1997,  1998 and 1999,
respectively. Mortgage servicing rights were not material for any of the periods
presented.

     As  disclosed  in note 8,  certain  mortgage  loans are  pledged  to secure
advances from the Federal Home Loan Bank ("FHLB") of Atlanta.
<PAGE>
     The  Bank  offers  mortgage  and  consumer  loans  to  its  directors,  and
Associates for the financing of their personal residences and for other personal
purposes.  The Bank also offers  commercial  loans to companies  affiliated with
directors.  These  loans are made in the  ordinary  course of  business  and, in
management's  opinion,  are  made on  substantially  the same  terms,  including
interest   rates  and   collateral,   prevailing  at  the  time  for  comparable
transactions with other persons and companies. Management does not believe these
loans  involve  more than the normal  risk of  collectibility  or present  other
unfavorable  features.  At  September  30,  1999,  such loans were  current with
respect to their payment terms.

     The following is a summary of the activity of loans  outstanding to certain
executive officers,  directors and their affiliates for the year ended September
30, 1999:
<TABLE>
<CAPTION>

<S>                                                              <C>
         Balance at September 30, 1998 .....................     $     953
         New loans .........................................         3,000
         Repayments ........................................           155
                                                                 ---------
         Balance at September 30, 1999 .....................     $   3,798
                                                                 =========

</TABLE>
                                                                              21

<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>
                                                                               1998          1999
                                                                             ---------      ------
                                                                                 (In thousands)
<S>                                                                          <C>             <C>
         Land ..........................................................     $   2,311       2,870
         Building and improvements .....................................         7,395       8,795
         Furniture, fixtures and equipment .............................         7,398       8,811
                                                                             ---------      ------
                                                                                17,104      20,476

         Less accumulated depreciation .................................         8,103       9,240
                                                                             ---------      ------
                                                                             $   9,001      11,236
                                                                             =========      ======
</TABLE>

     The Company leases office space and various equipment. Total rental expense
for the  years  ended  September  30,  1997,  1998 and  1999  was  approximately
$112,000, $153,000, and $212,000, respectively.

     Future  minimum  rental  payments for  operating  leases  having  remaining
noncancelable  lease  terms in excess of one year at  September  30, 1999 are as
follows (In thousands):
<TABLE>
<CAPTION>
<S>                        <C>                                               <C>
                           2000 ..................................           $     178
                           2001 ..................................                 153
                           2002 ..................................                 128
                           2003 ..................................                  83
                           2004 ..................................                  38
                                                                             ---------
                                                                             $     580
                                                                             =========
</TABLE>

(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
historically 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 $8.2 million at September 30, 1999.
<PAGE>
(7)  DEPOSITS

     Deposits at September 30 consisted of the following:
<TABLE>
<CAPTION>
                                                                         1998                    1999
                                                                  -------------------     -------------------
                                                                             Weighted                Weighted
                                                                   Amount       Rate       Amount       Rate
                                                                  ---------      ----     ---------     ----
                                                                           (Dollars in thousands)
<S>                                                              <C>           <C>       <C>           <C>
        Transaction accounts:
              Noninterest bearing ..........................     $  27,285        --%    $  37,256        --%
              NOW ..........................................        42,434      1.19        50,774      1.16
              Money market checking ........................       124,207      4.47       138,188      4.25
                                                                 ---------      ----     ---------      ----
                  Total transaction accounts ...............       193,926      3.12       226,218      2.85
                                                                  ---------      ----     ---------      ----
        Passbook accounts:
              Regular passbooks ............................        34,652      2.53        37,115      2.67
              Money market .................................         2,590      2.35         2,097      2.22
                                                                 ---------      ----     ---------      ----
                  Total passbook accounts ..................        37,242      2.52        39,212      2.65
                                                                 ---------      ----     ---------      ----
         Certificate accounts:
              0.00 -  5.99% ................................       128,727                 133,651
              6.00 -  8.00% ................................        26,017                     217
              8.00 - 10.00% ................................           409                     375
                                                                  ---------      ----     ---------      ----
                 Total certificate accounts ................      155,153      5.38       134,243      4.94
                                                                 ---------      ----     ---------      ----
                                                                 $ 386,321      3.96%    $ 399,673      3.54%
                                                                 =========      ====     =========      ====

</TABLE>
22
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued


(7)  DEPOSITS - Continued

     The aggregate  amount of deposit  accounts with a minimum  denomination  of
$100,000 or more was $95.5 million and $115.0  million at September 30, 1998 and
1999,  respectively.  Included  in  certificate  accounts  were $5.3  million at
September 30, 1999, originated by brokers for a fee.

     The amounts and scheduled  maturities of certificate  accounts at September
30 are as follows:
<TABLE>
<CAPTION>
                                                                               1998         1999
                                                                            ---------     -------
                                                                                (In thousands)
<S>                                                                          <C>           <C>
                  Within 1 year .........................................    $ 127,206     108,135
                  After 1 but within 2 years ............................       20,943      19,785
                  After 2 but within 3 years ............................        5,001       5,200
                  Thereafter ............................................        2,003       1,123
                                                                             ---------     -------
                                                                             $ 155,153     134,243
                                                                             =========     =======
</TABLE>
     Interest  expense on deposits for the years ended September 30 consisted of
the following:
<TABLE>
<CAPTION>
                                                                   1997         1998       1999
                                                                 ---------      ------      ------
                                                                       (Dollars in thousands)
<S>                                                              <C>             <C>         <C>
                  Transaction accounts ......................    $   4,894       5,756       6,368
                  Passbook accounts .........................        1,015         924         962
                  Certificate accounts ......................        7,741       7,879       7,297
                                                                 ---------      ------      ------
                                                                 $  13,650      14,559      14,627
                                                                 =========      ======      ======
</TABLE>

     The fair value of transaction  and passbook  accounts is $231.2 million and
$265.4 million which was the amount currently  payable at September 30, 1998 and
1999,  respectively.  The fair value of certificate  accounts was $156.0 million
and $133.5 million compared to a book value of $155.2 million and $134.2 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.
<PAGE>
(8)  ADVANCES FROM FHLB

     Advances from the FHLB at September 30 consisted of the following:
<TABLE>
<CAPTION>
                                                                         1998                    1999
                                                                 --------------------    --------------------
                                                                             Weighted                Weighted
                                                                  Amount       Rate       Amount       Rate
                                                                 ---------      ----     ---------     ----
                                                                            (Dollars in thousands)
<S>               <C>                                            <C>            <C>      <C>            <C>
                  Fiscal Year Maturity
                  1999 ......................................    $  28,235      5.74%    $      --        --%
                  2000 ......................................        6,961      6.19        15,461      5.85
                  2001 ......................................       32,146      4.83        38,946      5.56
                  2002 ......................................        4,261      6.62         4,761      6.82
                  2003 ......................................       37,806      5.29        37,357      5.28
                  2004 or greater ...........................       35,500      5.12        67,499      5.00
                                                                 ---------      ----     ---------      ----
                                                                 $ 144,909      5.32%    $ 164,024      5.33%
                                                                 =========      ====     =========      ====
</TABLE>

     Stock  in the  FHLB  of  Atlanta  and  specific  first  mortgage  loans  of
approximately  $231.2 million and $212.1 million at September 30, 1998 and 1999,
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, 1999,  the excess first  mortgage loan  collateral  pledged to the
FHLB will support  additional  borrowings  of  approximately  $7.4  million.  At
September  30,  1999,  included  in the  two,  four and  five  years or  greater
maturities were $101.5 million subject to call  provisions.  Call provisions are
more likely to be exercised by the FHLB when rates rise.

     The  estimated  fair value of the FHLB  advances at September  30, 1998 and
1999 is $145.3 million and $160.9 million. This estimate is based on discounting
amounts  payable at  contractual  rates using current  market rates for advances
with similar maturities.


                                                                              23
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(9)  REPURCHASE AGREEMENTS

     The following  tables set forth certain  information  regarding  repurchase
agreements by the Bank at the end of and during the periods indicated:
<TABLE>
<CAPTION>
                                                                                     At September 30,
                                                                             -------------------------------
                                                                               1997        1998        1999
                                                                             -------     -------     -------
                                                                                  (Dollars in thousands)
 <S>                                                                          <C>         <C>         <C>
        Outstanding balance:
              Securities sold under agreements to repurchase:
                  Customer ..............................................    $ 2,666     $ 4,214     $ 4,848
                  Broker ................................................         --      55,000      92,100

         Weighted  average  rate (at month  end) paid on:
              Securites  sold under agreements to repurchase:
                  Customer ..............................................       3.16%       3.43%       3.37%
                  Broker ................................................         --        5.69        5.53

         Maximum amount of borrowings  outstanding at any month end:
              Securities sold under agreements to repurchase:
                  Customer ..............................................    $ 3,257     $ 4,214     $ 4,848
                  Broker ................................................     37,516      86,250      92,100

         Approximate average  outstanding with respect to:
              Securities sold under agreements to repurchase:
                  Customer ..............................................    $ 2,100     $ 2,989     $ 3,199
                  Broker ................................................     17,200      56,262      67,100

         Weighted  average  rate (year to date) paid on:
              Securities  sold under agreements to repurchase:
                  Customer ..............................................       3.36%       3.61%       3.09%
                  Broker ................................................       5.60        5.68        5.30

</TABLE>
<PAGE>
(10)  INCOME TAXES

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

                                                                              Current    Deferred       Total
                                                                              -------    --------       -----
                                                                                      (In thousands)
<S>                                                                           <C>              <C>       <C>
         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
                                                                               ========         ===       =====
        1999:
                Federal ................................................      $  1,650       2,305       3,955
                State ..................................................           486         (51)        435
                                                                              --------         ---       -----
                                                                              $  2,136       2,254       4,390
                                                                              ========         ===       =====

</TABLE>

24
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(10)  INCOME TAXES - Continued

The tax effect of the  Company's  temporary  differences  between the  financial
statement  carrying  amounts and tax basis of assets and  liabilities  that give
rise to the net deferred tax asset  (liability)  at September  30, 1998 and 1999
relate to the following:
<TABLE>
<CAPTION>

                                                                                            1998        1999
                                                                                         ---------      ------
                                                                                            (In thousands)
<S>                                                                                      <C>             <C>
         Deferred tax assets:
              Allowance for loan losses ..............................................   $   2,140       2,375
              Accrued medical reserves ...............................................         121         124
              Other real estate reserves and deferred gains on other real estate .....          87          86
               Net operating loss carryforwards ......................................         135         134
              Unrealized loss on securities available for sale .......................          --       1,307
              Other ..................................................................         121          40
                                                                                         ---------      ------
         Total deferred tax assets ...................................................       2,604       4,066
         Less valuation allowance ....................................................        (135)       (134)
                                                                                          ---------      ------
         Net deferred tax assets ....................................................        2,469       3,932
                                                                                         ---------      ------
         Deferred tax liabilities:
              Tax bad debt reserve in excess of base year amount ....................          581         484
              Property and equipment principally due to differences in depreciation .          237         202
              FHLB stock, due to stock dividends not recognized for tax purposes ....          356         356
              Unrealized gain on securities available for sale ......................          292          --
              Deferred loan fees ....................................................          335         356
              Book over tax basis in investment in unconsolidated subsidiary ........          309       2,661
              Other .................................................................          260         429
                                                                                         ---------      ------
         Total deferred tax liabilities .............................................        2,370       4,488
                                                                                         ---------      ------
         Net deferred tax asset (liability) .........................................    $      99        (556)
                                                                                         =========      ======
</TABLE>

     The net deferred  tax  liability  is included in other  liabilities  in the
consolidated financial statements.  The valuation allowance relates to the state
loss carryforwards  which may not be ultimately  realized to reduce taxes of the
Company.  A portion  of the  change in the net  deferred  tax asset  relates  to
unrealized  gains and losses on securities  available for sale. A current period
deferred  tax benefit of $1.6  million 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 $2.2  million.  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:
<PAGE>
<TABLE>
<CAPTION>
                                                                   1997         1998       1999
                                                                 ---------       -----       -----
                                                                          (In thousands)
<S>                                                              <C>             <C>         <C>
                  Computed federal income taxes ...............  $   3,108       3,685       4,116
                  State tax, net of federal benefit ...........        247         298         287
                  Other, net ..................................         (4)          4         (13)
                                                                 ---------       -----       -----
                 Total income tax expense .....................  $   3,351       3,987       4,390
                                                                 =========       =====       =====
</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 prior to 1997. As a result of
recent tax  legislation,  the Bank will be  required to  recapture  tax bad debt
reserves in excess of pre-1988 based year amounts over a period of approximately
six to eight years. In addition,  for the period ending  September 30, 1997, the
Bank was required to change its overall tax method of  accounting  for bad debts
to the experience method.

     Retained earnings at September 30, 1999 includes approximately $5.2 million
representing  pre-1988  tax bad debt  base  year  reserve  amounts  for which no
deferred  income tax liability has been  provided  since these  reserves are not
expected to reverse  until  indefinite  future  periods  and may never  reverse.
Circumstances  that  would  require  an  accrual  of a  portion  or all of  this
unrecorded tax liability are a reduction in qualifying  loan levels  relative to
the end of 1987, failure to meet the tax definition of a savings bank,  dividend
payments in excess of current year or accumulated  tax earnings and profits,  or
other  distributions  in  dissolution,  liquidation  or redemption of the Bank's
stock.


25
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(11)  BENEFIT PLANS

     The Company  participates  in a  multiple-employer  defined benefit pension
plan covering  substantially all Associates.  Separate actuarial  valuations are
not available for each participating  employer,  nor are plan assets segregated.
Pension expense for the years ended September 30, 1997, 1998 and 1999 was minor.
Plan assets exceeded the present value of accumulated  plan benefits at June 30,
1999, the latest actuarial valuation date.

     The Company has a defined  contribution  plan  covering  substantially  all
Associates.  The Company matches Associate  contributions based upon the Company
meeting certain return on equity operating results.  Matching contributions made
by the Company  were  approximately  $245,000,  $221,000 and $251,000 for fiscal
years 1997, 1998 and 1999, respectively.

(12)  REGULATORY MATTERS

     At  September  30,  1999,  the  Bank's  loans-to-one   borrower  limit  was
approximately $7.4 million.  The Bank may apply to have this amount increased to
$14.8 million for borrowers who have loans secured by residential collateral. At
September  30,  1999,  the Bank had  applied for this limit  increase  for three
borrowers  with a maximum  aggregate  exposure to the three  borrowers  of $24.6
million.  At  September  30,  1999,  the Bank is in  compliance  with the  core,
tangible and risk-based capital requirements and loans-to-one borrower limits.

     To be categorized as "Well  Capitalized" under the prompt corrective action
regulations  adopted by the Federal Banking  Agencies,  the Bank must maintain a
total  risk-based  capital ratio as set forth in the following  table and not be
subject to a capital directive order.
<TABLE>
<CAPTION>
                                                                                           Categorized as "Well
                                                                                            Capitalized" Under
                                                                           For Capital       Prompt Corrective
                                                        Actual          Adequacy Purposes    Action Provision
                                                   ----------------     -----------------    ----------------
                                                   Amount      Ratio    Amount     Ratio     Amount     Ratio
                                                   ------      -----    ------     -----     ------     -----
<S>                                                <C>       <C>        <C>        <C>       <C>       <C>
         As of September 30, 1999:
              Total Capital: ....................  $49,204   12.64%     $31,131    8.00%     $38,914   10.00%
                (To Risk Weighted Assets)
              Tier 1 Capital: ...................  $44,930   11.55%         N/A       N/A    $23,348    6.00%
                (To Risk Weighted Assets)
              Tier 1 Capital: ...................  $44,930    6.30%     $28,520    4.00%     $35,651    5.00%
                (To Total Assets)
              Tangible Capital: .................  $44,930    6.30%     $10,695    1.50%         N/A       N/A
                (To Total Assets)

         As of September 30, 1998:
              Total Capital: ....................  $43,116   12.67%     $27,215    8.00%     $34,018   10.00%
                (To Risk Weighted Assets)
              Tier 1 Capital: ...................  $38,989   11.46%         N/A       N/A    $20,411    6.00%
                (To Risk Weighted Assets)
              Tier 1 Capital: ...................  $38,989    6.06%     $25,742    4.00%     $32,178    5.00%
                (To Total Assets)
              Tangible Capital: .................  $38,989    6.06%     $ 9,653    1.50%         N/A       N/A
                (To Total Assets)
</TABLE>
<PAGE>
(13)  LIQUIDATION ACCOUNT

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


26
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(13) LIQUIDATION ACCOUNT - Continued

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

(14)  EARNINGS PER SHARE

     The  Company  adopted  the  provisions  of SFAS 128,  "Earnings  per Share"
("EPS"),  in fiscal year 1998. Basic earnings per share are computed by dividing
net income by the weighted-average number of common shares outstanding.  Diluted
earnings per share are  computed by dividing net income by the weighted  average
number of common  shares and  potential  common  shares  outstanding.  Potential
common shares  consist of dilutive stock options  determined  using the treasury
stock  method and the average  market price of common  stock.  All share and per
share data have been retroactively restated for all common stock dividends.

     The  following is a summary of the earnings per share  calculation  for the
years ended September 30:
<TABLE>
<CAPTION>
         (In thousands, except share and per share data)                      1997        1998         1999
         ----------------------------------------------                    ---------   ----------   ----------
<S>                                                                        <C>         <C>          <C>
Basic:
         Net income (numerator) .......................................    $   5,791        6,852        7,715
                                                                           =========   ==========   ==========
         Average common shares outstanding (denominator) ..............    6,538,000    6,600,000    6,700,000
                                                                           =========   ==========   ==========
         Per share amount .............................................    $    0.89   $     1.04   $     1.15
                                                                           =========   ==========   ==========

Diluted:

         Net Income (numerator) .......................................    $   5,791        6,852        7,715
                                                                           =========   ==========   ==========
         Average common shares outstanding ............................    6,538,000    6,600,000    6,700,000
         Dilutive common stock options ................................      290,000      314,000      195,000
                                                                           ---------   ----------   ----------
         Average diluted shares outstanding (denominator) .............    6,828,000    6,914,000    6,895,000
                                                                           =========   ==========   ==========
         Per share amount .............................................    $    0.85   $     0.99   $     1.12
                                                                           =========   ==========   ==========
</TABLE>
(15)  STOCK OPTION PLAN

     The  Company's  stock option plan  provides for stock options to be granted
primarily to directors, officers and other key Associates. Options granted under
the stock  option plan may be incentive  stock  options or  non-incentive  stock
options.  The  remaining  shares of stock  reserved for the stock option plan at
September 30, 1999 amounted to  approximately  83,000  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, 1999,  the Company had the following
options outstanding:
<PAGE>
<TABLE>
<CAPTION>
                                                                             Options
                                                                Options   Available for  Option     Expiration
                           Grant Date (Calendar Year)           Granted     Exercise      Price        Date
                           --------------------------           -------     --------      -----        ----
<S>                        <C>                                   <C>           <C>       <C>           <C>
                           1990 .............................      3,735       100%      $  .76        2000
                           1992 .............................      1,365       100         2.02        2002
                           1994 .............................      8,300       100         6.37        2004
                           1995 .............................    147,500        80         6.94        2005
                           1996 .............................     60,300        60        10.99        2006
                           1997 .............................    172,862        40        15.51        2007
                           1998 .............................    180,283        20        16.74        2008
                           1999 .............................     32,780        --        18.23        2009
</TABLE>

During the years ended  September 30, 1997,  1998 and 1999,  options for 84,663,
65,170,  and 203,825 shares,  at an average exercise price of $2.58,  $4.00, and
$2.10 per share, respectively, were exercised.


                                                                              27
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(15)  STOCK OPTION PLAN - Continued

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting for its plan.  Accordingly,  no compensation cost has been recognized
for its fixed  stock  option  plans.  Had  compensation  cost for the  Company's
stock-based compensation plans been determined consistent with SFAS No. 123, the
Company's  net  income and  earnings  per share  would have been  reduced to the
proforma amounts indicated below (in thousands except per share data):
<TABLE>
<CAPTION>
                                                                  1997          1998        1999
                                                                -------      -------     --------
<S>                                            <C>              <C>         <C>          <C>
                  Net income                   As reported      $ 5,791      $ 6,852     $  7,715
                                               Proforma           5,693        6,516        7,222

                  Diluted earnings per share   As reported      $  0.85      $  0.99     $   1.12
                                               Proforma            0.84         0.94         1.05
</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 1997, 1998 and 1999, respectively: dividend yield
of approximately  1.57%, 1.65% and 2.00%,  expected  volatility of approximately
35%, 30% and 33%, risk-free  interest rate of 6.08%,  4.70% and 5.90%,  expected
lives of 10 years and a vesting period of 5 years.

(16)  COMMON STOCK DIVIDENDS

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

(17)  CASH DIVIDENDS

     On December 18, 1996, and March  26,1997,  the Company  declared  quarterly
cash dividends per share of $.059, respectively. On June 25, 1997, September 24,
1997, December 16, 1997, and March 25, 1998, the Company declared quarterly cash
dividends of $.064, respectively. On June 24, 1998, September 23, 1998, December
16, 1998,  March 24, 1999,  June 30, 1999,  and September 22, 1999,  the Company
declared quarterly cash dividends of $.066, respectively.

(18)  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. Based upon discussions with
its counsel,  the Bank does not expect the results of this action to be material
to its financial results.

28
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued

(19)  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Quarterly  operating data for the years ended September 30 is summarized as
follows (in thousands, except share data):
<TABLE>
<CAPTION>
                                                                First       Second        Third       Fourth
                                                               Quarter      Quarter      Quarter      Quarter
                                                             -----------   ---------    ---------    ---------
<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 income ......................................  $     1,627       1,679        1,762        1,783
           Earnings per common share - diluted ............  $       .24         .24          .25          .26
                                                             ===========   =========    =========    =========

           Weighted average shares outstanding - diluted ..    6,875,000   6,880,000    6,910,000    6,912,000
                                                             ===========   =========    =========    =========
<CAPTION>
                                                                First       Second        Third       Fourth
                                                               Quarter      Quarter      Quarter      Quarter
                                                             -----------   ---------    ---------    ---------
<S>                                                          <C>              <C>          <C>          <C>
         1999:
           Total interest income ..........................  $    11,931      12,452       12,434       12,741
           Total interest expense .........................        6,828       6,692        6,641        6,829
                                                             -----------   ---------    ---------    ---------
           Net interest income ............................        5,103       5,760        5,793        5,912
           Provision for loan losses ......................          185         225          190          150
                                                             -----------   ---------    ---------    ---------
           Net interest income after provision for
              loan losses .................................        4,918       5,535        5,603        5,762
           Other income ...................................        1,482       1,515        1,316        1,260
           General and administrative expenses ............        3,604       3,994        3,775        3,913
                                                             -----------   ---------    ---------    ---------
           Earnings before income taxes ...................        2,796       3,056        3,144        3,109
           Income taxes ...................................        1,006       1,117        1,159        1,107
                                                             -----------   ---------    ---------    ---------
          Net income ......................................  $     1,790       1,939        1,985        2,002
                                                             ===========   =========    =========    =========
          Earnings per common share - diluted .............  $       .26         .28          .29          .29
                                                             ===========   =========    =========    =========
           Weighted average shares outstanding - diluted ..    6,932,000   6,870,000    6,906,000    6,873,000
                                                             ===========   =========    =========    =========
</TABLE>
                                                                              29
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued


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

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


                                              Coastal Financial Corporation
                                                Condensed Balance Sheets
                                               September 30, 1998 and 1999


                                                                                          1998          1999
                                                                                      ----------       ------
<S>                                                                                    <C>              <C>
         Assets
         Cash .....................................................................    $      220           98
         Investment in subsidiaries ...............................................        40,785       43,203
         Deferred tax asset .......................................................            68           78
         Other assets .............................................................            86          114
                                                                                       ----------       ------
                  Total assets ....................................................    $   41,159       43,493
                                                                                       ==========       ======
         Liabilities and Stockholders' Equity
         Accounts payable (principally dividends) .................................           739          687
         Note payable .............................................................         2,569        1,569
         Total stockholders' equity ...............................................        37,851       41,237
                                                                                       ----------       ------
                  Total liabilities and stockholders' equity ......................    $   41,159       43,493
                                                                                       ==========       ======

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                             Coastal Financial Corporation
                                          Condensed Statements of Operations
                                     Years ended September 30, 1997, 1998 and 1999

                                                                             1997         1998         1999
                                                                         ----------      -------       ------
<S>                                                                       <C>              <C>          <C>
         Income:
           Interest income ............................................   $        1           --            6
           Management fees ............................................          108          244          331
           Dividends from subsidiary ..................................        1,850          850        2,793
           Equity in undistributed earnings of subsidiaries ...........        3,969        6,033        4,934
                                                                          ----------      -------       ------
                  Total income ........................................        5,928        7,127        8,064
                                                                          ----------      -------       ------

        Expenses:
           Amortization of organization cost ..........................           16           16           --
           Professional fees ..........................................           40           75           64
           Supplies and printing ......................................           29           11           56
           Other expenses .............................................           66          191          239
           Income tax benefit .........................................          (14)         (18)         (10)
                                                                          ----------      -------       ------

                  Total expenses ......................................          137          275          349
                                                                          ----------      -------       ------

         Net income ...................................................   $    5,791        6,852        7,715
                                                                          ==========        =====        =====

</TABLE>
30
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued


(20) COASTAL FINANCIAL CORPORATION FINANCIAL STATEMENTS (PARENT COMPANY ONLY),
     CONTINUED
<TABLE>
<CAPTION>
                                              Coastal Financial Corporation
                                            Condensed Statement of Cash Flows
                                      Years ended September 30, 1997, 1998 and 1999

                                                                             1997           1998         1999
                                                                           ---------       ------       ------

<S>                                                                        <C>              <C>          <C>
         Operating activities:
           Net income ...................................................  $   5,791        6,852        7,715
           Adjustments to reconcile net income to net cash provided by:
              Equity in undistributed net income of subsidiary ..........     (3,969)      (6,033)      (4,934)
              (Increase) decrease in other assets .......................          3          (87)         (38)
              Increase (decrease) in other liabilities ..................        639         (289)         (52)
                                                                           ---------       ------       ------
                  Total cash  provided by operating activities ..........      2,464          443        2,691
                                                                           ---------       ------       ------

         Financing activities:
           Capital contributions to subsidiary ..........................       (500)      (2,000)          --
           Cash dividend to shareholders ................................     (1,600)      (1,715)      (1,796)
           Proceeds from stock options ..................................        217          323          341
           Proceeds (repayments) from line of credit ....................        500        2,069       (1,000)
           Other financing activities, net ..............................        (18)        (108)        (358)
                                                                           ---------       ------       ------
                  Total cash used  by financing activities ..............     (1,401)      (1,431)      (2,813)
                                                                           ---------       ------       ------

         Net increase (decrease) in cash and cash equivalents ...........      1,063         (988)        (122)

         Cash and cash equivalents at beginning of the year .............        145        1,208          220
                                                                           ---------       ------       ------

         Cash and cash equivalents at end of the year ...................  $   1,208          220           98
                                                                           =========       ======       ======
</TABLE>
<PAGE>
(21)   CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  and  fair  value  of  financial  instruments  as of
September 30, 1998 and 1999 are summarized below:
<TABLE>
<CAPTION>
                                                                       1998                      1999
                                                              ----------------------    ----------------------
                                                              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 ....................     $  15,666       15,666       24,233       24,233
           Investment securities ........................         9,841        9,841        6,063        6,063
           Mortgage-backed securities ...................       170,181      170,181      182,115      182,115
           Loans receivable held for sale ...............        10,486       10,486       16,636       16,636
           Loans receivable, net ........................       414,264      425,334      455,351      459,852
           FHLB stock ...................................         7,266        7,266        8,201        8,201
                                                              ---------      -------      -------      -------
                                                              $ 627,704      638,774      692,599      697,100
                                                              =========      =======      =======      =======

         Financial Liabilities
           Deposits:
              Demand accounts ...........................       231,168      231,168      265,430      265,430
              Certificate accounts ......................       155,153      156,037      134,243      133,438
           Advances from Federal Home Loan Bank .........       144,909      145,298      164,024      160,855
           Securities sold under agreements to repurchase        59,214       59,214       96,948       96,948
           Other borrowings .............................         6,437        6,437        1,569        1,569
                                                              ---------      -------      -------      -------
                                                              $ 596,881      598,154      662,214      658,240
                                                              =========      =======      =======      =======
</TABLE>

                                                                              31
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued


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

     The Company had $52.1 million of off-balance sheet financial commitments as
of September 30, 1999, which are commitments to originate loans, unused consumer
lines of  credit  and  undisbursed  portion  of loans in  process.  Since  these
obligations are based on current market rates, the carrying amount is considered
to be a reasonable estimate of fair value.

     The Bank has entered into two interest rate cap agreements  aggregating $12
million  notional  amount with an interest  rate cap on the 10 year  treasury of
6.40% expiring in February 2001 to protect the value of certain  mortgage-backed
securities.  In  addition,  the  Bank  has  entered  into  interest  rate  floor
agreements  with  correspondent  banks to protect certain  callable  liabilities
negative  effects  in the  event of a  decreasing  rate  environment.  The total
notional  amount of all  interest  rate floor  agreements  is $75  million.  The
agreements  require the  correspondent  banks to pay to the Bank the  difference
between  the floor rate of  interest  and the market  rate of  interest  at each
calendar year end. The agreements are summarized as follows:

     Expiration Date        Notional Amount  Floor Rate         Index
     ---------------        ---------------  ----------         -----
     February 24, 2000       $20 million        5.00%       3 month LIBOR
     July 31, 2000           $10 million        5.00%       3 month LIBOR
     February 26, 2001       $20 million        4.50%       3 month LIBOR
     February 25, 2001       $15 million        4.75%       5 year treasury
     April 16, 2001          $10 million        4.50%       3 month LIBOR

     Any payments  received under the  agreements,  net of premium  amortization
will be treated as an adjustment of interest  expense on borrowings.  The Bank's
exposure to credit risk is limited to the  ability of the  counterparty  to make
potential  future  payments  to the  Bank  that  are  required  pursuant  to the
agreements.  The Bank's exposure to market risk of loss is limited to the amount
of the  unamortized  premium.  At September 30, 1999,  the  unamortized  premium
related to the interest rate agreements amounted to approximately  $35,000 which
approximated the fair value.

     Fair value  estimates  are made 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
<PAGE>
liabilities that are not considered  financial  assets or liabilities  including
deposit franchise value,  loan servicing  portfolio,  real estate,  deferred tax
liabilities,  premises  and  equipment,  and  goodwill.  In  addition,  the  tax
ramifications  related to the realization of the unrealized gains and losses can
have a significant  effect on fair value  estimates and have not been considered
in any of these estimates.

(22)   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, 1999, the outstanding balance was approximately $1.6 million.

(23) SUBSEQUENT EVENTS

     On November 4, 1999,  the Bank entered into a definitive  agreement to sell
its Florence, South Carolina branch office to another financial institution. The
Florence  branch office has total  deposits of  approximately  $23 million.  The
transaction  is expected to be completed  during the first  calendar  quarter of
2000, pending regulatory  approvals and certain other conditions of closing.  On
November  10,  1999,  the  Company  declared  a 5%  stock  dividend  aggregating
approximately 321,000 shares. All share data has been retroactively  restated to
give effect to the common stock dividends.

32
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis

Forward Looking Statements

     This report may contain  certain  "forward-looking  statements"  within the
meaning of Section 27A of the Securities Exchange Act of 1934, as amended,  that
represent 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).  Because
of the risks and uncertainties  inherent in forward looking statements,  readers
are  cautioned  not to place undue  reliance on them,  whether  included in this
report or made elsewhere from time to time by the Company or on its behalf.  The
Company assumes no obligation to update any forward looking statements.

General

     Coastal Financial  Corporation (the "Company") reported $7.7 million in net
income for the year ended  September 30, 1999,  compared to $6.9 million for the
year ended September 30, 1998. Net interest  income  increased $3.1 million as a
result of increased  interest  income of $5.7  million  offset by an increase of
$2.5  million in interest  expense.  Provision  for loan losses  decreased  from
$865,000 for the year ended  September  30, 1998, to $750,000 for the year ended
September 30, 1999. Other income decreased  slightly from $5.9 million in fiscal
1998, to $5.6 million in 1999.  General and  administrative  expenses  increased
$1.7 million, or 12.2%, for fiscal 1999, as compared to fiscal 1998.

     Total assets  increased from $643.6 million at September 30, 1998 to $713.0
million at September  30, 1999,  or 10.8%.  Liquid  assets,  consisting of cash,
interest-bearing  deposits,  and  securities,  increased  from $195.7 million at
September  30, 1998 to $212.4  million at September 30, 1999.  Loans  receivable
increased  9.9% from $414.3  million at September 30, 1998, to $455.4 million at
September 30, 1999. Total loan  originations for fiscal 1999 were $256.4 million
as compared to $205.3 million for fiscal 1998.

     The growth in loans  receivable  and liquid  assets was funded by increased
deposits of $13.4  million,  increased  advances from the Federal Home Loan Bank
("FHLB") of Atlanta of $19.1  million and  increased  repurchase  agreements  of
$37.7  million.  During fiscal 1999,  deposits  increased from $386.3 million at
September  30, 1998, to $399.7  million at September 30, 1999.  During this same
period,  transaction deposits (defined as noninterest bearing checking accounts,
NOW accounts and money market  checking  accounts)  increased  $32.3 million and
certificate  accounts decreased $20.9 million. The Company's continuing strategy
is to  increase  its  reliance  on  core  transaction  deposits  as  opposed  to
certificates of deposits.

     As a result of $7.7 million in net earnings,  less the cash  dividends paid
to stockholders of approximately $1.8 million,  and the net change in unrealized
gain (loss) on securities available for sale, net of income tax of $2.5 million,
stockholders' equity increased from $37.9 million at September 30, 1998 to $41.2
million at September 30, 1999.
<PAGE>
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 FHLB of Atlanta.

     The principal use of cash flows is the origination of loans receivable. The
Company originated loans receivable of $178.5 million, $205.3 million and $256.4
million for the years ended September 30, 1997, 1998 and 1999,  respectively.  A
large portion of these loan  originations  were financed  through loan principal
repayments  which amounted to $109.9 million,  $130.3 million and $156.5 million
for the  years  ended  September  30,  1997,  1998 and  1999,  respectively.  In
addition, the Company has generally sold conforming fixed rate mortgage loans to
correspondent  financial  institutions in the secondary market to finance future
loan  originations.  For the years ended  September 30, 1997, 1998 and 1999, the
Company sold loans amounting to $44.2 million,  $71.7 million and $60.8 million,
respectively.



34
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued

     During 1999,  the Company used deposit  growth to fund its loan growth.  In
fiscal 1999,  deposits  increased  from $386.3 million at September 30, 1998, to
$399.7 million at September 30, 1999. The increase was attributed to transaction
accounts which  increased  approximately  $32.3 million,  and passbook  accounts
which  increased  $2.0  million.  This was offset by a decrease  in  certificate
accounts of $20.9 million.

     At  September  30, 1999,  the Company had  commitments  to  originate  $5.6
million in loans and $31.2 million in unused lines of credit,  which the Company
expects to fund from normal operations.  Traditionally, a significant portion of
the unused lines of credit may never be used by the Customer.

     At September 30, 1999,  the Company had $108.1 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, 1999, the Company had excess collateral pledged
to the FHLB which would  support  additional  FHLB  advance  borrowings  of $7.4
million.  Additionally,  at  September  30,  1999,  the Company  had  repurchase
agreement  lines of credit and  available  collateral  consisting  of investment
securities  and  mortgage-backed  securities of $82.2 million as well as federal
funds lines available of $5.0 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 $44.9 million at September 30, 1999, exceeding the
Bank's  tangible  and core  requirements  by $34.2  million  and $16.3  million,
respectively.  At September 30, 1999,  the Bank's  capital  exceeded its current
risk-based minimum capital requirement by $18.1 million.  The risk-based capital
requirement  may  increase  in the  future.  Also  see  Note 12 of the  Notes to
Consolidated Financial Statements.

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

General

     Net earnings were $7.7 million ($1.12 per diluted share) for the year ended
September  30, 1999,  an increase of 12.6%  compared to $6.9 million  ($0.99 per
diluted  share) for the year ended  September  30,  1998.  Net  interest  income
increased $3.1 million  primarily as a result of an increase in interest  income
of $5.7  million  which was offset by an increase  in  interest  expense of $2.5
million.

Interest Income

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

Interest Expense

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


34
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued

$531.7  million at September 30, 1998, to $619.4  million at September 30, 1999.
The increase in average  interest-bearing  liabilities  is due to an increase in
average deposits of approximately $32.8 million,  FHLB advances of $45.6 million
and reverse repurchase agreements of $8.9 million.

Net Interest Income

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

Provision for Loan Losses

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

Other Income

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

Other Expense

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

Income Taxes

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


                                                                              35
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued


Results of Operations
Comparison of the Years Ended September 30, 1997 and 1998

General

     Net earnings were $6.9 million ($0.99 per diluted share) for the year ended
September  30, 1998 compared to $5.8 million  ($0.85 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.
<PAGE>
     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.

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."


36
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued

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.

Income Taxes

     Income taxes  increased from $3.4 million in fiscal 1997 to $4.0 million in
fiscal 1998 as a result of increased earnings before income taxes.


Non-performing Assets

     Non-performing  assets were $1.5 million at September  30, 1999 compared to
$2.3 million at September  30,  1998.  Loans past due 90 days or more  decreased
from $2.3 million at September  30, 1998, to $1.4 million at September 30, 1999.
Real estate acquired through foreclosure increased from $35,000 at September 30,
1998, to $96,000 at September 30, 1999.

     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 placed
on non-accrual  status.  Typically,  payments received on a non-accrual loan are
applied to the  outstanding  principal or recognized as interest  based upon the
collectability of the loan as determined by management.

Allowance for Loan Losses

     The  Company's  management  evaluates  the  need  to  establish  additional
allowances  against  losses on loans  quarterly.  Such an evaluation  includes a
review of all loans for which full  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.
<PAGE>
     The  Company  established  provisions  for loan  losses for the years ended
September  30,  1997,  1998  and  1999,  of  $760,000,  $865,000  and  $750,000,
respectively. For the years ended September 30, 1997, 1998 and 1999, the Company
had net charge-offs of $140,000, $208,000 and $100,000, respectively. Net charge
offs as a percentage of average  outstanding loans were .04%, .05%, and .02% for
fiscal years ended 1997, 1998 and 1999. During fiscal 1999, the Company received
recoveries of $252,000 (or .06% of average loans outstanding) from loans charged
off in previous  years.  At September 30, 1999, the Company had an allowance for
loan losses of $6.4 million,  which was 1.36% of net loans  compared to 1.33% at
September 30, 1998.

     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 loan losses is
subject to periodic  evaluation  by various  regulatory  authorities  and may be
subject to adjustment upon their examination.


                                                                              37
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued

Interest Rate Risk Disclosure

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

     Net portfolio value  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,
1999.
<TABLE>
<CAPTION>

                                Board Limit        Board Limit         Market Value       Market Value
                                Minimum NPV          Maximum             of Assets      Portfolio Equity         NPV
Change in  Interest  Rates         Ratio         Decline in NPV           9/30/99            9/30/99            Ratio
---------  --------  -----         -----         --------------           -------            -------            -----
<S>                                <C>               <C>               <C>                   <C>                <C>
300 basis  point rise              5.00%             350 BPS           $   670,739           $  49,224          7.34%
200 basis  point rise              6.00%             300 BPS           $   688,238           $  58,398          8.49%
100 basis point rise               6.00%             250 BPS           $   705,045           $  66,442          9.42%
No Change                          6.00%                               $   720,550           $  72,749         10.10%
100 basis point decline            6.00%             250 BPS           $   734,790           $  77,518         10.55%
200 basis point decline            6.00%             300 BPS           $   746,869           $  81,008         10.85%
300 basis point decline            6.00%             350 BPS           $   756,327           $  82,712         10.94%

</TABLE>
The  preceding  table  indicates  that at September  30, 1999, 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,  1999,  the Bank's  estimated  changes in NPV were
within the limits established by the Board of Directors.

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

     The Bank also uses  interest rate  sensitivity  gap analysis to monitor the
relationship between the maturity and repricing of its  interest-earning  assets
and  interest-bearing  liabilities.  Interest rate sensitivity gap is defined as
the  difference  between  the  amount of  interest-earning  assets  maturing  or
<PAGE>
repricing  within a specific  time  period  and the  amount of  interest-bearing
liabilities  maturing  or  repricing  within  the  same  time  period.  A gap is
considered  positive when the amount of  interest-rate-sensitive  assets exceeds
the amount of interest-rate-sensitive liabilities. Generally, during a period of
rising rates, a positive gap would result in an increase in net interest income.
Conversely,  during a period of falling  interest  rates,  a positive  gap would
result in a decrease in net interest income. It is management's goal to maintain
reasonable balance between exposure to interest rate fluctuations and earnings.

Impact of New Accounting Pronouncements

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income" (Statement 130).  Statement 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.   Comparative

38
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued

financial   statements   provided  for  earlier   periods  are  required  to  be
reclassified  to reflect the provisions of this  statement.  The Company adopted
Statement 130 in its fiscal 1999 consolidated financial statements.

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS")  133,  "Accounting  for
Derivative  Instruments and Hedging  Activities."  SFAS 133 changes the previous
accounting definition of a derivative and discusses the appropriateness of hedge
accounting for various forms of hedging  activities.  Under this  standard,  all
derivatives  are  measured  at fair value and  recognized  in the  statement  of
financial position as assets or liabilities.  This standard is effective for all
fiscal  quarters of all fiscal years beginning after June 15, 2000, with earlier
adoption permitted, as amended by SFAS 137.

Management does not expect that this standard will have a significant  effect on
the Company.

Effects of Inflation and Changing Prices

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

Capital Standards and Regulatory Matters

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

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 Senior management members of
the  Company.  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:
<PAGE>
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 of 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  has  currently  completed  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  tested the
third-party  systems by reviewing the results of  transactions of 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.
The  results  of the test  were all  positive.  Other  parties  whose  year 2000
compliance may effect the Company 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


                                                                              39
<PAGE>
   COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis - Continued


indicated their  compliance or intended  compliance.  Where it is possible to do
so, the Company has tested with these  third-parties.  All the test results were
positive. 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 has been
completed.

     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 $200,000, of which $172,000 has been incurred
as of September 30, 1999. 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
employees 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 Bank, 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  primarily  secured by real estate,
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.  The
Company has developed a  contingency  plan for year 2000 in the event there is a
malfunction in any of the critical application  software.  The plan provides for
alternative  methods to  conduct  business  until  application  problems  can be
rectified.  The Company has recognized  that its  commercial  borrowers may also
face risks from year 2000 issues.  The Company has  identified its material loan
relationships and completed year 2000 surveys of those customers to assess their
vulnerability   to  year  2000  problems  and  their  readiness  for  year  2000
compliance.  The Company is continuing to monitor its  commercial  borrowers for
year  2000  risk and  feels  that its  commercial  relationships  do not pose an
inordinate risk at this time.

40
<PAGE>
Independent Auditor's 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,  1998 and 1999,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and comprehensive  income,  and cash flows for each of the
years in the  three-year  period  ended  September  30,  1999.  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, 1998 and 1999,  and the results of its  operations and its cash
flows for each of the years in the three-year  period ended  September 30, 1999,
in conformity with generally accepted accounting principles.

Greenville, South Carolina                        /s/KPMG LLP
October 27, 1999                                  -----------
                                                     KPMG LLP




Board of Directors

Coastal Financial Corporation and Coastal Federal Savings Bank

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
<PAGE>
James P. Creel
President
Creel Corporation

James H. Dusenbury
Attorney
Dusenbury Law Firm
Attorneys at Law

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

Wilson B. Springs
Owner
H. B. Springs Company



Coastal Investor Services, Inc.


G. David Bishop
Chairman
WCI Management Group Inc.

James P. Creel
President
Creel Corporation

James H. Dusenbury
Attorney
Dusenbury Law Firm
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

                                                                              41
<PAGE>
Coastal Federal Savings Bank

Leadership Group

Sherri J. Adams
Personal Banking Leader
North Myrtle Beach

James R. Baker
Assistant Vice President
Systems Engineer

Nancy Baker
Personal Banking Leader
Florence

Jeffrey A. Benjamin
Senior Vice President
Credit Administration Leader

Denise F. Brown
Assistant Vice President
Personal Banking Leader
Surfside

Rebecca L. Brown
Senior Closing Specialist

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

Cynthia L. Buffington
Assistant Vice President
Item Processing Leader

Glenn T. Butler
Vice President
Management Information
Systems Leader

Susan R. Cammons
Residential Banking Leader
Murrells Inlet

Pamela D. Collins
Personal Banking Leader
Dunes

Susan J. Cooke
Vice President
Corporate Support Leader
Corporate Secretary

Phillip P. Cooper
Corporate Services Leader
<PAGE>
Patricia A. Coveno
Personal Banking Leader
Conway

Robert D. Douglas
Senior Vice President
Human Resources Leader

G. Stephen Emswiler
Facilities/Maintenance 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
Community Banking Leader
Carolina Forest/Waccamaw

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

Jimmy R. Graham
Executive Vice President
Information Systems Leader

Richard L. Granger
Vice President
Residential Banking Leader
Florence

Lisa B. James
Assistant Vice President
Deposit Servicing Leader
<PAGE>
Ruth S. Kearns
Senior Vice President
Customer Recognition Officer
Assistant Corporate Secretary

Scott W. Lander
Senior Vice President
Area Leader
North Carolina Region

Edward L. Loehr
Vice President
Budgeting and Treasury

Sandy L. Louden
Personal Banking Leader
Socastee

Kathleen M. Lutes
Senior Loan Underwriter

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

John T. Powell
Assistant Vice President
Community Banking Leader
New Hanover

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

Eulette W. Sauls
Customer Account
Relationship System Leader

Douglas E. Shaffer
Senior Vice President
Area Leader
North/West Regions
<PAGE>
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
Community Banking Leader
Conway/North Conway

Donna P. Todd
Assistant Vice President
Personal Banking Support
Leader

John L. Truelove
Vice President
Community Banking Leader
Surfside, Murrells Inlet,
Socastee

Jerry A. Vereen
Vice President
Community Banking Leader
Oak Street, Dunes

Stephanie L. Vickers, CPA
Vice President
Product Development

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

David E. Williams
Assistant Vice President
Personal Banking Leader
Oak Street


42
<PAGE>
Locations

Coastal Federal Savings Bank
Oak Street Office
2619 Oak Street
Myrtle Beach, SC 29577-3129
843.448.5151

Carolina Forest Office
3894 Renee Drive
Myrtle Beach, SC 29579
(Opening in early 2000)

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

Little River Office
1602 Highway 17
Little River, SC 29566
843.444.1210

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

Wilmington Office
Lending Center
5710 Oleander Drive, Suite 209
Wilmington, NC 28403
910.313.1161

Coastal Investor Services, Inc.

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 W. Elmore
Financial Advisor
Florence Investment Center
843.679.9020

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 A. Hinson
Sales Assistant
Myrtle Beach Investment Center
843.918.7600

Jennifer H. Ivey
Sales Assistant
Myrtle Beach Investment Center
843.918.7600

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

                                                                              43
<PAGE>
Corporate Information

Common Stock and Dividend Information

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

Herzog, Heine, Geduld, Inc. at 1.800.523.4936,

First Union Capital Markets at 1.800.446.1016,

Knights Securities at 212.336.8690,

Sprear, Leeds & Kellogg at 1.800.526.3160,

Edgar M. Norris & Company at 864.235.5991 or

Trident Securities at 1.800.222.2618.

As of November 30, 1999,  the  Corporation  had 965  shareholders  and 6,433,193
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.

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 1999:

   First Quarter                     $21.13       $15.95
   Second Quarter                     19.29        14.29
   Third Quarter                      17.56        12.50
   Fourth Quarter                     16.13        12.03

Fiscal Year 1998:

   First Quarter                      17.50        14.65
   Second Quarter                     17.14        13.84
   Third Quarter                      19.70        15.71
   Fourth Quarter                     19.70        15.84

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, 1999,
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 24, 2000 at 2:00 p.m., Eastern Standard Time.
<PAGE>
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
1.800.866.1340 Ext. 2511

Independent Certified Public Accountants
KPMG LLP
P.O. Box 10529
Greenville, South Carolina 29603

General Counsel
James H. Dusenbury
Dusenbury Law Firm
602 27th Avenue
Myrtle Beach, South Carolina 29577

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

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

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.

44
<PAGE>


                                                   Coastal Financial Corporation


                               1999 Annual Report











    Coastal
  Financial
Corporation

Corporate Office: 2619 Oak Street

                  Myrtle Beach, South Carolina 29577-3129
                 (803) 448-5151