---

UNITED STATESSECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

# Form 10-KSB

|[X] | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ------------------------------------------------------------------------------

| | For the fiscal year ended December 31, 2003
| | -------------------------------------------

| | or
| | --

| | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
| | ----------------------------------------------------------------------------------
| | For the transition period from __________ to ________                             

Commission file no.
333-86371

Coastal Banking Company, Inc.
(Exact name of registrant as specified in its charter)

|South Carolina                    |  | 58-2455444         
|--------------------------------- |  | -------------------
|(State or Other Jurisdiction      |  | (I.R.S. Employer   
|of Incorporation or Organization) |  | Identification No.)

|36 Sea Island Parkway                    |  |           
|---------------------------------------- |  | ----------
|Beaufort, S.C.                           |  | 29901     
|(Address of Principal Executive Offices) |  | (Zip Code)

(843) 522-1228Issuers Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements
for past 90 days.    Yes X   No

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
in this form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

The
issuers revenues (total interest income plus noninterest income) for its most recent
fiscal year was $5,949,097. As of March 26, 2004, 995,695 shares of Common Stock were
issued and outstanding.

The
estimated aggregate market value of the Common Stock held by non-affiliates (shareholders
holding less than 5% of an outstanding class of stock, excluding directors and executive
officers) of the Company on March 26, 2004 is $12,911,918. This calculation is based upon
an estimate of the fair market value of the Common Stock of $17.25 per share, which was
the price of the last trade of which management is aware prior to this date.

Transitional Small Business Disclosure Format.  (Check one):    Yes    No X

# DOCUMENTS INCORPORATED
BY REFERENCE

Portions of the company's 2003 Annual Report   
                      
                          
                         Part III
 Portions of the company's Proxy Statement for the 2004 Annual Meeting of Shareholders    Part II

---

# Item 1. Description of
Business

This
Report contains statements which constitute forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934.
These statements are based on many assumptions and estimates and are not guarantees of
future performance. Our actual results may differ materially from those projected in any
forward-looking statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words may,
would, could, will, expect,
anticipate, believe, intend, plan, and
estimate, as well as similar expressions, are meant to identify such
forward-looking statements. Potential risks and uncertainties include, but are not limited
to:

| | o | significant increases in competitive pressure in the banking and financial services industries;
| | - | -----------------------------------------------------------------------------------------------

| | o | changes in the interest rate environment which could reduce anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| | o | changes in political conditions or the legislative or regulatory environment;
| | - | -----------------------------------------------------------------------------

| | o | general economic conditions, either nationally or regionally and especially in primary
service area, becoming less favorable than expected resulting in, among other things, a
deterioration in credit quality;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| | o | changes in technology;
| | - | ----------------------

| | o | changes in monetary and tax policies;
| | - | -------------------------------------

| | o | the level of allowance for loan loss;
| | - | -------------------------------------

| | o | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| | o | the rates of loan growth;
| | - | -------------------------

| | o | adverse changes in asset quality and resulting credit risk-related losses and expenses;
| | - | ---------------------------------------------------------------------------------------

| | o | loss of consumer confidence and economic disruptions resulting from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

| | o | changes in the securities markets; and
| | - | --------------------------------------

| | o | other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

# General

Coastal
Banking Company, Inc. was incorporated to operate as a bank holding company pursuant to
the Federal Bank Holding Company Act of 1956 and the South Carolina Banking and Branching
Efficiency Act, and to purchase 100% of the issued and outstanding stock of Lowcountry
National Bank, an association organized under the laws of the United States, to conduct a
general banking business in Beaufort County, South Carolina.

In
December 1999, we completed our initial public offering and sold a total of 995,695 shares
of common stock at $9.52 per share (the price per share and number of shares has been
adjusted to reflect a five percent stock dividend effective December 31, 2003). The
offering raised $8,909,624 net of estimated underwriting discounts and commissions. We
used approximately $6,700,000 of the proceeds to capitalize the bank. On May 10, 2000, we
opened the bank. The principal activity of the bank is to provide banking services to
domestic markets, principally in Beaufort County, South Carolina.

# Marketing Focus

2

---

The
bank focuses on the local community, emphasizing personal service to individuals and
businesses in Beaufort County. Our primary service area includes a large portion of
Beaufort County, excluding Hilton Head. Our target market primarily consists of
individuals and small- to medium-sized businesses who desire a consistent and professional
relationship with a local banker. We encourage relationships with individuals and
companies in his area to more effectively market the service of the bank. We offer a
personal banking relationship to our customers that is not available through larger banks.

# Location and Service Area

Our
primary service area consists of the portion of Beaufort County within a 20 mile radius
(specifically excluding Hilton Head Island) of our main office. This area covers a large
portion of Beaufort County, including Beaufort, Bluffton, Burton, Callawassie Island,
Coosaw, Dataw Island, Harbor Island, Hunting Island, Fripp Island, Ladys Island, Port
Royal, Spring Island, St. Helena Island, and the rapidly growing Sun City, which is
expected to contain 8,900 homes upon completion. More particularly, the service area for
deposits for the bank is within a five mile radius of our main office, with the 20 mile
radius primarily utilized for loan generation opportunities.

# Lending Activities

General. We emphasize a range of lending services, including real estate, commercial, and
          consumer loans to individuals and small- to medium-sized businesses and
          professional firms that are located in or conduct a substantial portion of their
          business in the banks market area. We compete for these loans with
          competitors who are well established in the Beaufort County area and have
          greater resources and lending limits. As a result, we may have to charge lower
          interest rates to attract borrowers.

Loan
Approval and Review. The banks loan approval policies provide for various levels
of officer lending authority. When the amount of aggregate loans to a single borrower
exceeds an individual officers lending authority, the loan request will be
considered and approved by an officer with a higher lending limit or the directors
loan committee. Loans in excess of the directors loan committees limits must
be approved by the full board of directors. The bank will not make any loans to any
director, officer, or employee of the bank unless the loan is approved by the board of
directors of the bank and is made on terms not more favorable to such person than would be
available to a person not affiliated with the bank. The bank currently adheres to Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation guidelines in its
mortgage loan review process, but may choose to alter this policy in the future. The bank
currently sells its mortgage loans on the secondary market, but may choose to hold them in
the portfolio in the future.

Lending
Limits. The banks lending activities are subject to a variety of lending limits
imposed by federal law. In general, the bank is subject to a legal limit on loans to a
single borrower equal to 15% of the banks capital and unimpaired surplus. Different
limits may apply in certain circumstances based on the type of loan or the nature of the
borrower, including the borrowers relationship to the bank. These limits will
increase or decrease as the banks capital increases or decreases. Based upon the
banks current capitalization of $8,895,757, the bank has a self-imposed loan limit
of $1,200,927 which represents 90% of our anticipated legal lending limit of $1,334,364.
Unless the bank is able to sell participations in its loans to other financial
institutions, the bank will not be able to meet all of the lending needs of loan customers
requiring aggregate extensions of credit above these limits.

Real
Estate and Mortgage Loans. Loans secured by first or second mortgages on real estate
make up approximately 75% of the banks loan portfolio. These loans generally fall
into one of three categories: commercial real estate loans, construction and development
loans, or residential real estate loans. Each of these categories is discussed in more
detail below, including their specific risks. Home equity loans are not included because
they are classified as consumer loans, which are discussed below. Interest rates for all
categories may be fixed or adjustable, and will more likely be fixed for shorter-term
loans. The bank generally charges an origination fee for each loan.

Real
estate loans are subject to the same general risks as other loans. They are particularly
sensitive to fluctuations in the value of real estate, which is generally the underlying
security for real estate loans. Fluctuations in the value of real estate, as well as other
factors arising after a loan has been made, could negatively affect a borrowers cash
flow, creditworthiness, and ability to repay the loan.

3

---

We
have the ability to originate real estate loans for sale into the secondary market. We can
limit our interest rate and credit risk on these loans by locking the interest rate for
each loan with the secondary investor and receiving the investors underwriting
approval prior to originating the loan.

| | o | Commercial Real Estate Loans. Commercial real estate loans generally have terms of
five years or less, although payments may be structured on a longer amortization basis. We
evaluate each borrower on an individual basis and attempt to determine its business risks
and credit profile. We attempt to reduce credit risk in the commercial real estate
portfolio by emphasizing loans on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does not exceed 80%. We
generally require that debtor cash flow exceed 115% of monthly debt service obligations.
We typically review all of the personal financial statements of the principal owners and
require their personal guarantees. These reviews generally reveal secondary sources of
payment and liquidity to support a loan request.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Construction and Development Real Estate Loans.We offer adjustable and fixed rate
residential and commercial construction loans to builders and developers and to consumers
who wish to build their own home. The term of construction and development loans generally
is limited to eighteen months, although payments may be structured on a longer
amortization basis. Most loans will mature and require payment in full upon the sale of
the property. Construction and development loans generally carry a higher degree of risk
than long term financing of existing properties. Repayment depends on the ultimate
completion of the project and usually on the sale of the property. Specific risks include:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | cost overruns;
| | - | --------------

| | o | mismanaged construction;
| | - | ------------------------

| | o | inferior or improper construction techniques;
| | - | ---------------------------------------------

| | o | economic changes or downturns during
construction;
| | - | --------------------------------------------------

| | o | a downturn in the real estate market;
| | - | -------------------------------------

| | o | rising interest rates which may
prevent sale of the property; and
| | - | -----------------------------------------------------------------

| | oo | failure to sell completed projects in a timely manner.
| | -- | ------------------------------------------------------

We
attempt to reduce risk by obtaining personal guarantees where possible, and by keeping the
loan-to-value ratio of the completed project below specified percentages. We also may
reduce risk by selling participations in larger loans to other institutions when possible.

| | o | Residential Real Estate Loans. Residential real estate loans generally have longer
terms up to 30 years. We offer fixed and adjustable rate mortgages. We have limited credit
risk on these loans as most are sold to third parties soon after closing.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commercial Loans. The bank makes loans for commercial purposes in various lines of
businesses. Commercial loans are generally considered to have greater risk than first or
second mortgages on real estate because they may be unsecured, or if they are secured, the
value of the security may be difficult to assess and more likely to decrease than real
estate.

Equipment
loans typically are made for a term of five years or less at fixed or variable rates, with
the loan fully amortized over the term and secured by the financed equipment and with a
loan-to-value ratio of 80% or less. We focus our efforts on commercial loans less than
$500,000. Working capital loans typically have terms not exceeding one year and usually
are secured by accounts receivable, inventory, or personal guarantees of the principals of
the business. For loans secured by accounts receivable or inventory, principal typically
be repaid as the assets securing the loan are converted into cash, and in other cases
principal typically be due at maturity. Asset based lending, leasing, and factoring are
offered through third party vendors who can handle the paper work and servicing and
generally assume most of the credit risk. Trade letters of credit, standby letters of
credit, and foreign exchange are handled through a correspondent bank as agent for the
bank.

We
offer small business loans utilizing government enhancements such as the Small Business
Administrations 7(a) program and SBAs 504 programs. These loans typically are
partially guaranteed by the government, which may

4

---

help to reduce the bank s risk.
Government guarantees of SBA loans will not exceed 80% of the loan value and will
generally be less.

The
well established banks in the Beaufort County area make proportionately more loans to
medium to large-sized businesses than we do. Many of the banks commercial loans are
made to small- to medium-sized businesses which may be less able to withstand competitive,
economic, and financial conditions than larger borrowers.

Consumer
Loans. The bank makes a variety of loans to individuals for personal and household
purposes, including secured and unsecured installment loans and revolving lines of credit.
Installment loans typically carry balances of less than $50,000 and are amortized over
periods up to 60 months. Consumer loans may be offered on a single maturity basis where a
specific source of repayment is available. Revolving loan products typically require
monthly payments of interest and a portion of the principal. Consumer loans are generally
considered to have greater risk than first or second mortgages on real estate because they
may be unsecured, or if they are secured, the value of the security may be difficult to
assess and more likely to decrease than real estate.

We
also offer home equity loans. Our underwriting criteria for and the risks associated with
home equity loans and lines of credit generally are the same as those for first mortgage
loans. Home equity lines of credit will typically have terms of 15 years or less, will
typically carry balances less than $125,000, and may extend up to 90% of the available
equity of each property.

# Deposit Services

We
offer a full range of deposit services that are typically available in most banks and
savings and loan associations, including checking accounts, commercial accounts, savings
accounts, and other time deposits of various types, ranging from daily money market
accounts to longer-term certificates of deposit. The transaction accounts and time
certificates are tailored to our primary market area at rates competitive to those offered
in the Beaufort County area. In addition, we offer certain retirement account services,
such as IRAs. We solicit these accounts from individuals, businesses, associations,
organizations, and governmental authorities.

# Other Banking Services

The
bank offers other bank services including drive up ATMs, safe deposit boxes,
travelers checks, direct deposit, U.S. Savings Bonds, banking by mail, and internet
banking. The bank is associated with the Plus and Cirrus ATM networks, which may be used
by its customers throughout Beaufort County and other regions. We believe that by being
associated with a shared network of ATMs, we are better able to serve our customers and
attract customers who are accustomed to the convenience of using ATMs. We do not expect
the bank to exercise trust powers during its first few years of operation.

# Market Share

As
of June 30, 2003, total deposits in the banks primary service area were
approximately $1,076,356,000, which represented a 18.15% deposit growth rate from
June 30, 2002. Our plan over the next two years is to grow our deposit base to $145
million. Of course, we cannot be sure that these deposit growth rates will continue, or
that we will accomplish this objective.

# Employees

As
of March 26, 2004, our bank has 25 employees, and our company has no employees other than
its officers, who are also employees of the bank.

5

---

# SUPERVISION AND
REGULATION

Both the company and the bank are
subject to extensive state and federal banking laws and regulations which impose specific
requirements or restrictions on and provide for general regulatory oversight of virtually
all aspects of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. The following summary is qualified by reference to the
statutory and regulatory provisions discussed. Changes in applicable laws or regulations
may have a material effect on our business and prospects. Beginning with the enactment of
the Financial Institution Report Recovery and Enforcement Act in 1989 and following with
the FDIC Improvement Act in 1991, numerous additional regulatory requirements have been
placed on the banking industry in the past several years, and additional changes have been
proposed. Our operations may be affected by legislative changes and the policies of
various regulatory authorities. We cannot predict the effect that fiscal or monetary
policies, economic control, or new federal or state legislation may have on our business
and earnings in the future.

The
following discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on our operations. It is
intended only to briefly summarize some material provisions.

# USA Patriot Act of 2001

In
October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks
in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The
Patriot Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and
financial transparency laws and imposes various regulations, including standards for
verifying client identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying parties
that may be involved in terrorism or money laundering.

# Check 21

On
October 28, 2003, President Bush signed into law the Check Clearing for the 21st Century
Act, also known as Check 21. The new law, which is not effective until October 28, 2004,
gives substitute checks, such as a digital image of a check and copies made
from that image, the same legal standing as the original paper check. Some of the major
provisions include:

| | o | Allows check truncation without making it mandatory;
| | - | ----------------------------------------------------

| | o | Demands that every financial institution communicate to accountholders in writing a
description of its substitute check processing program and their rights under the
law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Legalizes substitutions for and replacements of paper checks without agreement from consumers;
| | - | ----------------------------------------------------------------------------------------------

| | o | Keeps in place the previously mandated electronic collection and return of checks between
financial institutions only when individual agreements are in place;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Cautions that when accountholders request verification, financial institutions must
produce the original check (or a copy that accurately represents the original) and
demonstrate that the account debit was accurate and valid; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Requires recrediting of funds to an individuals account on the next business day
after a consumer proves the financial institution has erred.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

This
new legislation will likely have a dramatic impact on bank capital spending as many
financial institutions assess whether technological or operational changes are necessary
to stay competitive and take advantage of the new opportunities presented by Check 21.

6

---

# Coastal Banking Company

The
company owns the outstanding capital stock of the bank, and therefore it is considered to
be a bank holding company under the federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act.

The
Bank Holding Company Act. Under the Bank Holding Company Act, the company is subject
to periodic examination by the Federal Reserve and required to file periodic reports of
its operations and any additional information that the Federal Reserve may require. Our
activities at the bank and holding company level are limited to:

| | o | banking and managing or controlling banks;
| | - | ------------------------------------------

| | o | furnishing services to or performing services for its subsidiaries; and
| | - | -----------------------------------------------------------------------

| | o | engaging in other activities that the Federal Reserve determines to be so closely related
to banking and managing or controlling banks as to be a proper incident thereto.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments,
Control, and Activities. With certain limited exceptions, the Bank Holding Company Act
requires every bank holding company to obtain the prior approval of the Federal Reserve
before:

| | o | acquiring substantially all the assets of any bank;
| | - | ---------------------------------------------------

| | o | acquiring
direct or indirect ownership or control of any voting shares of any bank if after the
acquisition it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares); or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | merging or consolidating with another bank holding company.
| | - | -----------------------------------------------------------

In
addition, and subject to certain exceptions, the Bank Holding Company Act and the Change
in Bank Control Act, together with regulations thereunder, require Federal Reserve
approval prior to any person or company acquiring control of a bank holding
company. Control is conclusively presumed to exist if an individual or company acquires
25% or more of any class of voting securities of a bank holding company. Control is
rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of any
class of voting securities and either the company has registered securities under Section
12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of
that class of voting securities immediately after the transaction. The companys
common stock is registered under the Securities Exchange Act of 1934. The regulations
provide a procedure for challenge of the rebuttable control presumption.

Under
the Bank Holding Company Act, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in nonbanking activities unless the Federal Reserve Board, by order or
regulation, has found those activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities that the
Federal Reserve Board has determined by regulation to be proper incidents to the business
of a bank holding company include:

| | o | making or servicing loans and certain types of leases;
| | - | ------------------------------------------------------

| | o | engaging in certain insurance and
discount brokerage activities;
| | - | ----------------------------------------------------------------

| | o | performing certain data processing services;
| | - | --------------------------------------------

| | o | acting in
certain circumstances as a fiduciary or investment or financial adviser;
| | - | ----------------------------------------------------------------------------------

| | o | owning savings
associations; and
| | - | --------------------------------

| | o | making investments in certain corporations or projects designed primarily to promote
community welfare.
| | - | -------------------------------------------------------------------------------------------------------

The
Federal Reserve Board imposes certain capital requirements on the company under the Bank
Holding Company Act, including a minimum leverage ratio and a minimum ratio of
qualifying capital to risk-weighted assets. These requirements are described
below under Capital Regulations. Subject to its capital requirements and
certain other restrictions, the company is able to borrow money to make a capital
contribution to the bank, and these loans may be repaid from dividends paid from the bank
to the company. Our ability to pay dividends will be subject to regulatory restrictions as
described below in Lowcountry National Bank  Dividends. The company is
also able to raise capital for contribution to the bank by issuing securities without
having to receive regulatory approval, subject to compliance with federal and state
securities laws.

7

---

Source
of Strength; Cross-Guarantee. In accordance with Federal Reserve Board policy, the
company is expected to act as a source of financial strength to the bank and to commit
resources to support the bank in circumstances in which the company might not otherwise do
so. Under the Bank Holding Company Act, the Federal Reserve Board may require a bank
holding company to terminate any activity or relinquish control of a nonbank subsidiary,
other than a nonbank subsidiary of a bank, upon the Federal Reserve Boards
determination that such activity or control constitutes a serious risk to the financial
soundness or stability of any subsidiary depository institution of the bank holding
company. Further, federal bank regulatory authorities have additional discretion to
require a bank holding company to divest itself of any bank or nonbank subsidiary if the
agency determines that divestiture may aid the depository institutions financial
condition.

The
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, previously known as the Financial
Services Modernization Act of 1999, was signed into law on November 12, 1999. Among other
things, the Act repeals the restrictions on banks affiliating with securities firms
contained in sections 20 and 32 of the Glass-Steagall Act. The Act also permits bank
holding companies that become financial holding companies to engage in a statutorily
provided list of financial activities, including insurance and securities underwriting and
agency activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are complementary to
financial activities.

The
Act is intended, in part, to grant to community banks certain powers as a matter of right
that larger institutions have accumulated on an ad hoc basis. Nevertheless, the Act may
have the result of increasing the amount of competition that we face from larger
institutions and other types of companies. In fact, it is not possible to predict the full
effect that the Act will have on us.

South
Carolina State Regulation. As a bank holding company registered under the South
Carolina Banking and Branching Efficiency Act, we are subject to limitations on sale or
merger and to regulation by the South Carolina Board of Financial Institutions. Prior to
acquiring the capital stock of a national bank, we are not required to obtain the approval
of the Board, but we must notify them at least 15 days prior to doing so. We must receive
the Boards approval prior to engaging in the acquisition of banking or nonbanking
institutions or assets, and we must file periodic reports with respect to our financial
condition and operations, management, and intercompany relationships between the company
and its subsidiaries.

# Lowcountry National Bank

The
bank operates as a national banking association incorporated under the laws of the United
States and subject to examination by the Office of the Comptroller of the Currency.
Deposits in the bank are insured by the FDIC up to a maximum amount, which is generally
$100,000 per depositor subject to aggregation rules.

The
Office of the Comptroller of the Currency and the FDIC regulates or monitors virtually all
areas of the banks operations, including:

| | o | security devices and procedures;
| | - | --------------------------------

| | o | adequacy of capitalization and loss reserves;
| | - | ---------------------------------------------

| | o | loans;
| | - | ------

| | o | investments;
| | - | ------------

| | o | borrowings;
| | - | -----------

| | o | deposits;
| | - | ---------

| | o | mergers;
| | - | --------

| | o | issuances of securities;
| | - | ------------------------

| | o | payment of dividends;
| | - | ---------------------

| | o | interest rates payable on deposits;
| | - | -----------------------------------

| | o | interest rates or fees chargeable on loans;
| | - | -------------------------------------------

| | o | establishment of branches;
| | - | --------------------------

| | o | corporate reorganizations;
| | - | --------------------------

| | o | maintenance of books and records; and
| | - | -------------------------------------

| | o | adequacy of staff training to carry on safe lending and deposit gathering practices.
| | - | ------------------------------------------------------------------------------------

8

---

The
Office of the Comptroller of the Currency requires the bank to maintain specified capital
ratios and imposes limitations on the banks aggregate investment in real estate,
bank premises, and furniture and fixtures. The Office of the Comptroller of the Currency
will also require the bank to prepare quarterly reports on the banks financial
condition and to conduct an annual audit of its financial affairs in compliance with its
minimum standards and procedures.

Under
the FDIC Improvement Act, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of insured
depository institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate. Insured
institutions are required to submit annual reports to the FDIC, their federal regulatory
agency, and their state supervisor when applicable. The FDIC Improvement Act directs the
FDIC to develop a method for insured depository institutions to provide supplemental
disclosure of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. The FDIC Improvement Act also
requires the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding companies
relating, among other things, to the following:

| | o | internal controls;
| | - | ------------------

| | o | information systems and audit systems;
| | - | --------------------------------------

| | o | loan documentation;
| | - | -------------------

| | o | credit underwriting;
| | - | --------------------

| | o | interest rate risk exposure; and
| | - | --------------------------------

| | o | asset quality.
| | - | --------------

National
banks and their holding companies which have been chartered or registered or have
undergone a change in control within the past two years or which have been deemed by the
Office of the Comptroller of the Currency or the Federal Reserve Board to be troubled
institutions must give the Office of the Comptroller of the Currency or the Federal
Reserve Board thirty days prior notice of the appointment of any senior executive
officer or director. Within the 30 day period, the Office of the Comptroller of the
Currency or the Federal Reserve Board, as the case may be, may approve or disapprove any
such appointment.

Deposit
Insurance. The FDIC has adopted a risk-based assessment system for determining an
insured depository institutions insurance assessment rate. The system takes
into account the risks attributable to different categories and concentrations of assets
and liabilities. An institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; or (3) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subgroups, based on the FDICs determination
of the institutions financial condition and the risk posed to the deposit insurance
funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institutions capital group and supervisory subgroup. In addition, the FDIC imposes
assessments to help pay off the $780 million in annual interest payments on the $8 billion
Financing Corporation (FICO) bonds issued in the late 1980s as part of the government
rescue of the thrift industry. Although we pay a quarterly FICO assessment, the FDIC
assessment rate on our bank deposits currently is zero. The FDIC may increase or decrease
the assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate
could have a material adverse effect on our earnings, depending on the amount of the
increase.

Transactions
With Affiliates and Insiders.The bank is subject to the provisions of Section 23A of
the Federal Reserve Act, which places limits on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with, affiliates and on the
amount of advances to third parties collateralized by the securities or obligations of
affiliates. The aggregate of all covered transactions is limited in amount, as to any one
affiliate, to 10% of the banks capital and surplus and, as to all affiliates
combined, to 20% of the banks capital and surplus. Furthermore, within the foregoing
limitations as to amount, each covered transaction must meet specified collateral
requirements. Compliance is also required with certain provisions designed to avoid the
taking of low quality assets.

The
bank is subject to the provisions of Section 23B of the Federal Reserve Act which, among
other things, prohibits an institution from engaging in certain transactions with certain
affiliates unless the transactions are on terms substantially the same, or at least as
favorable to such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies. The bank will be subject to certain
restrictions on extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of

9

---

credit (i) must be made on
substantially the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.

The
Federal Reserve Board has recently issued Regulation W, which codifies prior regulations
under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with
respect to affiliate transactions. Regulation W incorporates the exemption from the
affiliate transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. In addition, under Regulation W:

| | o | a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
| | - | -----------------------------------------------------------------------------------

| | o | covered transactions and other specified transactions between a bank or its subsidiaries
and an affiliate must be on terms and conditions that are consistent with safe and sound
banking practices; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | with some exceptions, each loan or extension of credit by a bank to an affiliate must be
secured by collateral with a market value ranging from 100% to 130%, depending on the type
of collateral, of the amount of the loan or extension of credit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation
W generally excludes all non-bank and non-savings association subsidiaries of banks from
treatment as affiliates, except to the extent that the Federal Reserve Board decides to
treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W,
the Federal Reserve Board has proposed a regulation which would further limit the amount
of loans that could be purchased by a bank from an affiliate to not more than 100% of the
banks capital and surplus. This regulation has not yet been adopted.

Dividends.
          A national bank may not pay dividends from its capital. All dividends must be
          paid out of undivided profits then on hand, after deducting expenses, including
          reserves for losses and bad debts. In addition, a national bank is prohibited
          from declaring a dividend on its shares of common stock until its surplus equals
          its stated capital, unless there has been transferred to surplus no less than
          one-tenth of the banks net profits of the preceding two consecutive
          half-year periods (in the case of an annual dividend). The approval of the
          Office of the Comptroller of the Currency is required if the total of all
          dividends declared by a national bank in any calendar year exceeds the total of
          its net profits for that year combined with its retained net profits for the
          preceding two years, less any required transfers to surplus.

Branching.
          National banks are required by the National Bank Act to adhere to branch office
          banking laws applicable to state banks in the states in which they are located.
          Under current South Carolina law, the bank may open branch offices throughout
          South Carolina with the prior approval of the Office of the Comptroller of the
          Currency. In addition, with prior regulatory approval, the bank will be able to
          acquire existing banking operations in South Carolina. Furthermore, federal
          legislation has been passed which permits interstate branching. The law permits
          out-of-state acquisitions by bank holding companies, interstate branching by
          banks if allowed by state law, and interstate merging by banks.

Community
Reinvestment Act. The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their respective jurisdictions, the Federal
Reserve, the FDIC, or the Office of the Comptroller of the Currency, shall evaluate the
record of each financial institution in meeting the credit needs of its local community,
including low and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility. Failure
to adequately meet these criteria could impose additional requirements and limitations on
the bank.

The
Gramm-Leach-Bliley Act. Under the Gramm-Leach-Bliley Act, subject to certain
conditions imposed by their respective banking regulators, national and state-chartered
banks are permitted to form financial subsidiaries that may conduct financial
or incidental activities, thereby permitting bank subsidiaries to engage in certain
activities that previously were impermissible. The Gramm-Leach-Bliley Act imposes several
safeguards and restrictions on financial subsidiaries, including that the parent
banks equity investment in the financial subsidiary be deducted from the banks
assets and tangible equity for purposes of calculating the banks capital adequacy.
In addition, the Gramm-Leach-Bliley Act imposes new restrictions on transactions between a
bank and its financial subsidiaries similar to restrictions applicable to transactions
between banks and nonbank affiliates.

10

---

The
Gramm-Leach-Bliley Act also contains provisions regarding consumer privacy. These
provisions require financial institutions to disclose their policy for collecting and
protecting confidential information. Customers generally may prevent financial
institutions from sharing personal financial information with nonaffiliated third parties
except for third parties that market an institutions own products and services.
Additionally, financial institutions generally may not disclose consumer account numbers
to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other
marketing to the consumer.

Other
Regulations. Interest and other charges collected or contracted for by the bank are
subject to state usury laws and federal laws concerning interest rates. The banks
loan operations are also subject to federal laws applicable to credit transactions, such
as:

| | o | the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers;
| | - | ----------------------------------------------------------------------------------------------

| | o | the Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable
the public and public officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it serves;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other
                 prohibited factors in extending credit;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit
                 reporting agencies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | o | the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by
                 collection agencies; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | o | the rules and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws.
| | - | ----------------------------------------------------------------------------------------------------------------------------

The deposit operations of Lowcountry
National Bank also are subject to:

| | o | the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that act, which governs automatic deposits to and withdrawals from deposit
accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital
Regulations. The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios in excess of the minimums. We have not received any notice
indicating that either the company or the bank is subject to higher capital requirements.
The current guidelines require all bank holding companies and federally-regulated banks to
maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must
be Tier 1 capital. Tier 1 capital includes common shareholders equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of consolidated
subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance
for loan and lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments,
subordinated debt and intermediate term-preferred stock, and general reserves for loan and
lease losses up to 1.25% of risk-weighted assets.

Under
these guidelines, banks and bank holding companies assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance sheet items are
given credit conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight applies. These computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk category, except for first mortgage loans
fully secured by residential property and, under certain circumstances, residential
construction loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.

11

---

The
federal bank regulatory authorities have also implemented a leverage ratio, which is equal
to Tier 1 capital as a percentage of average total assets less intangibles, to be used as
a supplement to the risk-based guidelines. The principal objective of the leverage ratio
is to place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional cushion
of at least 100 to 200 basis points.

The
FDIC Improvement Act established a new capital-based regulatory scheme designed to promote
early intervention for troubled banks which requires the FDIC to choose the least
expensive resolution of bank failures. The new capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
To qualify as a well capitalized institution, a bank must have a leverage
ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet and maintain a specific capital
level. Initially, we will qualify as well capitalized.

Under
the FDIC Improvement Act regulations, the applicable agency can treat an institution as if
it were in the next lower category if the agency determines (after notice and an
opportunity for hearing) that the institution is in an unsafe or unsound condition or is
engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a
financial institution increases, and the permissible activities of the institution
decreases, as it moves downward through the capital categories. Institutions that fall
into one of the three undercapitalized categories may be required to do some or all of the
following:

| | o | submit a capital restoration plan;
| | - | ----------------------------------

| | o | raise additional capital;
| | - | -------------------------

| | o | restrict their growth, deposit interest rates, and other activities;
| | - | --------------------------------------------------------------------

| | o | improve their
management;
| | - | -------------------------

| | o | eliminate management fees; or
| | - | -----------------------------

| | o | divest themselves of all or a part of their
operations.
| | - | -------------------------------------------------------

A
bank that is not well capitalized is also subject to certain limitations
relating to so-called brokered deposits. Bank holding companies controlling
financial institutions can be called upon to boost the institutions capital and to
partially guarantee the institutions performance under their capital restoration
plans.

These
capital guidelines can affect us in several ways. If we grow at a rapid pace, our capital
may be depleted too quickly, and a capital infusion from the holding company may be
necessary which could impact our ability to pay dividends. Our capital levels currently
are more than adequate; however, rapid growth, poor loan portfolio performance, poor
earnings performance, or a combination of these factors could change our capital position
in a relatively short period of time.

The
FDIC Improvement Act requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest rate risk,
concentration of credit risk, and the risks of untraditional activities. We are uncertain
what effect these regulations would have.

Failure
to meet these capital requirements would mean that a bank would be required to develop and
file a plan with its primary federal banking regulator describing the means and a schedule
for achieving the minimum capital requirements. In addition, such a bank would generally
not receive regulatory approval of any application that requires the consideration of
capital adequacy, such as a branch or merger application, unless the bank could
demonstrate a reasonable plan to meet the capital requirement within a reasonable period
of time.

Enforcement
Powers. The Financial Institution Report Recovery and Enforcement Act expanded and
increased civil and criminal penalties available for use by the federal regulatory
agencies against depository institutions and certain institution-affiliated
parties. Institution-affiliated parties primarily include management, employees, and
agents of a financial institution, as well as independent contractors and consultants such
as attorneys and accountants and others who participate in the conduct of the financial
institutions affairs. These practices can include the failure of an institution to
timely file required reports or the filing of false or misleading information or the
submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a day for
such violations. Criminal penalties for some financial institution crimes have been
increased to 20 years. In addition, regulators are provided with greater

12

---

flexibility to
commence enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance. Furthermore,
banking agencies power to issue cease-and-desist orders were expanded. Such orders
may, among other things, require affirmative action to correct any harm resulting from a
violation or practice, including restitution, reimbursement, indemnification or guarantees
against loss. A financial institution may also be ordered to restrict its growth, dispose
of certain assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.

Effect
of Governmental Monetary Policies. Our earnings are affected by domestic economic
conditions and the monetary and fiscal policies of the United States government and its
agencies. The Federal Reserve Banks monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to curb
inflation or combat a recession. The monetary policies of the Federal Reserve Board have
major effects upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its regulation of the
discount rate on borrowings of member banks and the reserve requirements against member
bank deposits. It is not possible to predict the nature or impact of future changes in
monetary and fiscal policies.

# Item 2. Description of
Property.

The
bank is located at 36 Sea Island Parkway in Beaufort, South Carolina. We own our 5,800
square foot main office building located on 2.33 acres of land.

On
April 27, 2001, we purchased an additional 1.52 acres property for $400,000 which is
located at Hwy 170, Bluffton, SC in the Okatie Office Center, on which we plan to
construct a future branch location. At this time, we have not decided when we will
commence construction of this proposed branch office.

During
2002, we successfully established a loan production office to service the Bluffton Market
area. Based on the success of the establishment of the loan production office, we decided
to move forward with a full service branch to serve this market. We decided that leasing a
branch facility was in the banks best interest as opposed to constructing our own
building. To that end, we entered into a lease to open our first branch at Moss Creek
Village, Bluffton, SC. The Moss Creek office became fully operational during the second
quarter of 2003.

# Item 3. Legal
Proceedings.

None.

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

No
matter was submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.

# Item 5. Market for
Common Equity and Related Stockholder Matters.

In
response to this Item, the information contained on page 39 of the companys annual
report to shareholders for the year end December 31, 2003 incorporated herein by
reference.

To
date, we have not paid cash dividends on our common stock. We currently intend to retain
earnings to support operations and finance expansion and therefore do not anticipate
paying cash dividends in the foreseeable future. All of our outstanding shares of common
stock are entitled to share equally in dividends from funds legally available when, and
if, declared by the board of directors.

13

---

# Item 6.
Managements Discussion and Analysis of Financial Condition and Results of Operations.

In
response to this Item, the information contained on pages 5 through 17 of the
companys annual report to shareholders for the year end December 31, 2003
incorporated herein by reference.

# Item 7. Financial
Statements.

In
response to this Item, the information contained on pages 18 through 38 of the
companys annual report to shareholders for the year end December 31, 2003
incorporated herein by reference.

# Item 8. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

On
March 20, 2002, we dismissed and replaced the firm of Tourville, Simpson & Caskey,
L.L.P., with Elliot Davis, LLC as our auditors effective as of that date. The decision to
change accountants was approved by the audit committee and the board of directors of our
company.

The
reports of Tourville, Simpson & Caskey on the companys financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope, or accounting
principles.

In
connection with the audits of the companys financial statements for the fiscal year
ended December 31, 2001 and in the subsequent interim period, there were no disagreements
with Tourville, Simpson & Caskey on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Tourville, Simpson & Caskey, would have caused Tourville, Simpson
& Caskey to make reference to the matter in their report. During the fiscal year ended
December 31, 2001 and in the subsequent interim period, there were no reportable
events to describe as specified in Item 304(a)(1)(iv)(B) of Regulation S-B.

On
March 20, 2002, the company engaged Elliott Davis, LLC as its independent auditors for the
fiscal year ending December 31, 2002, to audit the companys financial statements.
During the companys most recent fiscal year and the subsequent interim period
preceding the engagement of Elliott Davis, LLC, we did not consult Elliott Davis, LLC on
any matter requiring disclosure under Item 304(a)(2) of Regulation S-B.

# Item 8A. Controls and
Procedures.

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of December 31, 2003.

The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

# Item 9. Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act.

In
response to this Item, the information is contained in our Proxy Statement for the Annual
Meeting of Shareholders to be held on May 20, 2004 incorporated herein by reference.

# Item 10. Executive
Compensation.

In
response to this Item, the information is contained in our Proxy Statement for the Annual
Meeting of Shareholders to be held on May 20, 2004 incorporated herein by reference.

14

---

# Item 11. Security
Ownership of Certain Beneficial Owners and Management.

In
response to this Item, additional information is contained in our Proxy Statement for the
Annual Meeting of Shareholders to be held on May 20, 2004 incorporated herein by
reference.

The
following table sets forth equity compensation plan information at December 31, 2003. All
per share amounts and number of shares outstanding have been adjusted to reflect a five
percent stock dividend effective December 31, 2003.

Equity Compensation Plan Information

|                      |  |  | Number of securities
|--------------------- |  |  | --------------------
|
|
|
|
|
|Equity compensation   |  |  |                     
|plans approved by     |  | 
|security holders(1)   |  | 
|Equity compensation   |  |  |                     
|plans not approved by |  | 
|security holders and  |  | 
|Organizer warrants(2) |  | 
|Total                 |  |  |                     

| | (1) | The number of shares of common stock available under the 2000 Coastal Banking
               Company Stock Incentive Plan is currently 149,354, and it will automatically
               increase each time we issue additional shares so that it continues to equal 15%
               of our total outstanding shares.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | In connection with our initial public offering in 1999, we issued 212,000
               (adjusted for stock dividends) warrants to our organizing directors at an
               exercise price of $9.52 per share with a term of 10 years, and we issued an
               option to one of our consultants for 10,500 shares at $9.52 per share. During
               2003, 17,500 of these warrants expired related to one former director. See our
               description of Stock Warrants below.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Stock Warrants

Each
of our organizers has received, for no additional consideration, a warrant to purchase one
share of common stock for $9.52 per share for each share purchased during our initial
public offering. The warrants are represented by separate warrant agreements. One third of
the warrants vest on each of the first three anniversaries of the date our bank opened for
business, and they are exercisable in whole or in part during the ten year period
following that date. The warrants may not be assigned, transferred, pledged, or
hypothecated in any way. The shares issued pursuant to the exercise of such warrants are
transferable, subject to compliance with applicable securities laws. If the OCC or the
FDIC issues a capital directive or other order requiring the bank to obtain additional
capital, the warrants will be forfeited, if not immediately exercised.

# Item 12. Certain
Relationships and Related Transactions.

In
response to this Item, the information is contained in our Proxy Statement for the Annual
Meeting of Shareholders to be held on May 20, 2004 incorporated herein by reference.

15

---

# Item 13.Exhibits, List
and Reports on Form 8-K.

| | (a) | The following documents are filed as part of this report:
| | --- | ---------------------------------------------------------

| | 3.1. | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
               Registration Statement on Form SB-2, File No. 333-86371).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2. | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Registration
         Statement on Form SB-2, File No. 333-86371).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 | Bylaws (incorporated by reference to Exhibit 3.3 of the Registration Statement
               on Form SB-2, File No. 333-86371).
| | --- | --------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | See Exhibits 3.1, 3.2, and 3.3 for provisions in the companys Articles of
               Incorporation and Bylaws defining the rights of holders of the common
               stock (incorporated by reference to Exhibits 3.1 and 3.2 of the Registration
               Statement on Form SB-2, File No. 333-86371).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
               the Registration Statement on Form SB-2, File No. 333-86371).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5.1 | Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of the
               Registration Statement on Form SB-2, File No. 333-86371).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Employment Agreement dated August 12, 1999 between the company and Randolph Kohn
(incorporated by reference to Exhibit 10.1 of the Registration Statement on Form SB-2,
File No. 333-86371).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Form of Stock Warrant Agreement (incorporated by reference to Exhibit 10.8 of the Registration Statement on Form
         SB-2, File No. 333-86371).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Coastal Banking Company, Inc. 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 of the
         Form 10-KSB for the period ended December 31, 2002, File No. 333-86371).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Lease Agreement between Lowcountry National Bank and Bright OHare Moss Creek
Partnership, dated January 14, 2003 (incorporated by reference to Exhibit 10.7 of the Form
10-KSB for the period ended December 31, 2002, File No. 333-86371).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13.1. | Companys 2003
Annual Report
| | ----- | ----------------------------

| | 21 | Subsidiaries of the
Company
| | -- | ---------------------------

| | 24 | Power of Attorney (contained as part of the signature pages herewith).
| | -- | ----------------------------------------------------------------------

| | 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------

| | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------

| | 32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)      Reports on Form 8-K
               The
following reports were filed on Form 8-K during the fourth quarter ended December 31,
2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------



| | 99.1 | On October 17, 2003, Coastal Banking Company, Inc., holding company for Lowcountry National Bank,
         issued a press release announcing its financial results for the third quarter ended September 30, 2003.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 14 Principal
Accountant Fees and Services

In
response to this Item, the information is contained in our Proxy Statement for the Annual
Meeting of Shareholders to be held on May 20, 2004 incorporated herein by reference.

16

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act), the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

COASTAL BANKING COMPANY, INC.

Date:  March 26, 2004               
                  
               
                    By: /s/ Randolph C. Kohn
               
                  
                 
                       
                  
           President and Chief Executive Officer

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Randolph C. Kohn, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to this Annual Report on Form 10-KSB, and
to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In
accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.

|/s/ Marjorie Trask Gray
Marjorie Trask Gray, DMD | Director | March 26, 2004
|------------------------------------------------ | -------- | --------------

|/s/ Dennis O. Green
Dennis O. Green, CPA | Director, Vice-Chairman of the Board | March 26, 2004
|---------------------------------------- | ------------------------------------ | --------------

|/s/ Mark B. Heles
Mark B. Heles | Director | March 26, 2004
|------------------------------- | -------- | --------------

|/s/ James W. Holden
James W. Holden, Jr. DVM | Director | March 26, 2004
|-------------------------------------------- | -------- | --------------

|/s/ Ladson F. Howell
Ladson F. Howell | DirectorChairman of the Board | March 26, 2004
|------------------------------------- | ----------------------------- | --------------

|/s/ James C. Key
James C. Key | Director | March 26, 2004
|----------------------------- | -------- | --------------

|/s/ Randolph C. Kohn
Randolph C. Kohn | DirectorPresident andChief Executive Officer | March 26, 2004
|------------------------------------- | -------------------------------------------- | --------------

|/s/ Ron Lewis
/s/ Ron Lewis | Director | March 26, 2004
|--------------------------- | -------- | --------------

17

---

|/s/ Charlie T. Lovering
Charlie T. Lovering | Executive Vice President& Chief Financial Officer | March 26, 2004
|------------------------------------------- | ------------------------------------------------- | --------------

|/s/ Lila N. Meeks
Lila N. Meeks | Director | March 26, 2004
|------------------------------- | -------- | --------------

|/s/ Robert B. Pinkerton
Robert B. Pinkerton | Director | March 26, 2004
|------------------------------------------- | -------- | --------------

|/s/ John M. Trask, III
/s/ John M. Trask, III | Director | March 26, 2004
|--------------------------------------------- | -------- | --------------

|/s/ Matt A. Trumps
Matt A. Trumps | Director | March 26, 2004
|--------------------------------- | -------- | --------------

18

---

# Item 13.  Exhibits, List
and Reports on Form 8-K.

| | 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the
               Registration Statement on Form SB-2, File No. 333-86371).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Registration
         Statement on Form SB-2, File No. 333-86371).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 | Bylaws (incorporated by reference to Exhibit 3.3 of the Registration Statement
               on Form SB-2, File No. 333-86371).
| | --- | --------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | See Exhibits 3.1, 3.2, and 3.3 for provisions in the companys Articles of
               Incorporation and Bylaws defining the rights of holders of the common
               stock (incorporated by reference to Exhibits 3.1 and 3.2 of the Registration
               Statement on Form SB-2, File No. 333-86371).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | Form of certificate of common stock (incorporated by reference to Exhibit 4.2 of
               the Registration Statement on Form SB-2, File No. 333-86371).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5.1 | Opinion Regarding Legality (incorporated by reference to Exhibit 5.1 of the
               Registration Statement on Form SB-2, File No. 333-86371).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Employment Agreement dated August 12, 1999 between the company and Randolph Kohn
(incorporated by reference to Exhibit 10.1 of the Registration Statement on Form SB-2,
File No. 333-86371).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Form of Stock Warrant Agreement (incorporated by reference to Exhibit 10.8 of the Registration Statement on Form
         SB-2, File No. 333-86371).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Coastal Banking Company, Inc. 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 of the
         Form 10-KSB for the period ended December 31, 2002, File No. 333-86371).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Lease Agreement between Lowcountry National Bank and Bright OHare Moss Creek
Partnership, dated January 14, 2003 (incorporated by reference to Exhibit 10.7 of the Form
10-KSB for the period ended December 31, 2002, File No. 333-86371).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13.1. | Companys 2003
Annual Report
| | ----- | ----------------------------

| | 21 | Subsidiaries of the
Company
| | -- | ---------------------------

| | 24 | Power of Attorney (contained as part of the signature pages herewith).
| | -- | ----------------------------------------------------------------------

| | 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------

| | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------

| | 32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided
by applicable rules of the Securities and Exchange Commission.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19