UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------------

FORM 10-Q

( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended December 31, 1997

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission File Number: 0-19684

COASTAL FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)

State of Delaware 57-0925911
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

2619 N. OAK STREET, MYRTLE BEACH, S. C. 29577
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (803) 448-5151

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES [ X ] NO [ ]

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of (December 31, 1997).

Common Stock $.01 Par Value Per Share 4,674,325 Shares
- --------------------------------------------------------------------------------
(Class) (Outstanding)

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997

TABLE OF CONTENTS

PART I- Consolidated Financial Information

Item
1. Consolidated Financial Statements (unaudited):

Consolidated Statements of Financial Condition
as of September 30, 1997 and December 31, 1997

Consolidated Statements of Operations for the three
months ended December 31, 1996 and 1997

Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1997

Consolidated Statements of Stockholders' Equity

Notes to Consolidated Financial Statements

2. Management's Discussion and Analysis of
Financial Condition and Results of Operations

3. Quantitative and Qualitative Disclosures about
Market Risk

Part II - Other Information

Item
1. Legal Proceedings

2. Changes in Securities and use of proceeds

3. Default Upon Senior Securities

4. Submission of Matters to a Vote of Securities Holders

5. Other information

6. Exhibits and Reports on Form 8-K

Signatures

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

September 30, December 31,
1997 1997
--------- ---------
(Unaudited)
(Dollars in thousands)

ASSETS:
Cash & amounts due from banks ..................... $ 12,852 $ 18,397
Short-term interest-bearing deposits .............. 559 2,175
Investment securities available for sale .......... 26,171 30,915
Mortgage-backed securities available for sale ..... 23,023 72,982
Loans receivable (net of allowance for
loan losses of $4,902 at September 30,
1997 and $5,072 at December 31, 1997) .......... 403,570 411,519
Loans receivable held for sale .................... 8,359 6,806
Real estate acquired through foreclosure .......... 250 254
Office property and equipment, net ................ 7,561 7,864
Federal Home Loan Bank stock, at cost ............. 5,618 6,518
Accrued interest receivable on loans .............. 2,814 2,674
Accrued interest receivable on investments ........ 452 809
Other assets and deferred charges ................. 2,774 2,953
--------- ---------
$ 494,003 $ 563,866
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits .......................................... $ 347,116 $ 343,748
Securities sold under agreements to
repurchase ..................................... 2,666 45,496
Advances from Federal Home Loan Bank .............. 101,478 130,358
Other borrowings .................................. 2,193 2,665
Drafts outstanding ................................ 1,018 1,265
Advances by borrowers for property taxes
and insurance ................................... 1,409 495
Accrued interest payable .......................... 952 1,071
Other liabilities ................................. 4,780 5,080
--------- ---------
Total liabilities ............................... 461,612 530,178
--------- ---------

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)

September 30, December 31,
1997 1997
--------- ---------
(Unaudited)
(Dollars in thousands)

STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
authorized and unissued ........................ -- --
Common stock, $.01 par value, 5,000,000
shares authorized; 4,646,534 shares at
September 30, 1997 and 4,674,325 shares
at December 31, 1997 issued and outstanding .... 46 46
Additional paid-in capital ........................ 8,698 8,730
Retained earnings ................................. 23,402 24,453
Treasury stock, at cost (9,760 shares) ............ (182) --
Unrealized gain on securities available
for sale, net of income taxes ................... 427 459
--------- ---------
Total stockholders' equity ...................... 32,391 33,688
--------- ---------
$ 494,003 $ 563,866
========= =========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

1996 1997
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)

Interest income:
Loans receivable ............................ $ 8,121 $ 8,977
Investment securities ........................ 289 468
Mortgage-backed securities .................. 488 652
Other ....................................... 99 80
----------- -----------
Total interest income ....................... 8,997 10,177
----------- -----------

Interest expense:
Deposits .................................... 3,342 3,602
Securities sold under agreement to
repurchase ................................ 25 333
Advances from Federal Home Loan Bank ........ 1,352 1,476
Other borrowings ............................ 91 36
----------- -----------
Total interest expense ....................... 4,810 5,447
----------- -----------
Net interest income ......................... 4,187 4,730
Provision for loan losses ...................... 230 190
----------- -----------
Net interest income after provision
for loan losses ........................... 3,957 4,540
----------- -----------
Other income:
Fees and service charges .................... 426 483
Loss from real estate owned ................. (55) (20)
Income from real estate held for investment . 327 218
Gain on sale of loans receivable, net ....... 228 357
Gain on sale of securities available for sale 18 16
Other income ................................ 419 461
----------- -----------
1,363 1,515
----------- -----------
General and administrative expenses:
Salaries and employee benefits .............. 1,688 1,884
Net occupancy, furniture and fixtures
and data processing expense ............... 760 789
FDIC insurance premium ...................... 129 52
Other expenses .............................. 731 753
----------- -----------
3,308 3,478
----------- -----------

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

1996 1997
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)

Earnings before income taxes ................... 2,012 2,577

Income taxes ................................... 734 950
----------- -----------

Net income ..................................... $ 1,278 $ 1,627
=========== ===========

Earnings per common share
Basic ........................................ $ .28 $ .35
=========== ===========
Diluted ...................................... $ .26 $ .33
=========== ===========

Common Shares Outstanding ...................... 4,603,000 4,674,000
=========== ===========

Weighted average common equivalent
shares outstanding ........................... 4,841,000 4,911,000
=========== ===========

Dividends per share ............................ $ .0825 $ .09
=========== ===========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

1996 1997
-------- --------
(Unaudited)
(In thousands)

Cash flows from operating activities:
Net earnings ................................. $ 1,278 $ 1,627
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Income from real estate
held for investment .................... (327) (218)
Depreciation ............................ 213 239
Provision for loan losses ............... 230 190
Origination of loans receivable
held for sale ......................... (10,904) (12,661)
Proceeds from sales of loans receivable
held for sale ......................... 11,647 14,214
(Increase) decrease in:
Other assets and deferred charges ........ (82) (179)
Accrued interest receivable .............. (24) (217)
Increase (decrease) in:
Accrued interest payable ................. (27) 119
Other liabilities ......................... (746) 300
-------- --------

Net cash provided by
operating activities .............. 1,258 3,414
-------- --------
Cash flows from investing activities:
Purchases of investment securities
available for sale ...................... (1,502) (8,808)
Proceeds from sales of investment
securities available for sale ........... -- 1,000
Proceeds from maturities of investment
securities available for sale ............ 4,356 3,113
Purchases of mortgage-backed securities
available for sale ...................... (2,411) (58,306)
Proceeds from sales of mortgage-backed
securities available for sale ........... -- 7,151
Origination of loans receivable, net ......... (32,145) (50,946)
Purchase of loans receivable ................. -- (2,068)
Principal collected on loans receivable
and mortgage-backed securities, net ..... 28,050 46,088
Proceeds from sale of real estate
acquired through foreclosure, net ....... 65 4
Purchases of office properties and
equipment ................................ (343) (542)
Purchases (sales)of FHLB stock, net .......... 683 (900)
Other investing activities, net .............. 51 --
-------- --------

Net cash used in
investing activities .............. (3,196) (64,214)
-------- --------

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (CONTINUED)

1996 1997
-------- --------
(Unaudited)
(In thousands)

Cash flows from financing activities:
Increase (decrease) in deposits, net .... $ 8,618 $ (3,368)
Increase (decrease) in securities sold
under agreement to repurchase, net ..... (618) 42,830
Proceeds from FHLB advances ............. 21,000 82,080
Repayment of FHLB advances .............. (34,650) (53,200)
Proceeds from other borrowings .......... 1,587 472
Decrease in advance payments by borrowers
for property taxes and insurance ..... (1,005) (914)
Decrease in drafts outstanding, net ..... (1,163) 247
Dividend to stockholders ................ (380) (416)
Other financing activities, net ......... 1,129 230
-------- --------
Net cash (used in) provided by .......... (5,482) 67,961
-------- --------
financing activities

Net increase (decrease)
in cash and cash equivalents ........... (7,420) 7,161
-------- --------
Cash and cash equivalents at beginning
of the period ........................... 20,861 13,411
-------- --------
Cash and cash equivalents at end
of the period ........................... $ 13,441 $ 20,572
======== ========

Supplemental information:
Interest paid ........................... $ 4,837 $ 10,058
======== ========

Income taxes paid ....................... $ 20 $ 216
======== ========

Supplemental schedule of non-cash investing
and financing transactions:
Transfer of mortgage loans to real estate
acquired through foreclosure ......... $ -- $ 8
======== ========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Additional Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Other Equity
-------- -------- -------- -------- -------- --------
(Unaudited)
(In thousands)

Balance at September
30, 1996 .............. $ 46 $ 8,698 $ 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)
Unrealized gain on
securities available
for sale, net of
income taxes .......... -- -- -- -- 320 320
Net income .............. -- -- 5,791 -- -- 5,791
-------- -------- -------- -------- -------- --------
Balance at September
30, 1997 .............. $ 46 $ 8,698 $ 23,402 $ (182) $ 427 $ 32,391
Exercise of stock
options ............... -- 32 (160) 182 -- 54
Cash dividends .......... -- -- (416) -- -- (416)
Change in unrealized gain
on securities available
for sale, net of
income taxes .......... -- -- -- -- 32 32
Net income .............. -- -- 1,627 -- -- 1,627
-------- -------- -------- -------- -------- --------

Balance at December
31, 1997 ............. $ 46 $ 8,730 $ 24,453 $ -- $ 459 $ 33,688
======== ======== ======== ======== ======== ========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, cash flows and changes in stockholders' equity in
conformity with generally accepted accounting principles. All adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair presentation of the interim financial statements, have
been included. The results of operations for the three month period ended
December 31, 1997 are not necessarily indicative of the results which may be
expected for the entire fiscal year. These consolidated financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and related notes for the year ended September 30, 1997, included in
the Company's 1997 Annual Report to Stockholders. The principal business of the
Company is conducted by its wholly-owned subsidiary, Coastal Federal Savings
Bank ("the Bank"). The information presented hereon, therefore, relates
primarily to the Bank.

(2) LOANS RECEIVABLE, NET

Loans receivable, net consist of the following:

September 30, December 31,
1997 1997
(Unaudited)
(In thousands)

First mortgage loans:
Single family to 4 family units ............. $ 237,964 $ 250,755
Other, primarily commercial
real estate ................................ 97,680 94,292
Construction loans .......................... 34,216 30,624
Consumer and commercial loans:
Installment consumer loans .................. 24,378 23,090
Mobile home loans ........................... 1,291 1,220
Deposit account loans ....................... 1,336 1,387
Equity lines of credit ...................... 15,294 16,219
Commercial and other loans .................. 10,939 10,745
--------- ---------
423,098 428,332
Less:
Allowance for loan losses ................... 4,902 5,072
Deferred loan fees (costs) .................. (458) (564)
Undisbursed portion of loans in process ..... 15,084 12,305
--------- ---------
$ 403,570 $ 411,519
========= =========

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The changes in the allowance for loan losses consist of the following for the
three months ended:

December 31,
--------------------------
1996 1997
------- -------
(Unaudited)
(In thousands)

Beginning allowances ..................... $ 4,172 $ 4,902
Provision for loan losses ................ 230 190
Allowance on acquired loans .............. -- 29
Loan recoveries .......................... 29 2
Loan charge-offs ......................... (54) (51)
------- -------

Ending allowance ......................... $ 4,377 $ 5,072
======= =======

(3) DEPOSITS

Deposits consist of the following:

September 30, 1997 December 31, 1997
---------------------- ---------------------
Weighted Weighted
Amount Rate Amount Rate
-------- ---- -------- ----
(Unaudited)
(In thousands)

Transaction accounts ....... $167,014 3.10% $170,815 3.34%
Passbook accounts .......... 39,445 2.62 36,904 2.51
Certificate accounts ....... 140,657 5.58 136,029 5.66
-------- ---- -------- ----
$347,116 4.02% $343,748 4.17%
======== ==== ======== ====

(4) ADVANCES FROM FEDERAL HOME LOAN BANK

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Advances from Federal Home Loan Bank ("FHLB") consist of the following:

September 30, 1997 December 31, 1997
---------------------- ---------------------
Weighted Weighted
Amount Rate Amount Rate
-------- ---- -------- ----
(Unaudited)
(In thousands)
Maturing within:

1 year ..................... $ 23,620 6.15 % $ 28,484 6.32%
2 years .................... 28,435 6.06 23,951 5.61
3 years .................... 6,761 6.45 5,861 6.47
4 years .................... 7,646 6.49 8,846 5.99
5 years and thereafter ..... 35,016 6.79 63,216 5.31
-------- ---- -------- ----
$101,478 5.86% $130,358 5.68%
======== ==== ======== ====

At September 30, 1997, and December 31, 1997, the Bank had pledged first
mortgage loans with unpaid balances of approximately $213.9 million and $205.8
million, respectively, as collateral for FHLB advances. At September 30, 1997,
included in the five years and thereafter maturity were $25.0 million subject to
call provisions. At December 31, 1997, included in the five years and thereafter
maturity were $50.0 million were subject to call provisions. Call provisions are
more likely to be exercised by the FHLB when rates rise.

(5) EARNINGS PER SHARE

Diluted earnings per share for the three month periods ended December 31, 1996
and 1997, are computed by dividing net earnings by the weighted average common
equivalent shares outstanding during the respective periods. Common share
equivalents include dilutive common stock option share equivalents determined by
using the treasury stock method. All share and per share data have been
retroactively restated for all common stock dividends.

(6) COMMON STOCK DIVIDENDS

On May 30, 1995, the Company declared a 5% common stock dividend aggregating
102,003 shares. On January 9, 1996 and June 20, 1996, the Company declared a
five for four stock splits in the form of a 25% stock dividends, aggregating
approximately 542,000 and 687,000 shares, respectively. On April 30, 1997, the
Company declared a four for three stock split in the form of a 33% stock
dividend, aggregating approximately 1,160,000 shares. All share and per share
data has been retroactively restated to give effect to the common stock
dividends.

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1997 TO DECEMBER
31, 1997

FORWARD LOOKING STATEMENTS

This report may contain certain "forward-looking statements" within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended, that
represent the Company's expectations or beliefs concerning future events. Such
forward-looking statements are about matters that are inherently subject to
risks and uncertainties. Factors that could influence the matters discussed in
certain forward-looking statements include the timing and amount of revenues
that may be recognized by the Company, continuation of current revenue and
expense trends (including trends affecting charge-offs), absence of unforeseen
changes in the Company's markets, legal and regulatory changes, and general
changes in economy (particularly in the markets served by the Company).

GENERAL

The Company reported $1.6 million in net earnings for the three months ended
December 31, 1997, compared to net earnings of $1.3 million for the three months
ended December 31, 1996. Net interest income increased $543,000 primarily as a
result of an increase in interest income of $1.2 million which was offset by an
increase in interest expense of $637,000. Provision for loan losses decreased
from $230,000 for the three months ended December 31, 1996, to $190,000 for the
three months ended December 31, 1997. Other income increased from $1.4 million
for the three months ended December 31, 1996, to $1.5 million for the three
months ended December 31, 1997. General and administrative expenses increased
from $3.3 million for the three months ended December 31, 1996, to $3.5 million
for the three months ended December 31, 1997.

Liquid assets, consisting of cash, interest-bearing deposits, and investment
securities available for sale, increased from $62.6 million at September 30,
1997, to $124.5 million at December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

In accordance with Office of Thrift Supervision (OTS) regulations, the Company
is required to maintain specific levels of cash and "liquid" investments in
qualifying types of United States Treasury and Federal Agency Securities and
other investments generally having maturities of five years or less. The
required level of such investments is calculated on a "liquidity base"
consisting of net withdrawable accounts and short-term borrowings, and is equal
to 4% of such amount.

Historically, the Company has maintained its liquidity at levels believed by
management to be adequate to meet the requirements of normal operations,
potential deposit out-flows 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, advances from the FHLB, and loan sales.

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

The principal use of cash flows is the origination of loans receivable and
purchase of securities. The Company originated loans receivable of $43.0 million
for the three months ended December 31, 1996, compared to $63.6 million for the
three months ended December 31, 1997. The majority of these loan originations
were financed through loan and mortgage-backed securities principal repayments
which amounted to $28.1 million and $46.1 million for the three month periods
ended December 31, 1996 and 1997, respectively. In addition, the Company sells
certain loans in the secondary market to finance future loan originations.
Generally, these loans have consisted only of mortgage loans which have been
originated in the current period. For the three month period ended December 31,
1996, the Company sold $11.6 million in mortgage loans compared to $12.7 million
sold for the three month period ended December 31, 1997.

For the three month period ended December 31, 1996, the Company purchased $3.9
million in investment and mortgage-backed securities. For the three month period
ended December 31, 1997, the Company purchased $67.1 million in investment and
mortgage-backed securities. The investment securities purchased generally had
maturities less than five years. The mortgage-backed securities purchased were
primarily secured by one year ARMs. These purchases were funded primarily with
reverse repurchase agreements and FHLB advances.

The Bank experienced a decrease of $3.4 million in deposits for the three month
period ended December 31, 1997, primarily as a result of decreased certificate
of deposit accounts. During fiscal 1997, the Company funded a portion of its
loan growth and increase in securities available for sale with advances from the
FHLB and reverse repurchase agreements.

At December 31, 1997, the Company had commitments to originate $3.9 million in
mortgage loans, and $30.7 million in undisbursed lines of credit, which the
Company expects to fund from normal operations.

At December 31, 1997, the Company had $105.3 million of certificates of deposits
which were due to mature within one year. Based upon previous experience, the
Company believes that a major portion of these certificates will be renewed.
Additionally, at December 31, 1997, the Company had pledged first mortgage loans
in the amount of $205.8 million to the FHLB which could support approximately
$24.0 million in additional advances.

As a condition of deposit insurance, current Federal Deposit Insurance
Corporation(FDIC) regulations require that the Bank calculate and maintain a
minimum regulatory capital requirement on a quarterly basis and satisfy such
requirement as of the calculation date and throughout the quarter. The Bank's
capital is approximately $33.7 million at December 31, 1997, exceeding tangible
and core capital requirements by $25.3 million and $16.9 million, respectively.
At December 31, 1997, the Bank's risk-based capital of approximately $37.4
million exceeded its current risk-based capital requirement by $10.4 million.
(For further information see Regulatory Matters).

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1997

GENERAL

Net income increased from $1.3 million for the three months ended December 31,
1996, to $1.6 million for three months ended December 31, 1997, or 27.3%. Net
interest income increased $543,000 primarily as a result of an increase of $1.2
million in interest income offset by a $637,000 increase in interest expense.
Provision for loan losses decreased from $230,000 for three months ended
December 31, 1996, to $190,000 for the three months ended December 31, 1997.
Other income increased $152,000 primarily as a result of increased income from
gain on sale of loans.

INTEREST INCOME

Interest income for the three months ended December 31, 1997, increased to $10.2
million as compared to $9.0 million for the three months ended December 31,
1996. The earning asset yield for the three months ended December 31, 1997, was
8.41% compared to a yield of 8.39% for the three months ended December 31, 1996.
The average yield on loans receivable for the three months ended December 31,
1997, was 8.71% compared to 8.57% for the three months ended December 31, 1996.
The increase in yield primarily resulted from repricing of teaser rate
adjustable-rate mortgage loans originated in 1996. The yield on investments
decreased to 6.72% for the three months ended December 31, 1997, from 6.76% for
the three months ended December 31, 1996. Total average interest-earning assets
were $487.3 million for the quarter ended December 31, 1997, as compared to
$431.6 million for the quarter ended December 31, 1996. The increase in average
interest-earning assets is due to an increase in average loans receivable of
approximately $33.2 million, investment securities of $10.8 million and
mortgage-backed securities of $13.1 million.

INTEREST EXPENSE

Interest expense on interest-bearing liabilities was $5.4 million for the three
months ended December 31, 1997, as compared to $4.8 million for December 31,
1996. The average cost of deposits for the three months ended December 31, 1997,
was 4.18% compared to 4.17% for the three months ended December 31, 1996. The
cost on interest-bearing liabilities was 4.61% for the three months ended
December 31, 1997, as compared to 4.59% for the three months ended December 31,
1996. The cost of FHLB advances and reverse repurchase agreements was 5.82% and
5.77%, respectively, for the three months ended December 31, 1997. For the three
months ended December 31, 1996, the cost was 6.07% and 5.36% respectively. Total
average interest-bearing liabilities increased from $417.5 million at December
31, 1996 to $470.3 million at December 31, 1997. The increase in average
interest bearing liabilities is due to an increase in average deposits of
approximatley $24.4 million, FHLB advances of $12.4 million and reverse
repurchase agreements of $16.2 million.

NET INTEREST INCOME

Net interest income was $4.7 million for the three months ended December 31,
1997, as compared to $4.2 million for the three months ended December 31, 1996.
The net interest margin remained constant at 3.80% for the three months ended
December 31, 1996 and 1997.

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

PROVISION FOR LOAN LOSSES

The provision for loan losses decreased from $230,000 for the period ended
December 31, 1996, to $190,000 for the three months ended December 31, 1997. For
the three months ended December 31, 1997, net charge-offs were $49,000 compared
to net charge-offs of $25,000 for the three months ended December 31, 1996. The
allowance for loan losses as a percentage of total loans was 1.22% at December
31, 1997, compared to 1.19% at September 30, 1997. Loans delinquent 90 days or
more were .75% of total loans at December 31, 1997, compared to .06% at
September 30, 1997. The allowance for loan losses was 184% of loans delinquent
more than 90 days at December 31, 1997, as compared to 1,906% at September 30,
1997. Non performing loans included two significant loans with balances of
approximately $2.3 million dollars. The Bank has initiated foreclosure
proceedings on both properties. At the present time, management does not know if
or when the loans will become performing. However, the Bank does not expect any
material losses or charge-offs in regard to the loans. Management believes that
the current level of allowances is adequate considering the Company's current
loss experience and delinquency trends, among other criteria.

OTHER INCOME

For the three months ended December 31, 1997, other income increased 11.2% to
$1.5 million compared to $1.4 million for the three months ended December 31,
1996. Fees and service charges were $483,000 for the quarter ended December 31,
1997, compared to $426,000 for the quarter ended December 31, 1996. Gain on sale
of loans was $357,000 for the quarter ended December 31, 1997, compared to
$228,000 for the quarter ended December 31, 1996, as a result of increased
volume in the Company's mortgage subsidiary. These were partially offset by a
decrease in income from real estate held for investment of $109,000.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased from $3.3 million for the three
months ended December 31, 1996, to $3.5 million for the three months ended
December 31, 1997. Salaries and employee benefits increased from $1.7 million
for the three months ended December 31, 1996, to $1.9 million for the three
months ended December 31, 1997 primarily due to increased personnel in lending.
Net occupancy, furniture and fixtures and data processing expenses increased
$29,000 when comparing the two periods. FDIC insurance premiums were $129,000
for the quarter ended December 31, 1996, compared to $52,000 for the quarter
ended December 31, 1997 as a result of the recapitalization of the SAIF during
1996. As a result of the recapitalization the Company's deposit insurance
premiums decreased from .23% of insured deposits to .065% of insured deposits.
Other expenses were $753,000 for the quarter ended December 31, 1997, compared
to $731,000 for the quarter ended December 31, 1996.

INCOME TAXES

Income taxes increased from $734,000 for the three months ended December 31,
1996, to $950,000 for the three months ended December 31, 1997, as a result of
increased income before taxes.

REGULATORY MATTERS

Under the FDICIA prompt corrective action provisions applicable to banks, to be
categorized as "Well Capitalized", the institution must maintain a total
risk-based capital ratio as set forth in the following table and not be subject
to a capital directive order.

Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- --------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----

(Dollar In Thousands)

As of December 31, 1997:
Total Capital: $37,361 11.09% $26,956 8.00% $33,695 10.00%
(To Risk Weighted Assets)
Tier 1 Capital: $33,747 10.02% $N/A N/A% $20,217 6.00%
(To Risk Weighted Assets)
Tier 1 Capital: $33,747 5.98% $16,916 3.00% $28,193 5.00%
(To Total Assets)
Tangible Capital: $33,747 5.98% $8,458 1.50% $N/A N/A%
(To Total Assets)

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which is
effective for both interim and annual periods ending after December 15, 1997.
This statement supersedes Accounting Principles Board Opinion No. 15, Earnings
per Share. The purpose of this statement is to simplify current reporting and
make U.S. reporting comparable to international standards. The statement
requires dual presentation of basic and diluted EPS by entities with complex
capital structures (as defined by the statement). The Company adopted this
standard in fiscal 1998 which did not have a material affect on EPS.

Also, in February 1997, the FASB issued SFAS No. 129, Disclosure of information
about Capital Structure, which is effective for financial statements for periods
ending after December 15, 1997. This statement applies to both public and
nonpublic entities. The new statement requires no change for entities subject to
the existing requirements. The Company anticipates that adoption of the standard
will not have a material affect on the Company.

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards 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. Statement 130 is effective for both interim and
annual periods beginning after December 15, 1997. Earlier application is
permitted. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect the provisions of this statement. The
Company will adopt Statement 130 effective September 30, 1998.

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

EFFECT ON INFLATION AND CHANGING PRICES

The accompanying unaudited 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 effects of inflation. Interest
rates do not necessarily change in the same magnitude as the price of goods and
services.

YEAR 2000 COMPLIANCE

The Company began working on year 2000 compliance issues in early 1997. Its data
processor is currently approximately 65% complete with their programming.
Testing will begin in May 1998 and the Company expects to be in full compliance
by December 31, 1999. Internal software applications and hardware compliance
issues will be resolved by December 31, 1998, to allow testing in early 1999. In
February 1998, the Company engaged a national consulting firm to assist in the
identification and testing of year 2000 issues. The Company believes it has
adequate resources and funds to address the year 2000 issues. The Company is
also in the process of addressing any loan relationships it believes could be
materially effected by year 2000 issues. The Company currently expects the
expenses related to addressing the year 2000 issues to be between $100,000 to
$200,000 and expects additional hardware and software capital expenditures of
approximately $100,000. However, no assurance can be given that such expenses
and capital expenditures will not exceed these expected amounts.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 1997, no material changes have occurred in market risk
disclosures included in the Company's form 10K for the year ended September 30,
1997.

PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 1. Legal Proceedings

The Bank is a defendant in one significant lawsuit as summarized below.

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

Item 2. Changes In Securities and Use of Proceeds

Not Applicable.

Item 3. Defaults Upon Senior Securities

Not Applicable.

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

Not Applicable.

PART II. OTHER INFORMATION - CONTINUED
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 5. Other Information

Not Applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3 (a) Certificate of Incorporation of Coastal Financial
Corporation**

3 (b) Bylaws of Coastal Financial Corporation**

10 (a) Employment Agreement with Michael C. Gerald***

(b) Employment Agreement with Jerry L. Rexroad***

(d) Employment Agreement with Allen W. Griffin***

(e) Employment Agreement with Jimmy R. Graham***

(f) Employment Agreement with Richard L. Granger***

(g) Employment Agreement with Robert S. O'Harra***

(h) 1990 Stock Option Plan***

(i) Directors Performance Plan****

(j) Loan Agreement with Bankers Bank

27 Financial Data Schedule

(b) No reports on Form 8-K have been filed during the last quarter of the
fiscal year coverd by this report.

- -------------

* Incorporated by reference from the Annual Report to Stockholders for
the fiscal year ended September 30, 1997, attached as an exhibit
hereto.

** Incorporated by reference to Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on November 26, 1990.

*** Incorporated by reference to 1995 Form 10K filed with the Securities
and Exchange Commission on December 29, 1995.

**** Incorporated by reference to the proxy statement for the 1996 Annual
Meeting of Stockholders.

***** Incorporated by reference to 1997 Form 10K filed with the Securities
and Exchange Commission on January 2, 1998.

SIGNATURES

Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

COASTAL FINANCIAL CORPORATION

Date February 13, 1998 /s/Michael C. Gerald
--------------------
Michael C. Gerald
President and Chief Executive Officer

Date February 13, 1998 /s/Jerry L. Rexroad
-------------------
Jerry L. Rexroad
Executive Vice President and
Chief Financial Officer