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 March 31, 1998

( ) 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 March 31, 1998.

Common Stock $.01 Par Value Per Share 6,247,623 Shares
- --------------------------------------------------------------------------------
(Class) (Outstanding)

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998

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 March 31, 1998

Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1998

Consolidated Statements of Operations for the six
months ended March 31, 1997 and 1998

Consolidated Statements of Cash Flows for the six
months ended March 31, 1997 and 1998

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, March 31,
1997 1998
--------- ---------
(Unaudited)
(Dollars in thousands)

ASSETS:
Cash & amounts due from banks ................... $ 12,852 $ 13,348
Short-term interest-bearing deposits ............ 559 859
Investment securities available for sale ........ 26,171 12,531
Mortgage-backed securities available for sale ... 23,023 111,951
Loans receivable (net of allowance for
loan losses of $4,902 at September 30,
1997 and $5,230 at March 31, 1998) ........... 403,570 410,098
Loans receivable held for sale .................. 8,359 12,001
Real estate acquired through foreclosure ........ 250 235
Office property and equipment, net .............. 7,561 8,072
Federal Home Loan Bank stock, at cost ........... 5,618 6,101
Accrued interest receivable on loans ............ 2,814 2,612
Accrued interest receivable on investments ...... 452 806
Other assets and deferred charges ............... 2,774 4,625
--------- ---------
$ 494,003 $ 583,239
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits ........................................ $ 347,116 $ 353,144
Securities sold under agreements to
repurchase ................................... 2,666 2,430
Advances from Federal Home Loan Bank ............ 101,478 115,019
Other borrowings ................................ 2,193 70,583
Drafts outstanding .............................. 1,018 408
Advances by borrowers for property taxes
and insurance ................................. 1,409 818
Accrued interest payable ........................ 952 1,327
Other liabilities ............................... 4,780 4,339
--------- ---------
Total liabilities ............................. 461,612 548,068
--------- ---------

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)

September 30, March 31,
1997 1998
--------- ---------
(Unaudited)
(Dollars in thousands)

STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
authorized and unissued ...................... -- --
Common stock, $.01 par value, 15,000,000
shares authorized; 6,195,379 shares at
September 30, 1997 and 6,247,623 shares
at March 31, 1998 issued and outstanding ..... 46 46
Additional paid-in capital ...................... 8,698 8,889
Retained earnings ............................... 23,402 25,711
Treasury stock, at cost (9,760 shares) .......... (182) --
Unrealized gain on securities available
for sale, net of income taxes ................. 427 525
--------- ---------
Total stockholders' equity .................... 32,391 35,171
--------- ---------
$ 494,003 $ 583,239
========= =========

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 MARCH 31, 1997 AND 1998

1997 1998
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)

Interest income:
Loans receivable ............................ $ 8,275 $ 9,036
Investment securities .......................... 322 387
Mortgage-backed securities .................. 560 1,287
Other ....................................... 72 63
----------- -----------
Total interest income ....................... 9,229 10,773
----------- -----------

Interest expense:
Deposits .................................... 3,365 3,431
Securities sold under agreement to
repurchase ................................ 214 29
Advances from Federal Home Loan Bank ........ 1,273 1,623
Other borrowings ............................ -- 872
----------- -----------
Total interest expense ....................... 4,852 5,955
----------- -----------
Net interest income ......................... 4,377 4,818
Provision for loan losses ...................... 120 250
----------- -----------
Net interest income after provision
for loan losses ........................... 4,257 4,568
----------- -----------

Other income:
Fees and service charges .................... 417 508
Loss from real estate owned ................. (18) (34)
Income from real estate held for investment . -- 3
Gain on sale of loans receivable, net ....... 175 340
Gain on sale of securities available for sale 12 253
Other income ................................ 433 506
----------- -----------
1,019 1,576
----------- -----------

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (CONTINUED)

1997 1998
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)

General and administrative expenses:
Salaries and employee benefits .............. 1,649 1,823
Net occupancy, furniture and fixtures
and data processing expense ............... 696 769
FDIC insurance premium ...................... 50 54
Other expenses .............................. 715 858
----------- -----------
3,110 3,504
----------- -----------
Earnings before income taxes ................... 2,166 2,640

Income taxes ................................... 790 961
----------- -----------
Net income ..................................... $ 1,376 $ 1,679
=========== ===========

Earnings per common share
Basic ........................................ $ .22 $ .27
=========== ===========
Diluted ...................................... $ .21 $ .26
=========== ===========

Weighted average common shares
outstanding - basic .......................... 6,183,000 6,248,000
=========== ===========

Weighted average common shares
outstanding - diluted ........................ 6,473,000 6,552,000
=========== ===========

Dividends per share ............................ $ .0619 $ .0675
=========== ===========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

1997 1998
----------- -----------
(Unaudited)
(Dollars in thousands)

Interest income:
Loans receivable .......................... $ 16,397 $ 18,013
Investment securities ..................... 611 854
Mortgage-backed securities ................ 1,048 1,939
Other ..................................... 170 145
----------- -----------
Total interest income ..................... 18,226 20,951
----------- -----------

Interest expense:
Deposits .................................. 6,706 7,033
Securities sold under agreement to
repurchase .............................. 330 1,270
Advances from Federal Home Loan Bank ...... 2,626 3,099
----------- -----------
Total interest expense .................... 9,662 11,402
----------- -----------
Net interest income ....................... 8,564 9,549
Provision for loan losses .................... 350 440
----------- -----------
Net interest income after provision
for loan losses ......................... 8,214 9,109
----------- -----------

Other income:
Fees and service charges .................. 843 991
Loss from real estate owned ............... (74) (54)
Income from real estate held for investment 278 221
Gain on sale of loans receivable, net ..... 403 697
Gain on sale of securities
available for sale ....................... 30 268
Other income .............................. 853 968
----------- -----------
2,333 3,091
----------- -----------

General and administrative expenses:
Salaries and employee benefits ............ 3,337 3,707
Net occupancy, furniture and fixtures
and data processing expense ............. 1,456 1,558
FDIC insurance premium .................... 179 106
Other expenses ............................ 1,398 1,611
----------- -----------
6,370 6,982
----------- -----------

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

1997 1998
----------- -----------
(Unaudited)
(Dollars in thousands)

Earnings before income taxes ................. 4,177 5,218

Income taxes ................................. 1,523 1,911
----------- -----------
Net income ................................... $ 2,654 $ 3,307
=========== ===========

Earnings per common share
Basic .................................... $ .43 $ .53
=========== ===========
Diluted .................................. $ .41 $ .50
=========== ===========

Weighted average common shares
outstanding - basic ........................ 6,183,000 6,248,000
=========== ===========

Weighted average common
shares outstanding - diluted ............... 6,464,000 6,551,000
=========== ===========

Dividends per share .......................... $ .124 $ .135
=========== ===========

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 SIX MONTHS ENDED MARCH 31, 1997 AND 1998
1997 1998
--------- ---------
(Unaudited)
(In thousands)

Cash flows from operating activities:
Net earnings ................................... $ 2,654 $ 3,307
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Income from real estate
held for investment ...................... (278) (221)
Depreciation .............................. 427 490
Provision for loan losses ................. 350 440
Origination of loans receivable
held for sale ........................... (17,979) (26,599)
Proceeds from sales of loans receivable
held for sale ........................... 19,734 30,241
(Increase) decrease in:
Other assets and deferred charges .......... (1,056) (1,851)
Accrued interest receivable ................ (221) (152)
Increase (decrease) in:
Accrued interest payable ................... (67) 375
Other liabilities ........................... (582) (441)
--------- ---------
Net cash provided by
operating activities ................ 2,982 5,589
--------- ---------
Cash flows from investing activities:
Purchases of investment securities
available for sale ........................ (14,177) (9,311)
Proceeds from sales of investment
securities available for sale ............. -- 4,500
Proceeds from maturities of investment
securities available for sale .............. 5,686 18,422
Proceeds from maturities of mortgage-backed
securities available for sale .............. 949 --
Purchases of mortgage-backed securities
available for sale ........................ (15,167) (133,022)
Proceeds from sales of mortgage-backed
securities available for sale ............. -- 37,769
Origination of loans receivable, net ........... (59,956) (76,113)
Purchase of loans receivable ................... (3,065) (2,068)
Principal collected on loans receivable
and mortgage-backed securities, net ....... 52,712 70,105
Proceeds from sale of real estate
acquired through foreclosure, net ......... 75 23
Purchases of office properties and
equipment .................................. (606) (932)
Purchases (sales)of FHLB stock, net ............ 616 (483)
Other investing activities, net ................ 51 --
--------- ---------
Net cash used in
investing activities ................ (32,882) (91,110)
--------- ---------

PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 (CONTINUED)

1997 1998
--------- ---------
(Unaudited)
(In thousands)

Cash flows from financing activities:
Increase in deposits, net ............... $ 18,763 $ 6,028
Decrease in securities sold
under agreement to repurchase, net ..... (1,934) (236)
Proceeds from FHLB advances ............. 62,500 107,550
Repayment of FHLB advances .............. (81,109) (94,009)
Proceeds from other borrowings, net ...... 26,434 68,390
Decrease in advance payments by borrowers
for property taxes and insurance, net (637) (591)
Decrease in drafts outstanding, net ..... (325) (610)
Dividend to stockholders ................ (769) (833)
Other financing activities, net ......... 510 628
--------- ---------
Net cash (used in) provided by .......... (23,433) 86,317
--------- ---------
financing activities

Net increase (decrease)
in cash and cash equivalents ........... (6,467) 796
--------- ---------
Cash and cash equivalents at beginning
of the period ........................... 20,861 13,411
--------- --------
Cash and cash equivalents at end
of the period ........................... $ 14,394 $ 14,207
========= =========

Supplemental information:
Interest paid ........................... $ 9,729 $ 11,027
========= =========

Income taxes paid ....................... $ 270 $ 2,243
========= =========

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)
Change in 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 ............... -- 191 (165) 182 -- 208
Cash dividends .......... -- -- (833) -- -- (833)
Change in unrealized gain
on securities available
for sale, net of
income taxes .......... -- -- -- -- 98 98
Net income .............. -- -- 3,307 -- -- 3,307
-------- -------- -------- -------- -------- --------

Balance at March
31, 1998 ............. $ 46 $ 8,889 $ 25,711 $ -- $ 525 $ 35,171
======== ======== ======== ======== ======== ========

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 and six month periods
ended March 31, 1998 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, March 31,
1997 1998
--------- ---------
(Unaudited)
(In thousands)

First mortgage loans:
Single family to 4 family units ............. $ 237,964 $ 234,180
Other, primarily commercial
real estate ................................ 97,680 100,534
Construction loans .......................... 34,216 38,657
Consumer and commercial loans:
Installment consumer loans .................. 24,378 22,063
Mobile home loans ........................... 1,291 1,096
Deposit account loans ....................... 1,336 1,248
Equity lines of credit ...................... 15,294 17,021
Commercial and other loans .................. 10,939 11,409
--------- ---------
423,098 426,208
Less:
Allowance for loan losses ................... 4,902 5,230
Deferred loan fees (costs) .................. (458) (561)
Undisbursed portion of loans in process ..... 15,084 11,441
--------- ---------
$ 403,570 $ 410,098
========= =========

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

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

March 31,
1997 1998
------- -------
(Unaudited)
(In thousands)

Beginning allowances ..................... $ 4,172 $ 4,902
Provision for loan losses ................ 350 440
Allowance on acquired loans .............. 25 29
Loan recoveries .......................... 43 8
Loan charge-offs ......................... (113) (149)
------- -------

Ending allowance ......................... $ 4,477 $ 5,230
======= =======

(3) DEPOSITS
Deposits consist of the following:

September 30, 1997 March 31, 1998
------------------------ ------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Unaudited)
(In thousands)

Transaction accounts ....... $167,014 3.10% $181,292 3.24%
Passbook accounts .......... 39,445 2.62 36,442 2.52
Certificate accounts ....... 140,657 5.58 135,410 5.60
-------- ---- -------- ----
$347,116 4.02% $353,144 4.07%
======== ==== ======== ====

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

(4) ADVANCES FROM FEDERAL HOME LOAN BANK

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

September 30, 1997 March 31, 1998
----------------------- -------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Maturing within: (Unaudited)
(In thousands)

1 year ......................... $ 23,620 6.15 % $ 17,506 6.08 %
2 years ........................ 28,435 5.79 22,050 5.80
3 years ........................ 6,761 6.45 8,846 5.99
4 years ........................ 7,646 5.91 34,161 5.45
5 years and thereafter ......... 35,016 5.60 32,456 5.17
-------- ---- -------- ----
$101,478 5.86 % $115,019 5.57 %
======== ==== ======== ====

At September 30, 1997, and March 31, 1998, the Bank had pledged first mortgage
loans with unpaid balances of approximately $213.9 million and $207.6 million,
respectively, as collateral for FHLB advances. At September 30, 1997, included
in the four and five years and thereafter maturities were $30.0 million subject
to call provisions. At March 31, 1998, included in the three, four and five
years and thereafter maturities were $55.0 million 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 and six month periods ended March 31,
1997 and 1998, 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. On May 6, 1998, the
Company declared a four-for-three stock split in the form of a 33% stock
dividend, aggregating approximately 1,562,000 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 MARCH 31,
1998

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).

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, Federal Agency Securities,
mortgage-backed securities, and certain other investments. The required level of
such investments is calculated on a "liquidity base" consisting of net
withdrawlable accounts and short-term borrowings, and is currently 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. The principal use of
cash flows is the origination of loans receivable and purchase of securities.
The Company originated loans receivable of $77.9 million for the six months
ended March 31, 1997, compared to $102.7 million

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 MARCH 31, 1997 AND 1998

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

for the six months ended March 31, 1998. The majority of these loan originations
were financed through loan and mortgage-backed securities principal repayments
which amounted to $52.7 million and $98.1 million for the six month periods
ended March 31, 1997 and 1998, 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 six month period ended March 31, 1997,
the Company sold $19.7 million in mortgage loans compared to $30.2 million sold
for the six month period ended March 31, 1998.

For the six month period ended March 31, 1997, the Company purchased $29.3
million in investment and mortgage-backed securities. For the six month period
ended March 31, 1998, the Company purchased $142.3 million in investment and
mortgage-backed securities. The securities purchased generally had maturities of
less than five years. The mortgage-backed securities purchased were primarily
secured by one year ARMs. These purchases were funded primarily with short-term
reverse repurchase agreements and FHLB advances.

The Bank experienced an increase of $6.0 million in deposits for the six month
period ended March 31, 1998, primarily as a result of increased transaction
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 March 31, 1998, the Company had commitments to originate $13.6 million in
mortgage loans, and $29.2 million in undisbursed lines of credit, which the
Company expects to fund from normal operations.

At March 31, 1998, the Company had $100.1 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 March 31, 1998, the Company had pledged first mortgage loans in
the amount of $207.6 million to the FHLB which could support approximately $40.7
million in additional advances.

OTS 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 $36.4 million at March 31, 1998, exceeding tangible and core
capital requirements by $27.8 million and $19.1 million, respectively. At March
31, 1998, the Bank's risk-based capital of approximately $40.2 million exceeded
its current risk-based capital requirement by $12.4 million. (For further
information see Regulatory Matters).

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998

GENERAL
Net income increased from $1.4 million for the three months ended March 31,
1997, to $1.7 million for three months ended March 31, 1998, or 22.0%. Net
interest income increased $441,000 primarily as a result of an increase of

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

GENERAL - CONTINUED

$1.5 million in interest income offset by a $1.1 million increase in interest
expense. Provision for loan losses increased from $120,000 for three months
ended March 31, 1997, to $250,000 for the three months ended March 31, 1998.
Other income increased $557,000 primarily as a result of increased income from
gain on sale of loans, and securities. General and administrative expense
increased from $3.1 million for the quarter ended March 31, 1997, to $3.5
million for the quarter ended March 31, 1998.

INTEREST INCOME

Interest income for the three months ended March 31, 1998, increased to $10.8
million as compared to $9.2 million for the three months ended March 31, 1997.
The earning asset yield for the three months ended March 31, 1998, was 8.09%
compared to a yield of 8.45% for the three months ended March 31, 1997. The
average yield on loans receivable for the three months ended March 31, 1998 and
1997 was 8.66%. Approximately $168,000 of interest income on loans was reserved
during the March 31, 1998 quarter for two significant non performing loans. This
reserve impacted the average loan yield by 16 basis points. See "Provision for
Loan Losses." The yield on investments decreased to 6.55% for the three months
ended March 31, 1998, from 6.69% for the three months ended March 31, 1997.
Total average interest-earning assets were $538.7 million for the quarter ended
March 31, 1998, as compared to $440.6 million for the quarter ended March 31,
1997. The increase in average interest-earning assets is due to an increase in
average loans receivable of approximately $35.4 million, investment securities
of approximately $4.4 million and mortgage-backed securities of approximately
$58.0 million.

INTEREST EXPENSE

Interest expense on interest-bearing liabilities was $6.0 million for the three
months ended March 31, 1998, as compared to $4.9 million for March 31, 1997. The
average cost of deposits for the three months ended March 31, 1998, was 4.03%
compared to 4.14% for the three months ended March 31, 1997. The cost on
interest-bearing liabilities was 4.58% for the three months ended March 31,
1998, as compared to 4.51% for the three months ended March 31, 1997. The cost
of FHLB advances and reverse repurchase agreements was 5.54% and 5.97%,
respectively, for the three months ended March 31, 1998. For the three months
ended March 31, 1997, the cost was 5.79% and 5.50%, respectively. Total average
interest-bearing liabilities increased from $426.1 million at March 31, 1997 to
$519.7 million at March 31, 1998. The increase in average interest-bearing
liabilities is due to an increase in average deposits of approximately $15.9
million, FHLB advances of $29.1 million and reverse repurchase agreements of
$47.5 million.

NET INTEREST INCOME

Net interest income was $4.8 million for the three months ended March 31, 1998,
as compared to $4.4 million for the three months ended March 31, 1997. The net
interest margin was 3.50% for the three months ended March 31, 1998, and 3.94%
for the three months ended March 31, 1997. During the quarter the Bank entered
into a leverage strategy by purchasing ARM mortgage-backed securities which were

funded by repurchase agreements and short-term advances. This strategy has a
negligible spread during the first year. However, upon repricing these
securities should yield approximately 180-200 basis point above the one year
treasury. The ultimate yield will depend on the securities speed of repayment.
The majority of these ARM mortgage-backed securities may reprice in an average
of approximately ten months.

PROVISION FOR LOAN LOSSES

The provision for loan losses increased from $120,000 for the period ended March
31, 1997, to $250,000 for the three months ended March 31, 1998 primarily as a
result of continued increased growth in commercial lending. For the three months
ended March 31, 1998, net charge-offs were $92,000 compared to net charge-offs
of $45,000 for the three months ended March 31,1997. The allowance for loan
losses as a percentage of total loans was 1.24% at March 31, 1998, compared to
1.19% at September 30, 1997. Loans delinquent 90 days or more were 1.20% of
total loans at March 31, 1998, compared to .06% at September 30, 1997. The
allowance for loan losses was 104% of loans delinquent more than 90 days at
March 31, 1998, as compared to 1,906% at September 30, 1997. Non performing
loans included two significant loans with balances of approximately $4.0 million
dollars. The Bank has initiated foreclosure proceedings on both properties.
Subsequent to March 31, 1998, one loan became current, however, management does
not know if or when the other loan will become performing. Presently, the Bank
does not expect any material losses or charge-offs regarding this loan.
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 March 31, 1998, other income increased 54.7% to $1.6
million compared to $1.0 million for the three months ended March 31, 1997. Fees
and service charges were $508,000 for the quarter ended March 31, 1998, compared
to $417,000 for the quarter ended March 31, 1997. This increase resulted from
approximately 9% growth in core deposits since September 30, 1997. Gain on sale
of loans was $340,000 for the quarter ended March 31, 1998, compared to $175,000
for the quarter ended March 31, 1997. This is due to a decreasing long-term
interest rate environment which has led to increased mortgage refinancing. Gain
on sale of securities was $253,000 for the quarter ended March 31, 1998,
compared to $12,000 for the quarter ended March 31, 1997.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased from $3.1 million for the three
months ended March 31, 1997, to $3.5 million for the three months ended March
31, 1998. Salaries and employee benefits increased from $1.6 million for the
three months ended March 31, 1997, to $1.8 million for the three months ended
March 31, 1998 primarily due to increased number of lending personnel. Net
occupancy, furniture and fixtures and data processing expenses increased $73,000
when comparing the two periods. Other expenses were $858,000 for the quarter
ended March 31, 1998, compared to $715,000 for the quarter ended March 31, 1997.

INCOME TAXES

Income taxes increased from $790,000 for the three months ended March 31, 1997,
to $961,000 for the three months ended March 31, 1998, as a result of increased
income before taxes.

GENERAL

Net income increased from $2.7 million for the six months ended March 31, 1997,
to $3.3 million for six months ended March 31, 1998, or 24.6%. Net interest
income increased $985,000 primarily as a result of an increase in interest
income of $2.7 million offset by an increase of $1.7 million in interest
expense. Provision for loan losses increased from $350,000 for six months ended
March 31, 1997, to $440,000 for the six months ended March 31, 1998. Other
income increased $758,000.
General and administrative expenses increased $612,000.

INTEREST INCOME

Interest income for the six months ended March 31, 1998, increased to $21.0
million as compared to $18.2 million for the six months ended March 31, 1997.
The earning asset yield for the six months ended March 31, 1998, was 8.25%
compared to a yield of 8.43% for the six months ended March 31, 1997.
Approximately $202,000 of interest income on loans was reserved during the six
months ended March 31, 1998 for two significant non performing loans. This
reserve impacted the average loan yield by 10 basis points. See "Provision for
Loan Losses." The average yield on loans receivable for the six months ended
March 31, 1998, was 8.70% compared to 8.63% for the six months ended March 31,
1997. The yield on investments decreased to 6.63% for the six months ended March
31, 1998, from 6.72% for the six months ended March 31, 1997. Total average
earning assets were $513.0 million for the six month period ended March 31,
1998, as compared to $436.2 million for the six month period ended March 31,
1997.

INTEREST EXPENSE

Interest expense on interest-bearing liabilities was $11.4 million for the six
months ended March 31, 1998, as compared to $9.7 million for the six months
ended March 31, 1997. The average cost of deposits for the six months ended
March 31, 1998, was 4.10% compared to 4.16% for the six months ended March 31,
1997. The cost of interest-bearing liabilities was 4.61% for the six months
ended March 31, 1998, as compared to 4.48% for the six months ended March 31,
1997. Total average interest-bearing liabilities increased from $429.1 million
at March 31, 1997 to $495.1 million at March 31, 1998.

NET INTEREST INCOME

Net interest income was $9.5 million for the six months ended March 31, 1998, as
compared to $8.6 million for the six months ended March 31, 1997. The net
interest margin decreased to 3.64% for the six months ended March 31, 1998, from
3.95% for the six months ended March 31, 1997. Since the majority of the

Company's assets are adjustable rate mortgage loans which reprice annually
versus many of the Company's liabilities which reprice more quickly, the Company
may experience a decrease in its interest rate spread should interest rates
increase rapidly.

PROVISION FOR LOAN LOSSES

The provision for loan losses increased from $350,000 for the period ended March
31, 1997, to $440,000 for the six months ended March 31, 1998. For the six
months ended March 31, 1998, net charge-offs were $141,000 compared to net
charge-offs of $70,000 for the six months ended March 31, 1997. The allowance
for loan losses as a percentage of total loans was 1.24% at March 31, 1998,
compared to 1.19% at September 30, 1997. Non performing loans included two
significant loans with balances of approximately $4.0 million dollars.

The Bank has initiated foreclosure proceedings on both properties. Subsequent to
March 31, 1998, one loan became current; however, management does not know if or
when the other loan will become performing. Presently, the Bank does not expect
any material losses or charge-offs regarding this loan. 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 six months ended March 31, 1998, other income increased 32.5% to $3.1
million compared to $2.3 million for the six months ended March 31, 1997. Fees &
service charges for the six months ended March 31, 1997 were $843,000 compared
to $991,000 for the six months ended March 31, 1998. This is the result of
approximately 9% growth in core deposits since September 30, 1997. Other income
increased from $853,000 for the six months ended March 31, 1997 compared to
$968,000 for the six months ended March 31, 1998. Due to a decreasing long-term
interest rate environment which has resulted in increased mortgage refinancing,
gain on sale of loans was $403,000 for the six months ended March 31, 1997,
compared to $697,000 for the six months ended March 31, 1998. Proceeds from
sales of mortgages were $26.6 million, an increase of 42.9%, for the first six
months of 1998 compared to $18.0 million for the comparable 1997 period. Gain on
sale of securities was $30,000 for the six months ended March 31, 1997, compared
to $268,000 for the six months ended March 31, 1998.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased from $6.4 million for the six
months ended March 31, 1997, to $7.0 million for the six months ended March 31,
1998. Salaries and employee benefits increased $370,000, or 11.1% primarily as a
result of increased lending personnel. Net occupancy, furniture and fixtures and
data processing expense increased $102,000 primarily as a result of increased
maintenance, lease expense and depreciation expense due to the addition of the
Coastal Federal University facility. Other expense was $1.4 million for the six
months ended March 31, 1997, compared to $1.6 million for the six months ended
March 31, 1998. These were partially offset by lower FDIC premiums of $73,000.

INCOME TAXES

Income taxes increased from $1.5 million for the six months ended March 31,
1997, to $1.9 million for the six months ended March 31, 1998, as a result of
increased income before taxes.

PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

REGULATORY MATTERS

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

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 March 31, 1998:
Total Capital: ............ $40,153 11.58% $27,731 8.00% $34,664 10.00%
(To Risk Weighted Assets)
Tier 1 Capital: ........... $36,406 10.50% $ N/A N/A% $20,798 6.00%
(To Risk Weighted Assets)
Tier 1 Capital: ........... $36,406 6.31% $17,318 3.00% $28,864 5.00%
(To Total Assets)
Tangible Capital: ......... $36,406 6.31% $ 8,659 1.50% $N/A N/A%
(To Total Assets)

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the 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 fiscal years 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 in the first quarter of fiscal
1999.

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 fiscal years 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 (to be expensed as incurred) and expects additional hardware and
software capital expenditures of approximately $100,000. Most of these expenses
will be incurred in fiscal 1998 and 1999. 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 March 31, 1998, no material changes have occurred in market risk disclosures
included in the Company's form 10-K 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. 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

At the Company's annual stockholders meeting held on January 26, 1998, the
following items were ratified.

(a) The election as directors of all nominees: Harold D. Clardy, James H.
Dusenbury and Michael C. Gerald.

A total of 4,655,982 votes were entitled to be cast. Votes for Clardy were
4,019,977 with 48,309 withheld; votes for James H. Dusenbury were 4,065,367 with
2,019 withheld; votes for Michael C. Gerald were 4,065,621 with 1,765 withheld.

James C. Benton, G. David Bishop, J. T. Clemmons, James P. Creel, Wilson B.
Springs and Samuel A. Smart are directors whose terms continued after the
meeting.

(b) Ratification of an amendment to Coastal Financial Corporation's Certificate
of Incorporation to increase the authorized number of shares of common stock
from 5,000,000 to 15,000,000

A total of 4,655,928 votes were entitled to be cast. Votes for the amendment
were 3,972,890 and votes against were 90,427 and votes abstained were 4,069.

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) Certificate of Amendment to Certificate of
Incorporation 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) 1990 Stock Option Plan***

(g) Directors Performance Plan****

(h) Loan Agreement with Bankers Bank******

27 Financial Data Schedule

(b) No reports on Form 8-K have been filed during the quarter covered 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 10-K 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.

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

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

****** Incorporated by reference to December 31, 1997 Form 10-Q filed with
Securities and Exchange Commission on February 13, 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 May 15, 1998 /s/ Michael C. Gerald
----------------------
Michael C. Gerald
President and Chief Executive Officer

Date May 15, 1998 /s/ Jerry L. Rexroad
Jerry L. Rexroad
Executive Vice President and
Chief Financial Officer