U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                    FORM 10-Q

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

                  For the Quarterly Period Ended June 30, 2008

                                       OR

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

               For the Transition Period from _________to_________

                               Commission File No.
                                     0-25933

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

               South Carolina                          57-1079460
        (State or other jurisdiction                (I.R.S. Employer
      of incorporation or organization)            Identification No.)

                           530 Johnnie Dodds Boulevard
                       Mt. Pleasant, South Carolina 29464
                    (Address of principal executive offices)

                                  843-884-0504
              (Registrant's telephone number, including area code)
                ------------------------------------------------

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 by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated filer,"  "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [ ]                  Accelerated filer      [X]

Non-accelerated filer  [ ]                    Smaller reporting company  [ ]
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 YES [ ] NO [X]

 State the  number of shares  outstanding  of each of the  issuer's  classes  of
common stock as of the latest practicable date.

       4,531,418 shares of common stock, no par value, as of July 31, 2008





<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                                     Page No.
------------------------------                                                                                     --------

Item 1.  Financial Statements (Unaudited)

<S>      <C>                                                                                                        <C>
         Condensed Consolidated Balance Sheets - June 30, 2008 and December 31, 2007....................................2

         Condensed Consolidated Statements of Income - Six months ended June 30, 2008 and 2007..........................3

         Condensed Consolidated Statements of Income - Three months ended June 30, 2008 and 2007........................4

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
           Six months ended June 30, 2008 and 2007......................................................................5

         Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2008 and 2007......................6

Notes to Condensed Consolidated Financial Statements.................................................................7-10

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations......................11-20

Item 3.  Quantitative and Qualitative Disclosures About Market Risk....................................................20

Item 4.  Controls and Procedures.......................................................................................20

PART II - OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds...................................................21

Item 4.   Submission of Matters to a vote of Security Holders..........................................................21

Item 6.  Exhibits......................................................................................................21

Signatures ............................................................................................................22

Exhibit Index..........................................................................................................23
</TABLE>





<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                      Condensed Consolidated Balance Sheets


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
<TABLE>
<CAPTION>
                                                                                                     June 30,           December 31,
                                                                                                      2008                  2007
                                                                                                      ----                  ----
                                                                                                   (Unaudited)
Assets
   Cash and cash equivalents:
<S>                                                                                              <C>                  <C>
     Cash and due from banks .............................................................       $  12,186,649        $   7,033,156
     Federal funds sold ..................................................................             801,000            3,774,000
                                                                                                 -------------        -------------
       Total cash and cash equivalents ...................................................          12,987,649           10,807,156
   Investment securities
     Available for sale ..................................................................          72,794,058           58,467,574
     Federal Home Loan Bank Stock, at cost ...............................................           4,149,500            4,141,700
                                                                                                 -------------        -------------
       Total investment securities .......................................................          76,943,558           62,609,274
   Loans held for sale ...................................................................             323,000              384,000
   Loans, net of allowance of $4,946,943 and $4,297,337 ..................................         392,391,932          374,116,734
   Property and equipment, net ...........................................................          26,593,448           26,735,228
   Bank Owned Life Insurance .............................................................          20,895,569           20,467,919
   Other assets ..........................................................................           7,156,502            5,731,776
                                                                                                 -------------        -------------
       Total assets ......................................................................       $ 537,291,658        $ 500,852,087
                                                                                                 =============        =============

Liabilities
   Deposits
     Noninterest-bearing .................................................................       $  31,508,920        $  32,607,181
     Interest bearing ....................................................................         344,216,937          310,147,640
                                                                                                 -------------        -------------
       Total deposits ....................................................................         375,725,857          342,754,821
   Federal funds purchased ...............................................................           1,291,200                    -
   Securities sold under agreements to repurchase ........................................          14,492,321            7,730,401
   Other borrowings ......................................................................          74,500,000           73,500,000
   Junior subordinated debentures ........................................................          10,310,000           10,310,000
   Other liabilities .....................................................................           3,400,225            3,815,558
                                                                                                 -------------        -------------
       Total liabilities .................................................................         479,719,603          438,110,780
                                                                                                 -------------        -------------
Shareholders' Equity
   Common stock (no par value;  20,000,000 shares  authorized;  4,604,638 shares
     outstanding at June 30, 2008 and 5,009,903 at December 31, 2007) ....................          54,490,829           60,157,384
   Retained earnings .....................................................................           4,112,161            2,597,714
   Accumulated other comprehensive loss ..................................................          (1,030,935)             (13,791)
                                                                                                 -------------        -------------
       Total shareholders' equity ........................................................          57,572,055           62,741,307
                                                                                                 -------------        -------------
       Total liabilities and shareholders' equity ........................................       $ 537,291,658        $ 500,852,087
                                                                                                 =============        =============
</TABLE>


            See notes to condensed consolidated financial statements.


                                      -2-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                   Condensed Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                      For the Six Months Ended
                                                                                                              June 30,
                                                                                                              --------
                                                                                                    2008                    2007
                                                                                                    ----                    ----
Interest income
<S>                                                                                             <C>                      <C>
   Loans, including fees .........................................................              $13,802,686              $14,222,400
   Investment securities .........................................................                1,734,255                1,206,318
   Federal funds sold ............................................................                   18,804                  296,901
                                                                                                -----------              -----------
       Total interest income .....................................................               15,555,745               15,725,619
                                                                                                -----------              -----------
Interest expense
   Deposits and borrowings .......................................................                8,012,850                8,361,191
                                                                                                -----------              -----------
Net interest income ..............................................................                7,542,895                7,364,428
Provision for loan losses ........................................................                1,110,047                        -
                                                                                                -----------              -----------
Net interest income after provision for loan losses ..............................                6,432,848                7,364,428
                                                                                                -----------              -----------
Noninterest income
    Service fees on deposit accounts .............................................                  548,297                  489,384
    Fees on loans sold ...........................................................                  136,843                  202,750
    Gain on sale of available for sale securities ................................                  224,418                   91,951
    Gain on sale of premises and equipment .......................................                        -                   25,016
    Company Owned Life Insurance earnings ........................................                  427,650                  158,532
    Other ........................................................................                  171,113                  196,487
                                                                                                -----------              -----------
       Total noninterest income ..................................................                1,508,321                1,164,120
                                                                                                -----------              -----------
Noninterest expenses
   Salaries and employment benefits ..............................................                3,435,951                3,423,418
   Occupancy .....................................................................                  573,730                  537,627
   Furniture and equipment .......................................................                  592,312                  567,250
   Advertising and public relations ..............................................                   20,059                   92,924
   Professional fees .............................................................                  317,896                  321,697
   Travel and entertainment ......................................................                  105,042                  143,557
   Telephone, postage and supplies ...............................................                  201,608                  223,373
   Other operating expenses ......................................................                  775,904                  653,733
                                                                                                -----------              -----------
       Total noninterest expenses ................................................                6,022,502                5,963,579
                                                                                                -----------              -----------
Income before income taxes .......................................................                1,918,667                2,564,969
Income tax .......................................................................                  404,220                  870,025
                                                                                                -----------              -----------
Net income .......................................................................              $ 1,514,447              $ 1,694,944
                                                                                                ===========              ===========
Basic net income per common share ................................................              $       .32              $       .30
Diluted net income per common share ..............................................              $       .32              $       .30
Weighted average shares outstanding
   Basic .........................................................................                4,691,867                5,725,460
   Diluted .......................................................................                4,692,028                5,731,162
</TABLE>


            See notes to condensed consolidated financial statements.



                                      -3-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                   Condensed Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                      For the Three Months Ended
                                                                                                               June 30,
                                                                                                               --------
                                                                                                     2008                   2007
                                                                                                     ----                   ----
Interest income
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $6,968,444               $7,248,484
   Investment securities .........................................................                  916,088                  603,884
   Federal funds sold ............................................................                    7,127                   80,214
                                                                                                 ----------               ----------
       Total interest income .....................................................                7,891,659                7,932,582
                                                                                                 ----------               ----------
Interest expense
   Deposits and borrowings .......................................................                3,801,958                4,209,591
                                                                                                 ----------               ----------
Net interest income ..............................................................                4,089,701                3,722,991
Provision for loan losses ........................................................                  729,000                        -
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                3,360,701                3,722,991
                                                                                                 ----------               ----------
Noninterest income
   Service fees on deposit accounts ..............................................                  279,630                  270,797
   Fees on loans sold ............................................................                   61,601                  104,390
   Gain on sale of available for sale securities .................................                   70,953                        -
   Company Owned Life Insurance Earnings .........................................                  222,463                  134,059
   Other .........................................................................                   79,129                   52,389
                                                                                                 ----------               ----------
       Total noninterest income ..................................................                  713,776                  561,635
                                                                                                 ----------               ----------
Noninterest expenses
   Salaries and employment benefits ..............................................                1,712,508                1,695,064
   Occupancy .....................................................................                  291,344                  270,696
   Furniture and equipment .......................................................                  299,909                  289,448
   Advertising and public relations ..............................................                    9,583                   32,954
   Professional fees .............................................................                  222,508                  145,442
   Travel and entertainment ......................................................                   51,415                   70,276
   Telephone, postage, and supplies ..............................................                   97,326                  109,768
   Other operating expenses ......................................................                  415,072                  381,043
                                                                                                 ----------               ----------
       Total noninterest expenses ................................................                3,099,665                2,994,691
                                                                                                 ----------               ----------
Income before income taxes .......................................................                  974,812                1,289,935
Income tax .......................................................................                  204,711                  425,903
                                                                                                 ----------               ----------
Net income .......................................................................               $  770,101               $  864,032
                                                                                                 ==========               ==========
Basic net income per common share ................................................               $      .17               $      .15
Diluted net income per common share ..............................................               $      .17               $      .15
Weighted average shares outstanding
   Basic .........................................................................                4,665,247                5,603,193
   Diluted .......................................................................                4,665,696                5,609,052
</TABLE>

            See notes to condensed consolidated financial statements.



                                      -4-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

          Condensed Consolidated Statement of Changes in Shareholders'
                         Equity and Comprehensive Income
                 For the six months ended June 30, 2008 and 2007
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                                                                            other
                                                               Common Stock                             comprehensive
                                                              ------------               Retained          income
                                                        Shares          Amount           earnings          (loss)          Total
                                                        ------          ------           --------          ------          -----
<S>                                                    <C>           <C>              <C>              <C>             <C>
Balance, December 31, 2006 .....................       5,470,316     $ 75,315,774     $  3,503,162     $    (16,324)   $ 78,802,612

   Net income for the period ...................                                         1,694,944                        1,694,944

   Other comprehensive loss,
     net of tax
   Unrealized holding losses
     on securities available for sale ..........                                                           (537,686)       (537,686)
                                                                                                                       ------------

   Comprehensive income ........................                                                                          1,157,258

   Stock dividend ..............................         502,609        4,334,074       (4,334,074)                           -

   Shares repurchased and retired ..............        (499,718)     (11,079,592)                                      (11,079,592)

   Employee stock purchase plan ................           3,240           64,661                                            64,661
                                                       ---------     ------------     ------------     ------------    ------------

Balance, June 30, 2007 .........................       5,476,447     $ 68,634,917     $    864,032     $   (554,010)   $ 68,944,939
                                                       =========     ============     ============     ============    ============

Balance, December 31, 2007 .....................       5,009,903     $ 60,157,384     $  2,597,714     $    (13,791)    $ 62,741,307
   Net income for the period ...................                                         1,514,447                         1,514,447

   Other comprehensive loss,
     net of tax
   Unrealized holding losses
     on securities available for sale ..........                                                           (873,516)       (873,516)

   Less reclassification adjustment for
     gains included in net income, net of
     taxes of $ 80,790 .........................                                                           (143,628)       (143,628)
                                                                                                                       ------------

   Comprehensive income ........................                                                                            497,303

   Shares repurchased and retired ..............        (410,373)      (5,740,170)                                       (5,740,170)

   Employee stock purchase plan ................           5,108           73,615                                            73,615
                                                       ---------     ------------     ------------     ------------    ------------

Balance, June 30, 2008 .........................       4,604,638     $ 54,490,829     $  4,112,161     $ (1,030,935)   $ 57,572,055
                                                       =========     ============     ============     ============    ============
</TABLE>

            See notes to condensed consolidated financial statements.


                                      -5-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                       For the six months ended
                                                                                                               June 30,
                                                                                                               --------
                                                                                                      2008                   2007
                                                                                                      ----                   ----
Operating activities
<S>                                                                                               <C>                  <C>
   Net income ............................................................................        $  1,514,447         $  1,694,944
   Adjustments to reconcile net income to net
   cash provided (used) by operating activities
       (Increase) decrease in deferred income taxes ......................................            (223,733)             254,011
       Provision for loan losses .........................................................           1,110,047                    -
       Depreciation and amortization .....................................................           1,199,800              684,516
       Discount accretion and premium amortization .......................................             (26,983)               3,666
       Gain on sale of securities ........................................................            (224,418)             (91,951)
       (Gain) loss on sale or disposal of property and equipment .........................              14,954              (25,016)
       Originations of loans held for sale ...............................................         (24,932,048)         (32,085,429)
       Proceeds from sales of loans held for sale ........................................          24,993,048           31,877,945
       Increase in value of Bank Owned Life Insurance ....................................            (427,650)            (158,532)
       Increase in other assets ..........................................................            (123,356)            (320,930)
       Decrease in other liabilities .....................................................            (415,333)            (136,375)
                                                                                                  ------------         ------------

         Net cash provided by operating activities .......................................           2,458,775            1,696,849
                                                                                                  ------------         ------------

Investing activities
   Purchases of Federal Home Loan Bank stock .............................................              (7,800)            (348,900)
   Purchases of investment securities available-for-sale .................................         (31,598,595)         (19,314,414)
   Sales, calls, and maturities of investment securities available-for-sale ..............          15,981,559            5,587,460
   Purchases of Bank Owned Life Insurance ................................................                   -          (14,716,988)
   Proceeds from sales of premises and equipment .........................................                   -               34,000
   Purchases of premises and equipment ...................................................          (1,072,974)          (1,220,743)
   Net increase in loans .................................................................         (19,938,073)          (4,778,433)
                                                                                                  ------------         ------------

         Net cash used for investing activities ..........................................         (36,635,883)         (34,758,018)
                                                                                                  ------------         ------------

Financing activities
   Increase in borrowings ................................................................           9,053,120           18,083,278
   Proceeds from issuances of stock ......................................................              73,615               64,661
   Funds used to repurchase stock ........................................................          (5,740,170)         (11,079,592)
   Net increase (decrease) in deposits ...................................................          32,971,036           (2,240,866)
                                                                                                  ------------         ------------

         Net cash provided by financing activities .......................................          36,357,601            4,827,481
                                                                                                  ------------         ------------

         Decrease in cash and cash equivalents ...........................................           2,180,493          (28,233,688)

Cash and cash equivalents, beginning of period ...........................................          10,807,156           38,212,202
                                                                                                  ------------         ------------

Cash and cash equivalents, end of period .................................................        $ 12,987,649         $  9,978,514
                                                                                                  ============         ============

Cash paid during the year for:
   Income taxes ..........................................................................        $    677,905         $    916,715
   Interest ..............................................................................        $  8,267,726         $  8,079,235
</TABLE>

            See notes to condensed consolidated financial statements.



                                      -6-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


Note 1 - Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
for interim  financial  information  and with the  instructions to Form 10-Q and
Regulation S-X of the Securities and Exchange  Commission.  Accordingly  they do
not include all information and notes required by generally accepted  accounting
principles for complete financial statements.  However, in management's opinion,
all  adjustments   (consisting  of  normal  recurring  adjustments)   considered
necessary for a fair presentation have been included.

Note 2 - Organization

Southcoast Financial Corporation (the "Company") is a South Carolina corporation
organized  in 1999 for the  purpose of being a holding  company  for  Southcoast
Community Bank (the "Bank").  On April 29, 1999,  pursuant to a Plan of Exchange
approved by the shareholders,  all of the outstanding shares of capital stock of
the Bank were  exchanged for shares of common stock of the Company.  The Company
presently  engages in no business other than that of owning the Bank and another
subsidiary and has no employees.

Note 3 - Net Income Per Share

Net income per share is computed on the basis of the weighted  average number of
common shares  outstanding in accordance with Statement of Financial  Accounting
Standards No. 128,  "Earnings  per Share." The treasury  stock method is used to
compute the effect of stock  options on the  weighted  average  number of shares
outstanding for diluted earnings per share.

Note 4 - Stock Repurchase

On January 18, 2008,  the Company  announced  plans to  repurchase up to 484,527
shares of its  outstanding  common  stock.  Repurchased  shares are retired into
authorized  unissued  shares.  The Company had previously in July 2007 announced
plans to repurchase up to 547,556 shares of its outstanding common stock. During
the first six months of 2008, the Company  repurchased  410,373 shares, of which
241,709 were  repurchased  pursuant to the 2008 repurchase plan and 168,664 were
repurchased  pursuant to the 2007  repurchase  plan.  In July 2008,  the Company
repurchased an additional  73,220  shares.  As a result of the  repurchase,  the
Company had 4,531,418  common shares  outstanding  at July 31, 2008.  During the
first six months of 2007, the Company repurchased 499,718 shares of common stock
pursuant to the 2007 repurchase plan.

Note 5 - Recently Issued Accounting Standards

The  following  is a summary  of recent  authoritative  pronouncements  that may
affect  accounting,  reporting,  and disclosure of financial  information by the
Company:

In December  2007,  the FASB issued SFAS No.  141(R),  "Business  Combinations,"
("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R) establishes  principles and
requirements  for how an  acquirer  in a  business  combination  recognizes  and
measures in its financial  statements  the  identifiable  assets  acquired,  the
liabilities  assumed,  and any  controlling  interest;  recognizes  and measures
goodwill acquired in the business combination or a gain from a bargain purchase;
and  determines  what  information  to disclose to enable users of the financial
statements  to  evaluate  the  nature  and  financial  effects  of the  business
combination.  FAS 141(R) is effective  for  acquisitions  by the Company  taking
place on or after January 1, 2009. Early adoption is prohibited.  Accordingly, a
calendar   year-end  company  is  required  to  record  and  disclose   business
combinations  following existing  accounting guidance until January 1, 2009. The
Company  will assess the impact of SFAS 141(R) if and when a future  acquisition
occurs.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements - an amendment of ARB No. 51" ("SFAS  160").
SFAS  160   establishes   new  accounting   and  reporting   standards  for  the
noncontrolling  interest  in a  subsidiary  and  for  the  deconsolidation  of a
subsidiary.  Before this  statement,  limited  guidance  existed  for  reporting
noncontrolling interests (minority interest). As a result, diversity in practice
exists. In some cases minority interest is reported as a liability and in others
it is  reported  in  the  mezzanine  section  between  liabilities  and  equity.
Specifically,  SFAS 160 requires the  recognition of a  noncontrolling  interest
(minority  interest) as equity in the  consolidated  financials  statements  and
separate from the parent's equity. The amount of net income  attributable to the
noncontrolling  interest will be included in consolidated net income on the face
of the income statement. SFAS 160 clarifies that changes in a parent's ownership


                                      -7-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 5 - Recently Issued Accounting Standards- (continued)

interest  in a  subsidiary  that do not  result in  deconsolidation  are  equity
transactions  if the parent  retains  its  controlling  financial  interest.  In
addition,  this statement  requires that a parent  recognize gain or loss in net
income when a subsidiary is  deconsolidated.  Such gain or loss will be measured
using  the  fair  value  of  the   noncontrolling   equity   investment  on  the
deconsolidation  date. SFAS 160 also includes expanded  disclosure  requirements
regarding the interests of the parent and its noncontrolling interests. SFAS 160
is effective for the Company on January 1, 2009. Earlier adoption is prohibited.
The  Company  does not  believe  the  adoption  of SFAS 160 will have a material
impact on its financial position, results of operations or cash flows.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging  Activities"  ("SFAS 161").  SFAS 161 requires  enhanced
disclosures  about an entity's  derivative  and hedging  activities  and thereby
improves the transparency of financial reporting.  It is intended to enhance the
current disclosure  framework in SFAS 133 by requiring that objectives for using
derivative  instruments be disclosed in terms of underlying  risk and accounting
designation.  This  disclosure  better  conveys the purpose of derivative use in
terms of the risks that the entity intends to manage.  SFAS 161 is effective for
the Company on January 1, 2009. This  pronouncement  does not impact  accounting
measurements  but will  result  in  additional  disclosures  if the  Company  is
involved in material derivative and hedging activities at that time.

In February 2008, the FASB issued FASB Staff Position No. 140-3, "Accounting for
Transfers of  Financial  Assets and  Repurchase  Financing  Transactions"  ("FSP
140-3").  This FSP provides guidance on accounting for a transfer of a financial
asset and the transferor's  repurchase financing of the asset. This FSP presumes
that an initial  transfer of a financial  asset and a repurchase  financing  are
considered part of the same arrangement (linked transaction) under SFAS No. 140.
However,  if certain  criteria  are met,  the initial  transfer  and  repurchase
financing are not evaluated as a linked transaction and are evaluated separately
under Statement 140. FSP 140-3 will be effective for financial statements issued
for fiscal years  beginning  after November 15, 2008, and interim periods within
those fiscal years and earlier application is not permitted.  Accordingly,  this
FSP is  effective  for the Company on January 1, 2009.  The Company is currently
evaluating  the  impact,  if any,  the  adoption  of FSP 140-3  will have on its
financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3,  "Determination of
the Useful Life of Intangible Assets" ("FSP 142-3"). This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized  intangible  asset under SFAS No. 142,
"Goodwill and Other Intangible Assets". The intent of this FSP is to improve the
consistency between the useful life of a recognized  intangible asset under SFAS
No. 142 and the period of expected  cash flows used to measure the fair value of
the asset  under  SFAS No.  141(R),  "Business  Combinations,"  and  other  U.S.
generally accepted  accounting  principles.  This FSP is effective for financial
statements  issued for fiscal years  beginning  after  December  15,  2008,  and
interim  periods  within those fiscal  years and early  adoption is  prohibited.
Accordingly,  this FSP is  effective  for the  Company on  January 1, 2009.  The
Company does not believe the  adoption of FSP 142-3 will have a material  impact
on its financial position, results of operations or cash flows.

Effective  January 1, 2008,  the  Company  adopted  SFAS No.  157,  "Fair  Value
Measurements"  ("SFAS  157")  which  provides  a  framework  for  measuring  and
disclosing fair value under generally accepted accounting  principles.  SFAS 157
requires  disclosures about the fair value of assets and liabilities  recognized
in the balance sheet in periods subsequent to initial  recognition,  whether the
measurements  are made on a  recurring  basis (for  example,  available-for-sale
investment securities) or on a nonrecurring basis (for example, impaired loans).


                                      -8-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 5 - Recently Issued Accounting Standards- (continued)

SFAS 157 defines fair value as the exchange  price that would be received for an
asset or paid to transfer a liability  (an exit price) in the  principal or most
advantageous market for the asset or liability in an orderly transaction between
market  participants on the measurement  date. SFAS 157 also  establishes a fair
value  hierarchy  which  requires  an entity to maximize  the use of  observable
inputs and minimize the use of  unobservable  inputs when  measuring fair value.
The standard  describes  three levels of inputs that may be used to measure fair
value:


Level 1        Quoted  prices  in  active   markets  for  identical   assets  or
               liabilities.  Level 1 assets  and  liabilities  include  debt and
               equity securities and derivative  contracts that are traded in an
               active exchange  market,  as well as U.S.  Treasuries,  and money
               market funds.

Level 2        Observable inputs other than Level 1 prices such as quoted prices
               for similar assets or liabilities;  quoted prices in markets that
               are not active;  or other  inputs that are  observable  or can be
               corroborated by observable market data for substantially the full
               term of the assets or liabilities. Level 2 assets and liabilities
               include debt  securities  with quoted prices that are traded less
               frequently than  exchange-traded  instruments,  mortgage-  backed
               securities,  municipal  bonds,  corporate  debt  securities,  and
               derivative  contracts  whose value is determined  using a pricing
               model with  inputs  that are  observable  in the market or can be
               derived  principally  from or corroborated  by observable  market
               data.  This  category   generally   includes  certain  derivative
               contracts and impaired loans.

Level 3        Unobservable  inputs  that are  supported  by little or no market
               activity and that are significant to the fair value of the assets
               or liabilities.  Level 3 assets and liabilities include financial
               instruments  whose  value is  determined  using  pricing  models,
               discounted cash flow  methodologies,  or similar  techniques,  as
               well as  instruments  for which the  determination  of fair value
               requires  significant  management  judgment  or  estimation.  For
               example,  this category generally includes certain private equity
               investments,  retained  residual  interests  in  securitizations,
               residential  mortgage servicing rights, and  highly-structured or
               long-term derivative contracts.

Assets  and  liabilities  measured  at fair  value on a  recurring  basis are as
follows as of June 30, 2008:

<TABLE>
<CAPTION>
                           Quoted market price                Significant other         Significant unobservable
                            in active markets                 observable inputs                  inputs
                                (Level 1)                        (Level 2)                      (Level 3)
                                ---------                        ---------                      ---------

<S>                           <C>                             <C>                              <C>
Available-for-sale
 investment securities        $         -                     $    72,794,058                  $        -

Interest rate swap
 derivative instrument        $         -                     $      (268,468)                 $        -
</TABLE>


The Company has no  liabilities  carried at fair value or measured at fair value
on a nonrecurring basis.

The Company is  predominantly  an asset based lender with real estate serving as
collateral  on a  substantial  majority  of loans.  Loans which are deemed to be
impaired are primarily valued on a nonrecurring  basis at the fair values of the
underlying  real  estate  collateral.   Such  fair  values  are  obtained  using
independent  appraisals,  which the Company considers to be level 2 inputs.  The
aggregate carrying amount of impaired loans at June 30, 2008 was $ 5,835,491.

FASB Staff  Position No. FAS 157-2 delays the  implementation  of SFAS 157 until
the first  quarter of 2009 with respect to goodwill,  other  intangible  assets,
real  estate  and  other  assets   acquired   through   foreclosure   and  other
non-financial assets measured at fair value on a nonrecurring basis.

                                      -9-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Note 5 - Recently Issued Accounting Standards- (continued)

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting bodies are not expected to have a material impact on the
Company's financial position, results of operations or cash flows.

Note 6 - Commitments and Contingencies

In May 2006 the  Company  entered  into a sales  contract on two parcels of land
contiguous to its branch location on John's Island. The land has a cost basis of
$2,837,178.  Under the agreement the Company agreed to sell the land, comprising
approximately  13.21 acres,  to the purchaser for the sum of $5,735,000.  At the
time of the contract the purchaser paid the Company a nonrefundable presales fee
of $1,390,000 that was not applicable to the purchase price of the property. The
Company  recognized  this as an item of  noninterest  income  during  2006.  The
agreement  specified a closing date on or before December 31, 2007, and provided
for an extension period of one year through December 31, 2008, contingent on the
payment  of $30,000  monthly  extension  payments  to the  Company.  Half of the
monthly  extension  payments  would be applicable to the purchase price and half
would be  nonapplicable.  In December 2007 the purchaser  exercised its right to
extend the closing date of the  transaction  and has paid the monthly  extension
payments to date in accordance  with the contract.  Half of the payments made to
date have been recognized into noninterest  income as extension fee payments and
half have been recorded as an escrow liability.

On July 29, 2008, the Company  closed on the sale of this property,  recognizing
sales proceeds after closing costs of $5,167,424.




                                      -10-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

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

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related notes  appearing  herein and in the Company's
Annual  Report on Form 10-K for the year ended  December  31,  2007.  Results of
operations for the period ending June 30, 2008 are not necessarily indicative of
the results to be attained for any other period.

This Report on Form 10-Q may contain forward-looking statements relating to such
matters as anticipated financial performance, business prospects,  technological
developments,  new products and similar  matters.  All  statements  that are not
historical  facts  are  "forward-looking  statements."  The  Private  Securities
Litigation  Reform  Act of  1995  provides  a safe  harbor  for  forward-looking
statements.  In order to comply with terms of the safe harbor, the Company notes
that a  variety  of  factors  could  cause  the  Company's  actual  results  and
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations   expressed   in   the   Company's   forward-looking    statements.
Forward-looking  statements  include  statements  with  respect to  management's
beliefs, plans, objectives,  goals,  expectations,  anticipations,  assumptions,
estimates,  intentions,  and future  performance,  and involve known and unknown
risks,  uncertainties  and other  factors,  which may be  beyond  the  Company's
control,  and which may cause actual results,  performance or achievements to be
materially different from future results,  performance or achievements expressed
or  implied  by such  forward-looking  statements.  All  statements  other  than
statements  of  historical  fact are  statements  that could be  forward-looking
statements.  These  forward-looking  statements can be identified through use of
words  such as "may,"  "will,"  "anticipate,"  "assume,"  "should,"  "indicate,"
"would," "believe,"  "contemplate,"  "expect," "seek,"  "estimate,"  "continue,"
"plan,"  "point  to,"  "project,"   "predict,"   "could,"  "intend,"   "target,"
"potential,"  and other  similar  words and  expressions  of the  future.  These
forward-looking  statements  may not be  realized  due to a variety of  factors,
including, without limitation:

     o    future economic and business conditions;
     o    lack of  sustained  growth in the  economy of the  Greater  Charleston
          area;
     o    government monetary and fiscal policies;
     o    the  effects of changes in interest  rates on the levels,  composition
          and costs of deposits, loan demand, and the values of loan collateral,
          securities, and interest sensitive assets and liabilities;
     o    the effects of  competition  from a wide  variety of local,  regional,
          national and other providers of financial,  investment,  and insurance
          services;
     o    credit risks;
     o    higher than anticipated  levels of defaults on loans;
     o    misperceptions by depositors about the safety of their deposits;
     o    the  failure  of  assumptions  underlying  the  establishment  of  the
          allowance for loan losses and other estimates;
     o    the risks of opening new offices,  including,  without limitation, the
          related  costs  and  time  of  building  customer   relationships  and
          integrating  operations as part of these  endeavors and the failure to
          achieve  expected  gains,  revenue growth and/or expense  savings from
          such endeavors;
     o    changes in laws and regulations, including tax, banking and securities
          laws and regulations;
     o    changes in accounting policies, rules and practices;
     o    changes in technology or products may be more difficult or costly,  or
          less effective than anticipated;
     o    the  effects of war or other  conflicts,  acts of  terrorism  or other
          catastrophic  events that may affect general  economic  conditions and
          economic confidence; and
     o    other factors and information  described in any of the reports that we
          file with the Securities and Exchange  Commission under the Securities
          Exchange Act of 1934.

All forward-looking statements are expressly qualified in their entirety by this
cautionary  notice.  The Company has no obligation,  and does not undertake,  to
update,  revise or correct any of the forward-looking  statements after the date
of this  report.  The  Company  has  expressed  its  expectations,  beliefs  and
projections  in good faith and believes they have a reasonable  basis.  However,
there is no  assurance  that these  expectations,  beliefs or  projections  will
result or be achieved or accomplished.


                                      -11-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

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

Results of Operations

The Company's net income for the six months ended June 30, 2008 was  $1,514,447,
or $.32 per basic share,  compared to $1,694,944,  or $.30 per basic share,  for
the six months ended June 30, 2007. The average number of shares outstanding for
the six months ending June 30, 2008 was 4,691,867  compared to 5,725,460 for the
six months ending June 30, 2007.

The  Company's  net income for the three months ended June 30, 2008 was $770,101
or $.17 per basic share,  compared to $864,032 or $.15 per basic share,  for the
three months ended June 30, 2007. The average number of shares  outstanding  for
the quarter  ending June 30, 2008 was  4,665,247  compared to 5,603,193  for the
quarter ending June 30, 2007.

Net Interest Income

Net interest  income is the difference  between the interest  earned on interest
earning assets and the interest paid for funds acquired to support those assets,
and is the principal source of the Company's  earnings.  Net interest income was
$7,542,895  for the six months ended June 30, 2008,  compared to $7,364,428  for
the six months ended June 30, 2007.

Changes  that affect net  interest  income  include  changes in the average rate
earned on interest earning assets,  changes in the average rate paid on interest
bearing  liabilities,  and changes in the volumes of interest earning assets and
interest bearing liabilities.

Average  earning  assets for the six months  ending June 30, 2008  increased 6.0
percent to $453.1  million from the $427.4  million  reported for the six months
ending June 30,  2007.  The  increase  was  attributable  to  increases of $15.5
million and $10.2  million,  respectively,  in average  loans and average  total
investments and federal funds sold. The increase in average loans was due to the
continued growth of our commercial lending and branch network areas.

Average  interest  bearing  liabilities  for the six months  ended June 30, 2008
increased 15.6 percent to $418.8  million from the $362.3  million  reported for
the six months ending June 30, 2007. The increase was  attributable to increases
in average time deposits, savings and transaction accounts, and other borrowings
of $35.3 million,  $19.0 million, and $13.6 million,  respectively,  offset by a
decrease of $11.3 million in average  subordinated debt. The increase in average
interest  bearing  liabilities  was primarily a result of a limited  offering of
higher than market interest rates, and was necessitated by the growth in average
assets and the early  retirement  of $11.3 million in  subordinated  debt during
2007.

The  following  table  compares the average  balances,  yields and rates for the
interest  sensitive  segments of the Company's balance sheets for the six months
ended June 30, 2008 and 2007.




                                      -12-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

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

Net Interest Income - continued
<TABLE>
<CAPTION>
                                                       For the six months ended                     For the six months ended
                                                             June 30, 2008                                June 30, 2007
                                                             -------------                                -------------
                                              Average          Income/      Yield/          Average           Income/       Yield/
                                              Balance          Expense      Rate(1)         Balance           Expense       Rate(1)
                                              -------          -------      -------         -------           -------       -------
Assets
<S>                                    <C>                 <C>                <C>        <C>                <C>               <C>
   Federal funds sold ................ $    1,486,043      $     18,804       2.55%      $  11,315,365      $    296,901      5.29%
   Investments - taxable .............     50,800,453         1,293,939       5.14          42,500,336         1,071,830      5.09
   Investments - nontaxable (2) ......     18,293,129           666,873       7.35           6,541,727           210,138      6.48
                                       --------------      ------------                  -------------      ------------
      Total investments and
        federal funds sold ...........     70,579,625         1,979,616       5.66          60,357,428         1,578,869      5.28
   Loans (3) (4) .....................    382,503,862        13,802,686       7.24         367,028,261        14,222,400      7.78
                                       --------------      ------------                  -------------      ------------
      Total interest earning assets ..    453,083,487        15,782,302       7.00%        427,385,689        15,801,269      7.42%
                                                            -----------                                      -----------
      Other assets ...................     64,883,734                                       45,951,641
                                       --------------                                    -------------
      Total assets ................... $  517,967,221                                    $ 473,337,330
                                       ==============                                    =============
Liabilities
   Savings and
      transaction accounts ........... $   82,989,717           846,466       2.06       $  63,966,053           853,621      2.69
   Time Deposits .....................    227,466,270         5,028,487       4.46         192,197,814         4,776,430      5.01
   Other borrowings ..................     98,074,769         1,820,865       3.74          84,520,744         1,900,584      4.53
   Subordinated Debt .................     10,310,000           317,032       6.20          21,655,000           830,556      7.73
                                       --------------      ------------                  -------------      ------------
      Total interest bearing
        liabilities ..................    418,840,756         8,012,850       3.86         362,339,611         8,361,191      4.65
                                                           ------------                                     ------------
   Non-interest bearing
      liabilities ....................     38,499,490                                       37,123,942
                                       --------------                                    -------------
      Total liabilities ..............    457,340,246         8,012,850       3.53         399,463,553         8,361,191      4.22
                                                           ------------                                     ------------
   Equity ............................     60,626,975                                       73,873,777
                                       --------------                                    -------------
      Total liabilities
        and equity ................... $  517,967,221                                    $ 473,337,330
                                       ==============                                    =============
      Net interest
        income/margin (5) ............                     $  7,769,452       3.43                          $  7,440,078      3.48
                                                           ============                                     ============
      Net interest spread (6) ........                                        3.14%                                           2.77%
</TABLE>

(1)  Annualized
(2)  Tax equivalent yields for nontaxable investments assuming a 36% tax rate.
(3)  Does not include non- accruing loans.
(4)  Income includes loan fees of $672,122 in 2008 and $579,044 in 2007.
(5)  Net interest income divided by total earning assets.
(6)  Total interest earning assets yield less interest bearing liabilities rate.

As shown  above,  for the six months  ended June 30, 2008 the  average  yield on
earning  assets was 7.00  percent,  while the average  cost of interest  bearing
liabilities was 3.86 percent. For the six months ended June 30, 2007 the average
yield  on  earning   assets  was  7.42   percent   and  the   average   cost  of
interest-bearing  liabilities was 4.65 percent. The decrease in the asset yields
and average rates paid is due to market  interest rate  decreases  over the last
year. The net interest  margin is computed by annualizing  year to date interest
income and interest expense,  taking the difference,  and dividing the resulting
figure by average interest  earning assets.  The net interest margin for the six
months ended June 30, 2008 was 3.43 percent compared to 3.48 percent for the six
months  ended  June  30,  2007.  The  decrease  in the net  interest  margin  is
attributable  to an increase in average  interest  bearing  liabilities of $56.5
million between the two periods, compared with an increase of only $25.7 million
in interest  bearing  assets,  a  difference  of $30.8  million.  The  Company's
purchase of $17.3  million of Company Owned Life  Insurance  during 2007 and its
stock repurchases totaling $14.4 million between June 30, 2007 and June 30, 2008
absorbed the extra funding  provided by the increase in average interest bearing
liabilities in excess of average interest earning assets.

                                      -13-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Net Interest  Income - continued

The cost of total  liabilities  was 3.53  percent  and 4.22  percent for the six
months ending June 30, 2008 and 2007, respectively.

Average  earning assets for the three months ending June 30, 2008 increased 9.36
percent to $462.1 million from the $422.6 million  reported for the three months
ending June 30,  2007.  The  increase  was  attributable  to  increases of $21.8
million  and $17.8  million,  respectively,  in average  total  investments  and
federal funds sold and average loans.

Average interest  bearing  liabilities for the three months ending June 30, 2008
increased  18.15 percent to $431.2 million from the $365.0 million  reported for
the three months  ending June 30, 2007.  This  increase was  primarily due to an
increase of $52.6 million in average time  deposits,  which included an increase
of $37.1 in average brokered and wholesale time deposits.

The  following  table  compares the average  balances,  yields and rates for the
interest sensitive segments of the Company's balance sheets for the three months
ended June 30, 2008 and 2007.
<TABLE>
<CAPTION>
                                                     For the three months ended                     For the three months ended
                                                           June 30, 2008                                  June 30, 2007
                                                           -------------                                  -------------
                                              Average          Income/      Yield/          Average           Income/       Yield/
                                              Balance          Expense      Rate(1)         Balance           Expense       Rate(1)
                                              -------          -------      -------         -------           -------       -------
Assets
<S>                                     <C>                 <C>               <C>       <C>                 <C>                <C>
   Federal funds sold ................  $   1,311,635       $     7,127       2.18%     $   6,147,130       $    80,214        5.23%
   Investments - taxable .............     57,084,407           700,481       4.92         42,524,032           530,292        5.00
   Investments - nontaxable (2) ......     19,126,903           327,763       6.87          7,050,258           114,988        6.54
                                        -------------       -----------                 -------------       -----------
      Total investments and
        federal funds sold ...........     77,522,945         1,035,371       5.36         55,721,420           725,494        5.22
   Loans (3) (4) .....................    384,610,633         6,968,444       7.23        366,850,110         7,248,484        7.89
                                        -------------       -----------                 -------------       -----------
      Total earning assets ...........    462,133,578         8,003,815       6.95        422,571,530         7,973,978        7.54
                                                            -----------                                     -----------
      Other assets ...................     66,964,213                                       51,653,946
                                        -------------                                    -------------
      Total assets ...................  $ 529,097,791                                    $ 474,225,476
                                        =============                                    =============
Liabilities
   Savings and
      transaction accounts ...........  $  80,886,271       $   341,741       1.69      $  70,887,552       $   491,177        2.78
   Time Deposits .....................    235,831,710         2,414,986       4.11        183,281,702         2,302,896        5.04
   Other Borrowings ..................    104,218,478           885,173       3.41         89,177,687         1,000,148        4.50
   Subordinated Debt .................     10,310,000           160,058       6.23         21,655,000           415,370        7.69
                                        -------------       -----------                 -------------       -----------
      Total interest bearing
        liabilities ..................    431,246,459         3,801,958       3.54        365,001,941         4,209,591        4.63
                                                            -----------                                     -----------
   Non-interest bearing
      liabilities ....................     37,720,436                                      37,513,150
                                        -------------                                    ------------
      Total liabilities ..............    468,966,895         3,801,958       3.25        402,515,091         4,209,591        4.19
                                                            -----------                                     -----------
   Equity ............................     60,130,896                                      71,710,385
                                        -------------                                   -------------
      Total liabilities
        and equity ...................  $ 529,097,791                                   $ 474,225,476
                                        =============                                   =============
      Net interest
        income/margin (5) ............                      $ 4,201,857       3.65                         $ 3,764,387         3.54
                                                            ===========                                    ===========
      Net interest spread (6) ........                                        3.41%                                            2.91%
</TABLE>
(1)  Annualized
(2)  Tax equivalent yields for nontaxable investments assuming a 36% tax rate.
(3)  Does not include non- accruing loans.
(4)  Income includes loan fees of $417,464 in 2008 and $333,906 in 2007.
(5)  Net interest income divided by total earning assets.
(6)  Total interest earning assets yield less interest bearing liabilities rate.


                                      -14-
<PAGE>

Item 2. -  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations - continued  Net Interest  Income - continued As reflected
above,  for the three  months  ended June 30, 2008 the average  yield on earning
assets was 6.68 percent,  while the average cost of interest bearing liabilities
was 3.54 percent.  For the three months ended June 30, 2007 the average yield on
earning  assets  was  7.54  percent  and the  average  cost of  interest-bearing
liabilities  was 4.63 percent.  The decrease in the yield on earning  assets and
the rates paid on interest  bearing  liabilities is  attributable  to the market
interest  rate  decreases  over the last year.  The net interest  margin for the
three months  ended June 30, 2008 was 3.52 percent  compared to 3.54 percent for
the three months ended June 30, 2007. The decrease in the net interest margin is
primarily  attributable to the growth of interest bearing  liabilities in excess
of the growth in interest bearing assets.
 The cost of total  liabilities was 3.25 percent for the three months ended June
30, 2008, compared to 4.19 percent for the three months ended June 30, 2007.

The following  tables present changes in the Company's net interest income which
are   primarily   a  result  of   changes   in  the  volume  and  rates  of  its
interest-earning assets and interest-bearing liabilities.

<TABLE>
<CAPTION>
                                                                                  Analysis of Changes in Net Interest Income
                                                                                    For the six months ended June 30, 2008
                                                                                   Versus six months ended June 30, 2007 (1)
                                                                                   -----------------------------------------
                                                                               Volume                 Rate              Net Change
                                                                               ------                 ----              ----------
Interest income:

<S>                                                                         <C>                   <C>                   <C>
   Federal funds sold ............................................          $  (257,909)          $   (20,188)          $  (278,097)
   Investments - taxable .........................................              209,323                12,786               222,109
   Investments - non taxable (2) .................................              377,487                79,248               456,735
                                                                            -----------           -----------           -----------
     Total investments and federal funds sold ....................              328,901                71,846               400,747
     Net loans (3) ...............................................              599,682            (1,019,396)             (419,714)
                                                                            -----------           -----------           -----------
     Total interest income .......................................              928,583              (947,550)              (18,967)
                                                                            -----------           -----------           -----------
Interest expense:
   Savings and transaction accounts ..............................              126,233              (133,388)               (7,155)
   Time deposits .................................................              435,818              (183,761)              252,057
   Other borrowings ..............................................              151,550              (231,269)              (79,719)
   Subordinated debt .............................................             (216,360)             (297,164)             (513,524)
                                                                            -----------           -----------           -----------
     Total interest expense ......................................              497,241              (845,582)             (348,341)
                                                                            -----------           -----------           -----------
     Net interest income .........................................          $   431,342           $  (101,968)          $   329,374
                                                                            ===========           ===========           ===========
</TABLE>

(1) Changes in rate/volume  have been  allocated on a consistent  basis to rate.
(2) Tax equivalent  yields for nontaxable  investments  assuming a 36% tax rate.
(3) Income includes loan fees of $672,122 in 2008 and $579,044 in 2007.


                                      -15-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Net Interest Income - continued

<TABLE>
<CAPTION>
                                                                                  Analysis of Changes in Net Interest Income
                                                                                    For the three months ended June 30, 2008
                                                                                 Versus three months ended June 30, 2007 (1)
                                                                                 -------------------------------------------
                                                                               Volume                  Rate              Net Change
                                                                               ------                  ----              ----------
Interest income:

<S>                                                                         <C>                   <C>                   <C>
   Federal funds sold ............................................          $   (62,405)          $   (10,682)          $   (73,087)
   Investments - taxable .........................................              179,578                (9,389)              170,189
   Investments - non taxable (2) .................................              194,803                17,972               212,775
                                                                            -----------           -----------           -----------
     Total investments and federal funds sold ....................              311,976                (2,099)              309,877
     Net loans (3) ...............................................              347,069              (627,109)             (280,040)
                                                                            -----------           -----------           -----------
     Total interest income .......................................              659,045              (629,208)               29,837
                                                                            -----------           -----------           -----------
Interest expense:
   Savings and transaction accounts ..............................               68,521              (217,957)             (149,436)
   Time deposits .................................................              653,024              (540,934)              112,090
   Other borrowings ..............................................              166,832              (281,807)             (114,975)
   Subordinated debt .............................................             (215,220)              (40,092)             (255,312)
                                                                            -----------           -----------           -----------
     Total interest expense ......................................              673,157            (1,080,790)             (407,633)
                                                                            -----------           -----------           -----------
     Net interest income .........................................          $   (14,112)          $   451,582           $   437,470
                                                                            ===========           ===========           ===========
</TABLE>

(1) Changes in rate/volume  have been  allocated on a consistent  basis to rate.
(2) Tax equivalent  yields for nontaxable  investments  assuming a 36% tax rate.
(3) Income includes loan fees of $417,464 in 2008 and $333,906 in 2007.

Noninterest Income and Expenses

Noninterest  income  for the six  months  ended  June 30,  2008 was  $1,508,321,
compared to  $1,164,120  for the six months ended June 30, 2007,  an increase of
$344,201.  Company owned life insurance  earnings  increased by $269,118 between
the two periods,  with these earnings totaling $427,650 and $158,532 for the six
months  ended  June 30,  2008 and June 30,  2007,  respectively.  The  increased
earnings on company owned life insurance were due to $17.3 million of additional
Company  owned life  insurance  purchased  throughout  2007.  Additionally,  the
Company had a $132,467  increase in gains on the sale of investment  securities,
with gains totaling  $224,418 and $91,951 for the six months ended June 30, 2008
and June 30, 2007,  respectively.  Service fees on deposit accounts increased by
$58,913 to $548,297 for the six months ended June 30, 2008 from $489,384 for the
six months ended June 30, 2007, due to deposit growth  achieved by our expanding
branch  network.  Fees on loans sold decreased  $65,907 between the two periods,
totaling  $136,843  and $202,750 for the six months ended June 30, 2008 and June
30, 2007, respectively.  The decrease is attributable to a continued slowdown in
the mortgage market.

Noninterest  expenses for the six months ended June 30, 2008 were $6,022,502 and
$5,963,579  for  the  six  months  ended  June  30,  2008  and  June  30,  2007,
respectively,  an increase of $58,923.  Most  categories of noninterest  expense
were  relatively  stable  between  the two  periods.  Other  operating  expenses
increased by $122,171  between the two periods,  primarily due to an increase of
$84,902 in insurance expense,  the result of an increase in premiums paid to the
Federal  Deposit  Insurance  Corporation.  Counteracting  this increase in other
operating  expenses was a decline of $72,865 in advertising  expense,  largely a
result of the  Company's  decision  to decrease  its  television  and  billboard
advertising.

Noninterest  income  for the three  months  ended  June 30,  2008 was  $713,776,
compared to $561,635 for the three  months ended June 30, 2007, a difference  of
$152,141.  The  increase is primarily  attributable  to increases of $70,953 and
$88,404 in gains on sales of available  for sale  securities  and Company  owned
life insurance earnings, respectively.

Noninterest  expenses for the three months ended June 30, 2008 were  $3,099,665,
compared to $2,994,691  for the three months ended June 30, 2007, an increase of
$104,974 between the two periods.  The increase is primarily  attributable to an
increase of $77,066 in professional  fees between the two periods.  The increase
in professional fees was attributable to various sources,  including accounting,
legal, and consulting related fees.



                                      -16-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Liquidity

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals  in the most timely and  economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted  into cash at minimal cost  (amounts due from banks and federal  funds
sold).  However,  the most  manageable  sources of  liquidity  are  composed  of
liabilities, with the primary focus of liquidity management being on the ability
to obtain deposits within the Bank's service area. Core deposits (total deposits
less certificates for $100,000 or more, wholesale and brokered deposits) provide
a relatively  stable  funding base, and were equal to 52.9% of total deposits as
of June 30, 2008.  Asset liquidity is provided from several  sources,  including
amounts due from banks and federal funds sold and funds from maturing loans. The
Bank is a member of the Federal Home Loan Bank of Atlanta ("FHLBA") and, as such
has the  ability  to  borrow  against  a pledge  of its 1-4  family  residential
mortgage  loans.  The Company  also has a $17 million line of credit with Nexity
Bank, a $15.4 million line of credit with Silverton  Bank, a $10 million line of
credit with First Tennessee Bank, and a $10 million line of credit with US Bank.
Additionally  the Company has a $3.0 million holding company line of credit with
First Tennessee Bank. The holding company had drawn $1.5 million on this line as
of June 30, 2008.  Management  believes that the Company's liquidity sources are
adequate to meet normal operating needs.

Loans

Nonfarm, nonresidential real estate loans comprised 24 percent of the total loan
portfolio as of June 30, 2008,  totaling  $96.7  million.  Loans secured by real
estate for  construction  and land  development  totaled  $79.3  million,  or 20
percent of the portfolio  while 1-4 family mortgage loans totaled $172.2 million
or 43 percent of the total loan  portfolio,  as of June 30, 2008. All other real
estate  loans  totaled  $6.0  million or 2 percent of the total loan  portfolio.
Commercial and industrial  loans  comprised  $38.9 million,  or 10% of the total
loan  portfolio.  Installment  loans and  other  consumer  loans to  individuals
comprised  $4.2  million or 1 percent of the total loan  portfolio.  Total loans
increased  by $18.9  million  during the six months  ended  June 30,  2008,  due
primarily to increases of $10.8 million,  $3.3 million, and $4.6 million in 1- 4
family  residential  loans,  construction  loans,  and commercial and industrial
loans, respectively.

At June 30, 2008,  the Company had $3.7 million in loans 90 days  delinquent and
still accruing  interest and $5.8 million of nonaccrual  loans.  The Company had
$553,000 of other real estate  owned at this date.  The  majority of  nonaccrual
loans are secured by real  estate,  and the overall  value of real estate in the
Company's market area has remained relatively stable.  There were no other loans
that  management had determined to be potential  problem loans at June 30, 2008.
At December 31, 2007, the Company had $3.5 million of loans 90 days past due and
still accruing  interest,  $194,000 in other real estate owned,  and $893,000 of
nonaccrual  loans.  At June 30,  2007,  the Company had $1.2 million in loans 90
days past due and still accruing interest,  no other real estate owned, and $1.9
million of nonaccrual  loans.  The allowance for loan losses was 1.25 percent of
loans as of June 30, 2008,  compared to 1.14 percent as of December 31, 2007 and
1.16  percent as of June 30,  2007.  For the six months  ended June 30, 2008 the
Company  recorded a loan loss  provision of $1,110,000  compared to no loan loss
provision  during 2007.  The current year's loan loss provision is the result of
an increase of $18.9  million in total loans  during the first six months of the
year, as well as an increase in total  nonperforming  loans and loan  chargeoffs
totaling  $451,000.   During  2007,  the  Company's  average  loans  outstanding
decreased  by $12.0  million  compared  with 2006 due  primarily  to  payoffs of
brokered and wholesale  loans. Due to this contraction in its loan portfolio the
Company did not make a provision for loan losses during 2007.

In  management's  opinion,  the  allowance for loan losses is adequate to absorb
estimated  losses  inherent in our Company's  loan  portfolio.  In reviewing the
adequacy of the allowance for loan losses at each quarter end,  management takes
into  consideration the historical loan losses we experienced,  current economic
conditions  affecting the ability of our borrowers to repay, the volume of loans
and the trends in delinquent,  nonaccruing, and potential problem loans, and the
quality of collateral  securing  nonperforming and problem loans. After charging
off all  known  losses,  management  considers  the  allowance  for loan  losses
adequate to cover its  estimate of inherent  losses in the loan  portfolio as of
June 30, 2008.


                                      -17-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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

Loans - continued

The  following  table  provides a year to date  analysis of activity  within the
allowance for loan losses:

Balance at December 31, 2007 .................................        $4,297,337
Current Year Loan Loss Provision .............................         1,110,047
Charge- offs:
     Domestic:
       Commercial, financial, and agricultural ...............           451,284
       Installment loans to individuals ......................             9,187
     Foreign: ................................................                 -
Recoveries:
       Commercial, financial, and agricultural ...............                 -
       Installment loans to individuals ......................                30
                                                                      ----------
Balance at June 30, 2008 .....................................        $4,946,943
                                                                      ==========

Deposits

Deposits  increased  $33.0 million during the first six months of 2008 to $375.7
million at June 30,  2008.  The increase was  attributable  to several  factors.
Noninterest  bearing  deposits  decreased  $1.1  million  and  interest  bearing
deposits  increased  by $34.1  million  during  the  first  six  months of 2008.
Certificates  of deposit from retail  customers  increased  approximately  $38.3
million  during  the  first  six  months,  largely  as  the  result  of  several
certificate of deposit rate specials  offered during the second quarter of 2008.
Savings and interest bearing transaction accounts decreased  approximately $19.8
million due to a decrease in our municipal deposits and the movement of funds to
time  deposit  accounts due to the higher  market  rates paid on time  deposits.
Finally,  brokered and wholesale  deposits increased $15.6 million as a means to
supplement  retail  funding  sources.   Because  these  higher  rate  funds  are
particularly rate sensitive,  they are more volatile and are not treated as core
deposits.

Other Borrowings

Other borrowings are primarily  comprised of FHLBA advances.  FHLBA Advances are
collateralized  by pledged FHLBA stock and certain  residential  mortgage loans.
FHLBA advances are summarized as follows:

               Maturity                     Rate                    Balance
           -----------------        ---------------------      ---------------
           November 2008                    2.25%              $     2,000,000
           September 2010                   5.55%                    7,000,000
           February 2011                    2.65%                    4,500,000
           March 2011                       2.96%                    7,500,000
           September 2013                   2.12%                   10,000,000
           June 2014                        3.92%                    2,000,000
           October 2016                     4.25%                    5,000,000
           November 2016                    4.08%                    5,000,000
           January 2017                     4.35%                    5,000,000
           January 2017                     4.40%                    5,000,000
           January 2017                     4.46%                    5,000,000
           January 2017                     4.60%                    5,000,000
           March 2018                       2.33%                    5,000,000
           April 2018                       3.03%                    5,000,000
                                                               ---------------

           Balance                                             $    73,000,000
                                                               ===============

Additionally,  the Company  has $1.5  million of debt  outstanding  on a holding
company line of credit it holds with First  Tennessee  Bank.  The Company had an
additional  $1.5  million  available  for  borrowing on this line as of June 30,
2008.


                                      -18-
<PAGE>
                        SOUTHCOAST FINANCIAL CORPORATION

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

Junior Subordinated Debentures

 On May 3, 2002,  December  16,  2002,  and August 5,  2005,  in three  separate
transactions,  Southcoast  Capital Trust I, II, and III (the "Capital  Trusts"),
non-consolidated  subsidiaries of the Company, issued and sold a total of 21,655
floating rate  securities,  with a $1,000  liquidation  amount per security (the
"Capital  Securities").  Institutional  buyers  bought  21,000  of  the  Capital
Securities  denominated as preferred securities and the Company bought the other
655 Capital Securities which are denominated as common securities. The aggregate
proceeds of those sales,  $21.7 million,  were used by the Capital Trusts to buy
$21.7  million of junior  subordinated  debentures  from the Company  which were
reported on its consolidated  balance sheets.  The Capital  Securities mature or
are mandatorily  redeemable  upon maturity on June 30, 2032,  December 16, 2032,
and September 30, 2035,  respectively,  or upon earlier  optional  redemption as
provided in the indenture.  The Company  had/has the right to redeem the Capital
Securities  in whole or in part,  on or after June 30, 2007,  December 30, 2007,
and September 30, 2010. The Company also had/has the right to redeem the capital
securities  prior to such dates upon occurrence of specified  conditions and the
payment of a redemption premium.  During 2007 the Company exercised its right to
redeem  the  Capital  Securities  issued  by  Southcoast  Capital  Trust  I  and
Southcoast  Capital Trust II. As a result the Company retired total debt related
to these securities of $11,345,000.  See Note 11 to the  consolidated  financial
statements  and the  information  set  forth in  Exhibit  13 under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-  Junior  Subordinated  Debentures"  filed with our Form 10-K for the
year ended December 31, 2007, for more information about the terms of the junior
subordinated debentures.

The securities issued by Southcoast Capital Trust III were effectively converted
from a floating  rate to a fixed rate  through the use of an interest  rate swap
agreement.  The  agreement  provides for the Company to make payments at a fixed
rate of 6.32% in exchange for receiving payments at a variable rate (three month
LIBOR  plus  150  basis  points).  See  Note  12 to the  consolidated  financial
statements  filed with our Form 10-K for the year ended  December 31, 2007,  for
more information about the terms of the rate swap agreement.

Capital Resources

The capital  base for the Company  decreased  by $5.2  million for the first six
months of 2008,  due to our  repurchase of 410,373 shares of common stock for an
aggregate  purchase  price of $5.7  million,  and  other  comprehensive  loss of
$1,017,144  offset by net income of $1,514,447 and proceeds from stock issuances
of $73,615  through our Employee  Stock  Purchase  Plan.  The Company's tier one
capital to average  assets ratio was 13.15  percent as of June 30, 2008 compared
to 15.16 percent as of December 31, 2007.

The  Federal  Reserve  Board and other bank  regulatory  agencies  require  bank
holding  companies and financial  institutions  to maintain  capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Under the risk-based standard, capital
is  classified  into two tiers.  The Bank's  Tier 1 capital  consists  of common
shareholders'  equity minus certain  intangible assets plus junior  subordinated
debt subject to certain  limitations.  The Bank's Tier 2 capital consists of the
allowance for loan losses subject to certain  limitations  and the Bank's junior
subordinated debt in excess of 25% of the Bank's Tier 1 capital.  A bank holding
company's  qualifying  capital base for purposes of its risk-based capital ratio
consists  of the sum of its Tier 1 and Tier 2 capital.  The  regulatory  minimum
requirements are 4% for Tier 1 and 8% for total risk-based  capital.  Southcoast
and the Bank are also  required to maintain  capital at a minimum level based on
quarterly  average  assets,  which  is  known as the  leverage  ratio.  Only the
strongest  bank holding  companies and banks are allowed to maintain  capital at
the minimum requirement. All others are subject to maintaining ratios 100 to 200
basis points above the  minimum.  As of June 30, 2008,  the Company and the Bank
exceeded their capital requirements as shown in the following table.
<TABLE>
<CAPTION>
                                                                                          Capital Ratios
                                                                                          --------------
                                                                                         Well Capitalized   Adequately Capitalized
(Dollars in thousands)                                                 Actual               Requirement          Requirement
                                                                       ------               -----------          -----------
                                                                 Amount       Ratio     Amount       Ratio     Amount      Ratio
                                                                 ------       -----     ------       -----     ------      -----
The Bank
<S>                                                             <C>           <C>       <C>          <C>       <C>         <C>
  Total capital (to risk-weighted assets) ................      $55,558       14.55%    38,180       10.00%    30,544      8.00%
  Tier 1 capital (to risk-weighted assets) ...............       50,800       13.31%    19,090        6.00%    15,272      4.00%
  Tier 1 capital (to average assets) .....................       50,800        9.98%    25,444        5.00%    20,355      4.00%
The Company
  Total capital (to risk-weighted assets) ................      $72,846       18.19%       N/A         N/A     32,036      8.00%
  Tier 1 capital (to risk-weighted assets) ...............       67,899       16.96%       N/A         N/A     16,018      4.00%
  Tier 1 capital (to average assets) .....................       67,899       13.15%       N/A         N/A     20,647      4.00%
</TABLE>

                                      -19-
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

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

Off Balance Sheet Risk

The Company makes  contractual  commitments  to extend credit and issues standby
letters  of credit in the  ordinary  course of its  business  activities.  These
commitments  are  legally  binding  agreements  to lend  money to  customers  at
predetermined  interest  rates for a  specified  period of time.  In addition to
commitments to extend credit,  the Company also issues standby letters of credit
which are  assurances  to a third  party  that it will not  suffer a loss if the
customer fails to meet a contractual  obligation to the third party. At June 30,
2008, the Company had issued  commitments  to extend credit of  $34,221,816  and
standby  letters  of credit of  $531,338  through  various  types of  commercial
lending arrangements.  Approximately  $28,141,016 of these commitments to extend
credit had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit and standby letters of credit at June 30, 2008.

<TABLE>
<CAPTION>
                                                                   After One    After Three
                                                                    Through       Through                   Greater
                                                    Within One       Three        Twelve      Within One      Than
                                                       Month        Months        Months         Year        One Year        Total
                                                       -----        ------        ------         ----        --------        -----
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Unused commitments to extend credit ............   $ 1,316,426   $ 3,281,463   $13,689,213   $18,287,102   $15,934,714   $34,221,816
Standby letters of credit ......................        76,739       316,070       124,500       517,309        14,029       531,338
                                                   -----------   -----------   -----------   -----------   -----------   -----------
    Totals .....................................   $ 1,393,165   $ 3,597,533   $13,813,713   $18,804,411   $15,948,743   $34,753,154
                                                   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

Based on historical  experience,  many of the  commitments and letters of credit
will expire unfunded.  Accordingly,  the amounts shown in the table above do not
necessarily reflect the Company's need for funds in the periods shown.  Further,
through its various sources of liquidity,  the Company  believes it will be able
to fund these  obligation as they arise.  The Company  evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed  necessary  upon  extension of credit,  is based on the company's  credit
evaluation  of  the  borrower.   Collateral  varies  but  may  include  accounts
receivable, inventory, property, plant and equipment, commercial and residential
real estate.

Item 3. - Quantitative and Qualitative Disclosures About Market Risk.

Information  about the  Company's  exposure to market risk was  disclosed in its
Annual Report on Form 10-K for the year ended December 31, 2007, which was filed
with the Securities and Exchange Commission on March 7, 2008. There have been no
material  quantitative or qualitative  changes in market risk exposure since the
date of that filing.

Item 4. - Controls and Procedures.

Based  on  the  evaluation  required  by 17  C.F.R.  Sections  240.13a-15(b)  or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17 C.F.R. Section 240.13a-15(e) and 240.15d-15(e), the Company's chief executive
officer and chief financial officer concluded that such controls and procedures,
as of the end of the period covered by this quarterly report, were effective.

There  has been no change  in the  Company's  internal  control  over  financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially  affect,  the Company's internal control over
financial reporting.



                                      -20-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

PART II - OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

        (c) Issuer Purchases of Equity Securities

<TABLE>
<CAPTION>
                                            (a) Total Number     (b) Average     (c) Total Number of           Maximum Number
                                              of Shares           Price Paid       Shares Purchased as     of Shares that May yet be
      Period                                  Purchased            Per Share  Part of Publicly Announced     Purchased Under the
                                                                                 Plans or Programs (1)        Plans or Programs
<C>                                             <C>                   <C>              <C>                        <C>
4/1/08-4/30/08 ..........................        40,000               14.66             40,000                    318,039
5/1/08-5/31/08 ..........................         7,500               14.19              7,500                    310,539
6/1/08-6/30/08 ..........................        67,721               14.02             67,721                    242,818
                                                -------               -----            -------                    -------

Total ...................................       115,221               14.26            115,221                    242,818
</TABLE>

(1)  On July 24, 2007, the Board of Directors authorized the repurchase of up to
     547,556 shares of the Company's  outstanding  stock. The Company  announced
     the repurchase plan on July 25, 2007. The Company  completed the repurchase
     authorized  under this  announcement  during  January  2008. On January 14,
     2008,  the  Board  of  Directors  authorized  the  repurchase  of  up to an
     additional  484,527  shares,  or 10%, of the Company's  common  stock.  The
     Company  announced the repurchase plan on January 18, 2008. Stock dividends
     occurring   subsequent   to  the   authorizations   are   included  in  the
     authorizations.  Purchases will be made in the open market and block trades
     will be permitted,  all in accordance with Rule 10b-18 under the Securities
     Exchange Act of 1934. The plan does not have a termination date.

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

  The Company held its annual  meeting of  shareholders  on April 10, 2008.  The
  only matter voted on at the annual  meeting was the election of directors with
  results as follows:

Directors elected to serve
a three year term For
                                                       Authority       Broker
                                          For           Withheld      non-votes
                                          ---           --------      ---------

Paul D. Hollen, II                     4,199,293         158,520         -

James H. Sexton, Jr.                   4,299,294          58,519         -

James P. Smith                         4,215,025         142,788         -



The following  directors were not voted on at the annual meeting and continue to
serve until the years indicated:  Tommy B. Baker - 2009; Stephen F. Hutchinson -
2009;  William A. Coates - 2009; L. Wayne Pearson - 2010;  and Robert M. Scott -
2010.


Item 6.  Exhibits

31-1 Rule 13a-14(a) Certifications of CEO
31-2 Rule 13a-14(a) Certifications of CFO
32   Section 1350 Certification


                                      -21-
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act  of  1934  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                     s/L. Wayne Pearson
Date:    August 1, 2008                     By:      ---------------------------
                                                     L. Wayne Pearson
                                                     Chief Executive Officer


                                                     s/William C. Heslop
Date:    August 1, 2008                     By:      ---------------------------
                                                     William C. Heslop
                                                     Chief Financial Officer



                                      -22-
<PAGE>


Exhibit Index

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

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

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




                                      -23-