SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 For the quarter ended June 30, 2003

                                       OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF   1934   For   the   transition   period   from    _______________    to
     _________________.

                                                Commission File Number   0-25933


                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact Name of Small Business Issuer as Specified in its Charter)


      South Carolina                                         58-2384011
 (State of Incorporation)                                 (I.R.S. Employer
                                                         Identification Number)



               530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
                    (Address of Principal Executive Offices)


                                 (843) 884-0504
                           (Issuer's Telephone Number)


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

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practicable  date:  Common  Stock - No Par
Value: 1,464,542 Shares Outstanding on July 31, 2003.

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









<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                 SOUTHCOAST FINANCIAL CORPORATION AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                      (Unaudited)
                                                                                                        June 30,        December 31,
                                                                                                          2003              2002
                                                                                                          ----              ----
ASSETS
<S>                                                                                                  <C>                <C>
   Cash and due from banks ...................................................................       $ 11,221,929       $  5,489,586
   Federal funds sold ........................................................................          7,916,000         14,583,000
   Investment securities available for sale ..................................................          5,601,740          5,948,452
   Federal Home Loan Bank Stock, at cost .....................................................          1,235,000          1,315,000
   Loans held for sale .......................................................................          4,978,603          8,682,559
   Loans, net of allowance of $2,071,112 and $1,656,260 ......................................        178,228,775        134,729,227
   Property and equipment - net ..............................................................          8,578,818          8,054,485
   Other assets ..............................................................................          2,468,347          2,366,408
                                                                                                     ------------       ------------
       Total assets ..........................................................................       $220,229,212       $181,168,717
                                                                                                     ============       ============

LIABILITIES
   Deposits
     Noninterest-bearing .....................................................................       $ 26,059,631       $ 17,393,322
     Interest bearing ........................................................................        140,004,321        115,262,096
                                                                                                     ------------       ------------
       Total deposits ........................................................................        166,063,952        132,655,418

   Other borrowings ..........................................................................         28,700,000         23,500,000
     Other liabilities .......................................................................            956,813          1,303,847
                                                                                                     ------------       ------------
       Total liabilities .....................................................................        195,720,765        157,459,265
   Trust preferred securities ................................................................         11,000,000         11,000,000

SHAREHOLDERS' EQUITY
   Common stock (no par value;  20,000,000 shares  authorized;  1,463,788 shares
     outstanding at June 30, 2003 and
     1,321,996 at December 31, 2002) .........................................................         11,433,330         11,378,910
   Retained earnings .........................................................................          2,023,382          1,289,321
   Accumulated other comprehensive income ....................................................             51,735             41,221
                                                                                                     ------------       ------------

       Total shareholders' equity ............................................................         13,508,447         12,709,452
                                                                                                     ------------       ------------
       Total liabilities and shareholders' equity ............................................       $220,229,212       $181,168,717
                                                                                                     ============       ============
</TABLE>







         See notes to unaudited condensed consolidated financial statements.


                                       2
<PAGE>
                SOUTHCOAST FINANCIAL CORPORATION AND SUBSIDIARY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         Six months       Six months     Three months   Three months
                                                                            Ended            Ended          Ended          Ended
                                                                        June 30, 2003    June 30, 2002  June 30, 2003  June 30, 2002
                                                                        -------------    -------------  -------------  -------------
INTEREST INCOME
<S>                                                                       <C>             <C>             <C>             <C>
Loans, including fees ..............................................      $5,483,015      $4,126,155      $2,932,074      $2,134,371
Investment securities ..............................................          86,500         147,309           4,900          94,998
Federal funds sold .................................................         165,540          79,020         112,938          55,056
                                                                          ----------      ----------      ----------      ----------

         Total interest income .....................................       5,735,055       4,352,484       3,049,912       2,284,425

INTEREST EXPENSE
Deposits and borrowings ............................................       2,225,897       1,759,533        1,110862         979,443
                                                                          ----------      ----------      ----------      ----------

         Net interest income .......................................       3,509,158       2,592,951       1,939,050       1,304,982

Provision for  loan losses .........................................         425,000         259,172         305,000         153,629
                                                                          ----------      ----------      ----------      ----------

Net interest income after provision ................................       3,084,158       2,333,779       1,634,050       1,151,353

NON INTEREST INCOME
Service fees on deposit accounts ...................................         442,416         273,280         228,584         151,433
Fees on loans sold .................................................         394,900         272,800         187,272         142,240
Other ..............................................................         146,975         329,026         107,581         190,063
                                                                          ----------      ----------      ----------      ----------

     Total non interest income .....................................         984,291         875,106         523,437         483,736

NON INTEREST EXPENSES
Salaries and employment benefits ...................................       1,828,733       1,430,336         964,556         728,654
Occupancy ..........................................................         205,868         185,904         118,232          88,246
Furniture and equipment ............................................         315,937         223,624         160,336         117,955
Advertising and public relations ...................................          27,290          51,737           6,645          29,814
Professional fees ..................................................         101,974          63,627          71,642          26,836
Travel and entertainment ...........................................          85,882          73,866          52,200          34,380
Telephone, postage and supplies ....................................         103,361         138,331          59,264          60,536
Other operating expenses ...........................................         252,903         201,763         126,770         106,013
                                                                          ----------      ----------      ----------      ----------

         Total non interest expenses ...............................       2,921,948       2,369,188       1,559,645       1,192,434
                                                                          ----------      ----------      ----------      ----------

     Income before income tax ......................................       1,146,501         839,697         597,842         442,655
     Income tax ....................................................         412,440         328,481         215,822         175,610
                                                                          ----------      ----------      ----------      ----------

     Net income ....................................................      $  734,061      $  511,216      $  382,020      $  267,045
                                                                          ==========      ==========      ==========      ==========

Basic Net income Per Common Share ..................................      $      .48      $      .34      $      .25      $      .18
Diluted Net Income Per Common Share ................................      $      .46      $      .32      $      .24      $      .17

Weighted Average Shares Outstanding

     Basic .........................................................       1,529,445       1,524,113       1,531,191       1,524,807
     Diluted .......................................................       1,597,771       1,582,512       1,602,225       1,587,325
</TABLE>

See notes to unaudited condensed consolidated financial statements


                                       3
<PAGE>
                SOUTHCOAST FINANCIAL CORPORATION AND SUBSIDIARY
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        Accumulated          Total
                                                               Common stock                                other            share-
                                                               ------------             Retained       comprehensive       holders'
                                                          Shares           Amount       earnings       income (loss)        equity
                                                          ------           ------       --------       -------------        ------

<S>                                                      <C>            <C>            <C>               <C>             <C>
BALANCE, JANUARY 1, 2002 ............................    1,197,482      $11,339,708    $  142,621        $ 67,163        $11,549,492

   Net income .......................................                                     511,216                            511,216
     Other comprehensive income, net
         of tax:
         Unrealized holding losses on
           securities available for sale ............                                                      19,073             19,073
                                                                                                                              ------

   Comprehensive income .............................                                                                        530,289

   Stock  dividend ..................................      120,016
   Employee stock purchase plan .....................        2,681           23,272                                           23,272
                                                         ---------      -----------    ----------        --------        -----------


BALANCE, June 30, 2002 ..............................    1,320,179      $11,362,980    $  653,837        $ 86,236        $12,103,053
                                                         =========      ===========    ==========        ========        ===========



BALANCE, JANUARY 1, 2003 ............................    1,321,996      $11,378,910    $1,289,321         $41,221        $12,709,452
                                                         =========      ===========    ==========         =======        ===========


   Net income .......................................                                     734,061                            734,061

     Other comprehensive income, net
         of tax:
         Unrealized holding losses on
       securities available for sale ................                                                     10,514              10,514
                                                                                                                         -----------

   Comprehensive income .............................                                                                        744,575

   Stock Dividend ...................................      132,479

   Stock options ....................................        7,731           38,136                                           38,136
   Employee stock purchase plan .....................        1,582           16,284                                           16,284
                                                         ---------      -----------    ----------         -------        -----------

BALANCE, June 30, 2003 ..............................    1,463,788      $11,433,330    $2,023,382         $51,735        $13,508,447
                                                         =========      ===========    ==========         =======        ===========
</TABLE>

           See notes to unaudited condensed consolidated financial statements.


                                       4
<PAGE>



                 SOUTHCOAST FINANCIAL CORPORATION AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                      Six months ended June 30,
                                                                                                      -------------------------
OPERATING ACTIVITIES                                                                                 2003                   2002
                                                                                                     ----                   ----
<S>                                                                                            <C>                     <C>
     Net income ....................................................................           $    734,061            $    511,216
     Adjustments to reconcile net income to net
     cash provided  by operating activities:
         Income tax ................................................................                412,440                 328,481
         Provision for loan losses .................................................                425,000                 259,172
         Depreciation and amortization .............................................                317,690                 227,929
         Increase in other assets ..................................................               (101,939)               (689,436)
         Increase (decrease) in other liabilities ..................................               (756,388)                734,926
                                                                                               ------------            ------------
              Net cash provided by operating activities ............................              1,030,864               1,372,288
                                                                                               ------------            ------------

INVESTING ACTIVITIES

     (Increase) decrease in federal funds sold .....................................              6,667,000              (7,744,000)
     Sale (purchase) of investment securities available for sale ...................                422,133              (4,724,260)
     Net increase in loans .........................................................            (40,220,592)            (21,502,591)
     Purchase of property and equipment ............................................               (830,016)               (866,325)
                                                                                               ------------            ------------
              Net cash used for investing activities ...............................            (33,961,475)            (34,837,176)
                                                                                               ------------            ------------

FINANCING ACTIVITIES
     Increase (decrease) in borrowings .............................................              5,200,000             (13,000,000)
     Increase in Trust Preferred Securities ........................................                      -               4,000,000
     Proceeds from sale of stock, net ..............................................                 54,420                  23,272
     Net increase in deposits ......................................................             33,408,534              39,499,803
                                                                                               ------------            ------------
              Net cash provided by financing activities ............................             38,662,954              30,523,075
                                                                                               ------------            ------------

              Increase (decrease) in cash and due from banks .......................              5,732,343              (2,941,813)


CASH AND DUE FROM BANKS, BEGINNING OF PERIOD .......................................              5,489,586               6,627,108
                                                                                               ------------            ------------

CASH AND DUE FROM BANKS, END OF PERIOD .............................................           $ 11,221,929            $  3,685,295
                                                                                               ============            ============
</TABLE>







     See notes to unaudited condensed consolidated financial statements.



                                       5
<PAGE>


                 SOUTHCOAST FINANCIAL CORPORATION AND SUBSIDIARY
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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-QSB and
Item  310 (b) of  Regulation  S-B 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
the opinion of  management,  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 has no
employees.

NOTE 3 - STOCK-BASED COMPENSATION

The Company has a stock-based employee  compensation plan which is accounted for
under the recognition and measurement  principles of Accounting Principles Board
("APB")  Opinion No. 25,  Accounting for Stock Issued to Employees,  and related
Interpretations.  No stock-based employee  compensation cost is reflected in net
income,  as all stock options  granted  under these plans had an exercise  price
equal to the market value of the  underlying  common stock on the date of grant.
The following table  illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS")  No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based
employee compensation.


(Dollars in thousands,                                 Six months ended June 30,
 except for per share data)                            -------------------------
                                                            2003          2002
                                                            ----          ----
                                                              (Unaudited)

Net income, as reported ............................   $   734,061   $   511,216
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects .......         7,941         7,941
                                                       -----------   -----------

Pro forma net income ...............................   $   726,120   $   503,275
                                                       ===========   ===========

Net income per share:
     Basic - as reported ...........................   $      0.48   $      0.34
                                                       ===========   ===========
     Basic - pro forma .............................   $      0.47   $      0.33
                                                       ===========   ===========

     Diluted - as reported .........................   $      0.46   $      0.32
                                                       ===========   ===========
     Diluted - pro forma ...........................   $      0.45   $      0.32
                                                       ===========   ===========



                                       6
<PAGE>


(Dollars in thousands,                                  Quarter ended June 30,
except for per share data)                              ------------------------
                                                           2003         2002
                                                           ----         ----
                                                              (Unaudited)

Net income, as reported ............................    $ 382,020    $   267,045
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
     for all awards, net of related tax effects ....       15,882         15,882
                                                        ---------    -----------

Pro forma net income ...............................    $ 366,138    $   251,163
                                                        =========    ===========

Net income per share:
     Basic - as reported ...........................    $    0.25    $      0.18
                                                        =========    ===========
     Basic - pro forma .............................    $    0.24    $      0.16
                                                        =========    ===========

     Diluted - as reported .........................    $    0.24    $      0.17
                                                        =========    ===========
     Diluted - pro forma ...........................    $    0.23    $      0.16
                                                        =========    ===========



                                       7
<PAGE>


NOTE 4 - 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 SFAS 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.

In April 2002 and April 2003, the Company  declared ten percent stock dividends
on the Company's common stock. In July, 2003 the Company declared a special five
percent  stock  dividend.  The weighted  average  number of shares and all other
share data have been  restated for all periods  presented to reflect these stock
dividends.


NOTE 5 - TRUST PREFERRED SECURITIES

In May 2002 and December 2002, in two separate transactions,  the Company issued
$11 million of Trust Preferred  Securities.  These securities  qualify as Tier 1
capital for regulatory purposes. They have a five-year call date with a maturity
of thirty  years from date of  issuance.  The  interest  rate on the  securities
fluctuates quarterly with the three-month LIBOR.
..
NOTE 6 - RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2003, the American Institute of Certified Public  Accountants  ("AICPA")
issued an exposure draft of a proposed Statement of Position ("SOP"), "Allowance
for Credit  Losses".  The proposed SOP addresses the recognition and measurement
by creditors of the allowance for credit  losses  related to all loans,  as that
term is defined in SFAS No. 114,  "Accounting  by Creditors for  Impairment of a
Loan".  The proposed SOP provides that the allowance for credit losses  reported
on a  creditor's  balance  sheet  should  consist  only of (1) a  component  for
individual loan impairment  recognized and measured pursuant to SFAS No. 114 and
(2) one or more components of collective loan impairment  recognized pursuant to
SFAS No. 5, "Accounting for Contingencies",  and measured in accordance with the
guidance in the  proposed  SOP.  The  provisions  of the  proposed  SOP would be
effective for financial statements for fiscal years beginning after December 15,
2003, with earlier application  permitted.  The effect of initially applying the
provisions  of the  proposed  SOP would be  reported  as a change in  accounting
estimate.  Comments on the  exposure  draft are due by September  19, 2003.  The
effect on the financial condition or operating results of the Company related to
the  adoption  of this  proposed  SOP have not been  determined,  but would most
likely be material.

Other  accounting   pronouncements  proposed  or  adopted  by  standards-setting
authorities are not expected to have a material effect on the financial position
or results of operations of the Company.



                                       8
<PAGE>
ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and  related  notes  appearing  in  the  Form  10-KSB  of
Southcoast  Financial  Corporation.  Results of operations for the period ending
June 30, 2003 are not  necessarily  indicative of the results to be attained for
any other period.  Statements  included in Management's  Discussion and Analysis
which are not  historical  in nature  and are  intended  to be,  and are  hereby
identified  as  "forward  looking  statements"  for  purposes of the safe harbor
provided by section 21E of the Securities Exchange Act of 1934, as amended.  The
Company  cautions  readers that forward  looking  statements  including  without
limitation,  those  relating  to the  Company's  new  offices,  future  business
prospects,  revenues,  allowance for loan losses,  working  capital,  liquidity,
capital  needs,  interest  costs,  and income,  are subject to certain risks and
uncertainties  that could cause actual results to differ from those indicated in
the  forward  looking  statements,  due  to  several  important  factors  herein
identified,  among others,  and other risks and factors  identified from time to
time in the Company's reports filed with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

The  Company's net income for the six months ended June 30, 2003 was $734,061 or
$.48 per basic share,  compared to $511,216 or $.34 per basic share, for the six
months ended June 30, 2002.  For the quarter ended June 30, 2003, net income was
$382,020  or $.25 per basic  share  compared to $267,045 or $.18 per basic share
for the quarter ended June 30, 2002. Per share amounts have been adjusted for a
5% dividend declared in July, 2003.

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.
Net  interest  income,  the  principal  source of the  Company's  earnings,  was
$3,509,158  for the six months ended June 30, 2003,  compared to $2,592,951  for
the six months ended June 30,  2002.  For the quarter  ended June 30, 2003,  net
interest income was $1,939,050 compared to $1,304,942 for the quarter ended June
30, 2002. At June 30, 2003 the gap ratio was slightly positive and in conformity
with the Company's asset-liability management policies.  A positive gap would be
expected  to result  in an increase  in net  interest income  in a  rising  rate
environment.

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, 2003  increased 53.7
percent to $184.9  million from the $120.3  million  reported for the six months
ending June 30, 2002.  The increase was mainly  attributable  to the increase in
loans  supported by a $57.0  million  increase in interest  bearing  liabilities
which resulted from the continued growth of the Charleston  market area, and the
Company's marketing efforts.

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,  2003 and 2002.  The  increase in net  interest  income is due to
increased volume of earning assets and interest bearing  liabilities offset by a
45 basis point decrease in the Company's net interest  spread.  The net interest
spread is the  difference  between the yield on earning assets minus the average
rate  paid on  interest  bearing  liabilities.  The  decrease  in the  spread is
attributable  to the  temporary  increase  in  the  first  quarter  of  2003  in
investments   and  federal  funds  sold  and  the  increase  in  cost  of  funds
attributable  to the  issuance of $7 million of Trust  Preferred  Securities  in
December 2002.

                                       9
<PAGE>


<TABLE>
<CAPTION>

                                                              Six months ended                              Six months ended
                                                                June 30, 2003                                 June 30, 2002
                                                                -------------                                 -------------
                                                     Average      Income/       Yield/          Average         Income/       Yield/
ASSETS                                               Balance      expense      rate(1)          Balance         expense      rate(1)
                                                     -------      -------      -------          -------         -------      -------

<S>                                             <C>           <C>                <C>       <C>               <C>               <C>
Federal funds sold .........................    $ 14,943,551  $    86,500        1.16%     $  9,609,336      $   79,020        1.64%
Investments ................................      10,664,015      165,540        3.10         5,239,336         147,309        5.62
                                                                                           ------------      ----------
Total investments and
federal funds sold .........................      25,607,566      252,040        1.97        14,848,672         226,329        3.05
Loans ......................................     159,247,068    5,483,015        6.89       105,447,541       4,126,155        7.83
                                                ------------  -----------                  ------------      ----------
Total earning assets .......................     184,854,634    5,735,055        6.20       120,296,213       4,352,484        7.24
                                                              -----------                                    ----------
Other assets ...............................      12,723,613                                 10,938,671
                                                ------------                               ------------
Total assets ...............................    $197,578,247                               $131,234,884
                                                ============                               ============

LIABILITIES
Interest bearing deposits ..................    $129,290,590  $ 1,447,881        2.24%     $ 83,221,737      $1,237,876        2.97%
Other borrowings ...........................      33,691,111      778,016        4.62        22,740,773         521,657        4.59
                                                ------------  -----------                  ------------      ----------
Total interest bearing
     liabilities ...........................     162,981,701    2,225,897        2.73       105,962,510       1,759,533        3.32
                                                                                                             ----------
Non-interest bearing
     liabilities ...........................      21,466,106                                 14,544,987
                                                ------------                               ------------
Total liabilities ..........................     184,447,807    2,225,897        2.41       120,507,497       1,759,533        2.83
                                                              -----------                                    ----------
Equity .....................................      13,130,440                                 10,727,387
                                                ------------                               ------------
Total liabilities and equity
 ...........................................    $197,578,247                               $131,234,884
                                                ============                               ============
Net interest income/margin .................                  $3,509,158         3.80                        $2,592,951        4.31
                                                                                                             ==========
Net interest spread ........................                                     3.47%                                         3.92%

</TABLE>

(1)  Annualized

As reflected  above, for the six months ended June 30, 2003 the average yield on
earning  assets was 6.20  percent,  while the average  cost of  interest-bearing
liabilities was 2.73 percent. For the six months ended June 30, 2002 the average
yield  on  earning   assets  was  7.24   percent   and  the   average   cost  of
interest-bearing  liabilities  was 3.32  percent.  The  decrease in the yield on
earning  assets  and  the  rates  paid  on  interest   bearing   liabilities  is
attributable to the market rate decreases over the last year and investment of a
larger  percentage of the earning assets in federal funds and  investments.  The
net interest  margin is computed by subtracting  interest  expense from interest
income and dividing the resulting figure by average interest-earning assets. The
net  interest  margin for the six months  ended June 30,  2003 was 3.80  percent
compared to 4.31 percent for the six months ended June 30, 2002. The decrease in
the net-interest  margin is primarily  attributable to the decline in the return
on earning  assets,  the issuance of Trust Preferred  Securities,  offset by the
repricing of higher cost deposits at lower rates. The cost of total  liabilities
was 2.41 percent for the six months ended June 30, 2003 compared to 2.83 percent
for the six months ended June 30, 2002.




                                       10
<PAGE>


<TABLE>
<CAPTION>
                                                             Three months ended                            Three months ended
                                                                June 30, 2003                                 June 30, 2002
                                                                -------------                                 -------------
                                                     Average      Income/       Yield/          Average         Income/       Yield/
ASSETS                                               Balance      expense      rate(1)          Balance         expense      rate(1)
                                                     -------      -------      -------          -------         -------      -------

<S>                                             <C>           <C>                <C>       <C>               <C>               <C>
Federal funds sold ..........................   $ 11,541,402  $    33,898        1.17%     $ 13,121,700      $   55,056        1.68%
Investments .................................     10,953,270       83,940        3.07         6,996,203          94,998        5.43
                                                ------------  -----------                  ------------      ----------
Total investments and
federal funds sold ..........................     22,494,672      117,838        2.10        20,117,903         150,054        2.98
Loans .......................................    170,863,531    2,932,074        6.86       110,912,588       2,134,371        7.70
                                                ------------  -----------                  ------------      ----------
Total earning assets ........................    193,358,203    3,049,912        6.31       131,030,491       2,284,425        6.97
                                                              -----------                                    ----------
Other assets ................................     13,543,273                                 10,640,244
                                                ------------                               ------------
Total assets ................................   $206,901,476                               $141,670,735
                                                ============                               ============

LIABILITIES
Interest bearing deposits ...................   $133,853,205  $   703,693        2.10%     $ 95,402,845      $  723,586        3.03%
Other borrowings ............................     35,744,445      407,169        4.56        19,366,213         255,857        5.43
                                                ------------  -----------                  ------------      ----------
Total interest bearing liabilities ..........    169,597,650    1,110,862        2.62       114,769,058         979,443        3.41
                                                              -----------                                    ----------
Non-interest bearing liabilities ............     24,032,648                                 16,086,309
                                                ------------                               ------------
Total liabilities ...........................    193,630,298    1,110,862        2.29       130,855,367         979,443        2.99
                                                              -----------                                    ----------
Equity ......................................     13,271,178                                 10,815,368
                                                ------------                               ------------
Total liabilities and equity ................   $206,901,476                               $141,670,735
                                                ============                               ============
Net interest income/margin ..................                 $ 1,939,050        4.01                        $1,304,982        3.98
                                                              ===========                                    ==========
Net interest spread .........................                                    3.69%                                         3.56%
</TABLE>

(1)  Annualized

As reflected  above,  for the three months ended June 30, 2003 the average yield
on earning assets was 6.31 percent,  while the average cost of interest-bearing
liabilities  was 2.62  percent.  For the three  months  ended June 30,  2002 the
average  yield on  earning  assets  was 6.97  percent  and the  average  cost of
interest-bearing  liabilities  was 3.41  percent.  The  decrease in the yield on
earning  assets  and  the  rates  paid  on  interest   bearing   liabilities  is
attributable  to the market rate  decreases over the last year. The net interest
margin for the three  months  ended June 30, 2003 was 4.01  percent  compared to
3.98 percent for the three months ended June 30, 2002.  The stability of the net
interest margin reflects the Company's positive interest  sensitivity  position.
The cost of total  liabilities  was 2.29 percent for the three months ended June
30, 2003 compared to 2.99 percent for the three months ended June 30, 2002.



                                       11
<PAGE>




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.



Analysis of Changes in Net Interest Income
   (Dollars in thousands)
                                          For the six months ended June 30, 2003
                                           Versus six months ended June 30, 2002
                                           -------------------------------------
                                                  Volume      Rate    Net change
                                                  ------      ----    ----------
Federal funds sold ......................        $   44     $  (37)     $    7
Investments .............................           152       (134)         18
                                                 ------     ------      ------
Total investments and federal
 funds sold .............................           196       (171)         25
Total loans .............................         2,106       (749)      1,357
                                                 ------     ------      ------
Total earning assets ....................         2,302       (920)      1,382
Total interest-bearing liabilities ......           935       (469)        466
                                                 ------     ------      ------
Net interest income .....................        $1,367     $ (451)     $  916
                                                 ======     ======      ======



                                        For the three months ended June 30, 2003
                                         Versus three months ended June 30, 2002
                                         ---------------------------------------
                                                Volume     Rate     Net change
                                                ------     ----     ----------
Federal funds sold .....................       $    (7)   $   (14)   $   (21)
Investments ............................            54        (65)       (11)
                                               -------    -------    -------
Total investments and federal
 funds sold ............................            47        (79)       (32)
Total loans ............................         1,154       (356)       798
                                               -------    -------    -------
Total earning assets ...................         1,201       (435)       766
Total interest-bearing liabilities .....           514       (382)       132
                                               -------    -------    -------
Net interest income ....................       $   687    $   (53)   $   634
                                               =======    =======    =======


PROVISION FOR LOAN LOSSES
The Company made  provisions  to the allowance for loan losses in the six months
ended June 30, 2003 of  $425,000 as compared to $259,172  for the same period of
2002.  The increase was primarily the result of the growth in the loan portfolio
in 2003. For the quarter ended June 30, 2003 the provision was $305,000 compared
to $153,629 for the second quarter of 2002. The increase primarily resulted from
loan growth in the 2003 quarter.



                                       12
<PAGE>
NON-INTEREST INCOME AND EXPENSES

Non-interest income for the six months ended June 30, 2003 was $984,291 compared
to $875,106 for the six months ended June 30, 2002. The increase is attributable
to a $169,136  increase  in service  fees on deposit  accounts  attributable  to
additional deposit accounts generating  additional fees on deposits and $122,100
increase  in fees on loans sold  generated  by  increased  volume of loans sold,
offset  by a  decrease  in other  non-interest  income  of  $182,051  reflecting
security gains taken in 2002.

Non-interest  expenses for the six months  ended June 30, 2003 were  $2,921,948,
compared to $2,369,188  for the six months ended June  30,2002.  The increase of
$552,760 is mainly attributable to increases in salaries and benefits, furniture
and equipment expense and  administrative  expenses.  These increases  primarily
relate to expenditures associated with the opening of the Johns Island branch in
March 2002,  and the  anticipated  openings of the  Summerville  and Goose Creek
branches  in  the  fourth   quarter  of  2003,   as  well  as  the  increase  in
administrative staff to support the growth of the Company's operations.

Non-interest  income  for the three  months  ended  June 30,  2003 was  $523,437
compared to $483,736 for the three  months ended June 30, 2002.  The increase is
attributable  to  a  $77,151  increase  in  service  fees  on  deposit  accounts
attributable  to growth  in  deposit  accounts,  generating  additional  fees on
deposits  and $45,032  increase  in fees on loans sold  generated  by  increased
volume of loans  sold,  offset by a decrease in non  interest  income of $82,482
reflecting security gains taken in 2002.

Non-interest  expenses for the three months ended June 30, 2003 were $1,559,645,
compared to $1,192,434 for the three months ended June 30,2002.  The increase of
$367,211 is mainly attributable to increases in salaries and benefits, furniture
and equipment expense and  administrative  expenses.  These increases  primarily
relate to the  anticipated  openings of the Summerville and Goose Creek branches
in the fourth quarter of 2003, as well as the increase in  administrative  staff
to support the growth of the Company's operations.

LIQUIDITY

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank are the  Company's  primary  source of funds  for  credit  activities.  The
Company  also has a $5.3 million line of credit with the Bankers Bank of Atlanta
and a $6 million line of credit with First Tennessee Bank. The Company is in the
process of opening two new branch  offices. Total expenditures for these offices
through  June 30, 2003, were about $12,000.  The total cost of these  facilities
will be approximately  $1,750,000.  The funding for these offices will come from
normal operations.  Management believes that the Company's liquidity sources are
adequate to meet its normal operating needs.

LOANS

Commercial loans made up 46.3 percent of the total loan portfolio as of June 30,
2003, totaling $83.4 million.  Loans secured by real estate for construction and
land  development  totaled $23.5 million or 13.0 percent of the portfolio  while
all other loans secured by real estate  totaled $69.5 million or 38.5 percent of
the  total  loan  portfolio  as of June 30,  2003.  Installment  loans and other
consumer loans to individuals comprised $3.9 million or 2.2 percent of the total
loan  portfolio.  The  allowance for loan losses was 1.15 percent of loans as of
June 30, 2003 compared to 1.21 percent as of December 31, 2002. In  management's
opinion,  the  allowance  for loan losses is  adequate.  At June 30,  2003,  the
Company did not have any loans 90 days  delinquent and still  accruing  interest
and  had $1.1 million  of non-accruing loans.  The  non-accruing loans  are well
collateralized and the Company expects them to be paid in full by the end of the
third quarter.

                                       13
<PAGE>

CAPITAL RESOURCES

The capital base for the Company increased by $798,9955 for the first six months
of 2003,  due to operating  income,  capital  raised  through the Employee Stock
Purchase  Plan and stock  options and  unrealized  gains on  available  for sale
securities.  The Company's  tier one capital to asset ratio was 8.18% percent as
of June 30, 2003 compared to 9.35% percent as of December 31, 2002.


The Federal Reserve and FDIC have established  risk-based  capital  requirements
for  holding  companies  and banks.  As of June 30,  2003,  the  Company and its
subsidiary  bank exceed the capital  levels that are required to be  maintained.
The Bank's June 30, 2003 capital position is as shown in the following table.


                                 Capital Ratios
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                       Well Capitalized      Adequately Capitalized
                                                                   Actual                 Requirement               Requirement
                                                                   ------                 -----------               -----------
                                                            Amount         Ratio     Amount          Ratio     Amount         Ratio
                                                            ------         -----     ------          -----     ------         -----

<S>                                                        <C>             <C>       <C>             <C>       <C>            <C>
Total capital to risk weighted assets ..............       $18,310         11.23%    $16,307         10.00%    $13,045        8.00%
Tier 1 capital to risk weighted assets .............       $16,261          9.97%    $ 9,784          6.00%    $ 6,523        4.00%
Tier 1 capital to average assets ...................       $16,261          8.01%    $10,151          5.00%    $ 8,124        4.00%
</TABLE>


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. At June 30, 2003,
the Company had issued  commitments to extend credit of $27,506,000  and standby
letters  of credit of  $285,000  through  various  types of  commercial  lending
arrangements.  Approximately  $21,695,000 of these  commitments to extend credit
had variable rates.








                                       14
<PAGE>


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, 2003.

<TABLE>
<CAPTION>
                                                                      After One    After Three
                                                       Within         Through      Through       Within        Greater
                                                       One            Three        Twelve        One           Than
(Dollars in thousands)                                 Month          Months       Months        Year          One Year      Total
                                                       -----          ------       ------        ----          --------      -----

<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>
Unused commitments to extend credit ............       $   457       $ 1,389       $14,005       $15,851       $11,655       $27,506
Standby letters of credit ......................            23            65           192           280             5           285
                                                       -------       -------       -------       -------       -------       -------
  Totals .......................................       $   480       $ 1,454       $14,197       $16,131       $11,660       $27,791
                                                       =======       =======       =======       =======       =======       =======
</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.

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.




                                       15
<PAGE>


Item 3.  Controls and Procedures.


(a) Based on their evaluation of the issuer's disclosure controls and procedures
(as defined in 17 C.F.R. Sections  240.13a-14(c) and 240.15d-14(c)) as of a date
within 90 days prior to the filing of this quarterly report,  the issuer's chief
executive  officer and chief financial  concluded that the effectiveness of such
controls and procedures was adequate.


(b) There were no significant  changes in the issuer's  internal  controls or in
other factors that could  significantly  affect these controls subsequent to the
date of their  evaluation,  including  any  corrective  actions  with  regard to
significant deficiencies and material weaknesses.




                                       16
<PAGE>


                           PART II - OTHER INFORMATION





ITEM 6.  Exhibits and Reports on Form 8-K.

a)   Exhibits: None





b)   Reports on Form 8-K.  The  Company  filed a Form 8-K dated  April 16,  2003
     pursuant  to Item 12 of  that  form to  report  the  first  quarter's  2003
     earnings press release.








                                       17
<PAGE>


                                   SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                    Southcoast Financial Corporation
                                       Registrant


                                        s/ L. Wayne Pearson
Date: August 12, 2003               By:-----------------------------------------
                                         L. Wayne Pearson
                                         Chairman and Chief Executive Officer

                                        s/ Robert M. Scott
Date: August 12, 2003               By:-----------------------------------------
                                         Robert M. Scott
                                         Executive Vice President and Chief
                                         Financial Officer




                                       18
<PAGE>



                                  CERTIFICATION

     I, L. Wayne Pearson, certify that:

     1. I have  reviewed  this  quarterly  report on Form  10-QSB of  Southcoast
Financial Corporation;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    August 12, 2003                 s/ L. Wayne Pearson
       ------------------              -----------------------------------
                                       L. Wayne Pearson
                                       Chief Executive Officer






                                       19
<PAGE>


                                  CERTIFICATION

     I, Robert M. Scott, certify that:

     1. I have  reviewed  this  quarterly  report on Form  10-QSB of  Southcoast
Financial Corporation;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    August 12, 2003                s/ Robert M. Scott
     ---------------------            ----------------------------------
                                      Robert M. Scott
                                      Chief Financial Officer



                                       20