SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                   FORM 10-QSB

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

                  For the Quarterly Period Ended June 30, 2004

                                       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 small business issuer as specified in its charter)

             South Carolina                             28-2384011
      (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
                (Issuer's telephone number, including area code)
                ------------------------------------------------

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

                                                      YES [X] NO [ ]

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

       2,967,130 shares of common stock, no par value, as of July 31, 2004

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



<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                                      INDEX


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

Item 1.  Financial Statements (Unaudited)

<S>                                                                                                                <C>
         Condensed Consolidated Balance Sheets - June 30, 2004 and December 31, 2003....................................2

         Condensed Consolidated Statements of Income - Six months ended June 30, 2004 and 2003..........................3

         Condensed Consolidated Statements of Income - Three months ended June 30, 2004 and 2003........................4

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
           Six months ended June 30, 2004 and 2003......................................................................5

         Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2004 and 2003......................6

Notes to Condensed Consolidated Financial Statements..................................................................7-9

Item 2.  Management's Discussion and Analysis or Plan of Operation..................................................10-15

Item 3. Controls and Procedures........................................................................................16

PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders...........................................................16

Item 6.  Exhibits and Reports on Form 8-K..............................................................................17

         (a) Exhibits..................................................................................................17

         (b) Reports on Form 8-K.......................................................................................17

Signatures ............................................................................................................18
</TABLE>





<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

                      Condensed Consolidated Balance Sheets


PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
<TABLE>
<CAPTION>
                                                                                                 June 30,               December 31,
                                                                                                   2004                     2003
                                                                                                   ----                     ----
                                                                                               (Unaudited)
Assets
<S>                                                                                           <C>                      <C>
   Cash and due from banks ........................................................           $   6,137,835            $   5,550,376
   Federal funds sold .............................................................              11,747,000               12,031,000
   Investment securities available for sale .......................................              38,912,714               19,993,359
   Federal Home Loan Bank Stock, at Cost ..........................................               2,050,000                2,055,000
   Loans held for sale ............................................................               3,986,687                  427,000
   Loans, net of allowance of $2,607,160 and $2,376,516 ...........................             234,158,201              199,732,196
   Property and equipment - net ...................................................              14,412,031                9,412,214
   Other assets ...................................................................               4,498,064                3,670,957
                                                                                              -------------            -------------
       Total assets ...............................................................           $ 315,902,532            $ 252,872,102
                                                                                              =============            =============
Liabilities
   Deposits
     Noninterest-bearing ..........................................................           $  31,854,269            $  19,645,320
     Interest bearing .............................................................             195,260,866              146,567,087
                                                                                              -------------            -------------
       Total deposits .............................................................             227,115,135              166,212,407
                                                                                              -------------            -------------
   Other borrowings ...............................................................              41,000,000               41,100,000
   Trust preferred debt ...........................................................              11,000,000               11,000,000
   Other liabilities ..............................................................               2,220,182                1,149,284
                                                                                              -------------            -------------
       Total liabilities ..........................................................             281,335,317              219,461,691
                                                                                              -------------            -------------
Shareholders' Equity
   Common stock (no par value; 20,000,000 shares authorized;
     2,965,591 shares outstanding at June 30,2004 and
     2,948,551 at December 31, 2003) ..............................................              34,022,232               33,298,027
   Retained earnings ..............................................................                 655,917                        -
   Accumulated other comprehensive income (loss) ..................................                (110,934)                 112,384
                                                                                              -------------            -------------
       Total shareholders' equity .................................................              34,567,215               33,410,411
                                                                                              -------------            -------------
       Total liabilities and shareholders' equity .................................           $ 315,902,532            $ 252,872,102
                                                                                              =============            =============
</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,
                                                                                                              --------
                                                                                                     2004                    2003
                                                                                                     ----                    ----
Interest income
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $7,005,001               $5,483,015
   Investment securities .........................................................                  420,254                  165,540
   Federal funds sold ............................................................                   60,920                   86,500
                                                                                                 ----------               ----------
       Total interest income .....................................................                7,486,175                5,735,055
                                                                                                 ----------               ----------
Interest expense
   Deposits and borrowings .......................................................                2,625,485                2,225,897
                                                                                                 ----------               ----------
Net interest income ..............................................................                4,860,690                3,509,158
Provision for  loan losses .......................................................                  245,000                  425,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                4,615,690                3,084,158
                                                                                                 ----------               ----------
Noninterest income
   Service fees on deposit accounts ..............................................                  462,963                  442,416
   Fees on loans sold ............................................................                  134,691                  394,900
   Other .........................................................................                   75,014                  146,975
                                                                                                 ----------               ----------
       Total noninterest income ..................................................                  672,668                  984,291
                                                                                                 ----------               ----------
Noninterest expenses
   Salaries and employment benefits ..............................................                2,021,978                1,828,733
   Occupancy .....................................................................                  229,043                  205,868
   Furniture and equipment .......................................................                  391,721                  315,937
   Advertising and public relations ..............................................                   78,882                   27,290
   Professional fees .............................................................                  153,569                  101,974
   Travel and entertainment ......................................................                  102,239                   85,882
   Telephone, postage and supplies ...............................................                  164,463                  103,974
   Other operating expenses ......................................................                  300,128                  252,903
                                                                                                 ----------               ----------
       Total noninterest expenses ................................................                3,442,023                2,921,948
                                                                                                 ----------               ----------
Income before income taxes .......................................................                1,846,335                1,146,501
Income tax .......................................................................                  573,037                  412,440
                                                                                                 ----------               ----------
Net income .......................................................................               $1,273,298               $  734,061
                                                                                                 ==========               ==========
Basic net income per common share ................................................               $      .43               $      .44
Diluted net income per common share ..............................................               $      .43               $      .42

Weighted average shares outstanding
   Basic .........................................................................                2,960,368                1,682,390
   Diluted .......................................................................                2,995,245                1,757,548
</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,
                                                                                                                 --------
                                                                                                     2004                   2003
                                                                                                     ----                   ----
Interest income
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $3,687,789               $2,932,074
   Investment securities .........................................................                  236,622                   83,940
   Federal funds sold ............................................................                   40,184                   33,898
                                                                                                 ----------               ----------
       Total interest income .....................................................                3,964,595                3,049,912
                                                                                                 ----------               ----------
Interest expense
   Deposits and borrowings .......................................................                1,439,365                1,110,862
                                                                                                 ----------               ----------
Net interest income ..............................................................                2,525,230                1,939,050
Provision for  loan losses .......................................................                   95,000                  305,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                2,430,230                1,634,050
                                                                                                 ----------               ----------
Noninterest income
   Service fees on deposit accounts ..............................................                  242,001                  228,584
   Fees on loans sold ............................................................                   83,554                  187,272
   Other .........................................................................                   32,522                  107,581
                                                                                                 ----------               ----------
       Total noninterest income ..................................................                  358,077                  523,437
                                                                                                 ----------               ----------
Noninterest expenses
   Salaries and employment benefits ..............................................                1,045,842                  964,556
   Occupancy .....................................................................                  122,347                  118,232
   Furniture and equipment .......................................................                  216,311                  160,336
   Advertising and public relations ..............................................                   49,519                    6,645
   Professional fees .............................................................                   97,469                   71,642
   Travel and entertainment ......................................................                   58,124                   52,200
   Telephone, postage and supplies ...............................................                   76,860                   59,264
   Other operating expenses ......................................................                  171,600                  126,770
                                                                                                 ----------               ----------
       Total noninterest expenses ................................................                1,838,072                1,559,645
                                                                                                 ----------               ----------
Income before income taxes .......................................................                  950,235                  597,842
Income tax .......................................................................                  294,318                  215,822
                                                                                                 ----------               ----------
Net income .......................................................................               $  655,917               $  382,020
                                                                                                 ==========               ==========
Basic net income per common share ................................................               $      .22               $      .23
Diluted net income per common share ..............................................               $      .22               $      .22

Weighted average shares outstanding
   Basic .........................................................................                2,965,540                1,684,310
   Diluted .......................................................................                3,000,381                1,762,448
</TABLE>

            See notes to condensed consolidated financial statements.



                                       4
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

       Condensed Consolidated Statement of Changes in Shareholders' Equity
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                        Accumulated
                                                                                                            other
                                                                  Common Stock                         comprehensive
                                                                  ------------              Retained       income
                                                             Shares         Amount          earnings       (loss)          Total
                                                             ------         ------          --------       ------          -----
<S>                                                          <C>        <C>             <C>              <C>          <C>
Balance, January 1, 2003 .............................       1,321,996  $  11,378,910   $   1,289,321    $    41,221  $  12,709,452
   Net income for the period .........................                                        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
   Exercise of 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
                                                             =========  =============   =============    ===========  =============

Balance, January 1, 2004 .............................       2,680,501  $  33,298,027   $          -     $   112,384  $  33,410,411

   Net income for the period .........................                                      1,273,298                     1,273,298

   Other comprehensive income, net of tax
   Unrealized holding losses
     on securities available for sale ................                                                      (223,318)      (223,318)
                                                                                                                      -------------

   Comprehensive income ..............................                                                                    1,049,980

   Stock dividend ....................................         269,564        617,381        (617,381)

   Exercise of stock options .........................          12,721         59,612                                        59,612

   Employee stock purchase plan ......................           2,805         47,212                                        47,212
                                                             ---------  -------------   -------------    -----------  -------------

Balance, June 30, 2004 ...............................       2,965,591  $  34,022,232   $     655,917    $  (110,934) $  34,567,215
                                                             =========  =============   =============    ===========  =============
</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,
                                                                                                             --------
                                                                                                     2004                    2003
                                                                                                     ----                    ----
Operating activities
<S>                                                                                            <C>                     <C>
   Net income ......................................................................           $  1,273,298            $    734,061
   Adjustments to reconcile net income to net
     cash provided (used) by operating activities
       Deferred income taxes .......................................................                573,037                 412,440
       Provision for loan losses ...................................................                245,000                 425,000
       Depreciation and amortization ...............................................                359,921                 317,690
       Increase in other assets ....................................................               (827,107)               (101,939)
       Increase (decrease) in other liabilities ....................................                623,477                (756,388)
                                                                                               ------------            ------------

         Net cash provided by operating activities .................................              2,247,626               1,030,864
                                                                                               ------------            ------------

Investing activities
   Sale of Federal Home Loan Bank stock ............................................                  5,000                       -
   Sale (purchase) of investment securities available for sale .....................            (19,291,761)                422,133
   Net increase in loans ...........................................................            (38,230,692)            (40,220,592)
   Purchase of property and equipment ..............................................             (5,336,266)               (830,016)
                                                                                               ------------            ------------

         Net cash used for investing activities ....................................            (62,853,719)            (40,628,475)
                                                                                               ------------            ------------

Financing activities
   Increase (decrease) in borrowings ...............................................               (100,000)              5,200,000
   Proceeds from sale of stock, net ................................................                106,824                  54,420
   Net increase in deposits ........................................................             60,902,728              33,408,534
                                                                                               ------------            ------------

         Net cash provided by financing activities .................................             60,909,552              38,662,954
                                                                                               ------------            ------------

         Increase (decrease) in cash and cash equivalents ..........................             15,643,459                (934,657)

Cash and cash equivalents, beginning of period .....................................             17,581,376              20,072,586
                                                                                               ------------            ------------

Cash and cash equivalents, end of period ...........................................           $ 17,884,835            $ 19,137,929
                                                                                               ============            ============
</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-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 another
subsidiary and has no employees.

Note 3 - Stock-Based Compensation

We have 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 we  had  applied  the  fair  value  recognition  provisions  of  Financial
Accounting  Standards  Board ("FASB") SFAS No. 123,  Accounting for  Stock-Based
Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                                                   Six months ended June 30,
                                                                                                   -------------------------
                                                                                                2004                       2003
                                                                                                ----                       ----
                                                                                                          (Unaudited)

<S>                                                                                         <C>                          <C>
Net income, as reported .....................................................               $    1,273,298               $   734,061
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ................................                       91,113                     7,941
                                                                                            --------------               -----------

Pro forma net income ........................................................               $    1,182,185               $   726,120
                                                                                            ==============               ===========

Earnings per share:
  Basic - as reported .......................................................               $         0.43               $      0.44
                                                                                            ==============               ===========
  Basic - pro forma .........................................................               $         0.40               $      0.43
                                                                                            ==============               ===========

  Diluted - as reported .....................................................               $         0.42               $      0.42
                                                                                            ==============               ===========
  Diluted - pro forma .......................................................               $         0.39               $      0.41
                                                                                            ==============               ===========
</TABLE>



                                       7
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


Note 3 - Stock-Based Compensation - continued

<TABLE>
<CAPTION>
                                                                                                   Three months ended June 30,
                                                                                                   ---------------------------
                                                                                                  2004                       2003
                                                                                                  ----                       ----
                                                                                                           (Unaudited)

<S>                                                                                         <C>                          <C>
Net income, as reported .....................................................               $      655,917               $   382,020
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related tax effects ................................                            -                    15,882
                                                                                            --------------               -----------

Pro forma net income ........................................................               $      655,917               $   366,138
                                                                                            ==============               ===========

Earnings per share:
  Basic - as reported .......................................................               $         0.22               $      0.23
                                                                                            ==============               ===========

  Basic - pro forma .........................................................               $         0.22               $      0.21
                                                                                            ==============               ===========

  Diluted - as reported .....................................................               $         0.22               $      0.22
                                                                                            ==============               ===========

  Diluted - pro forma .......................................................               $         0.22               $      0.21
                                                                                            ==============               ===========
</TABLE>


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 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.

In April 2004 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 Debt

In May 2002 and December 2002, in two separate transactions,  the Company issued
an aggregate of $11 million of trust preferred debt. 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.



                                       8
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


Note 6 - Recently Issued Accounting Standards

No recent  authoritative  pronouncements that affect our accounting,  reporting,
and  disclosure of financial  information  have  occurred  during the six months
ending June 30, 2004 other than those discussed below.

In March 2004, the FASB issued an exposure draft on "Share-Based  Payment".  The
proposed  Statement  addresses  the  accounting  for  transactions  in  which an
enterprise  receives employee services in exchange for a) equity  instruments of
the  enterprise  or b)  liabilities  that are  based  on the  fair  value of the
enterprise's  equity  instruments or that may be settled by the issuance of such
equity  instruments.  This  proposed  Statement  would  eliminate the ability to
account  for  share-based  compensation  transactions  using APB Opinion No. 25,
"Accounting for Stock Issued to Employees",  and generally would require instead
that such transactions be accounted for using a  fair-value-based  method.  This
Statement, if approved, will be effective for awards that are granted, modified,
or settled in fiscal  years  beginning  after a)  December  15,  2004 for public
entities  and  nonpublic  entities  that  used the  fair-value-based  method  of
accounting under the original provisions of Statement 123 for recognition or pro
forma  disclosure  purposes  and b) December  15,  2005 for all other  nonpublic
entities.  Earlier application is encouraged provided that financial  statements
for those earlier years have not yet been issued.  Retrospective  application of
this Statement is not permitted.  The adoption of this  Statement,  if approved,
could  have  an  impact  on the  Company's  financial  position  or  results  of
operations.

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies that do not require adoption until a future date
are not  expected  to  have a  material  impact  on the  consolidated  financial
statements upon adoption.




                                       9
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

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 2003 Form 10-KSB of
Southcoast  Financial  Corporation.  Results of operations for the period ending
June 30, 2004 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 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.  Words such as
"estimate," "project," "intend," "expect," "plan," "anticipate,"  "believe," and
similar expressions identify  forward-looking  statements.  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, 2004 was  $1,273,298
or $.43 per basic share,  compared to $734,061 or $.44 per basic share,  for the
six months ended June 30, 2003.  The average number of shares for the six months
ending June 30, 2004 was  2,960,368  compared to 1,682,390 for the period ending
June 30, 2003. The increased  number of shares is primarily due to the 1,104,000
new shares issued in November 2003 in our secondary stock offering.


The  Company's  net income for the three months ended June 30, 2004 was $655,917
or $.22 per basic share,  compared to $382,020 or $.23 per basic share,  for the
three months ended June 30, 2003.  The average  number of shares for the quarter
ending June 30, 2004 was  2,965,540  compared to 1,684,310 for the period ending
June 30, 2003. The increased  number of shares is primarily due to the 1,104,000
new shares issued in November 2003 in our secondary stock offering.


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
$4,860,690  for the six months ended June 30, 2004,  compared to $3,509,158  for
the six months ended June 30, 2003.

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, 2004  increased 40.7
percent to $260.0  million from the $184.9  million  reported for the six months
ending June 30, 2003.  The increase was mainly  attributable  to the increase in
loans  supported  by a  $54.3  million  increase  in  average  interest  bearing
liabilities  which resulted from the continued  growth of the Charleston  market
area, growth in the Company's  branches,  and the Company's marketing efforts as
well as an increase in average equity of $20.7 million resulting  primarily from
our secondary stock offering.

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,  2004 and 2003.  The  increase in net  interest  income is due to
increased  volume of  earning  assets,  partially  offset  with a 6 basis  point
decrease in the Company's net interest margin.





                                       10
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

<TABLE>
<CAPTION>
                                                      For the six months ended                      For the six months ended
                                                            June 30, 2004                                 June 30, 2003
                                                            -------------                                 -------------
                                                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 ....................  $ 13,336,241     $   60,920      0.91%          $ 14,943,551     $   86,500      1.16%
   Investments ...........................    28,715,588        420,254      2.93             10,664,015        165,540      3.10
                                            ------------     ----------                     ------------     ----------
     Total investments and
       federal funds sold ................    42,051,829        481,174      2.29             25,607,566        252,040      1.97
   Loans .................................   217,970,140      7,005,001      6.43            159,247,068      5,483,015      6.89
                                            ------------     ----------                     ------------     ----------
     Total earning assets ................   260,021,969      7,486,175      5.76            184,854,634      5,735,055      6.20
                                                             ----------                                      ----------
     Other assets ........................    18,246,826                                      12,723,613
                                            ------------                                    ------------
     Total assets ........................  $278,268,795                                    $197,578,247
                                            ============                                    ============
Liabilities
   Interest bearing deposits .............  $172,183,463      1,717,001      1.99           $129,290,590     $1,447,881      2.24
   Other borrowings ......................    45,148,613        908,484      4.02             33,691,111        778,016      4.62
                                            ------------     ----------                     ------------     ----------
     Total interest bearing
       liabilities .......................   217,332,076      2,625,485      2.42            162,981,701      2,225,897      2.73
                                                             ----------                                      ----------
   Non-interest bearing
     liabilities .........................    27,082,630                                      21,466,106
                                            ------------                                    ------------
     Total liabilities ...................   244,414,706      2,625,485      2.15            184,447,807      2,225,897      2.41
                                                             ----------                                      ----------
   Equity ................................    33,854,089                                      13,130,440
                                            ------------                                    ------------
     Total liabilities
       and equity ........................  $278,268,795                                    $197,578,247
                                            ============                                    ============
     Net interest
       income/margin .....................                   $4,860,690      3.74                            $3,509,158      3.80
                                                             ==========                                      ==========
     Net interest spread .................                                   3.34%                                           3.47%
</TABLE>

(1)  Annualized

As reflected  above, for the six months ended June 30, 2004 the average yield on
earning  assets was 5.76  percent,  while the average  cost of interest  bearing
liabilities was 2.42 percent. For the six months ended June 30, 2003 the average
yield  on  earning   assets  was  6.20   percent   and  the   average   cost  of
interest-bearing  liabilities  was 2.73  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 and the
maturing of higher yield  certificates  of deposit.  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, 2004 was 3.74 percent compared to 3.80 percent for
the six months ended June 30, 2003. The decrease in the  net-interest  margin is
primarily  attributable the issuance of higher rate  certificates,  in the later
part  of the  first  quarter,  as part of an  advertising  campaign  for the new
Summerville  branch and the  issuance  of $20  million  dollars  of longer  term
brokered  certificates  in anticipation  of expected  increases in rates.  These
increased  deposits were invested in liquid assets earning less then the deposit
rates for some  portion of the period.  The cost of total  liabilities  was 2.15
percent for the six months ended June 30, 2004  compared to 2.41 percent for the
six months ended June 30, 2003.



                                       11
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

Average  earning assets for the three months ending June 30, 2004 increased 48.1
percent to $286.4 million from the $193.4 million  reported for the three months
ending June 30, 2003.  The increase was mainly  attributable  to the increase in
loans  supported  by a  $42.4  million  increase  in  average  interest  bearing
liabilities  which resulted from the continued  growth of the Charleston  market
area, growth in the Company's  branches,  and the Company's marketing efforts as
well as an increase in average equity of $20.5 million resulting  primarily from
our secondary stock offering.

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,  2004 and 2003.  The  increase in net  interest  income is due to
increased  volume  of  earning  assets,  partially  offset  by a 42 basis  point
decrease in the Company's net interest margin.
<TABLE>
<CAPTION>
                                                          For the three months ended                 For the three months ended
                                                                June 30, 2004                               June 30, 2003
                                                                -------------                               -------------
                                                    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 ........................   $ 17,264,966     $   40,184      0.93%       $ 11,541,402     $   33,898      1.17%
   Investments ...............................     37,962,037        236,622      2.49          10,953,270         83,940      3.07
                                                 ------------     ----------                  ------------     ----------
     Total investments and
       federal funds sold ....................     55,227,003        276,806      2.00          22,494,672        117,838      2.10
   Loans .....................................    226,155,653      3,687,789      6.52         170,863,531      2,932,074      6.86
                                                 ------------     ----------                  ------------     ----------
     Total earning assets ....................    281,382,656      3,964,595      5.64         193,358,203      3,049,912      6.31
                                                                  ----------                                   ----------
     Other assets ............................     19,600,041                                   13,543,273
                                                 ------------                                 ------------
     Total assets ............................   $300,982,697                                 $206,901,476
                                                 ============                                 ============
Liabilities
   Interest bearing deposits .................   $192,440,510        991,169      2.06        $133,853,205     $  703,693      2.10
   Other borrowings ..........................     43,444,444        448,196      4.13          35,744,445        407,169      4.56
                                                 ------------     ----------                  ------------     ----------
     Total interest bearing
       liabilities ...........................    235,884,954      1,439,365      2.44         169,597,650      1,110,862      2.62
                                                                  ----------                                   ----------
   Non-interest bearing
     liabilities .............................     31,346,448                                   24,032,648
                                                 ------------                                 ------------
     Total liabilities .......................    267,231,402      1,439,365      2.15         193,630,298      1,110,862      2.29
                                                                  ----------                                   ----------
   Equity ....................................     33,751,295                                   13,271,178
                                                 ------------                                 ------------
     Total liabilities
       and equity ............................   $300,982,697                                 $206,901,476
                                                 ============                                 ============
     Net interest
       income/margin .........................                    $2,525,230      3.59                         $1,939,050      4.01
                                                                  ==========                                   ==========
     Net interest spread .....................                                    3.20%                                        3.69%
</TABLE>
(1)  Annualized

As reflected  above,  for the three months ended June 30, 2004 the average yield
on earning assets was 5.64 percent,  while the average cost of interest  bearing
liabilities  was 2.44  percent.  For the three  months  ended June 30,  2003 the
average  yield on  earning  assets  was 6.31  percent  and the  average  cost of
interest-bearing  liabilities  was 2.62  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 and the
maturing of higher yield  certificates of deposits.  The net interest margin for
the three months  ended June 30, 2004 was 3.59 percent  compared to 4.01 percent
for the three  months  ended June 30,  2003.  The  decrease in the  net-interest
margin is primarily  attributable the issuance of higher rate  certificates,  in
the later part of the first quarter, as part of an advertising  campaign for the
new  Summerville  branch and the issuance of $20 million  dollars of longer term
brokered  certificates  in anticipation  of expected  increases in rates.  These
increased  deposits were invested in liquid assets earning less then the deposit
rates for some  portion of the period.  The cost of total  liabilities  was 2.15
percent for the three  months  ended June 30, 2004  compared to 2.29 percent for
the three months ended June 30, 2003.

                                       12
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Net Interest Income - continued

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, 2004
(Dollars in thousands)                                                                  Versus six months ended June 30, 2003
                                                                                        -------------------------------------
                                                                                   Volume                Rate             Net Change

<S>                                                                               <C>                  <C>                  <C>
Federal funds sold ..................................................             $   (10)             $   (16)             $   (26)
Investments .........................................................                 280                  (25)                 255
                                                                                  -------              -------              -------
Total investments and federal funds sold ............................                 270                  (41)                 229
Total loans .........................................................               2,023                 (501)               1,522
                                                                                  -------              -------              -------
Total earning assets ................................................               2,293                 (542)               1,751

Total interest-bearing liabilities ..................................                 745                 (345)                 400
                                                                                  -------              -------              -------
Net interest income .................................................             $ 1,548              $  (197)             $ 1,351
                                                                                  =======              =======              =======

<CAPTION>
                                                                                     Analysis of Changes in Net Interest Income
                                                                                       For the three months ended June 30, 2004
(Dollars in thousands)                                                                 Versus three months ended June 30, 2003
                                                                                       ---------------------------------------
                                                                                   Volume                Rate             Net Change
                                                                                   ------                ----             ----------

<S>                                                                                <C>                  <C>                   <C>
Federal funds sold .................................................               $   17               $  (10)               $    6
Investments ........................................................                  207                  (55)                  153
                                                                                   ------               ------                ------
Total investments and federal funds sold ...........................                  224                  (65)                  159
Total loans ........................................................                  948                 (192)                  756
                                                                                   ------               ------                ------
Total earning assets ...............................................                1,172                 (257)                  915

Total interest-bearing liabilities .................................                  395                  (66)                  329
                                                                                   ------               ------                ------
Net interest income ................................................               $  777               $ (191)               $  586
                                                                                   ======               ======                ======
</TABLE>

Noninterest Income and Expenses

Noninterest  income for the six months ended June 30, 2004 was $672,668 compared
to $984,291 for the six months ended June 30, 2003. The decrease is attributable
to a  $260,209  decrease  in fees on loans  sold  and  commissions  received  on
insurance  offset by increases in service fees on deposit  accounts arising from
the increased number of accounts.

Noninterest  expenses  for the six months  ended June 30, 2004 were  $3,442,023,
compared to $2,921,948  for the six months ended June 30, 2003.  The increase of
$520,075 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 Summerville branch in
February 2004 and the anticipated opening of the Goose Creek branch in the third
quarter of 2004, as well as the increase in administrative  staff to support the
growth of the Company's operations.

Noninterest  income  for the  three  months  ended  June 30,  2004 was  $358,077
compared to $523,437 for the three  months ended June 30, 2003.  The decrease is
attributable to a $156,491 decrease in fees on loans sold and a $60,000 decrease
in commissions received on life insurance offset by increases in service fees on
deposit accounts.



                                       13
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Noninterest Income and Expenses - continued

Noninterest  expenses for the three months ended June 30, 2004 were  $1,838,072,
compared to $1,559,645 for the three months ended June 30, 2003. The increase of
$278,427 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 Summerville branch in
February 2004 and the anticipated opening of the Goose Creek branch in the third
quarter of 2004, 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 of Atlanta (the FHLB) 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  one new branch  office and an  operations
center.  The total cost of these facilities will be $2,584,000.  The funding for
these  offices  will come from normal  operations  and the  proceeds of the 2003
stock offering.  Management  believes that the Company's  liquidity  sources are
adequate to meet its normal operating needs.

Loans

Commercial loans (most of which are incidentally  secured with real estate) made
up 52.7  percent  of the total  loan  portfolio  as of June 30,  2004,  totaling
$124.8.  million.  Loans  secured  by real  estate  for  construction  and  land
development  totaled $25.8  million or 10.9 percent of the  portfolio  while all
other loans secured by real estate  totaled $82.9 million or 35.0 percent of the
total loan portfolio,  as of June 30, 2004. Installment loans and other consumer
loans to  individuals  comprised  $3.3  million or 1.4 percent of the total loan
portfolio.  The  allowance  for loan losses was 1.10 percent of loans as of June
30, 2004  compared to 1.18  percent as of December  31,  2003.  In  management's
opinion,  the  allowance  for loan losses is  adequate.  At June 30,  2004,  the
Company did not have any loans 90 days  delinquent and still  accruing  interest
and had $1,598,000 of non-accruing loans and $70,000 of other real estate owned.
The majority of the non-accruing loans are secured by real estate.

Deposits

Deposits  increased   $60,902,728  during  the  first  six  months  of  2004  to
$227,115,135 at June 30, 2004. The increase was attributable to several factors.
Noninterest  bearing deposits increased  $12,208,949 during the first six months
as a result of the normal  growth of the Bank.  Certificates  of  deposits  from
retail  customers  increased  approximately  $26,619,000  during  the  first six
months.  This  increase  was  largely  attributable  to a  six-month  special on
certificates issued in conjunction with the opening of the Summerville branch in
February  2004.  Brokered  deposits  increased  approximately  $10,636,000.   In
anticipation  of  potentially  higher  interest  rates,  the bank purchased some
longer term deposits.



                                       14
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

Item 2. - Management's Discussion and Analysis or Plan of Operation - continued

Other Borrowings

Other borrowings include advances from the FHLB. They are collateralized by FHLB
stock and pledges of certain  residential  mortgage  loans and are summarized as
follows:

              Maturity                Rate                           Balance
              --------                ----                           -------

             May 2005                 7.07%                        $ 2,000,000
             June  2007               Variable -Libor plus
                                      .50%for first year,
                                      then fixed at 4.04%          $ 8,000,000
             September 2008          3.01%                         $10,000,000
             September 2010          5.55%                         $ 7,000,000
             February  2011          4.31%                         $ 4,500,000
             March     2013          2.91%                         $ 7,500,000
             June      2014          3.92%                         $ 2,000,000
                                                                   -----------

                 Balance                                           $41,000,000

Capital Resources

The  capital  base for the Company  increased  by  $1,492,121  for the first six
months of 2004, due to operating income, and capital raised through the Employee
Stock Purchase Plan and exercise of stock options,  offset by unrealized  losses
on available for sale securities.  The Company's tier one capital  risk-weighted
to asset ratio was 19.97  percent as of June 30, 2004  compared to 23.08 percent
as of December 31, 2003.

The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements  for  banks  and  the  Federal  Reserve  has  established   similar
requirements  for bank holding  companies.  As of June 30, 2004, the Company and
subsidiary bank exceed the capital  requirement levels that are to be maintained
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) ................      $31,330      14.38%      $21,789       10.00%      $17,251     8.00%
  Tier 1 capital (to risk-weighted assets) ...............       28,723      13.18%       13,074        6.00%        8,618     4.00%
  Tier 1 capital (to average assets) .....................       28,723       9.90%       14,449        5.00%       11,599     4.00%

The Company
  Total capital (to risk-weighted assets) ................      $48,083      20.91%      $22,999       10.00%          N/A      N/A
  Tier 1 capital (to risk-weighted assets) ...............       45,476      19.77%       13,799        6.00%          N/A      N/A
  Tier 1 capital (to average assets) .....................       45,476      16.34%       13,913        5.00%          N/A      N/A
</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, 2004,
the Company had issued  commitments to extend credit of $31,760,000  and standby
letters  of credit of  $318,000  through  various  types of  commercial  lending
arrangements.  Approximately  $24,788,000 of these  commitments to extend credit
had variable rates.

                                       15
<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, 2004.

<TABLE>
<CAPTION>
                                                                    After One    After Three
                                                                     Through       Through                    Greater
                                                     Within One       Three         Twelve     Within One       Than
(Dollars in thousands)                                  Month         Months        Months         Year       One Year        Total
                                                        -----         ------        ------         ----       --------        -----
<S>                                                    <C>           <C>           <C>           <C>           <C>           <C>
Unused commitments to extend credit ............       $   679       $ 1,166       $12,356       $14,201       $17,559       $31,760
Standby letters of credit ......................            23           244            26           293            25           318
                                                       -------       -------       -------       -------       -------       -------
    Totals .....................................       $   702       $ 1,410       $12,382       $14,494       $17,584       $32,078
                                                       =======       =======       =======       =======       =======       =======
</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.



                                       16
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

Item 3. - 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 the effectiveness
of such  controls and  procedures,  as of the end of the period  covered by this
quarterly report, was adequate.

No disclosure is required under 17 C.F.R. Section 228.308 (c).

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


a)   The Company held its annual meeting on April 08, 2004

b)   Election of Directors

c)   At the annual meeting, L. Wayne Pearson and Robert M. Scott were elected to
     serve three-year terms as directors.


            Nominee                      L. Wayne Pearson       Robert M. Scott

            Votes for:                      2,356,539               2,356,539

            Votes abstained:                  179,052                 179,052

            Votes against:                          0                       0



PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

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

(b)  Reports on Form 8-K.  The  Company  filed a Form 8-K dated  April 14,  2004
     pursuant to Items 7 and 12 of that form to report the 2003 annual earnings.




                                       17
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                                   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.




                                              s/L. Wayne Pearson
Date:    August 11, 2004                   By:----------------------------------
                                              L. Wayne Pearson
                                              Chief Executive Officer


                                              s/Robert M. Scott
Date:    August 11, 2004                   By:----------------------------------
                                              Robert M. Scott
                                              Executive Vice President and Chief
                                              Financial Officer



                                       18
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION

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.





                                       19