U.S. 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 March 31, 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.

      2,695,642 shares of common stock, no par value, as of April 30, 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 - March 31, 2004 and December 31, 2003...................................2

         Condensed Consolidated Statements of Income - Three months ended March 31, 2004 and 2003.......................3

         Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Income -
           Three months ended March 31, 2004 and 2003...................................................................4

         Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003...................5

Notes to Condensed Consolidated Financial Statements..................................................................6-7

Item 2.  Management's Discussion and Analysis or Plan of Operation...................................................8-11

Item 3. Controls and Procedures........................................................................................12

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K..............................................................................13

         (a) Exhibits..................................................................................................13

         (b) Reports on Form 8-K.......................................................................................13

Signatures ............................................................................................................14
</TABLE>




<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION

                       Condensed Consolidated Balance Sheets

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
<TABLE>
<CAPTION>
                                                                                                     March 31,          December 31,
                                                                                                      2004                  2003
                                                                                                      ----                  ----
                                                                                                   (Unaudited)
Assets
<S>                                                                                             <C>                     <C>
   Cash and due from banks .........................................................            $  4,991,425            $  5,550,376
   Federal funds sold ..............................................................              43,033,000              12,031,000
   Investment securities available for sale ........................................              19,739,034              19,993,359
   Federal Home Loan Bank Stock, at Cost ...........................................               1,740,000               2,055,000
   Loans held for sale .............................................................               3,089,780                 427,000
   Loans, net of allowance of $2,528,533 and $2,376,516 ............................             203,571,136             199,732,196
   Property and equipment - net ....................................................              11,828,599               9,412,214
   Other assets ....................................................................               4,510,891               3,670,957
                                                                                                ------------            ------------

       Total assets ................................................................            $292,503,865            $252,872,102
                                                                                                ============            ============

Liabilities
   Deposits
     Noninterest-bearing ...........................................................            $ 25,556,458            $ 19,645,320
     Interest bearing ..............................................................             189,222,410             146,567,087
                                                                                                ------------            ------------

       Total deposits ..............................................................             214,778,868             166,212,407
                                                                                                ------------            ------------

   Other borrowings ................................................................              31,000,000              41,100,000
   Trust preferred debt ............................................................              11,000,000              11,000,000
   Other liabilities ...............................................................               1,489,746               1,149,284
                                                                                                ------------            ------------

       Total liabilities ...........................................................             258,268,614             219,461,691
                                                                                                ------------            ------------

Shareholders' Equity
   Common stock (no par value; 20,000,000 shares authorized;
     2,693,974 shares outstanding at March 31,2004 and
     2,680,501 at December 31, 2003) ...............................................              33,991,887              33,298,027
   Retained earnings ...............................................................                       -                       -
   Accumulated other comprehensive income ..........................................                 243,364                 112,384
                                                                                                ------------            ------------

       Total shareholders' equity ..................................................              34,235,251              33,510,411
                                                                                                ------------            ------------

       Total liabilities and shareholders' equity ..................................            $292,503,865            $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 three months ended
                                                                                                               March 31,
                                                                                                               ---------
                                                                                                     2004                    2003
                                                                                                     ----                    ----
Interest income
<S>                                                                                              <C>                      <C>
   Loans, including fees .........................................................               $3,317,212               $2,550,941
   Investment securities .........................................................                  183,632                   81,600
   Federal funds sold ............................................................                   20,736                   52,602
                                                                                                 ----------               ----------
       Total interest income .....................................................                3,521,580                2,685,143
                                                                                                 ----------               ----------
Interest expense
   Deposits and borrowings .......................................................                1,196,120                1,115,035
                                                                                                 ----------               ----------
Net interest income ..............................................................                2,335,460                1,570,108
Provision for  loan losses .......................................................                  150,000                  120,000
                                                                                                 ----------               ----------
Net interest income after provision for loan losses ..............................                2,185,460                1,450,108
                                                                                                 ----------               ----------
Noninterest income
   Service fees on deposit accounts ..............................................                  220,962                  213,832
   Fees on loans sold ............................................................                   51,137                  207,628
   Other .........................................................................                   42,492                   39,384
                                                                                                 ----------               ----------
       Total noninterest income ..................................................                  314,591                  460,854
                                                                                                 ----------               ----------
Noninterest expenses
   Salaries and employment benefits ..............................................                  976,136                  864,177
   Occupancy .....................................................................                  106,696                   87,636
   Furniture and equipment .......................................................                  175,410                  155,601
   Advertising and public relations ..............................................                   29,363                   20,645
   Professional fees .............................................................                   56,100                   30,332
   Travel and entertainment ......................................................                   44,115                   33,682
   Telephone, postage and supplies ...............................................                   87,603                   44,097
   Other operating expenses ......................................................                  128,528                  126,133
                                                                                                 ----------               ----------
       Total noninterest expenses ................................................                1,603,951                1,362,303
                                                                                                 ----------               ----------
Income before income taxes .......................................................                  896,100                  548,659
Income tax .......................................................................                  278,719                  196,618
                                                                                                 ----------               ----------
Net income .......................................................................               $  617,381               $  352,041
                                                                                                 ==========               ==========
Basic net income per common share ................................................               $      .21               $      .20
Diluted net income per common share ..............................................               $      .21               $      .19
Weighted average shares outstanding
   Basic .........................................................................                2,956,802                1,796,920
   Diluted .......................................................................                2,990,877                1,876,608
</TABLE>

            See notes to condensed consolidated financial statements.




                                       3
<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 .........................                                        352,042                       352,042
   Other comprehensive income,
     net of tax ......................................
     Unrealized holding losses
       on securities available for sale ..............                                                       (11,426)       (11,426)
                                                                                                                        -----------

   Comprehensive income ..............................                                                                      340,616

Employee stock purchase plan .........................             687          7,008                                         7,008
                                                             ---------    -----------     -----------      ---------    -----------

Balance, March 31, 2003 ..............................       1,322,683    $11,385,918     $ 1,641,363      $  29,795    $13,057,076
                                                             =========    ===========     ===========      =========    ===========

Balance, January 1, 2004 .............................       2,680,501    $33,298,027     $        -       $ 112,384    $33,140,411

   Net income for the period .........................                                        617,381                       617,381

   Other comprehensive income,
     net of tax ......................................
     Unrealized holding losses
       on securities available for sale ..............                                                       130,980        130,980
                                                                                                                        -----------

   Comprehensive income ..............................                                                                      748,361

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

   Exercise of stock options .........................          12,336         57,639                                        57,639

   Employee stock purchase plan ......................           1,137         18,840                                        18,840
                                                             ---------    -----------     -----------      ---------    -----------

Balance, March 31, 2004 ..............................       2,963,538    $33,991,887     $        -       $ 243,364    $34,235,251
                                                             =========    ===========     ===========      =========    ===========
</TABLE>

            See notes to condensed consolidated financial statements.





                                       4
<PAGE>

                       SOUTHCOAST FINANCIAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                   For the three months ended
                                                                                                             March 31,
                                                                                                             ---------
                                                                                                     2004                   2003
                                                                                                     ----                   ----
Operating activities
<S>                                                                                            <C>                     <C>
   Net income ......................................................................           $    617,381            $    352,042
   Adjustments to reconcile net income to net
     cash provided (used) by operating activities
       Income tax ..................................................................                278,719                 196,618
       Provision for loan losses ...................................................                150,000                 120,000
       Depreciation and amortization ...............................................                169,715                 135,626
       Increase in other assets ....................................................               (839,934)             (1,095,969)
       Increase in other liabilities ...............................................                (11,934)                145,814
                                                                                               ------------            ------------

         Net cash provided by (used) operating activities ..........................                363,947                (145,869)
                                                                                               ------------            ------------

Investing activities
   Sale (purchase) Federal Home Loan Bank stock ....................................                315,000                 (70,000)
   Sale (purchase) of investment securities available for sale .....................                448,120                 (20,389)
   Net increase in loans ...........................................................             (6,651,720)             (2,569,384)
   Purchase of property and equipment ..............................................             (2,575,238)               (149,421)
                                                                                               ------------            ------------

         Net cash used for investing activities ....................................             (8,463,838)             (2,809,194)
                                                                                               ------------            ------------

Financing activities
   Increase (decrease) in borrowings ...............................................            (10,100,000)              4,200,000
   Proceeds from sale (redemption) of stock, net ...................................                 76,479                   7,008
   Net increase in deposits ........................................................             48,566,461              19,031,992
                                                                                               ------------            ------------

         Net cash provided by financing activities .................................             38,542,940              23,239,000
                                                                                               ------------            ------------

         Increase in cash and due from banks .......................................             30,443,049              20,283,937

Cash and due from banks, beginning of period .......................................             17,581,376              20,072,586
                                                                                               ------------            ------------

Cash and due from banks, end of period .............................................           $ 48,024,425            $ 40,356,523
                                                                                               ============            ============
</TABLE>


            See notes to condensed consolidated financial statements.




                                       5
<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>
                                                                                                  Three months ended March 31,
                                                                                                  ----------------------------
                                                                                                2004                          2003
                                                                                                ----                          ----
                                                                                                             (Unaudited)
<S>                                                                                         <C>                        <C>
Net income, as reported .....................................................               $      617,381             $     352,042
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 ........................................................               $      526,268             $     344,101
                                                                                            ==============               ===========

Earnings per share:
  Basic - as reported .......................................................               $         0.21               $      0.20
                                                                                            ==============               ===========
  Basic - pro forma .........................................................               $         0.18               $      0.19
                                                                                            ==============               ===========

  Diluted - as reported .....................................................               $         0.21               $      0.19
                                                                                            ==============               ===========
  Diluted - pro forma .......................................................               $         0.18               $      0.18
                                                                                            ==============               ===========
</TABLE>



                                       6
<PAGE>

                       SOUTHCOAST FINANCIAL CORPORATION

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.


Note 6 - Recently Issued Accounting Standards

No recent  authoritative  pronouncements that affect our accounting,  reporting,
and disclosure of financial  information have occurred during the quarter ending
March 31, 2004.

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.





                                       7
<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
March 31, 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 three months ended March 31, 2004 was $617,381
or $.21 per basic share,  compared to $352,041 or $.20 per basic share,  for the
three months ended March 31, 2003.  The average number of shares for the quarter
ending March 31, 2004 was 2,956,802  compared to 1,796,920 for the period ending
March 31, 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
$2,335,460 for the three months ended March 31, 2004, compared to $1,570,108 for
the three months ended March 31, 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 three months ending March 31, 2004 increased 35.3
percent to $238.7 million from the $176.4 million  reported for the three months
ending March 31, 2003. The increase was mainly  attributable  to the increase in
loans  supported  by a  $42.1  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 $20,971,581  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 March 31, 2004 and 2003.  The  increase in net  interest  income is due to
increased  volume of earning  assets,  coupled with a 35 basis point increase in
the Company's net interest margin.



                                       8
<PAGE>

                       SOUTHCOAST FINANCIAL CORPORATION

Net Interest Income - continued

<TABLE>
<CAPTION>
                                                         For the three months ended                    For the three months ended
                                                               March 31, 2004                                March 31, 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 ......................    $  9,407,516    $   20,736      0.88%          $ 18,345,700    $   52,602      1.15%
   Investments .............................      19,469,138       183,632      5.77             10,374,760        81,600      3.15
                                                ------------    ----------                     ------------    ----------
     Total investments and
       federal funds sold ..................      28,876,654       204,368      2.83             28,720,460       134,202      1.87
   Loans ...................................     209,784,627     3,317,212      6.32            147,630,604     2,550,941      6.91
                                                ------------    ----------                     ------------    ----------
     Total earning assets ..................     238,661,281     3,521,580      5.90            176,351,064     2,685,143      6.09
                                                                ----------                                     ----------
     Other assets ..........................      16,893,013                                     11,903,953
                                                ------------                                   ------------
     Total assets ..........................    $255,554,294                                   $188,255,017
                                                ============                                   ============
Liabilities
   Interest bearing deposits ...............    $151,920,416       725,832      1.91           $124,727,975    $  744,188      2.39
   Other borrowings ........................      46,552,761       460,288      3.95             31,637,778       370,847      4.69
                                                ------------    ----------                     ------------    ----------
     Total interest bearing
       liabilities .........................     198,473,177     1,186,120      2.39            156,365,753     1,115,035      2.85
                                                                ----------                                     ----------
   Non-interest bearing
     liabilities ...........................      23,119,835                                     18,899,563
                                                ------------                                   ------------
     Total liabilities .....................     221,593,012     1,186,120      2.14            175,265,316     1,115,035      2.54
                                                                ----------                                     ----------
   Equity ..................................      33,961,282                                     12,989,701
                                                ------------                                   ------------
     Total liabilities
       and equity ..........................    $255,554,294                                   $188,255,017
                                                ============                                   ============
     Net interest
       income/margin .......................                    $2,335,460      3.91                           $1,570,108      3.56
                                                                ==========                                     ==========
     Net interest spread ...................                                    3.51%                                          3.24%
</TABLE>
(1)  Annualized

As reflected  above, for the three months ended March 31, 2004 the average yield
on earning assets was 5.90 percent,  while the average cost of interest  bearing
liabilities  was 2.39  percent.  For the three  months  ended March 31, 2003 the
average  yield on  earning  assets  was 6.09  percent  and the  average  cost of
interest-bearing  liabilities  was 2.85  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 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 three months ended March 31, 2004 was 3.91 percent  compared to 3.56 percent
for the three  months ended March 31,  2003.  The  increase in the  net-interest
margin is primarily  attributable  to the increase in net  non-interest  bearing
liabilities  and equity  supporting  the growth of earning  assets.  The cost of
total  liabilities  was 2.14  percent for the three  months  ended March 31 2004
compared to 2.54 percent for the three months ended March 31, 2003.


                                       9
<PAGE>

                       SOUTHCOAST FINANCIAL CORPORATION

The following table presents  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
<TABLE>
<CAPTION>
                                                                                For the three months ended March 31, 2004
(Dollars in thousands)                                                           Versus three months ended March 31, 2003
                                                                           ----------------------------------------------
                                                                               Volume              Rate        Net Change
<S>                                                                        <C>               <C>              <C>
Federal funds sold ....................................................    $       (26)      $        (6)     $       (32)
Investments ...........................................................             72                30              102
                                                                           -----------       -----------      -----------
Total investments and federal funds sold ..............................             46                24               70
Total loans ...........................................................          1,074              (308)             766
                                                                           -----------       -----------      -----------
Total earning assets ..................................................          1,120              (284)             836
Total interest-bearing liabilities ....................................            341              (270)              71
                                                                           -----------       -----------      -----------
Net interest income ...................................................    $       779       $       (14)     $       765
                                                                           ===========       ===========      ===========
</TABLE>

Noninterest Income and Expenses
Noninterest  income  for the three  months  ended  March 31,  2004 was  $314,591
compared to $460,854 for the three months ended March 31, 2003.  The decrease is
attributable  to a $156,491  decrease  in fees on loans  sold,  offset by slight
increases in service fees on deposit accounts and other non-interest income. The
decrease  in fees on loans sold is the result of the  slowing  down of  mortgage
refinancing in the Charleston area.

Noninterest  expenses for the three months ended March 31, 2004 were $1,603,951,
compared to $1,362,303  for the three months ended March 31, 2003.  The increase
of $241,648 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 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.

Federal Funds Sold

Federal funds sold increased  $31,002,000  during the first three months of 2004
to  $43,033,000  at March 31,  2004.  The  increase  was a direct  result of the
increase in deposits.  The excess funds are being  maintained  in federal  funds
until necessary for use to fund higher yielding loans.

Loans

Commercial loans (most of which are incidentally  secured with real estate) made
up 56.5  percent  of the total loan  portfolio  as of March 31,  2004,  totaling
$116.4  million.  Loans  secured  by  real  estate  for  construction  and  land
development  totaled $21.5  million or 10.4 percent of the  portfolio  while all
other loans secured by real estate  totaled $64.6 million or 31.3 percent of the
total loan portfolio, as of March 31, 2004. Installment loans and other consumer
loans to  individuals  comprised  $3.6  million or 1.8 percent of the total loan
portfolio.  The  allowance for loan losses was 1.23 percent of loans as of March
31, 2004  compared to 1.18  percent as of December  31,  2003.  In  management's
opinion,  the  allowance  for loan losses is adequate.  At March 31,  2004,  the
Company did not have any loans 90 days  delinquent and still  accruing  interest
and had $736,000 of non-accruing loans and $70,000 of other real estate owned.



                                       10
<PAGE>

                       SOUTHCOAST FINANCIAL CORPORATION

Deposits

Deposits  increased  $48,566,461  during  the  first  three  months  of  2004 to
$214,778,868  at March 31,  2004.  The  increase  was  attributable  to  several
factors.  Noninterest  bearing deposits  increased  $5,911,138  during the first
three  months as a result of the  normal  growth  of the Bank.  Certificates  of
deposits from retail customers  increased  approximately  $28,000,000 during the
first  three  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  $11,000,000
during the same period.  In anticipation of increased  rates, the Bank locked in
some longer term deposits with maturities ranging from to one to four and a half
years.

Capital Resources

The capital  base for the  Company  increased  by  $824,840  for the first three
months of 2004,  due to operating  income,  capital  raised through the Employee
Stock  Purchase  Plan and exercise of stock  options,  and  unrealized  gains on
available for sale securities. The Company's tier one capital to asset ratio was
21.70%  percent as of March 31, 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 March 31, 2004, the Company and
subsidiary bank exceeds 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) .............  $  30,560       15.55%    $  19,649       10.00%    $   15,717      8.00%
  Tier 1 capital (to risk-weighted assets) ............     28,103       14.30%       11,784        6.00%         7,859      4.00%
  Tier 1 capital (to average assets) ..................     28,103       11.37%        9,823        5.00%         9,888      4.00%
The Company
  Total capital (to risk-weighted assets) .............  $  47,520       22.92%    $  20,736       10.00%          N/A        N/A
  Tier 1 capital (to risk-weighted assets) ............     44,992       21.70%       12,442        6.00%          N/A        N/A
  Tier 1 capital (to average assets) ..................     44,992       17.02%       13,216        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 March 31, 2004,
the Company had issued  commitments to extend credit of $29,932,000  and standby
letters  of credit of  $428,000  through  various  types of  commercial  lending
arrangements.  Approximately  $25,114,000 of these  commitments to extend credit
had variable rates.

The  following  table sets forth the  length of time until  maturity  for unused
commitments to extend credit and standby letters of credit at March 31, 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 ..............   $       2,451  $       949  $     8,927  $      12,327   $ 17,605   $    29,932
Standby letters of credit ........................              94           16          293            403         25           428
                                                     -------------  -----------  -----------  -------------   --------   -----------
    Totals .......................................   $       2,545  $       965  $     9,220  $      12,730   $ 17,630   $    30,360
                                                     =============  ===========  ===========  =============   ========   ===========
</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.

                                       11
<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).




                                       12
<PAGE>


                       SOUTHCOAST FINANCIAL CORPORATION

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  January 22, 2004
     pursuant to Items 7 and 12 of that form to report the 2003 annual earnings.




                                       13
<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:    May 12, 2004                       By:---------------------------------
                                               L. Wayne Pearson
                                               President and Chief Executive
                                               Officer


                                                s/Robert M. Scott
Date:    May 12, 2004                       By:---------------------------------
                                               Robert M. Scott
                                               Executive Vice President and
                                               Chief Financial Officer



                                       14
<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.




                                       15