UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                         ------------------------------

                                    FORM 10-Q

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

     For the Quarter Ended March 31, 2001

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

     For the transition period from ________ to __________

                         Commission File Number: 0-19684

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


        State of Delaware                              57-0925911
  (State or other jurisdiction of                   (I.R.S. Employer
  incorporation or organization)                 Identification Number)


  2619 OAK STREET, MYRTLE BEACH, S. C.                 29577
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code  (843) 205-2000
                                                    --------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    YES    X    NO __

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of March 31, 2001.

Common Stock $.01 Par Value Per Share                  7,195,797 Shares
           (Class)                                      (Outstanding)


<PAGE>

COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001

TABLE OF CONTENTS                                                       PAGE
-----------------                                                       ----

PART I - Consolidated Financial Information

Item 1.   Consolidated Financial Statements (unaudited):

             Consolidated Statements of Financial Condition
             as of September 30, 2000 and March 31, 2001                  3

             Consolidated Statements of Operations for the three
             months ended March 31, 2000 and 2001                       4-5

             Consolidated Statements of Operations for the six
             months ended March 31, 2000 and 2001                       6-7

             Consolidated Statements of Cash Flows for the six
             months ended March 31, 2000 and 2001                       8-9

             Consolidated Statements of Stockholders' Equity
             and Comprehensive Income for the six months ended
             March 31, 2000 and 2001                                     10

             Notes to Consolidated Financial Statements               11-14

     2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations            14-21

     3.      Quantitative and Qualitative Disclosures about             22
             Market Risk


Part II - Other Information

Item 1. Legal Proceedings                                               23

     2. Changes in Securities and Use of Proceeds                       23

     3. Defaults Upon Senior Securities                                 23

     4. Submission of Matters to a Vote of Securities Holders           23

     5. Other information                                               23

     6. Exhibits and Reports on Form 8-K                             24-25

Signatures                                                              26



<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                     September 30,            March 31,
                                                                        2000                     2001
                                                                        ----                     ----
                                                                                (Unaudited)
                                                                     (In thousands, except share data)

ASSETS:
<S>                                                                 <C>                       <C>
Cash and amounts due from banks                                     $  14,999                 $  19,599
Short-term interest-bearing deposits                                    2,168                    15,176
Investment securities available for sale                                8,548                     2,524
Mortgage-backed securities available for sale                         189,239                   207,158
Loans receivable (net of allowance for
   loan losses of $7,064 at September 30,
   2000 and $7,159 at March 31, 2001)                                 511,701                   510,461
Loans receivable held for sale                                         10,194                    11,889
Real estate acquired through foreclosure                                  867                     1,243
Office property and equipment, net                                     11,518                    12,187
Federal Home Loan Bank stock, at cost                                  11,899                    11,036
Accrued interest receivable on loans                                    3,117                     3,233
Accrued interest receivable on investments                              1,555                     1,656
Other assets and deferred charges                                       3,033                     3,743
                                                                    ---------                 ---------
                                                                    $ 768,838                 $ 799,905
                                                                    =========                 =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits                                                            $ 406,217                 $ 510,288
Securities sold under agreements to
   repurchase                                                          75,858                    22,604
Advances from Federal Home Loan Bank                                  225,224                   199,601
Other borrowings                                                        2,069                     2,069
Drafts outstanding                                                      2,475                     2,168
Advances by borrowers for property taxes
  and insurance                                                         1,257                       615
Accrued interest payable                                                2,531                     3,572
Other liabilities                                                       6,262                     5,835
                                                                    ---------                 ---------
  Total liabilities                                                   721,893                   746,752
                                                                    ---------                 ---------

STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued                                               --                        --
Common stock, $.01 par value, 15,000,000
   shares authorized; 7,287,498 shares at
   September 30, 2000 and 7,195,797 shares
   at March 31, 2001 issued and outstanding                                73                        72
Additional paid-in capital                                              9,780                     9,780
Retained earnings                                                      40,319                    43,809
Treasury stock, at cost (161,316 and 253,017
   shares, respectively)                                               (1,702)                   (2,733)
Accumulated other comprehensive income
  (loss), net of tax                                                   (1,525)                    2,225
                                                                    ---------                 ---------
  Total stockholders' equity                                           46,945                    53,153
                                                                    ---------                 ---------
                                                                    $ 768,838                 $ 799,905
                                                                    =========                 =========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       3

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                              2000                      2001
                                                              ----                      ----
                                                                       (Unaudited)
                                                                      (In thousands,
                                                                     except share data)

Interest income:
<S>                                                          <C>                       <C>
   Loans receivable                                          $ 10,742                  $ 11,665
   Investment securities                                          602                       633
   Mortgage-backed securities                                   2,644                     2,913
   Other                                                          110                       198
                                                             --------                  --------
   Total interest income                                       14,098                    15,409
                                                             --------                  --------

Interest expense:
   Deposits                                                     3,695                     5,142
   Securities sold under agreements to
     repurchase                                                 1,790                       907
   Advances from Federal Home Loan Bank                         2,481                     2,997
                                                             --------                  --------
   Total interest expense                                       7,966                     9,046
                                                             --------                  --------
   Net interest income                                          6,132                     6,363
   Provision for loan losses                                      225                       225
                                                             --------                  --------
   Net interest income after provision
     for loan losses                                            5,907                     6,138
                                                             --------                  --------

Other income:
   Fees and service charges                                       517                       667
   Loss from real estate owned                                    (15)                      (48)
   Gain on sale of loans receivable, net                          157                       330
   Gain (loss) on sale of securities
     available for sale                                        (1,774)                      327
   Gain on sale of deposits                                     1,746                      --
   Other income                                                   838                       971
                                                             --------                  --------
                                                                1,469                     2,247
                                                             --------                  --------
General and administrative expenses:
   Salaries and employee benefits                               2,400                     2,653
   Net occupancy, furniture and fixtures
     and data processing expense                                  964                     1,026
   FDIC insurance premium                                          21                        20
   Other expenses                                                 748                       856
                                                             --------                  --------
                                                                4,133                     4,555
                                                             --------                  --------
Earnings before income taxes and
     extraordinary item                                         3,243                     3,830

Income taxes                                                    1,153                     1,344
                                                             --------                  --------

Net income before extraordinary item                            2,090                     2,486
                                                             --------                  --------
</TABLE>

                                                                   (CONTINUED)

                                       4

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                               2000                      2001
                                                               ----                      ----
                                                                        (Unaudited)
                                                                       (In thousands,
                                                                      except share data)
<S>                                                       <C>                       <C>
Extraordinary loss on extinguishment of
     debt, net of income taxes of $137                              --                         256
                                                          --------------            --------------

Net income                                                $        2,090            $        2,230
                                                          ==============            ==============

Earnings per common share
   before extraordinary item
   Basic                                                  $          .28            $          .34
                                                          ==============            ==============
   Diluted                                                $          .28            $          .34
                                                          ==============            ==============

Effect of extraordinary item on
   earnings per common share
   Basic                                                  $         --              $         (.03)
                                                          ==============            ==============
   Diluted                                                $         --              $         (.03)
                                                          ==============            ==============

Earnings per common share
   after extraordinary item
   Basic                                                  $          .28            $          .31
                                                          ==============            ==============
   Diluted                                                $          .28            $          .31
                                                          ==============            ==============

Weighted average common shares
   outstanding - basic                                         7,384,000                 7,226,000
                                                          ==============            ==============

Weighted average common shares
   outstanding - diluted                                       7,471,000                 7,309,000
                                                          ==============            ==============

Dividends per share                                       $         .065            $         .065
                                                          ==============            ==============
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                             2000               2001
                                                             ----               ----
                                                                    (Unaudited)
                                                               (Dollars in thousands,
                                                               except per share data)

Interest income:
<S>                                                       <C>                   <C>
    Loans receivable                                      $ 21,014              $ 23,663
    Investment securities                                    1,127                 1,256
     Mortgage-backed securities                              5,228                 5,789
     Other                                                     372                   355
                                                          --------              --------
     Total interest income                                  27,741                31,063
                                                          --------              --------

Interest expense:
   Deposits                                                  7,452                 9,897
   Securities sold under agreements to
     repurchase                                              3,359                 2,097
   Advances from Federal Home Loan Bank                      4,773                 6,497
                                                          --------              --------
   Total interest expense                                   15,584                18,491
                                                          --------              --------
   Net interest income                                      12,157                12,572
   Provision for loan losses                                   470                   495
                                                          --------              --------
   Net interest income after provision
     for loan losses                                        11,687                12,077
                                                          --------              --------

Other income:
   Fees and service charges                                  1,084                 1,219
   Loss from real estate owned                                 (35)                 (138)
   Gain on sale of loans receivable, net                       348                   480
   Gain (loss) on sale of securities
     available for sale                                     (1,763)                  356
   Gain on sale of deposits                                  1,746                    --
   Other income                                              1,552                 1,968
                                                          --------              --------
                                                             2,932                 3,885
                                                          --------              --------
General and administrative expenses:
   Salaries and employee benefits                            4,698                 5,068
   Net occupancy, furniture and fixtures
     and data processing expense                             1,943                 1,954
   FDIC insurance premium                                       79                    40
   Other expenses                                            1,522                 1,593
                                                          --------              --------
                                                             8,242                8,655
                                                          --------              --------
Earnings before income taxes
     and extraordinary item                                  6,377                 7,307

Income taxes                                                 2,281                 2,605
                                                          --------              --------

Net income before extraordinary item                         4,096                 4,702
                                                          --------              --------
</TABLE>

                                                                     (CONTINUED)

                                       6

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                        2000                   2001
                                                        ----                   ----
                                                                 (Unaudited)
                                                            (Dollars in thousands,
                                                            except per share data)

<S>                                                <C>                      <C>
Extraordinary loss on extinguishment of
     debt, net of income taxes of $137                       --                       256
                                                   -------------            -------------

Net income                                         $       4,096            $       4,446
                                                   =============            =============

Earnings per common share
   before extraordinary item
   Basic                                           $         .55            $         .65
                                                   =============            =============
   Diluted                                         $         .55            $         .64
                                                   =============            =============

Effect of extraordinary item on
   earnings per common share
   Basic                                           $        --               $       (.04)
                                                   =============             =============
   Diluted                                         $        --               $       (.03)
                                                   =============             =============

Earnings per common share
   after extraordinary item
   Basic                                           $         .55             $         .61
                                                   =============             =============
   Diluted                                         $         .55             $         .61
                                                   =============             =============

Weighted average common shares
   outstanding - basic                                 7,400,000                 7,274,000
                                                   =============             =============

Weighted average common shares
   outstanding - diluted                               7,504,000                 7,341,000
                                                   =============             =============

Dividends per share                                $         .13             $         .13
                                                   =============             =============
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       7
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                       2000                    2001
                                                                       ----                    ----
                                                                                (Unaudited)
                                                                              (In  thousands)

Cash flows from operating activities:
<S>                                                                <C>                       <C>
  Net earnings                                                     $   4,096                 $   4,446
  Adjustments to reconcile net earnings
       to net cash provided by
      operating activities:
  Depreciation                                                           691                       737
  Provision for loan losses                                              470                       495
  (Gain) loss on sale of mortgage-backed
       securities available for sale                                   1,763                      (356)
  Origination of loans receivable
       held for sale                                                 (11,552)                  (14,882)
  Proceeds from sales of loans receivable
       held for sale                                                   8,878                    13,187
(Increase) decrease in:
       Other assets and deferred charges                               1,565                      (710)
       Accrued interest receivable                                      (142)                     (217)
Increase (decrease) in:
       Accrued interest payable                                          630                     1,041
       Other liabilities                                              (1,003)                   (2,726)
                                                                   ---------                 ---------

       Net cash provided by
             operating activities                                      5,396                     1,015
                                                                   ---------                 ---------

Cash flows from investing activities:
  Purchases of investment securities
       available for sale                                             (6,154)                     --
  Proceeds from sales of investment
       securities available for sale                                   4,000                     5,268
  Proceeds from maturities of investment
       securities available for sale                                    --                         989
  Purchases of mortgage-backed securities
       available for sale                                            (95,897)                  (99,501)
  Proceeds from sales of mortgage-backed
       securities available for sale                                  78,710                    80,139
  Origination of loans receivable, net                               (77,986)                 (100,445)
  Purchase of loans receivable                                        (4,027)                     --
  Principal collected on loans receivable, net                        46,230                    92,818
  Principal collected on mortgage-backed
       securities, net                                                12,087                    15,181
  Disposition of Florence office
       assets and liabilities, net                                   (13,619)                     --
  Proceeds from sale of real estate
       acquired through foreclosure, net                                  96                       430
  Purchases of office properties and
       equipment                                                      (1,317)                   (1,406)
  Sales(purchases) of FHLB stock, net                                 (1,308)                      863
                                                                   ---------                 ---------

       Net cash used in
             investing activities                                    (59,185)                   (5,664)
                                                                   ---------                 ---------
</TABLE>

                                       8

                                                                    (CONTINUED)

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 (CONTINUED)

<TABLE>
<CAPTION>
                                                                        2000                2001
                                                                        ----                ----
                                                                              (Unaudited)
                                                                             (In thousands)

Cash flows from financing activities:
<S>                                                                   <C>                 <C>
  Increase in deposits, net                                           $  24,145           $ 104,071
  Increase (decrease) in securities sold
   under agreement to repurchase, net                                     7,851             (53,254)
  Proceeds from FHLB advances                                           249,606             242,655
  Repayment of FHLB advances                                           (234,448)           (268,278)
  Proceeds(repayments)from other
     borrowings, net                                                        500                --
  Decrease in advance payments by borrowers
     for property taxes and insurance, net                                 (630)               (642)
  Increase (decrease) in drafts outstanding, net                            294                (307)
  Repurchase of treasury stock, at cost                                    (973)             (1,069)
  Dividends to stockholders                                                (949)               (939)
  Exercise of stock options                                                 524                  20
  Other financing activities, net                                           585                --
                                                                      ---------           ---------
  Net cash provided by financing  activities                             46,505              22,257
                                                                      ---------           ---------


Net increase (decrease) in cash and cash
     equivalents                                                         (7,284)             17,608
                                                                      ---------           ---------
Cash and cash equivalents at beginning
  of the period                                                          24,233              17,167
                                                                      ---------           ---------
Cash and cash equivalents at end
  of the period                                                       $  16,949           $  34,775
                                                                      =========           =========

Supplemental information:
  Interest paid                                                       $  14,954           $  17,450
                                                                      =========           =========

  Income taxes paid                                                   $   2,069           $   3,001
                                                                      =========           =========

Supplemental schedule of non-cash investing and
  financing transactions:

Transfer of mortgage loans to real estate
     acquired through foreclosure                                     $      89           $     806
                                                                      =========           =========

Securitization of mortgage loans into
     mortgage-backed securities                                       $   9,669           $   7,566
                                                                      =========           =========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       9

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                                                                                        Other
                                                                                                       Compre-
                                                              Additional                               hensive         Total
                                                 Common        Paid-In      Treasury      Retained      Income      Stockholders'
                                                  Stock        Capital        Stock       Earnings      (Loss)         Equity
                                                ---------    ------------   --------    ------------   ----------   -------------
                                                                                  (Unaudited)
                                                                                (In thousands)
<S>                                             <C>          <C>           <C>            <C>           <C>           <C>
Balance at September
  30, 1999                                      $     67     $  9,320      $   (356)      $ 34,288      $ (2,082)     $ 41,237
Net income                                          --           --            --            4,096          --           4,096
Other comprehensive
 income, net of tax:
 Unrealized losses arising
 during period, net of
 taxes of $837                                      --           --            --             --          (2,206)         --
 Less: reclassification
 adjustment for losses
 included in net income,
 net of taxes of $488                               --           --            --             --           1,286          --
                                                                                                        --------
Other comprehensive loss                            --           --            --             --            (920)         (920)
                                                                                                        --------      --------
Comprehensive income                                --           --            --             --            --           3,176
                                                                                                                      --------
Treasury stock repurchases                          --           --            (973)          --            --            (973)
Exercise of stock
  options                                           --            300           532           (308)         --             524
Cash dividends                                      --           --            --             (949)         --            (949)
Common stock dividend                                  7        7,616          --           (7,623)         --            --
                                                --------     --------      --------       --------      --------      --------
Balance at March
  31, 2000                                      $     74     $ 17,236      $   (797)      $ 29,504      $ (3,002)     $ 43,015
                                                ========     ========      ========       ========      ========      ========



Balance at September
  30, 2000                                      $     73     $  9,780      $ (1,702)      $ 40,319      $ (1,525)     $ 46,945
Net income                                          --           --            --            4,446          --           4,446
Other comprehensive
 income, net of tax:
 Unrealized gains arising
 during period, net of
 taxes of $2,434                                    --           --            --             --           3,971          --
 Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $135                               --           --            --             --            (221)         --
                                                                                                        --------
Other comprehensive income                          --           --            --             --           3,750         3,750
                                                                                                        --------      --------
Comprehensive income                                --           --            --             --            --           8,196
                                                                                                                      --------
Treasury stock repurchases                          (1)          --          (1,068)          --            --          (1,069)
Exercise of stock
  options                                           --           --              37            (17)         --              20
Cash dividends                                      --           --            --             (939)         --            (939)
                                                --------     --------      --------       --------      --------      --------
Balance at March
  31, 2001                                      $     72     $  9,780      $ (2,733)      $ 43,809      $  2,225      $ 53,153
                                                ========     ========      ========       ========      ========      ========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       10

<PAGE>


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


(1)  BASIS OF PRESENTATION

The accompanying  unaudited  consolidated  financial statements were prepared in
accordance with  instructions for Form 10-Q and,  therefore,  do not include all
disclosures  necessary  for a  complete  presentation  of  financial  condition,
results  of  operations,  cash  flows and  changes  in  stockholders'  equity in
conformity  with generally  accepted  accounting  principles.  All  adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair  presentation of the interim financial  statements,  have
been  included.  The results of  operations  for the three and six month periods
ended March 31, 2001 are not necessarily  indicative of the results which may be
expected for the entire  fiscal year.  These  unaudited  consolidated  financial
statements should be read in conjunction with the Company's audited consolidated
financial  statements  and related notes for the year ended  September 30, 2000,
included in the  Company's  2000 Annual  Report to  Stockholders.  The principal
business of the Company is conducted  by its  wholly-owned  subsidiary,  Coastal
Federal Savings Bank (the "Bank"). The information presented hereon,  therefore,
relates primarily to the Bank.


(2)  LOANS RECEIVABLE, NET

Loans receivable, net consists of the following:

<TABLE>
<CAPTION>
                                                              September 30,              March 31,
                                                                  2000                     2001
                                                              -------------            ------------
                                                                           (Unaudited)
                                                                          (In thousands)

First mortgage loans:
<S>                                                            <C>                        <C>
   Single family to 4 family units                             $ 273,657                  $ 262,701
   Other, primarily commercial
    real estate                                                  133,569                    134,689
   Construction loans                                             54,905                     55,238
Consumer and commercial loans:
   Installment consumer loans                                     20,641                     18,562
   Mobile home loans                                               1,374                      1,931
   Deposit account loans                                           1,063                      1,048
   Equity lines of credit                                         23,009                     23,737
   Commercial and other loans                                     23,357                     31,361
                                                               ---------                  ---------
                                                                 531,575                    529,267
Less:
   Allowance for loan losses                                       7,064                      7,159
   Deferred loan costs, net                                         (519)                      (489)
   Undisbursed portion of loans in process                        13,329                     12,136
                                                               ---------                  ---------
                                                               $ 511,701                  $ 510,461
                                                               =========                  =========
</TABLE>

                                       11

<PAGE>


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

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


                                                   Six Months Ended March 31,
                                                    2000                2001
                                                    ----                ----
                                                            (Unaudited)
                                                     (Dollars in thousands)

Allowance at beginning of
 period                                           $ 6,430              $ 7,064
Allowance recorded on
 acquired loans                                        50                 --
Dispostion of Florence Office                         (75)                --
Provision for loan losses                             470                  495
                                                  -------              -------
Recoveries:
 Residential real estate                               10                 --
 Commercial real estate                              --                   --
 Consumer                                              35                   41
                                                  -------              -------
   Total recoveries                                    45                   41
                                                  -------              -------

Charge-offs:
 Residential real estate                               28                  105
 Commercial real estate                              --                     51
 Consumer                                             217                  285
                                                  -------              -------
   Total charge-offs                                  245                  441
                                                  -------              -------
   Net charge-offs                                    200                  400
                                                  -------              -------
 Allowance at end of period                       $ 6,675              $ 7,159
                                                  =======              =======

Ratio of allowance to net
 loans outstanding at the
 end of the period                                   1.34%                1.37%
                                                  =======              =======

Ratio of net charge-offs
 to average loans outstanding
 during the period (annualized)                       .07%                 .17%
                                                  =======              =======

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

                                                       At March 31, 2001
                                                    Percent of Loans in each
Balance at end of period applicable to:     Amount  category to total loans
                                            ------  -----------------------

Residential Real Estate...............      $1,972            63.42%
Commercial Real Estate................       4,830            33.23
Consumer..............................         357             3.35
                                            ------           -------
                                            $7,159           100.00%
                                            ======           =======

Non-accrual loans, which were over ninety days delinquent, totaled approximately
$5.5 million at March 31, 2001.  For the quarter ended March 31, 2001,  interest
income, which would have been recorded,  would have been approximately $108,000.
For the six months ended March 31, 2001, interest income,  which would have been
recorded,  would have been  approximately  $175,000 had non-accruing  loans been
current in accordance with their original terms.

At March 31, 2001, impaired loans totaled $4.4 million. There were no impaired
loans at March 31, 2000. Included in the allowance for loan losses at March 31,
2001 was $333,000 related to impaired loans. The average recorded investment in
impaired loans for the six months ended

March 31, 2001 was $4.4 million.  Interest  income of $32,000 was  recognized on
impaired loans for the quarter ended March 31, 2001.  Interest income of $88,000
was recognized on impaired loans for the six months ended March 31, 2001.



                                       12

<PAGE>

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


(3)  DEPOSITS

Deposits consist of the following:

                             September 30, 2000           March 31, 2001
                             ------------------           --------------
                                          Weighted                   Weighted
                                          Average                    Average
                             Amount        Rate           Amount      Rate
                             ------        ----           ------      ----
                                               (Unaudited)
                                              (In thousands)

Transaction accounts      $    204,292     3.11%       $  259,072     3.42%
Passbook accounts               36,205     2.63            31,221     2.50
Certificate accounts           165,720     6.03           219,995     6.08
                          ------------     ----        ----------     ----
                          $    406,217     4.26%       $  510,288     4.51%
                          ============     ====        ==========     ====

At September 30, 2000 and March 31, 2001, respectively,  included in certificate
accounts  there were $31.8  million and $46.5  million of  certificate  accounts
originated  by  brokers.  These  accounts  generally  mature  within 180 days of
origination.

(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

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

                                September 30, 2000          March 31, 2001
                                ------------------          --------------
                                            Weighted                  Weighted
                                            Average                   Average
                             Amount          Rate       Amount         Rate
                             ------          ----       ------         ----
Maturing within:                               (Unaudited)
                                              (In thousands)

1 year                    $     116,476      6.68%    $     58,435     5.31%
2 years                           3,211      6.93           12,565     5.54
3 years                          12,667      6.39            8,596     6.13
4 years                           6,000      6.35            5,000     5.28
5 years and thereafter           86,870      6.13          115,005     5.82
                          -------------     ------    ------------     ----
                          $     225,224      6.44%    $    199,601     5.66%
                          =============     ======    ============     =====

At September 30, 2000,  and March 31, 2001,  the Bank had pledged first mortgage
loans and  mortgage-backed  securities  with unpaid  balances  of  approximately
$247.3  million  and  $230.9  million,  respectively,  as  collateral  for  FHLB
advances.  At September  30, 2000 and March 31,  2001,  included in the four and
five years and  thereafter  maturities  were $89.0  million and $114.0  million,
respectively,  of advances subject to call provisions.  Call provisions are more
likely to be exercised by the FHLB when rates rise.

(5)  EARNINGS PER SHARE

Basic  earnings  per share for the three and six month  periods  ended March 31,
2000 and 2001,  are  computed by  dividing  net income by the  weighted  average
common shares  outstanding during the respective  periods.  Diluted earnings per
share for the three and six month  periods  ended March 31,  2000 and 2001,  are
computed by  dividing  net  earnings by the  weighted  average  dilutive  shares
outstanding  during the  respective  periods.  All share and per share data have
been retroactively restated for all common stock splits and dividends.

                                       13

<PAGE>


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

EARNINGS PER SHARE RECONCILIATION
(Unaudited In thousands except share data)

<TABLE>
<CAPTION>

                                                              For the Quarter Ended March 31,

                                              2001               2001                2000                2000
                                           ----------------------------------------------------------------------
                                              BASIC             DILUTED              BASIC              DILUTED
                                           ----------------------------------------------------------------------
<S>                                        <C>                 <C>                 <C>                 <C>
Net Income                                 $    2,230          $    2,230          $    2,090          $    2,090
                                           ----------------------------------------------------------------------

Weighted average shares
Outstanding                                 7,226,000           7,226,000           7,384,000           7,384,000
Effective of Dilutive Securities:
Stock options                                    --                83,000                --                87,000
                                           ----------------------------------------------------------------------
                                            7,226,000           7,309,000           7,384,000           7,471,000
                                           ----------------------------------------------------------------------

Per share amount                           $     0.31          $     0.31          $     0.28          $     0.28
                                           ======================================================================

<CAPTION>

                                                            For the Six Months Ended March 31,

                                              2001               2001                2000                2000
                                           ----------------------------------------------------------------------
                                              BASIC             DILUTED              BASIC              DILUTED
                                           ----------------------------------------------------------------------
<S>                                        <C>                 <C>                 <C>                 <C>

Net Income                                 $    4,446          $    4,446          $    4,096          $    4,096
                                           ----------------------------------------------------------------------

Weighted average shares
Outstanding                                 7,274,000           7,274,000           7,400,000           7,400,000
Effective of Dilutive Securities:
Stock options                                    --                67,000                --               104,000
                                           ----------------------------------------------------------------------
                                            7,274,000           7,341,000           7,400,000           7,504,000
                                           ----------------------------------------------------------------------

Per share amount                           $     0.61          $     0.61          $     0.55          $     0.55
                                           ======================================================================
</TABLE>


(6)  COMMON STOCK DIVIDENDS

On November  10,  1999,  the Company  declared a 5% stock  dividend  aggregating
approximately  321,000  shares.  On March 14, 2000,  the Company  declared a 10%
stock dividend aggregating approximately 671,000 shares. All share and per share
data have been retroactively restated for all common stock splits and dividends.

(7)  EXTRAORDINARY ITEM

The  extraordinary  item for the  quarter and six months  ended  March  31,2001,
relates to prepayment  penalties on advances from FHLB of $256,000 net of income
taxes of $137,000.

Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

FORWARD LOOKING STATEMENTS

This report may contain certain "forward-looking  statements" within the meaning
of  Section  27A of the  Securities  Exchange  Act of  1934,  as  amended,  that
represent the Company's  expectations or beliefs concerning future events.  Such
forward-looking  statements  are about  matters that are  inherently  subject to
risks and  uncertainties.  Factors that could influence the matters discussed in
certain  forward-looking  statements  include  the timing and amount of revenues
that may be  recognized  by the  Company,  continuation  of current  revenue and
expense trends (including trends affecting  charge-offs),  absence of unforeseen
changes in the Company's  markets,  legal and  regulatory  changes,  and general
changes in the economy (particularly in the markets served by the Company).  The
Company disclaims any obligation to update such forward looking statements.

                                       14

<PAGE>

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



DISCUSSION OF FINANCIAL  CONDITION  CHANGES FROM SEPTEMBER 30, 2000 TO MARCH 31,
2001

LIQUIDITY AND CAPITAL RESOURCES

Historically,  the Bank has  maintained  its  liquidity  at levels  believed  by
management  to be  adequate  to meet  the  requirements  of  normal  operations,
potential  deposit  out-flows and strong loan demand and still allow for optimal
investment of funds and return on assets.

The principal  sources of funds for the Company are cash flows from  operations,
consisting  mainly of mortgage,  consumer and commercial  loan payments,  retail
customer deposits,  advances from the FHLB, and loan sales. The principal use of
cash flows is the  origination  of loans  receivable and purchase of securities.
The Company  originated  loans  receivable  of $89.5  million for the six months
ended March 31, 2000,  compared to $115.3 million for the six months ended March
31, 2001,  primarily as a result of reduced  interest  rates. A portion of these
loan  originations  were financed  through loan and  mortgage-backed  securities
principal repayments, which amounted to $58.3 million and $108.0 million for the
six month periods ended March 31, 2000 and 2001, respectively.  In addition, the
Company  sells  certain  loans in the  secondary  market to finance  future loan
originations.  Generally,  these loans have  consisted  only of mortgage  loans,
which have been  originated  within the previous  year. For the six month period
ended March 31, 2000,  the Company sold $8.9 million in mortgage  loans held for
sale,  compared to $13.2  million  sold for the six month period ended March 31,
2001.

For the six month  period  ended March 31, 2000,  the Company  purchased  $102.1
million in investment and mortgage-backed  securities.  For the six month period
ended March 31, 2001,  the Company  purchased  $99.5 million in  investment  and
mortgage-backed securities.  These purchases were funded primarily by repayments
of $15.2  million  within the  securities  portfolio,  sales of  mortgage-backed
securities of $80.1 million,  securities sold under agreements to repurchase and
FHLB advances.

Overall the Bank  experienced  an increase of $104.1 million in deposits for the
six month period ended March 31, 2001.  For the six month period ended March 31,
2001, checking accounts increased $8.8 million,  money market accounts increased
$46.0 million and certificate accounts increased $54.3 million.  This was offset
by a decrease in passbook accounts of $5.0 million.  The increase in certificate
accounts is partially due to a $14.7  million  growth in brokered  deposits.  At
March 31,  2001,  the Company had $182.5  million of  certificates  of deposits,
which were due to mature within one year.

At March 31, 2001,  the Company had  commitments  to originate  $22.3 million in
mortgage  loans,  and $33.6 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations. Additionally, at March 31, 2001,
the Company had federal funds available of $10.0 million.

As a result of $4.4  million  in net  income,  less the cash  dividends  paid to
stockholders  of   approximately   $939,000,   treasury  stock   repurchases  of
approximately  $1.1 million and the net change in unrealized  gain on securities
available  for sale,  net of income tax of $3.8  million,  stockholders'  equity
increased from $46.9 million at September 30, 2000 to $53.2 million at March 31,
2001.

OTS  regulations  require  that  the  Bank  calculate  and  maintain  a  minimum
regulatory capital requirement on a quarterly basis and satisfy such requirement
as of the calculation  date and throughout the quarter.  The Bank's capital,  as
calculated  under OTS regulations,  is approximately  $52.5 million at March 31,
2001,  exceeding the core capital  requirement  by $19.8  million.  At March 31,
2001, the Bank's risk-based capital of approximately  $57.8 million exceeded its
current   risk-based  capital   requirement  by  $20.0  million.   (For  further
information see Regulatory Capital Matters)

                                       15

<PAGE>

PART I. FINANCIAL  INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES  MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF OPERATION  COMPARISONS  OF THE THREE MONTHS ENDED MARCH 31, 2000
AND 2001


MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 2001

GENERAL

Net income  increased  from $2.1  million for the three  months  ended March 31,
2000,  to $2.2  million for three  months  ended March 31,  2001,  or 6.7%.  Net
interest income increased  $231,000 primarily as a result of an increase of $1.3
million  in  interest  income  offset by a $1.1  million  increase  in  interest
expense.  Provision  for loan losses were  $225,000  for the three  months ended
March  31,  2000  and  2001.  Other  income  increased  $778,000.   General  and
administrative  expense was $4.1  million  for the quarter  ended March 31, 2000
compared to $4.6 million for the quarter ended March 31,2001.

INTEREST INCOME

Interest  income for the three months  ended March 31, 2001,  increased to $15.4
million as compared to $14.1  million for the three months ended March 31, 2000.
The earning  asset yield for the three months  ended March 31,  2001,  was 8.31%
compared  to a yield of 8.09% for the three  months  ended March 31,  2000.  The
average yield on loans  receivable for the three months ended March 31, 2001,was
8.90%  compared to 8.56% for the three months ended March 31, 2000. The yield on
investments  increased to 7.00% for the three months ended March 31, 2001,  from
6.84% for the three  months ended March 31,  2000.  In fiscal 2001,  the Federal
Reserve Bank has reduced the discount  rate by 200 basis  points.  Consequently,
the Bank expects its yield on loans and  investments  to decline in fiscal 2001.
Total average  interest-earning assets were $751.2 million for the quarter ended
March 31,  2001 as compared  to $705.2  million for the quarter  ended March 31,
2000.  The increase in average  interest-earning  assets is primarily  due to an
increase  in  average  loans  receivable  of  approximately  $22.6  million  and
securities of approximately $15.6 million.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $9.0 million for the three
months ended March 31, 2001, as compared to $8.0 million for March 31, 2000. The
average cost of deposits  for the three  months ended March 31, 2001,  was 4.45%
compared  to 3.65% for the  three  months  ended  March  31,  2000.  The cost of
interest-bearing  liabilities  was 4.99% for the three  months  ended  March 31,
2001,  as compared to 4.61% for the three months ended March 31, 2000.  The cost
of FHLB  advances  and  reverse  repurchase  agreements  was  5.91%  and  6.07%,
respectively,  for the three months  ended March 31, 2001.  For the three months
ended  March  31,  2000,  the  cost  of FHLB  advances  and  reverse  repurchase
agreements  was 5.92% and 6.10%,  respectively.  Total average  interest-bearing
liabilities increased from $691.5 million at March 31, 2000 to $725.6 million at
March 31, 2001. The increase in average  interest-bearing  liabilities is due to
an increase in average deposits of approximately $57.4 million and FHLB advances
of $35.1 million.  This was offset primarily by a decrease in reverse repurchase
agreements of $57.0 million.

NET INTEREST INCOME

Net interest  income was $6.4 million for the three months ended March 31, 2001,
as compared to $6.1 million for the three  months ended March 31, 2000.  The net
interest margin was 3.32% for the three months ended March 31, 2001, compared to
3.48% for the three months ended March 31, 2000.  With the reduction in interest
rates, resulting from the Federal Reserve Bank's decision to reduce the discount
rate by 200 basis  points,  it is  expected  that the Bank's  yield on  interest
earning  assets and cost of deposits  and  borrowings  will  decline in calendar
2001.  Consequently,  it is expected  that a  substantial  portion of the Bank's
portfolio will be subject to refinancing at lower rates.  Should  refinancing of
loans at lower  rates and  repricing  of loans tied to prime or  treasury  rates
outpace the  repricing of deposits and  borrowings  the Bank could  experience a
reduced  margin in fiscal 2001.  Based upon the Bank's current  projections  the
Bank expects that its net interest  margin could decline between 3% to 5% during
the second half of fiscal 2001.  Should the Federal  Reserve  continue to reduce
rates, the Bank could experience further reductions in its net interest margin.

                                       16

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001


PROVISION FOR LOAN LOSSES

The  provision for loan losses was $225,000 for the three months ended March 31,
2000 and 2001. For the three months ended March 31, 2001, net  charge-offs  were
$227,000 compared to net charge-offs of $91,000 for the three months ended March
31,  2000.  During the last quarter of fiscal 2000 and the first two quarters of
fiscal 2001,  the Bank has  experienced  an increase in  charge-offs of consumer
loans.  The Bank believes these increases are indicative of the slow down in the
economy and believes it has provided  properly in its  allowance.  The allowance
for loan  losses as a  percentage  of total  loans was 1.37% at March 31,  2001,
compared to 1.35% at September 30, 2000.  Loans  delinquent 90 days or more were
1.05% of total loans at March 31, 2001,  compared to .92% at September 30, 2000.
The allowance for loan losses was 131% of loans  delinquent more than 90 days at
March 31, 2001, as compared to 148% at September 30, 2000.  Management  believes
that the current  level of  allowance  is  adequate  considering  the  Company's
current loss experience and delinquency trends, among other criteria.

OTHER INCOME

For the three  months  ended  March 31,  2001,  other  income  was $2.2  million
compared to $1.5 million for the three  months  ended March 31,  2000.  Fees and
service  charges  were  $667,000  for the three  months  ended  March 31,  2001,
compared to $517,000 for the three months ended March 31, 2000.  Gain on sale of
loans was  $330,000 for the quarter  ended March 31, 2001,  compared to $157,000
for the quarter ended March 31, 2000.  Gain on sales of securities  was $327,000
for the quarter ended March 31, 2001, compared to losses of $1.8 million for the
quarter ended March 31, 2000.  During the quarter ended March 31, 2000, the Bank
sold its  Florence  office to First  Federal.  The office had  deposits of $24.9
million  and loans of $10.9  million.  The Bank  restructured  a portion  of its
available for sale investment portfolio. The losses were offset by a gain on the
sale of the Florence office deposits of $1.7 million.  Other income was $971,000
for the three months ended March 31, 2001, as compared to $838,000 for the three
months ended March 31, 2000.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  were $4.1  million for the quarter  ended
March 31, 2000  compared to $4.6  million for the quarter  ended March 31, 2001.
Salaries  and  employee  benefits  were $2.4  million for the three months ended
March 31, 2000, as compared to $2.7 million for the three months ended March 31,
2001.  Net  occupancy,  furniture  and  fixtures  and data  processing  expenses
increased  $62,000 when  comparing the two periods.  During the quarter the Bank
received a refund of certain expenses of approximately $120,000.  Other expenses
were $856,000 for the quarter ended March 31, 2001, compared to $748,000 for the
quarter ended March 31, 2000.

INCOME TAXES

Income  taxes were $1.2  million  for the three  months  ended  March 31,  2000,
compared to $1.3 million for the three months ended March 31, 2001.

                                       17

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001


EXTRAORDINARY ITEM

The  extraordinary  item  for the  quarter  ended  March  31,  2001  relates  to
prepayment  penalties  on advances  from FHLB of $256,000 net of income taxes of
$137,000.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  OPERATIONS  FOR THE SIX MONTHS ENDED
MARCH 31, 2000 AND 2001

GENERAL

Net income  increased from $4.1 million for the six months ended March 31, 2000,
to $4.4  million for six months  ended March 31,  2001,  or 8.5%.  Net  interest
income  increased  $415,000  primarily  as a result of an  increase  in interest
income of $3.3  million  offset  by an  increase  of $2.9  million  in  interest
expense.  Provision for loan losses increased slightly from $470,000 for the six
months  ended March 31,  2000,  to $495,000  for the six months  ended March 31,
2001.  Other income  increased  $953,000.  General and  administrative  expenses
increased $413,000.

INTEREST INCOME

Interest  income for the six months  ended March 31,  2001,  increased  to $31.1
million as compared to $27.7  million for the six months  ended March 31,  2000.
The earning  asset  yield for the six months  ended  March 31,  2001,  was 8.45%
compared  to a yield of 8.01%  for the six  months  ended  March 31,  2000.  The
average yield on loans  receivable  for the six months ended March 31, 2001, was
9.02%  compared to 8.53% for the six months ended March 31,  2000.  The yield on
investments  increased to 7.06% for the six months  ended March 31,  2001,  from
6.73% for the six months ended March 31, 2000. Total average earning assets were
$725.6  million for the six month period  ended March 31,  2001,  as compared to
$701.0 million for the six month period ended March 31, 2000.

INTEREST EXPENSE

Interest expense on  interest-bearing  liabilities was $18.5 million for the six
months  ended March 31,  2001,  as compared to $15.6  million for the six months
ended March 31,  2000.  The average  cost of deposits  for the six months  ended
March 31, 2001,  was 4.28%  compared to 3.67% for the six months ended March 31,
2000.  The cost of  interest-bearing  liabilities  was 5.07% for the six  months
ended March 31,  2001,  as compared to 4.52% for the six months  ended March 31,
2000. Total average  interest-bearing  liabilities increased from $686.9 million
at March 31, 2000 to $725.6 million at March 31, 2001.

NET INTEREST INCOME

Net interest  income was $12.6  million for the six months ended March 31, 2001,
as compared to $12.2  million for the six months ended March 31,  2000.  The net
interest margin decreased to 3.38% for the six months ended March 31, 2001, from
3.49% for the six months  ended March 31,  2000.  Based upon the Bank's  current
projections, the Bank expects that its net interest margin could decline between
3% to 5% during the second  half of fiscal  2001.  Should  the  Federal  Reserve
continue to reduce rates,  the Bank could experience  further  reductions in its
net interest margin.

                                       18

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001


PROVISION FOR LOAN LOSSES

The  provision for loan losses  increased  slightly from $470,000 for the period
ended March 31, 2000,  to $495,000 for the six months ended March 31, 2001.  For
the six months ended March 31, 2001, net charge-offs  were $400,000  compared to
net  charge-offs  of  $200,000  for the six months  ended  March 31,  2000.  The
allowance  for loan losses as a percentage of total loans was 1.37% at March 31,
2001,  compared to 1.35% at September  30, 2000.  Management  believes  that the
current level of allowance is adequate  considering  the Company's  current loss
experience and delinquency trends, among other criteria.

OTHER INCOME

For the six months ended March 31, 2001, other income increased $953,000 to $3.9
million  compared to $2.9 million for the six months ended March 31, 2000.  Fees
and service  charges for the six months  ended March 31, 2001 were $1.2  million
compared to $1.1 million for the six months  ended March 31, 2000.  Gain on sale
of loans was  $348,000  for the six months  ended  March 31,  2000  compared  to
$480,000 for the six months ended March 31, 2001. Loss on sale of securities was
$1.8  million  for the six months  ended  March 31,  2000,  compared to gains of
$356,000 for the six months ended March 31, 2001. This is the result of the Bank
restructuring  a portion of its available for sale investment  portfolio  during
the six months  ended  March 31,  2000.  The losses were offset by a gain on the
sale of the  Florence  office  deposits of $1.7  million.  Other income was $2.0
million for the six months  ended March 31,  2001,  compared to $1.6 million for
the six months ended March 31, 2000.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased  from $8.2  million for the six
months  ended March 31, 2000 to $8.7  million for the six months ended March 31,
2001. Salaries and employee benefits increased  $370,000,  or 7.9% primarily due
to staffing for two new Sales  Centers.  Other  expense was $1.6 million for the
six months  ended  March 31, 2001  compared  to $1.5  million for the six months
ended March 31, 2000.

INCOME TAXES

Income  taxes  increased  from $2.3  million for the six months  ended March 31,
2000,  to $2.6 million for the six months  ended March 31, 2001,  as a result of
increased income before taxes.

EXTRAORDINARY ITEM

The  extraordinary  item for the six  months  ended  March 31,  2001  relates to
prepayment  penalties  on advances  from FHLB of $256,000 net of income taxes of
$137,000.

                                       19

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001


REGULATORY CAPITAL MATTERS

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

<TABLE>
<CAPTION>
                                                                                                    Categorized as "Well
                                                                                                     Capitalized" Under
                                                                           For Capital               Prompt Corrective
                                          Actual                       Adequacy Purposes              Action Provision
                                          ------                       -----------------              ----------------
                                   Amount        Ratio              Amount           Ratio          Amount           Ratio
                                   ------        -----              ------           -----          ------           -----
                                                                     (Dollars In Thousands)

As of March 31, 2001:
<S>                                <C>             <C>             <C>                 <C>         <C>               <C>
 Total Capital:                    $57,834         12.24%          $37,805             8.00%       $47,256           10.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $52,525         11.11%              N/A              N/A        $28,354            6.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $52,525          6.43%          $32,781             4.00%       $40,976            5.00%
   (To Total Assets)
 Tangible Capital:                 $52,525          6.43%          $12,293             1.50%           N/A              N/A
   (To Total Assets)
</TABLE>

                                       20

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities,  an  Amendment of FASB 133"  establishes  accounting  and  reporting
standards  for  derivative  and hedging  activities.  It requires that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial position,  and measure those instruments at fair value. Changes in the
fair value of those derivatives are reported in earnings or other  comprehensive
income  depending  on the  use of the  derivative  and  whether  the  derivative
qualifies for hedge accounting.  SFAS No. 133 and SFAS No. 138 are effective for
all fiscal  quarters of all fiscal  years  beginning  after June 30,  2000.  The
Company adopted SFAS No. 133, as amended by SFAS No. 138, on October 1, 2000.

On October 1, 2000, the Company had no embedded derivative instruments requiring
separate  accounting   treatment.   The  Company  has  freestanding   derivative
instruments  consisting of an interest rate cap  agreement,  interest rate floor
agreements and fixed rate conforming loan  commitments.  The notional amount of
the interest rate cap and interest rate floor agreements totaled $20 million and
$62 million at March 31, 2001 and October 1, 2000, respectively.  The fair value
of these agreements was $106,000,  $33,000 and zero at March 31, 2001,  December
31,  2000 and  October 1, 2000,  respectively.  In  addition,  the  Company  had
commitments  to originate  mortgage loans at October 1, 2000 and March 31, 2001.
The value of these  commitments was immaterial at both October 1, 2000 and March
31,  2001.  The  adoption  of SFAS No.  133 on  October 1, 2000 as well as the
impact of  applying  SFAS No. 133 at December  31, 2000 was not  material to the
Company's consolidated financial statements.

In September  2000,  the FASB issued SFAS No. 140,  Accounting for Transfers and
Servicing of  Financial  Assets and  Extinguishments  of  Liabilities.  This new
statement replaces SFAS No. 125 and provides further standards on accounting and
reporting for transfers and servicing of financial assets and extinguishments of
liabilities.  SFAS No. 140 is effective for transfers  occurring after March 31,
2001 and for disclosures relating to securitization  transactions and collateral
for fiscal  years ending after  December  15,  2000.  The company  adopted this
statement on April 1, 2001 and does not  anticipate  this  standard  will have a
material  effect  on its  financial  statements.

EFFECT ON INFLATION AND CHANGING PRICES

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with generally  accepted  accounting  principles which require the
measurement  of  financial  position  and  results  of  operations  in  terms of
historical dollars,  without  consideration of change in the relative purchasing
power over time due to inflation.  Unlike most industrial  companies,  virtually
all of the assets and  liabilities  of a financial  institution  are monetary in
nature.  As a  result,  interest  rates  have a  more  significant  impact  on a
financial  institution's  performance  than the effects of  inflation.  Interest
rates do not necessarily  change in the same magnitude as the price of goods and
services.

                                       21

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 3.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 2001, no material  changes have occurred in market risk disclosures
included  in the  Company's  Annual  Report to  Stockholders  for the year ended
September 30, 2000.


                                       22

<PAGE>


PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 1.  Legal Proceedings

     The  Company is not a  defendant  in any  lawsuits.  The  subsidiaries  are
defendants in lawsuits arising out of the normal course of business. None of the
lawsuits would have a material impact on the Company's financial status.

Item 2.  Changes In Securities and Use of Proceeds

     Not Applicable.

Item 3.  Defaults Upon Senior Securities

     Not Applicable.

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

At the  Company's  annual  stockholders  meeting  held on January  24,  2001 the
following items were ratified:

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

At the meeting,  a total of 5,224,900 votes were entitled to be cast.  Votes for
Dusenbury were 5,047,695 with 177,205 withheld;  and votes for Michael C. Gerald
were 5,041,424 with 183,476 withheld.

The  directors  whose terms  continued  and the years their terms  expire are as
follows:  James C.  Benton  (2002),  James P. Creel  (2002),  James T.  Clemmons
(2003), Frank A. Thompson, II (2003) and G. David Bishop (2003).

Item 5.  Other Information

     Not Applicable.

                                       23

<PAGE>



PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

          3    (a) Certificate of Incorporation of Coastal Financial Corporation
                   (1)

               (b)  Certificate of Amendment to Certificate of  Incorporation of
                    Coastal Financial Corporation (6)

               (c)  Bylaws of Coastal Financial Corporation (1)

         10    (a)  Employment Agreement with Michael C. Gerald (2)

               (b)  Employment Agreement with Jerry L. Rexroad (2)

               (c)  Employment Agreement with Phillip G. Stalvey (4)

               (d)  Employment Agreement with Jimmy R. Graham (2)

               (e)  Employment Agreement with Steven J. Sherry (7)

               (f)  1990 Stock Option Plan (2)

               (g)  Directors Performance Plan (3)

               (h)  Loan Agreement with Bankers Bank (5)

               (i)  Coastal Financial Corporation 2000 Stock Option Plan (8)


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


-------------

(1)  Incorporated by reference to Registration  Statement on Form S-4 filed with
     the Securities and Exchange Commission on November 26, 1990.

(2)  Incorporated  by reference to 1995 Form 10-K filed with the  Securities and
     Exchange Commission on December 29, 1995.

(3)  Incorporated  by reference to the definitive  proxy  statement for the 1996
     Annual Meeting of Stockholders.

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

(5)  Incorporated  by  reference  to  December  31,  1997 Form 10-Q  filed  with
     Securities and Exchange Commission on February 13, 1998.

                                       24

<PAGE>

PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

(6)  Incorporated by reference to March 31, 1998 Form 10-Q filed with Securities
     and Exchange Commission on May 15, 1998.

(7)  Incorporated  by  reference  to 1998 Form 10-K  filed with  Securities  and
     Exchange Commission on December 29, 1998.

(8)  Incorporated  by reference to the definitive  proxy  statement for the 2000
     Annual Meeting of Stockholders filed December 22, 1999.


                                       25



<PAGE>

                                   SIGNATURES


Pursuant to the  requirement  of the  Securities  and Exchange Act of 1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                             COASTAL FINANCIAL CORPORATION

May 15, 2001                          /s/ Michael C. Gerald
------------                 -------------------------------------
Date                                  Michael C. Gerald
                             President and Chief Executive Officer

May 15, 2001                         /s/ Jerry L. Rexroad
------------                 --------------------------------------
Date                                   Jerry L. Rexroad
                                 Executive Vice President and
                                   Chief Financial Officer




                                       26