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 December 31, 1996

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

Registrant's telephone number, including area code  (803) 448-5151

         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 (December 31, 1996).

Common Stock $.01 Par Value Per Share                    3,452,112 Shares
--------------------------------------------------------------------------------
(Class)                                                    (Outstanding)
<PAGE>    
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996

TABLE OF CONTENTS                                                               

PART 1-      Consolidated Financial Statements

Item
       1.    Financial Statements (unaudited):

             Consolidated Statements of Financial Condition
             as of September 30, 1996 and December 31, 1996                     

             Consolidated Statements of Operations for the three
             months ended December 31, 1995 and 1996                            

             Consolidated Statements of Cash Flows for the three
             months ended December 31, 1995 and 1996                            

             Consolidated Statements of Stockholders' Equity                    

             Notes to Consolidated Financial Statements                         

       2.    Management's Discussion and Analysis of
             Financial Condition                                                

       3.    Management's Discussion and Analysis of Operations
             for the three months ended December 31, 1995 and 1996              


Part II - Other Information

Item
       1.    Legal Proceedings                                                  

       2.    Changes in Securities                                              

       3.    Default Upon Senior Securities                                     

       4.    Submission of Matters to a Vote of Securities Holders              

       5.    Other Materially Important Events                                  

       6.    Exhibits and Reports on Form 8-K                                   

Signatures  
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                            September 30,December 31,
                                    1996 1996
                                   (Unaudited)
                             (Dollars in thousands)
<S>                                                    <C>            <C>
ASSETS:
Cash & amounts due from banks ....................     $  15,639      $  12,385
Short-term interest-bearing deposits .............         5,222          1,056
Investment securities held to maturity
   (market value of $332 at September 30,
   1996 and $331 at December 31, 1996) ...........           330            330
Investment securities available for sale .........        17,141         14,365
Mortgage-backed securities available for sale ....        27,029         27,756
Loans receivable (net of allowance for
   loan losses of $4,172 at September 30,
   1996 and $4,377 at December 31, 1996) .........       370,368        375,326
Loans receivable held for sale ...................         6,803          6,069
Real estate acquired through foreclosure .........           323            258
Office property and equipment, net ...............         5,736          5,866
Federal Home Loan Bank stock, at cost ............         5,228          4,545
Accrued interest receivable on loans .............         2,444          2,446
Accrued interest receivable on investment
   securities ....................................           526            548
Other assets and deferred charges ................         2,923          3,005
                                                       ---------      ---------
                                                       $ 459,712      $ 453,955
                                                       =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits .........................................     $ 313,430      $ 322,048
Securities sold under agreements to
   repurchase ....................................         3,365          2,747
Advances from Federal Home Loan Bank .............       104,553         90,903
Other borrowings .................................         1,968          3,555
Drafts outstanding ...............................         1,922            759
Advances by borrowers for property taxes
   and insurance .................................         1,435            430
Accrued interest payable .........................           798            771
Other liabilities ................................         4,560          3,814
                                                       ---------      ---------
  Total liabilities ..............................       432,031        425,027
                                                       ---------      ---------
<PAGE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)



                            September 30,December 31,
                                    1996 1996
                                   (Unaudited)
                             (Dollars in thousands)
                                  (continued)
<S>                                                    <C>            <C>
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued .......................          --             --
Common stock, $.01 par value, 5,000,000
   shares authorized;  3,442,616 shares at
   September 30, 1996 and 3,452,112 shares
   at December 31, 1996 issued and outstanding ...            34             34
Additional paid-in capital .......................         8,710          8,710
Retained earnings ................................        20,015         20,781
Treasury stock, at cost (54,161 and 44,665
  shares, respectively) ..........................        (1,185)          (971)
Unrealized gain on securities available
  for sale, net of income taxes ..................           107            374
                                                       ---------      ---------
  Total stockholders' equity .....................        27,681         28,928
                                                       ---------      ---------
                                                       $ 459,712      $ 453,955
                                                       =========      =========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996

                                                         1995             1996
                                                         ----             ----
                                                            (Unaudited)
                                                        (Dollars in thousands
                                                        except per share data)
<S>                                                <C>              <C>
Interest income:
   Loans receivable ..........................     $     7,855      $     8,121
   Investment securities .....................              87              289
   Mortgage-backed securities ................             299              488
   Other .....................................             167               99
                                                   -----------      -----------
   Total interest income .....................           8,408            8,997
                                                   -----------      -----------
Interest expense:
   Deposits ..................................           2,983            3,342
   Securities sold under agreements to
     repurchase ..............................              28               25
   Advances from Federal Home Loan Bank ......           1,738            1,352
   Other borrowings ..........................               8               91
                                                   -----------      -----------
   Total interest expense ....................           4,757            4,810
                                                   -----------      -----------

   Net interest income .......................           3,651            4,187
Provision for loan losses ....................             115              230
                                                   -----------      -----------
   Net interest income after provision
     for loan losses .........................           3,536            3,957
                                                   -----------      -----------
Other income:
   Fees and service charges on loans and
     deposit accounts ........................             313              426
   Loss from real estate owned ...............             (36)             (55)
   Income from real estate partnerships ......              96              327
   Gain on sale of loans receivable, net .....             279              228
   Gain (loss) on sale of securities
     available for sale ......................             (18)              18
   Other income ..............................             301              419
                                                   -----------      -----------
   Total other income ........................             935            1,363
                                                   -----------      -----------
Other expense:

   Salaries and employee benefits ............           1,434            1,688
   Net occupancy, furniture and fixtures
     and data processing expense .............             667              760
   FDIC insurance premium ....................             150              129
   Other expenses ............................             541              731
                                                   -----------      -----------
   Total other expense .......................           2,792            3,308
                                                   -----------      -----------

<PAGE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (CONTINUED)


                                                         1995             1996
                                                         ----             ----
                                                            (Unaudited)
                                                        (Dollars in thousands
                                                        except per share data)
<S>                                                <C>              <C>

Earnings before income taxes .................           1,679            2,012

Income taxes .................................             621              734
                                                   -----------      -----------

Net Earnings .................................     $     1,058      $     1,278
                                                   ===========      ===========

Earnings per common share ....................     $       .30      $       .35
                                                   ===========      ===========

Weighted average common shares outstanding ...       3,558,000        3,631,000
                                                   ===========      ===========





SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996

                                                              1995         1996
                                                              ----         ----
                                                                 (Unaudited)
                                                               (In thousands)
<S>                                                      <C>           <C>
Cash flows from operating activities:
  Net earnings .....................................     $  1,058      $  1,278
  Adjustments to reconcile net earnings
       to net cash used in operating activities:
       Income from real estate partnerships ........          (96)         (327)
       Depreciation ................................          176           213
       Provision for loan losses ...................          115           230
  Origination of loans receivable held for sale ....      (10,336)      (20,153)
  Proceeds from sales of loans receivable
        held for sale ..............................        7,894        11,647
(Increase) decrease in:
      Other assets and deferred charges ............          216           (82)
      Accrued interest receivable ..................         (273)          (24)
 Increase (decrease) in:
      Accrued interest payable .....................          161           (27)
      Other liabilities ............................          516          (746)
                                                         --------      --------

     Net cash used in operating activities .........         (569)       (7,991)
                                                         --------      --------

Cash flows from investing activities:
  Purchases of investment securities
      available for sale ...........................       (7,000)       (1,502)
  Proceeds from sales of investment
       securities available for sale ...............        1,000          --
  Proceeds from maturities of investment
       securities available for sale ...............         --           4,356
 Purchase of mortgage-backed securities
       available for sale ..........................       (4,877)       (2,411)
  Origination of loans receivable ..................      (26,191)      (22,896)
  Purchase of loans receivable .....................       (6,922)         --
  Principal collected on loans receivable
       and mortgage-backed securities ..............       27,632        28,050
  Proceeds from sale of real estate
       acquired through foreclosure ................         --              65
  Purchase of office properties and
      equipment ....................................         (424)         (343)
  Purchase of FHLB stock ...........................       (1,064)          683
  Other investing activities, net ..................          104            51
                                                         --------      --------

      Net cash provided by (used in)
             investing activities ..................      (17,742)        6,053
                                                         --------      --------

<PAGE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (CONTINUED)

                                                            1995         1996
                                                            ----         ----
                                                                (Unaudited)
                                                              (In thousands)
<S>                                                      <C>           <C>
Cash flows from financing activities:
  Increase (decrease) in deposits ................      $     86       $  8,618
  Increase (decrease) in securities
     sold under agreement to repurchase ..........           525           (618)
  Proceeds from FHLB advances ....................        43,900         21,000
  Repayment of FHLB advances .....................       (21,418)       (34,650)
  Proceeds from other borrowings .................         3,442          1,587
  Decrease in advance payments by borrowers
     for property taxes and insurance ............        (1,152)        (1,005)
  Decrease in drafts outstanding .................          (601)        (1,163)
  Dividend to stockholders .......................          (337)          (380)
  Other financing activities, net ................           389          1,129
                                                        --------       --------
  Net cash provided (used) by financing
    activities ...................................        24,834         (5,482)
                                                        --------       --------
Net increase (decrease)
   in cash and cash equivalents ..................         6,523         (7,420)
                                                        --------       --------
Cash and cash equivalents at beginning
  of the period ..................................        11,201         20,861
                                                        --------       --------
Cash and cash equivalents at end
  of the period ..................................      $ 17,724       $ 13,441
                                                        ========       ========
Supplemental information:
  Interest paid ..................................      $  4,596       $  4,837
                                                        ========       ========

  Income taxes paid ..............................      $    492       $     20
                                                        ========       ========
Supplemental schedule of non-cash investing
  and financing transactions:
  Transfer of mortgage loans to real estate
     acquired through foreclosure ................      $     40       $    --
                                                        ========       ========
Collateralization of mortgage loans to FHLMC
     participation certificates ..................      $  7,157       $    --
                                                        ========       ========
Transfer of mortgage loans to mortgage
     loans held for sale .........................      $  8,775       $    --
                                                        ========       ========
Transfer of investment securities held to
    maturity to available for sale ...............      $ 14,775       $    --
                                                        ========       ========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                             Additional                                                  Total
                                Common         Paid-In      Retained       Treasury                  Stockholders'
                                Stock          Capital      Earnings        Stock          Other        Equity
                               --------      --------      --------       --------       --------      --------
                                                                  (Unaudited)
                                                                (In thousands)
<S>                            <C>           <C>           <C>            <C>            <C>           <C>
Balance at September
   30, 1995 .............      $     34      $  8,710      $ 18,674       $ (2,598)      $   --        $ 24,820
Exercise of stock
   options ..............          --            --            (863)           970           --             107
Issuance of shares
     in acquisition
     of Coastal Federal
  Mortgage ..............          --            --             (67)           443           --             376
Cash paid for
  fractional shares .....          --            --             (17)          --             --             (17)
Cash dividends ..........          --            --          (1,433)          --             --          (1,433)
Unrealized gain on
  securities available
  for sale, net of
  income taxes ..........          --            --            --             --              107           107
Net income ..............          --            --           3,721           --             --           3,721
                               --------      --------      --------       --------       --------      --------

Balance at September
  30, 1996 ..............      $     34      $  8,710      $ 20,015       $ (1,185)      $    107      $ 27,681
Exercise of stock
  options ...............          --            --            (132)           214           --              82
Cash dividends ..........          --            --            (380)          --             --            (380)
Change in unrealized gain
  on securities available
  for sale, net of
  income taxes ..........          --            --            --             --              267           267
Net income ..............          --            --           1,278           --             --           1,278
                               --------      --------      --------       --------       --------      --------

Balance at December
   30, 1996 .............      $     34      $  8,710      $ 20,781       $   (971)      $    374      $ 28,928
                               ========      ========      ========       ========       ========      ========



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
PART 1.  FINANCIAL INFORMATION

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  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  operations  for the three month  period  ended  December  31, 1996 are not
necessarily indicative of presentation of the interim financial statements, have
been  included.  The results 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, 1996,  included in the Company's
1996 Annual Report to  Stockholders.  The  principal  business of the Company is
conducted by its wholly-owned subsidiary, Coastal Federal Savings Bank ("Bank").
The information presented hereon, therefore, relates primarily to the Bank.

(2)  LOANS RECEIVABLE, NET

Loans receivable, net consist of the following:
<TABLE>
<CAPTION>

                                                   September 30,    December 31,
                                                       1996            1996
                                                     ---------        ---------
                                                             (Unaudited)
                                                            (In thousands)
<S>                                                  <C>              <C>
First mortgage loans:
   Single family to 4 family units ...........       $ 224,570        $ 225,112
   Other, primarily commercial
      real estate ............................          61,180           61,401
   Construction loans ........................          34,566           32,094
Consumer and commercial loans:
   Installment consumer loans ................          31,601           30,573
   Mobile home loans .........................           1,103            1,083
   Deposit account loans .....................             436              397
   Equity lines of credit ....................          12,441           12,863
   Commercial and other loans ................          26,946           31,107
                                                     ---------        ---------
                                                       392,843          394,630
Less:
   Allowance for loan losses .................           4,172            4,377
   Deferred loan costs .......................            (286)            (324)
   Undisbursed portion of loans in process ...          18,589           15,251
                                                     ---------        ---------
                                                     $ 370,368        $ 375,326
                                                     =========        =========


</TABLE>
<PAGE>
PART 1.  FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The changes in the  allowance  for loan losses  consist of the following for the
three months ended:
<TABLE>
<CAPTION>
                                                             December 31,
                                                      1995                1996
                                                    -------             -------
                                                             (Unaudited)
                                                           (In thousands)
<S>                                                 <C>                 <C>
Beginning allowance ....................            $ 3,578             $ 4,172
Provision for loan losses ..............                115                 230
Loan recoveries ........................                  6                  29
Loan charge-offs .......................                (15)                (54)
                                                    -------             -------

Ending allowance .......................            $ 3,684             $ 4,377
                                                    =======             =======
</TABLE>
(3)  DEPOSITS

Deposits consist of the following:
<TABLE>
<CAPTION>
                                       September 30,              December 31,
                                           1996                      1996
                                  ---------------------    -----------------------
                                               Weighted                   Weighted
                                    Amount       Rate         Amount        Rate
                                                    (Unaudited)
                                                  (In thousands)
<S>                               <C>            <C>       <C>             <C>
Transaction accounts .......      $140,577       3.24%     $ 142,182       3.50%
Passbook accounts ..........        42,840       2.66         39,398       2.57
Certificate accounts .......       130,013       5.64        140,468       5.68
                                  --------       ----       --------       ----
                                  $313,430       4.12%      $322,048       4.31%
                                  ========       ====       ========       ====
</TABLE>
<PAGE>
PART 1.  FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>
                                        September 30,            December 31,
                                            1996                    1996
                                  ----------------------------------------------
                                         Weighted                 Weighted
                                   Amount        Rate        Amount        Rate
                                  --------       ----       --------       -----
Maturing within:                                         (Unaudited)
                                                        (In thousands)
<S>                               <C>            <C>        <C>            <C>
1 year .....................      $ 54,404       5.68 %     $ 38,904       5.40%
2 years ....................        20,120       5.90         24,224       6.27
3 years ....................        13,105       6.35          9,001       5.57
4 years ....................         6,861       6.46          7,561       6.41
5 years and thereafter .....        10,063       6.90         11,213       6.85
                                  --------       -          --------       ----
                                  $104,553       5.97%      $ 90,903       5.91%
                                  ========       ====       ========       ====
</TABLE>
Included in advances from the Federal Home Loan Bank and shown  maturing  within
one year are  advances  with call  options by the FHLB.  At December  31,  1996,
callable  advances  with call dates  within one year  included $5 million with a
five  year  term at  5.60%,  $5  million  with a five year term at 4.76% and $10
million with a two year term at 5.22%.  At September 30, 1996,  and December 31,
1996,  the Bank had  pledged  first  mortgage  loans  with  unpaid  balances  of
approximately $223.4 million and $230.7 million, respectively, as collateral for
FHLB advances.

(5)  EARNINGS PER SHARE

Earnings per share for the three month periods ended December 31, 1995 and 1996,
are computed by dividing net earnings by the weighted average common  equivalent
shares  outstanding  during the  respective  periods.  Common share  equivalents
include dilutive common stock option share  equivalents  determined by using the
treasury  stock  method.  All share and per share  data have been  retroactively
restated for all common stock dividends.

(6)  COMMON STOCK DIVIDENDS

On May 30, 1995,  the Company  declared a 5% common stock  dividend  aggregating
102,003  shares.  On January 9, 1996 and June 20, 1996,  the Company  declared a
five for four  stock  split in the  form of a 25%  stock  dividend,  aggregating
approximately  542,000 and 687,000 shares  respectively.  All per share data has
been retroactively restated to give effect to the common stock dividends.
<PAGE>
PART 1.  FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

DISCUSSION OF FINANCIAL  CONDITION  CHANGES FROM  SEPTEMBER 30, 1996 TO DECEMBER
31, 1996

GENERAL

The Company  reported  $1.3  million in net  earnings for the three months ended
December 31, 1996, compared to net earnings of $1.1 million for the three months
ended December 31, 1995. Net interest income increased  $536,000  primarily as a
result of an  increase in  interest  income of  $589,000  which was offset by an
increase in interest  expense of $53,000.  Provision  for loan losses  increased
from $115,000 for the three months ended  December 31, 1995, to $230,000 for the
three months ended December 31, 1996.  Other income  increased from $935,000 for
the three months ended  December 31, 1995,  to $1.4 million for the three months
ended December 31, 1996. General and administrative expenses increased from $2.8
million for the three  months ended  December 31, 1995,  to $3.3 million for the
three months ended December 31, 1996.

Liquid assets,  consisting of cash,  interest-bearing  deposits,  and investment
securities, decreased from $38.3 million at September 30, 1996, to $28.1 million
at December 31, 1996.

Primarily,  as a result of net  earnings of $1.3  million  for the three  months
ended December 31, 1996, less dividends of approximately $380,000, stockholder's
equity  increased  from $27.7 million at September 30, 1996, to $28.9 million at
December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

In accordance with Office of Thrift Supervision ("OTS") regulations, the Company
is required to maintain  specific  levels of cash and  "liquid"  investments  in
qualifying  types of United States  Treasury and Federal  Agency  Securities and
other  investments  generally  having  maturities  of five  years or  less.  The
required  level  of  such  investments  is  calculated  on  a  "liquidity  base"
consisting of net withdrawable accounts and short-term borrowings,  and is equal
to 5% of such amount.  Short-term  liquid  assets must be 1.0% of the  liquidity
base.

Historically,  the Company 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 Bank's  liquidity was 8.0% and 6.8% at September 30, 1996,  and December 31,
1996, respectively as calculated in accordance with OTS regulations.  During the
three months ended December 31, 1996,  the Bank  experienced a slight decline in
its  level  of  liquidity  as a  result  of a lower  level  of loan  sales,  and
securities maturities in the first quarter.

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.
<PAGE>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1995

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

The  principal use of cash flows is the  origination  of loans  receivable.  The
Company  originated loans receivable of $43.0 million for the three months ended
December 31, 1996, compared to $36.5 million for the three months ended December
31, 1995.  The majority of these loan  originations  were financed  through loan
principal  repayments  which amounted to $27.6 million and $28.1 million for the
three month periods ended December 31, 1995 and 1996, 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  in the current  period.  For the three month period ended
December 31, 1996,  the Company sold $11.6 million in mortgage loans compared to
$7.9 million sold for the three month period ended December 31, 1995.

At December 31, 1996,  the Company had  commitments to originate $4.9 million in
mortgage  loans,  and $28.0  million in  undisbursed  lines of credit  which the
Company expects to fund from normal operations.

At December 31, 1996, the Company had $107.5 million of certificates of deposits
which were due to mature within one year.  Based upon previous  experience,  the
Company  believes  that a major portion of these  certificates  will be renewed.
Additionally, at December 31, 1996, the Company had pledged first mortgage loans
in the  amount of $230.7  million  to the FHLB which  could  support  additional
advances of approximately $82.0 million.

As a condition of deposit insurance,  current FDIC 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 is  approximately  $28.2 million at
December 31, 1996,  exceeding  tangible and core capital  requirements  by $21.5
million and $14.7  million,  respectively.  At  December  31,  1996,  the Bank's
risk-based   capital  of  approximately   $31.7  million  exceeded  its  current
risk-based  capital  requirement by $8.3 million.  (For further  information see
Regulatory Matters).


MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF  OPERATION  
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996

GENERAL

Net income  increased  from $1.1 million for the three months ended December 31,
1995,  to $1.3 million for three months  ended  December 31, 1996.  Net interest
income  increased  $536,000  primarily  as a result of an  increase  in interest
expense of $53,000 and an increase of $589,000 in interest income. Provision for
loan losses increased from $115,000 for three months ended December 31, 1995, to
$230,000 for the three months ended  December 31, 1996.  Other income  increased
$428,000 primarily as a result of increased income from real estate partnerships
of $231,000 and increased fee income on deposits.
<PAGE>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1995

INTEREST INCOME

Interest income for the three months ended December 31, 1996,  increased to $9.0
million as compared to $8.4 million for the three months ended December 31, 1995
primarily  as a result  of  increases  in the  average  balances  of  loans  and
investment  securities.  The yield on earning  assets for the three months ended
December 31, 1996,  was 8.39%  compared to a yield of 8.59% for the three months
ended  December 31, 1995.  The average yield on loans  receivable  for the three
months ended December 31, 1996, was 8.57% compared to 8.67% for the three months
ended December 31, 1995. The decrease in yield primarily resulted from repricing
of  adjustable-rate  mortgage  loans as a  result  of  declines  in the one year
treasury  index.  With the recent decrease in short-term  interest rates,  loans
should  reprice at only  slightly  higher  levels  throughout  fiscal 1997.  The
average loan balance for the quarter ended  December 31, 1996 was $377.8 million
compared to $362.0 million for the quarter ended December 31, 1995. The yield on
securities increased to 6.76% for the three months ended December 31, 1996, from
6.20% for the three months  ended  December  31,  1995.  The average  securities
balance was $17.1 million for the quarter ended  December 31, 1996,  compared to
$5.6 million for the quarter  ended  December 31, 1995.  Total  average  earning
assets were $431.6  million for the quarter ended December 31, 1996, as compared
to $395.5 million for the quarter ended December 31, 1995.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $4.8 million for the three
months ended  December  31, 1995 and 1996.  The average cost of deposits for the
three months ended  December 31, 1996, was 4.17% compared to 4.33% for the three
months ended December 31, 1995.  The cost on  interest-bearing  liabilities  was
4.59% for the three months ended December 31, 1996, as compared to 4.93% for the
three months ended  December 31,  1995.  The Company has  decreased  its cost of
borrowings  primarily  through the increase in core deposits  which have a lower
cost than FHLB advances.  Total average  interest-bearing  liabilities increased
from $385.6 million at December 31, 1995 to $417.5 million at December 31, 1996.

NET INTEREST INCOME

Net interest  income was $4.2  million for the three  months ended  December 31,
1996, as compared to $3.7 million for the three months ended  December 31, 1995.
The net interest  margin  increased to 3.80% for the three months ended December
31, 1996,  from 3.66% for the three months  ended  December 31, 1995.  Since the
majority  of the  Company's  assets are  adjustable  rate  mortgage  loans which
reprice  annually  versus many of the Company's  liabilities  which reprice more
quickly,  the Company may experience a short-term  decrease in its interest rate
spread should  interest rates  increase  rapidly.  In addition,  the Company has
approximately 35% of its assets funded by core deposits. Since these liabilities
may not be able to be repriced in a  decreasing  interest  rate  environment,  a
significant decrease in short-term interest rates would reduce the Company's net
interest margin.
<PAGE>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1994 AND 1995

PROVISION FOR LOAN LOSSES

The  provision  for loan losses  increased  from  $115,000  for the period ended
December 31, 1995, to $230,000 for the three months ended December 31, 1996. For
the three months ended December 31, 1996, net charge-offs  were $25,000 compared
to net  charge-offs  of $9,000 for the three months ended December 31, 1995. The
allowance  for loan losses as a percentage  of total loans was 1.15% at December
31, 1996,  compared to 1.11% at September 30, 1996.  Loans delinquent 90 days or
more  were  .16% of total  loans  at  December  31,  1996,  compared  to .12% at
September 30, 1996.  The allowance for loan losses was 744% of loans  delinquent
more than 90 days at December  31, 1996,  as compared to 938% at  September  30,
1996.  Management  believes  that the current  level of  allowances  is adequate
considering loss experience and delinquency trends, among other criteria.

OTHER INCOME

For the three months ended December 31, 1996,  other income  increased  45.8% to
$1.4 million  compared to $935,000 for the three months ended December 31, 1995.
Fees from loan and  deposit  accounts  increased  $113,000  due to the growth in
consumer checking  accounts.  Income from real estate  partnerships was $327,000
for the quarter ended December 31,1996 compared to $96,000 for the quarter ended
December 31, 1995.  This  increase is due to the sale of land held by the Bank's
subsidiary.  Other income  increased by $118,000 for the quarter ended  December
31, 1996  compared to the same 1995  period.  This is  primarily  attributed  to
increased  fees from ATM  transactions,  increased  debit card fee  income,  and
increased safe deposit box rental income.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased from $2.8 million for the three
months  ended  December  31,  1995,  to $3.3  million for the three months ended
December 31, 1996. Salaries and employee benefits increased $254,000,  or 19.7%.
A  significant  portion of this  increase  is for  additional  personnel  in the
mortgage  banking area of the Bank and Coastal Federal  Mortgage,  Inc.  Coastal
Federal  Mortgage was acquired in November,  1995 and,  therefore,  only had two
months of  expense in 1995.  Net  occupancy,  furniture  and  fixtures  and data
processing  expense increased $93,000.  The increase is primarily  attributed to
the addition of Coastal  Federal  Mortgage.  Other  expense was $731,000 for the
quarter  ended  December  31, 1996  compared to $541,000  for the quarter  ended
December 31, 1995. This increase is primarily  attributed to increased  expenses
related to the growth in checking services,  ATMs and debit cards as well as the
addition of Coastal Federal Mortgage.

INCOME TAXES

Income taxes  increased  from  $621,000 for the three months ended  December 31,
1995,  to $734,000 for the three months ended  December 31, 1996, as a result of
increased income before taxes.
<PAGE>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
REGULATORY MATTERS

The  regulatory  capital  requirements  for  the  Bank's  compliance  with  such
requirements at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
                                                  Amount      Percent of Assets
                                                  ------      -----------------
<S>                                              <C>                <C>           

Tangible capital ........................         28,218             6.22
Tangible capital
requirement .............................          6,768             1.50
                                                 -------            ------

Excess ..................................        $21,450             4.72%
                                                 =======            ===== 

Core capital ............................        $28,218             6.22%
Core capital
requirement .............................         13,537             3.00
                                                 -------            ----- 

Excess ..................................        $14,681             3.22%
                                                 =======            ===== 

Risk-based capital ......................        $31,657            10.83%
Minimum risk-based
capital requirement .....................         23,390             8.00
                                                 -------            -----

Excess ..................................        $ 8,267             2.83%
                                                 =======            ===== 
</TABLE>
<PAGE>
PART 1.  FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

On June 30, 1995,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of"
which is effective for financial  statements  issued for fiscal years  beginning
after  December 15, 1995.  SFAS No. 121 provides  guidance for  recognition  and
measurement   of   impairment  of  long-lived   assets,   certain   identifiable
intangibles,  and goodwill related both to assets to be held and used and assets
to be disposed of. The Company adopted this statement  effective October,  1996.
The adoption of this statement did not have a material effect on the Company.

In May 1995, the FASB issued SFAS No. 122,  "Accounting  for Mortgage  Servicing
Rights, an amendment of SFAS No. 65" which is effective prospectively for fiscal
years beginning after December 15, 1995. The statement  requires the recognition
of an asset for the right to service  mortgage  loans for others,  regardless of
how those rights were acquired  (either  purchased or originated).  Further,  it
amends SFAS 65 to require  assessment of impairment  based on fair value.  Based
upon the Company's  present mortgage lending  operation,  this statement did not
have a material effect on the Company.

In October  1995,  the FASB  issued SFAS No.  123,  "Accounting  for Stock Based
Compensation"  which is effective  for  financial  statements  issued for fiscal
years beginning  after December 15, 1995. SFAS No. 123 provides  guidance on the
valuation of compensation  costs arising from both fixed and  performance  stock
compensation  plans.  SFAS No. 123 encourages  but does not require  entities to
account for stock compensation awards based on their estimated fair value on the
date they are  granted.  Entities  can  continue  to follow  current  accounting
requirements,  which  generally  do not  result in an  expense  charge  for most
options. However, they must disclose in a footnote to their financial statements
what the effect on net income and  earnings  per share  would have been had they
used the  fair  value  model.  The  Company  expects  to  continue  its  current
accounting  practice.  Therefore,  this  statement  will  generally  not  have a
material effect on future operating results.

In June,  1996,  the FASB issued SFAS No. 125,  "Accounting  for  Transfers  and
Servicing of Financial Assets and Extinguishment of Liabilities." This statement
will become  effective for  transactions  occurring  after December 31, 1996 and
supersedes  SFAS No. 122. The Statement uses a "financial  components"  approach
that focuses on control to determine the proper  accounting for financial  asset
transfers.  Under that approach,  after  financial  assets are  transferred,  an
entity  would  recognize  on its  balance  sheet  all  assets  it  controls  and
liabilities  it has  incurred.  The entity would  remove from the balance  sheet
those assets it no longer controls and liabilities it has satisfied. The Company
does not anticipate  that adoption of this standard will have a material  effect
on the Company's financial statements in fiscal 1997.
<PAGE>
PART 1.  FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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.
<PAGE>
PART 2.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 1.  Legal Proceedings

The Bank is a defendant in two significant lawsuits as summarized below.

The first  action  commenced  on August 9, 1993,  and the  Plaintiff  is seeking
approximately  $400,000  in  damages.  The  Plaintiff  contended  that  the Bank
breached its fiduciary  duties in handling of their accounts.  The Bank defended
this  suit and was  found  without  damages  on  October  28,  1996 by the South
Carolina  Circuit  Court.  The  Plaintiff  appealed this lawsuit on November 12,
1996.

The  second  lawsuit  involves a  wholly-owned  subsidiary  of Coastal  Mortgage
Bankers & Realty  Company,  Inc. An answer to this suit was filed on October 29,
1993 on behalf of the Joint Venture.  The  Plaintiff's  complaint was amended to
add additional  Defendants on June 25, 1994. The Plaintiff alleges  construction
deficiencies  and seeks damages in excess of $15.0 million.  The cause of action
is  negligent   construction,   breach  of  implied   warranty  of  workmanship,
habitability  and fitness.  A subsidiary of the Bank is a one-third owner in the
joint  venture  company  which is being sued.  The joint  venture is  vigorously
defending this suit.

Based upon the present status of these cases, the Corporation's understanding of
the facts in each  case,  and  discussion  with its legal  representatives,  the
Corporation does not believe that any of these lawsuits represent a material FAS
5 contingency which would require accrual or financial statement disclosure.  As
a result,  the Corporation  has not established any specific  allowances for the
suits.  Due to the nature of the uncertainty of litigation,  the Corporation can
not predict the amount of loss,  if any,  that may  ultimately  result from this
litigation.

Item 2.  Changes In Securities

     Not Applicable.

Item 3.  Defaults Upon Senior Securities

     Not Applicable.

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

     Not Applicable.

Item 5.  Other Information

     Not Applicable.

Item 6.  Exhibits and Reports on Form 8-K

     (a) No exhibits are required to be filed by the Registrant pursuant to item
601 of Regulation S-K.

     (b) The  Company  did not file any  current  reports on Form 8-K during the
quarter under report.
<PAGE>
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




February 14, 1997                          /s/Michael C. Gerald
-----------------                          -------------------------
Date                                       Michael C. Gerald
                                           President and Chief Executive Officer

February 14, 1997                          /s/Jerry L. Rexroad
-----------------                          -------------------------
Date                                       Executive Vice President and
                                           Chief Financial Officer