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 JUNE 30, 2002

            ( ) 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 June 30, 2002.


Common Stock $.01 Par Value Per Share                        10,544,476 Shares
--------------------------------------------------------------------------------
(Class)                                                      (Outstanding)


<PAGE>


COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002

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

PART I- Consolidated Financial Information

Item
    1. Consolidated Financial Statements (unaudited):

                Consolidated Statements of Financial Condition
                as of September 30, 2001 and June 30, 2002                    3

                Consolidated Statements of Operations for the three
                months ended June 30, 2001 and 2002                         4-5

                Consolidated Statements of Operations for the nine
                months ended June 30, 2001 and 2002                         6-7

                Consolidated Statements of Cash Flows for the nine
                months ended June 30, 2001 and 2002                         8-9

                Consolidated Statements of Stockholders' Equity
                and Comprehensive Income for the nine months ended
                June 30, 2001 and 2002                                       10

                Notes to Consolidated Financial Statements                11-14

    2. Management's Discussion and Analysis of
                Financial Condition and Results of Operations             15-23

    3. Quantitative and Qualitative Disclosures About
       Market Risk                                                           24


Part II - Other Information

Item
    1. Legal Proceedings                                                     25

    2. Changes in Securities and Use of Proceeds                             25

    3. Defaults Upon Senior Securities                                       25

    4. Submission of Matters to a Vote of Securities Holders                 25

    5. Other information                                                     25

    6. Exhibits and Reports on Form 8-K                                      26

Signatures                                                                   31


<PAGE>
                                       2
<TABLE>
<CAPTION>


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

                                                        September 30,             June 30,
                                                            2001                    2002
                                                            ----                    ----
                                                                    (Unaudited)
                                                                  (In thousands,
                                                                 except share data)
     <S>                                                <C>                      <C>
     ASSETS:
     Cash and amounts due from banks                    $  24,966                $  26,932
     Short-term interest-bearing deposits                   9,354                   13,586
     Investment securities available for sale             192,553                  248,554
     Loans receivable (net of allowance for
        loan losses of $7,159 at September 30,
        2001 and $7,613 at June 30, 2002)                 488,754                  523,467
     Loans receivable held for sale                        16,274                   14,501
     Real estate acquired through foreclosure               2,363                    1,962
     Office property and equipment, net                    13,150                   13,901
     Federal Home Loan Bank stock, at cost                  7,624                    8,309
     Accrued interest receivable on loans                   2,783                    2,361
     Accrued interest receivable on investments             1,341                    1,504
     Other assets and deferred charges                      4,052                    6,210
                                                        ---------                ---------
                                                        $ 763,214                $ 861,287
                                                        =========                =========

     LIABILITIES AND STOCKHOLDERS' EQUITY:

     LIABILITIES:
     Deposits                                           $ 530,364                $ 615,813
     Securities sold under agreements to
        repurchase                                         18,703                   19,890
     Advances from Federal Home Loan Bank                 140,036                  146,267
     Other borrowings                                       2,069                    2,069
     Drafts outstanding                                     2,577                    2,279
     Advances by borrowers for property taxes
       and insurance                                        1,250                    1,017
     Accrued interest payable                               1,184                    1,187
     Other liabilities                                      9,783                   10,780
                                                        ---------                ---------
       Total liabilities                                  705,966                  799,302
                                                        ---------                ---------

     STOCKHOLDERS' EQUITY:
     Serial preferred stock, 1,000,000 shares
        authorized and unissued                                --                       --
     Common stock, $.01 par value, 15,000,000
        shares authorized; 10,693,325 shares at
        September 30, 2001 and 10,544,476 shares
        at June 30, 2002 issued and outstanding               107                      105
     Additional paid-in capital                             9,744                    9,744
     Retained earnings                                     47,496                   52,896
     Treasury stock, at cost (324,483 and 473,332
        shares, respectively)                              (3,620)                  (4,898)
     Accumulated other comprehensive income,
      net of tax                                            3,521                    4,138
                                                        ---------                ---------
       Total stockholders' equity                          57,248                   61,985
                                                        ---------                ---------
                                                        $ 763,214                $ 861,287
                                                        =========                =========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        3
<PAGE>


<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2002

                                                                 2001                 2002
                                                                 ----                 ----
                                                                       (Unaudited)
                                                                      (In thousands,
                                                                     except share data)
     <S>                                                        <C>                 <C>
     Interest income:
         Loans receivable                                       $ 11,382            $  10,050
         Investment securities                                       656                  453
        Mortgage-backed securities                                 2,814                2,949
        Other                                                        151                   46
                                                                --------            ---------
        Total interest income                                     15,003               13,498
                                                                --------            ---------
     Interest expense:
        Deposits                                                   4,917                3,309
        Securities sold under agreements to
          repurchase                                                 524                   92
        Advances from Federal Home Loan Bank                       2,471                1,877
                                                                --------            ---------
        Total interest expense                                     7,912                5,278
                                                                --------            ---------
        Net interest income                                        7,091                8,220
        Provision for loan losses                                    235                  350
                                                                --------            ---------
        Net interest income after provision
          for loan losses                                          6,856                7,870
                                                                --------            ---------
     Other income:
        Fees and service charges                                     709                  791
        Loss from real estate owned                                 (212)                 (38)
        Gain on sale of loans receivable, net                        382                  213
        Gain on sale of securities
          available for sale                                         286                   70
        Other income                                                 915                  840
                                                                --------            ---------
                                                                   2,080                1,876
                                                                --------            ---------
     General and administrative expenses:
        Salaries and employee benefits                             2,691                3,185
        Net occupancy, furniture and fixtures
          and data processing expense                              1,013                1,353
        FDIC insurance premium                                        20                   23
        Other expenses                                               939                  972
                                                                --------            ---------
                                                                   4,663                5,533
                                                                --------            ---------
     Income before income taxes and
          extraordinary item                                       4,273                4,213

     Income taxes                                                  1,579                1,554
                                                                --------            ---------
     Income before extraordinary item                              2,694                2,659
                                                                --------            ---------
</TABLE>

                                                                     (CONTINUED)
                                        5
<PAGE>


<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2002

                                                            2001                    2002
                                                            ----                    ----
                                                                    (Unaudited)
                                                                   (In thousands,
                                                                  except share data)

     <S>                                           <C>                      <C>
     Extraordinary loss on extinguishment of
          debt, net of income taxes of $160 and
              $41, respectively                               299                      66
                                                     -------------            ------------
     Net income                                     $       2,395            $      2,593
                                                     =============            ============
     Earnings per common share
        before extraordinary item
        Basic                                       $         .25            $        .25
                                                     =============            ============
        Diluted                                     $         .25            $        .24
                                                     =============            ============
     Effect of extraordinary item on
        earnings per common share
        Basic                                       $        (.03)           $         --
                                                     =============            ============
        Diluted                                     $        (.03)           $         --
                                                     =============            ============
     Earnings per common share
        after extraordinary item
        Basic                                       $         .22            $        .25
                                                     =============            ============
        Diluted                                     $         .22            $        .24
                                                     =============            ============

     Weighted average common shares
        outstanding - basic                            10,782,000              10,529,000
                                                     =============            ============
     Weighted average common shares
        outstanding - diluted                          10,958,000              10,859,000
                                                     =============            ============

</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        6
<PAGE>



<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002

                                                               2001                2002
                                                               ----                ----
                                                                      (Unaudited)
                                                                     (In thousands,
                                                                   except share data)
     <S>                                                   <C>                  <C>
     Interest income:
       Loans receivable                                     $ 35,046             $ 30,171
       Investment securities                                   1,911                1,584
       Mortgage-backed securities                              8,602                7,972
       Other                                                     510                  126
                                                            --------             --------
       Total interest income                                  46,069               39,853
                                                            --------             --------
     Interest expense:
       Deposits                                               14,814               10,135
       Securities sold under agreements to
         repurchase                                            2,621                  314
       Advances from Federal Home Loan Bank                    8,968                5,644
                                                            --------             --------
       Total interest expense                                 26,403               16,093
                                                            --------             --------
       Net interest income                                    19,666               23,760
       Provision for loan losses                                 730                  855
                                                            --------             --------
       Net interest income after provision
          for loan losses                                     18,936               22,905
                                                            --------             --------
     Other income:
        Fees and service charges                               1,928                2,302
        Loss from real estate owned                             (350)                (188)
        Gain on sale of loans receivable, net                    862                1,025
        Gain on sale of securities
          available for sale                                     642                  141
        Other income                                           2,880                2,472
                                                            --------             --------
                                                               5,962                5,752
                                                            --------             --------
     General and administrative expenses:
        Salaries and employee benefits                         7,759                9,254
        Net occupancy, furniture and fixtures
          and data processing expense                          2,967                3,634
        FDIC insurance premium                                    61                   70
        Other expenses                                         2,531                3,052
                                                            --------             --------
                                                              13,318               16,010
                                                            --------             --------
     Income before income taxes and
          extraordinary item                                  11,580               12,647

     Income taxes                                              4,183                4,642
                                                            --------             --------
     Income before extraordinary item                          7,397                8,005
                                                            --------             --------
</TABLE>

                                                                     (CONTINUED)

                                        6
<PAGE>



<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002

                                                              2001                 2002
                                                              ----                 ----
                                                                    (Unaudited)
                                                                   (In thousands,
                                                                  except share data)

    <S>                                                    <C>               <C>
     Extraordinary loss on extinguishment of
          debt, net of income taxes of $297 and
              $297, respectively                                   555                485
                                                             ----------        ----------
     Net income                                             $     6,842       $     7,520
                                                             ==========        ==========

     Earnings per common share
        before extraordinary item
        Basic                                               $       .68       $       .75
                                                             ==========        ==========
        Diluted                                             $       .67       $       .73
                                                             ==========        ==========

     Effect of extraordinary item on
        earnings per common share
        Basic                                               $      (.05)      $     (.04)
                                                             ==========        ==========
        Diluted                                             $      (.05)      $     (.04)
                                                             ==========        ==========

     Earnings per common share
        after extraordinary item
        Basic                                               $       .63       $       .71
                                                             ==========        ==========
        Diluted                                             $       .62       $       .69
                                                             ==========        ==========

     Weighted average common shares
        outstanding - basic                                  10,880,000        10,625,000
                                                             ==========        ==========

     Weighted average common shares
        outstanding - diluted                                10,998,000        10,899,000
                                                             ==========        ==========

</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       7
<PAGE>



<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002

                                                                     2001                     2002
                                                                     ----                     ----
                                                                             (Unaudited)
                                                                            (In thousands)

     <S>                                                          <C>                   <C>
     Cash flows from operating activities:
       Net income                                                 $   6,842             $   7,520
       Adjustments to reconcile net income
           to net cash provided by (used in)
           operating activities:
       Depreciation                                                   1,130                 1,510
       Provision for loan losses                                        730                   855
       Gain on sale of mortgage-backed
           securities available for sale                               (642)                 (141)
       Origination of loans receivable
            held for sale                                           (55,853)              (67,940)
       Proceeds from sales of loans receivable
            held for sale                                            47,472                69,713
      (Increase) decrease in:
            Other assets and deferred charges                        (2,183)               (2,158)
            Accrued interest receivable                                 146                   259
       Increase (decrease)in:
            Accrued interest payable                                   (914)                    3
            Other liabilities                                           421                   620
                                                                   --------              --------
            Net cash provided by (used in)
                  operating activities                               (2,851)               10,241
                                                                   --------              --------
     Cash flows from investing activities:
       Purchases of investment securities
            available for sale                                     (141,765)             (152,334)
       Proceeds from sales of investment
            securities available for sale                           139,074               104,687
       Origination of loans receivable, net                        (152,869)             (299,656)
       Purchase of loans receivable                                     (10)                 (233)
       Principal collected on loans receivable, net                 140,988               199,191
       Principal collected on mortgage-backed
            securities, net                                          30,705                57,453
       Proceeds from sale of real estate
            acquired through foreclosure, net                           826                   859
       Purchases of office properties and
               equipment                                             (1,941)               (2,261)
       Sales (purchases) of FHLB stock, net                           2,139                  (685)
                                                                   --------              --------
            Net cash provided by (used in)
                  investing activities                               17,147               (92,979)
                                                                   --------              --------
</TABLE>


                                                                     (CONTINUED)

                                       8
<PAGE>


<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002 (CONTINUED)

                                                                         2001                 2002
                                                                         ----                 ----
                                                                               (Unaudited)
                                                                               (In thousands)

    <S>                                                              <C>                  <C>
     Cash flows from financing activities:
       Increase in deposits, net                                      $ 107,801           $  85,449
       Increase (decrease) in securities sold
        under agreement to repurchase, net                              (59,137)              1,187
       Proceeds from FHLB advances                                      326,236             212,762
       Repayment of FHLB advances                                      (379,024)           (206,531)
       Decrease in advance payments by borrowers
        for property taxes and insurance, net                              (327)               (233)
       Decrease in drafts outstanding, net                                 (514)               (298)
       Repurchase of treasury stock, at cost                             (1,488)             (2,243)
       Dividends to stockholders                                         (1,476)             (1,639)
       Exercise of stock options                                             71                 482
                                                                      ---------           ---------
       Net cash provided by (used in) financing activities               (7,858)             88,936
                                                                      ---------           ---------
      Net increase in cash and cash
          equivalents                                                     6,438               6,198
                                                                      ---------           ---------
     Cash and cash equivalents at beginning
       of the period                                                     17,167              34,320
                                                                      ---------           ---------
     Cash and cash equivalents at end
       of the period                                                  $  23,605           $  40,518
                                                                      =========           =========
     Supplemental information:
       Interest paid                                                  $  27,317           $  16,090
                                                                      =========           =========
       Income taxes paid                                              $   3,799           $   6,455
                                                                      =========           =========
     Supplemental schedule of non-cash investing
       and financing transactions:

     Transfer of mortgage loans to real estate
          acquired through foreclosure                                $   2,360           $     458
                                                                      =========           =========
     Securitization of mortgage loans into
          mortgage-backed securities                                  $  21,673           $  64,672
                                                                      =========           =========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       9
<PAGE>

<TABLE>
<CAPTION>


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

                                                                                        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, 2000                     $    109      $  9,744     $ (1,702)     $ 40,319      $ (1,525)     $ 46,945
     Net income                           --            --           --         6,842            --         6,842
     Other comprehensive
      income, net of tax:
      Unrealized gains arising
      during period, net of
      taxes of $2,068                     --            --           --            --         3,374            --
      Less: reclassification
      adjustment for gains
      included in net income,
      net of taxes of $244                --            --           --            --          (398)           --
                                                                                              -----
     Other comprehensive income           --            --           --            --         2,976         2,976
                                                                                              -----      --------
     Comprehensive income                 --            --           --            --            --         9,818
                                                                                                         --------

     Treasury stock repurchases           (1)           --       (1,487)           --            --        (1,488)
     Exercise of stock
       options                            --                        161           (90)           --            71
     Cash dividends                       --            --           --        (1,476)           --        (1,476)
     Balance at June 30,            --------      --------     ---------  -----------      --------      --------
     2001                           $    108      $  9,744     $  (3,028) $    45,595      $  1,451      $ 53,870
                                    ========      ========     =========  ===========      ========      ========


     Balance at September
       30, 2001                     $    107      $  9,744     $ (3,620)     $ 47,496      $  3,521      $ 57,248
     Net income                           --            --           --         7,520            --         7,520
     Other comprehensive
      income, net of tax:
      Unrealized gains arising
      during period, net of
      taxes of $431                       --            --           --            --           704            --
      Less: reclassification
      adjustment for gains
      included in net income,
      net of taxes of $54                 --            --           --            --           (87)           --
                                                                                           --------
     Other comprehensive income           --            --           --            --           617           617
                                                                                           --------      --------
     Comprehensive income                 --            --           --            --            --         8,137
                                                                                                         --------
     Treasury stock repurchases           (2)           --       (2,241)           --            --        (2,243)
     Exercise of stock
       options                            --            --          963          (481)           --           482
     Cash dividends                       --            --           --        (1,639)           --        (1,639)
     Balance at June                --------      --------     ---------  -----------      --------      --------
       30, 2002                     $    105      $  9,744     $ (4,898)     $ 52,896      $  4,138      $ 61,985
                                    ========      ========     =========  ===========      ========      ========

</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 accounting principles generally accepted in the United States of
America. 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 nine month periods ended June 30, 2002 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, 2001,  included in the Company's 2001 Annual Report to
Stockholders.  The  principal  business  of  the  Company  is  conducted  by its
wholly-owned  subsidiary,  Coastal  Federal Bank (the "Bank").  The  information
presented hereon, therefore, relates primarily to the Bank.

<TABLE>
<CAPTION>

(2)  LOANS RECEIVABLE, NET

Loans receivable, net consists of the following:

                                                                 September 30,            June 30,
                                                                    2001                    2002
                                                                    ----                    ----
                                                                             (Unaudited)
                                                                           (In thousands)
     <S>                                                       <C>                      <C>
     First mortgage loans:
         Single family to 4 family units                        $ 252,396                $ 246,707
         Other, primarily commercial
         real estate                                              137,282                  186,567
         Construction loans                                        60,765                   48,556
     Consumer and commercial loans:
         Installment consumer loans                                14,539                   14,527
         Mobile home loans                                          2,056                    2,794
         Deposit account loans                                      1,221                    1,559
         Equity lines of credit                                    22,379                   24,003
         Commercial and other loans                                18,886                   18,284
                                                                 --------                 --------
                                                                  509,524                  542,997
     Less:
         Allowance for loan losses                                  7,159                    7,613
         Deferred loan costs, net                                    (372)                    (114)
         Undisbursed portion of loans in process                   13,983                   12,031
                                                                 --------                 --------
                                                                $ 488,754                $ 523,467
                                                                =========                =========
</TABLE>


                                       11
<PAGE>


<TABLE>
<CAPTION>

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 nine months ended:

                                                         Nine Months Ended June 30,
                                                         --------------------------
                                                            2001            2002
                                                            ----            ----
                                                                 (Unaudited)
                                                            (Dollars in thousands)

<S>                                                         <C>           <C>
     Allowance at beginning of period ............          $7,064        $7,159
     Provision for loan losses ...................             730           855
                                                            ------        ------
     Recoveries:
      Residential real estate ....................               2            --
      Commercial real estate .....................              --            --
      Consumer ...................................              51            23
                                                            ------        ------
        Total recoveries .........................              53            23
                                                            ------        ------
     Charge-offs:
      Residential real estate ....................             257            57
      Commercial real estate .....................              98            --
      Consumer ...................................             332           367
                                                            ------        ------
        Total charge-offs ........................             687           424
                                                            ------        ------
        Net charge-offs ..........................             634           401
                                                            ------        ------
      Allowance at end of period .................          $7,160        $7,613
                                                            ======        ======


     Ratio of allowance to net
      loans outstanding at the
      end of the period ..........................            1.38%         1.42%
                                                            ======        ======
     Ratio of net charge-offs
      to average loans outstanding
      during the period (annualized) .............             .16%          .10%
                                                            ======        ======
</TABLE>


Non-accrual  loans,  which includes loans over ninety days  delinquent,  totaled
approximately  $3.8  million  and  $3.1  million  at June  30,  2002  and  2001,
respectively.  For the quarter ended June 30, 2001, interest income, which would
have been recorded, would have been approximately $56,000. For the quarter ended
June 30, 2002, interest income, which would have been recorded,  would have been
approximately  $107,000.  For the nine  months  ended  June 30,  2001 and  2002,
interest income,  which would have been recorded,  would have been approximately
$100,000 and  $244,000,  respectively,  had  non-accruing  loans been current in
accordance with their original terms.

At June 30, 2002,  impaired loans totaled $3.0 million.  There were $2.3 million
in impaired loans at June 30, 2001. Included in the allowance for loan losses at
June 30, 2002 was  $234,000  related to impaired  loans  compared to $196,000 at
June 30, 2001.  The average  recorded  investment in impaired loans for the nine
months  ended June 30, 2002 was $3.2  million  compared to $3.9  million for the
nine  months  ended June 30,  2001.  Interest  income of $14,000 and $21,000 was
recognized  on impaired  loans for the  quarter  and nine months  ended June 30,
2002,  respectively.  Interest  income of $33,000 and $121,000 was recognized on
impaired  loans for the  quarter and for the nine  months  ended June 30,  2001,
respectively.


                                       12
<PAGE>


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

(3)  DEPOSITS

Deposits consist of the following:

<TABLE>
<CAPTION>

                                                       September 30, 2001       June 30, 2002
                                                       -------------------------------------------
                                                                 Weighted               Weighted
                                                                  Average                 Average
                                                       Amount      Rate        Amount       Rate
                                                       ------      ----        ------       ----
                                                                     (Unaudited)
                                                                     (In thousands)
<S>                                                   <C>         <C>         <C>           <C>
     Transaction accounts                             $298,655    1.96%       $339,560      1.50%
     Passbook accounts                                  33,317    1.70          38,332      1.22
     Certificate accounts                              198,392    4.82         237,921      3.40
                                                      --------    ----        --------      ----
                                                      $530,364    3.01%       $615,813      2.22%
                                                      ========    ====        ========      ====
</TABLE>

<TABLE>
<CAPTION>


(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

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

                                                 September 30, 2001             June 30, 2002
                                                 ----------------------------------------------------
Weighted                                                       Weighted                     Weighted
                                                               Average                      Average
                                                 Amount        Rate             Amount      Rate
                                                 ------        ----             ------      ----
Maturing within:                                               (Unaudited)
                                                               (In thousands)
     <S>                                    <C>                <C>         <C>              <C>
     1 year                                 $     1,400        4.15%       $  12,500        3.00%
     2 years                                     23,231        4.30           22,262        2.96
     3 years                                      2,220        5.21              235        4.92
     4 years                                        400        5.24           28,270        6.16
     5 years and thereafter                     112,785        5.73           83,000        5.53
                                            -----------       ----         ---------        ----
                                            $   140,036       5.46%        $ 146,267        5.04%
                                            ===========       ====         =========        ====

</TABLE>

At September 30, 2001,  and June 30, 2002,  the Bank had pledged first  mortgage
loans and  mortgage-backed  securities  with unpaid  balances  of  approximately
$204.0  million  and  $185.1  million,  respectively,  as  collateral  for  FHLB
advances.  At  September  30,  2001,  included  in the one,  two and five  years
maturities were $109.0 million of advances subject to call  provisions.  At June
30, 2002,  included in the four and five years and  thereafter  maturities  were
$109.0 million of advances subject to call provisions.  Call provisions are more
likely to be exercised by the FHLB when rates rise.  At June 30, 2002,  the Bank
had $38.8 million available for additional advances.

(5)  EARNINGS PER SHARE

Basic  earnings per share for the three and nine month  periods  ended June 30 ,
2001 and 2002,  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 nine month  periods  ended June 30,  2001 and 2002,  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>


<TABLE>
<CAPTION>

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

RECONCILIATION OF AVERAGE SHARES OUTSTANDING
(Unaudited in thousands)

                                                        For the Quarter Ended June 30,

                                               2001               2001     2002             2002
                                              ------------------------     ---------------------
                                              BASIC            DILUTED     BASIC         DILUTED
                                              ------------------------     ---------------------
<S>                                           <C>           <C>          <C>           <C>
Weighted average shares outstanding           10,782,000    10,782,000   10,529,000    10,529,000

Effective of Dilutive Securities:
Stock options                                       - -        176,000       - -          330,000
                                              ------------------------   ------------------------
                                              10,782,000    10,958,000   10,529,000    10,859,000
                                              ------------------------   ------------------------

</TABLE>

<TABLE>
<CAPTION>
                                                      For the Nine Months Ended June 30,

                                               2001            2001          2002        2002
                                              ------------------------     ---------------------
                                               BASIC           DILUTED      BASIC        DILUTED
                                              ------------------------     ---------------------
<S>                                           <C>           <C>          <C>           <C>
Weighted average shares outstanding           10,880,000    10,880,000   10,625,000    10,625,000
                                              ------------------------     ---------------------
Effective of Dilutive Securities:
Stock options                                  - -             118,000         - -        274,000
                                              ------------------------     ---------------------
                                              10,880,000    10,998,000   10,625,000    10,899,000
                                              ------------------------     ---------------------

</TABLE>


(6)  COMMON STOCK DIVIDENDS

On July 31,  2001,  the Company  declared a 3 for 2 stock split in the form of a
50% stock dividend aggregating approximately 3,579,000 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 ended June 30, 2001 relates to prepayment
penalties on advances from FHLB of $459,000 net of income taxes of $160,000. The
extraordinary  item  for the  nine  months  ended  June  30,  2001,  relates  to
prepayment  penalties  on advances  from FHLB of $852,000 net of income taxes of
$297,000.

The  extraordinary  item  for the  quarter  ended  June  30,  2002,  relates  to
prepayment  penalties on advances from FHLB of $107.000,  net of income taxes of
$41,000.  For the nine  months  ended June 30,  2002,  prepayment  penalties  on
advances from FHLB were $782.000 net of income taxes of $297,000.


                                       14
<PAGE>


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).
Except as required by applicable law and regulation,  the Company  disclaims any
obligation to update such forward looking statements.

CRITICAL ACCOUNTING POLICIES
-----------------------------

The Bank considers its policy  regarding the allowance for loan losses to be its
most  critical  accounting  policy due to the  significant  degree of management
judgment.  The Bank has  developed  policies and  procedures  for  assessing the
adequacy of the allowance,  recognizing that this process requires a significant
number of assumptions and estimates with respect to its loan portfolio. The Bank
assessments  of future loan losses may be impacted in future  periods by changes
in  economic  and  market  conditions,  the impact of  regulatory  examinations,
weather related events such as hurricanes or major storms,  and the discovery of
information  with respect to certain  borrowers and or guarantors,  which is not
known to  management at the time of the issuance of the  consolidated  financial
statements.

OFF-BALANCE SHEET ARRANGEMENTS
------------------------------

In the normal course of  operations,  the Bank engages in a variety of financial
transactions that, in accordance with generally accepted accounting  principles,
or are  recorded  in  amounts  that  differ  from the  notional  amounts.  These
transactions involve, to varying degrees, elements of credit, interest rate, and
liquidity risk.  Such  transactions  are used by the Bank for general  corporate
purposes or for customer needs.  Corporate purpose transactions are used to help
manage customers' requests for funding.

The Bank's  off-balance sheet  arrangements,  which principally  include lending
commitments and derivatives, are described below. At June 30, 2002 and 2001, the
Bank had no interests in non-consolidated special purpose entities.

Lending  Commitments.  Lending  Commitments  include loan  commitments,  standby
letters of credit,  unused business and consumer  credit card lines,  and unused
business and consumer lines of credit. These instruments are not recorded in the
consolidated  balance sheet until funds are advanced under the commitments.  The
Bank  provides  these lending  commitments  to customers in the normal course of
business.

For commercial customers,  loan commitments generally take the form of revolving
credit  arrangements to finance  customers'  working capital  requirements.  For
retail  customers,  loan  commitments  are generally  lines of credit secured by
residential  property.  At June 30, 2002, commercial and retail loan commitments
totaled $16.4 million.  Standby letters of credit are conditional commitments to
guarantee performance,  typically contract or financial integrity, of a customer
to a third party and totaled  $4.0  million at June 30,  2002.  Unused  business
credit card lines,  which totaled  $979,000 at June 30, 2002,  are generally for
short-term borrowings. The Bank applies essentially the same credit policies and
standards as it does in the lending process when making these commitments.

Derivatives.  The Bank originates  certain fixed rate residential loans with the
intention of selling these loans.  Between the time that the Bank enters into an
interest  rate lock or a commitment to originate a fixed rate  residential  loan
with a  potential  borrower  and the time the closed  loan is sold,  the Bank is
subject to variability in the market prices  related to these  commitments.  The
Bank believes that it is prudent to limit the  variability of expected  proceeds
from  the  sales  through  forward  sales  of "to  be  issued"  mortgage  backed
securities and loans ("forward sales commitments").  The commitment to originate
fixed rate  residential  loans and forward sales  commitments  are  freestanding

                                       15
<PAGE>


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

derivative  instruments.   When  such  instruments  do  not  qualify  for  hedge
accounting  treatment,  their fair value  adjustments  are recorded  through the
income  statement in net gains on sale of loans.  The  commitments  to originate
fixed rate  conforming  loans  totaled $7.2  million at June 30, 2002.  The fair
value of the loan  commitments was a gain of  approximately  $58,000 at June 30,
2002. As of June 30, 2002 the Bank had sold $10.0 million in forward commitments
to deliver fixed rate mortgage-backed securities which had an unrealized loss of
$98,000. The Bank had sold call options on 15 year mortgage-backed securities to
deliver $3.0 million,  which had an unrealized loss of $21,000 at June 30, 2002.
In  addition,  the Bank had  purchased  $3.0  million put options on the 10 year
treasury bond which had an  unrealized  gain of $2,000.  The aggregate  loss was
$60,000 for the quarter for all off balance sheet commitments.


                                       16
<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, 2001 TO JUNE 30,
--------------------------------------------------------------------------------
2002
----

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

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 principal  sources of funds for the Company are cash flows from  operations,
consisting mainly of loan payments,  customer deposits,  advances from the FHLB,
and loan sales.  The  principal  use of cash flows is the  origination  of loans
receivable and purchase of investment  securities.  The Company originated loans
receivable of $208.7  million for the nine months ended June 30, 2001,  compared
to $367.6 million for the nine months ended June 30, 2002, primarily as a result
of reduced  interest rates. A portion of these loan  originations  were financed
through loan principal  repayments,  which amounted to $141.0 million and $199.2
million for the nine month periods  ended June 30, 2001 and 2002,  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 nine month
period ended June 30, 2001,  the Company  sold $47.5  million in mortgage  loans
held for sale,  compared to $69.7  million  sold for the nine month period ended
June 30, 2002. Loan  originations have increased as a result of falling interest
rates  over the  last  twelve  months.  Consequently,  the Bank has  experienced
prepayment of a portion of its mortgage and commercial loan  portfolio.  Many of
the Bank's  adjustable  rate  residential  mortgage loans were  refinanced  into
conforming fixed rate mortgage loans. A significant  portion of these fixed rate
loans were sold into the secondary market.

For the nine month  period  ended June 30, 2001,  the Company  purchased  $141.8
million in investment and mortgage-backed  securities. For the nine month period
ended June 30, 2002,  the Company  purchased  $152.3  million in investment  and
mortgage-backed securities.  These purchases were funded primarily by repayments
of $57.4  million  within  the  securities  portfolio  and  sales of  investment
securities of $104.7 million.

Overall the Bank  experienced  an increase of $85.4  million in deposits for the
nine month period ended June 30, 2002.  For the nine month period ended June 30,
2002,  transaction  accounts  increased  $40.9 million which the Bank  primarily
believes  is due to  seasonal  effects of  Customer  deposits  during the summer
months  along with the  growth of new Sales  Centers.  During  the same  period,
certificate  accounts increased $39.5 million primarily due to special offers in
many of the Bank's new Sales  Centers.  At June 30, 2002, the Company had $193.4
million of certificates  of deposits,  which were due to mature within one year.
The Company  believes that the majority of these  certificates  of deposits will
renew with the Bank.

As a result of $7.5  million  in net  income,  less the cash  dividends  paid to
stockholders  of  approximately  $1.6 million,  treasury  stock  repurchases  of
approximately  $2.2 million and the net change in unrealized  gain on securities
available for sale, net of income tax of $617,000 stockholders' equity increased
from $57.2 million at September 30, 2001 to $62.0 million at June 30, 2002.

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  $59.4 million at June 30,
2002, exceeding the core capital requirement by $25.1 million. At June 30, 2002,
the  Bank's  risk-based  capital,  as  calculated  under OTS  regulations,  were
approximately   $65.5  million  and  exceeded  its  current  risk-based  capital
requirement by $25.0 million.  (For further  information see Regulatory  Capital
Matters)


                                       17
<PAGE>


PART I.    FINANCIAL INFORMATION
Item 2.    COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, 2001 AND 2002
----------------------

GENERAL
-------

Net income increased from $2.4 million for the three months ended June 30, 2001,
to $2.6 million for the three months ended June 30, 2002, or 8.3%.  Net interest
income  increased  $1.1  million  primarily  as a result of a  decrease  of $1.5
million in interest  income and a $2.6  million  decrease  in interest  expense.
Provision  for loan losses was $235,000 for the three months ended June 30, 2001
compared to $350,000 for the quarter ended June 30, 2002. Other income decreased
$204,000.  General and  administrative  expense was $4.7 million for the quarter
ended June 30,  2001  compared to $5.5  million  for the quarter  ended June 30,
2002.

INTEREST INCOME
---------------

Interest  income for the three months  ended June 30,  2002,  decreased to $13.5
million as compared to $15.0  million for the three  months ended June 30, 2001.
The earning  assets yield for the three  months  ended June 30, 2002,  was 7.08%
compared  to a yield of 8.08% for the three  months  ended June 30,  2001.  As a
result of significantly  declining interest rates during fiscal 2002, the Bank's
yield on assets and cost of funds has  declined.  At June 30,  2001 the one year
treasury  rate and prime rate of interest  were  approximately  3.46% and 6.75%,
respectively,  which compared to 2.13% and 4.75% at June 30, 2002, respectively.
The  average  yield on loans  receivable  for the three  months  ended  June 30,
2002,was  7.53%  compared to 8.67% for the three months ended June 30, 2001. The
yield on  investments  decreased  to 6.20% for the three  months  ended June 30,
2002,  from  6.77% for the three  months  ended  June 30,  2001.  Total  average
interest-earning  assets were $768.5 million for the quarter ended June 30, 2002
as compared to $751.2  million for the quarter ended June 30, 2001. The increase
in average  interest-earning  assets is  primarily  due to a increase in average
loans  receivable  of  approximately  $8.7  million,  investment  securities  of
approximately $14.5 million and a decrease of cash in FHLB of approximately $5.9
million.

INTEREST EXPENSE
----------------

Interest expense on interest-bearing  liabilities was $5.3 million for the three
months ended June 30, 2002,  as compared to $7.9 million for June 30, 2001.  The
average cost of deposits  for the three  months  ended June 30, 2002,  was 2.28%
compared  to  3.91%  for the  three  months  ended  June 30,  2001.  The cost of
interest-bearing liabilities was 2.83% for the three months ended June 30, 2002,
as compared to 4.37% for the three months ended June 30, 2001.  The cost of FHLB
advances and reverse  repurchase  agreements was 5.08% and 2.21%,  respectively,
for the three months  ended June 30,  2002.  For the three months ended June 30,
2001, the cost of FHLB advances and reverse repurchase  agreements was 5.59% and
4.85%, respectively.  Total average interest-bearing  liabilities increased from
$723.7 million at June 30, 2001 to $746.2 million at June 30, 2002. The increase
in  average  interest-bearing  liabilities  is due  to an  increase  in  average
deposits of approximately $77.7 million. This was offset primarily by a decrease
in FHLB  advances  of $28.9  million  and $27.0  million in  reverse  repurchase
agreements.

NET INTEREST INCOME
-------------------

Net  interest  income was $8.2 million for the three months ended June 30, 2002,
as compared to $7.1 million for the three  months  ended June 30, 2001.  The net
interest margin was 4.25% for the three months ended June 30, 2002,  compared to
3.70% for the three months ended June 30, 2001.  With the  reduction in interest
rates, it is expected that the Bank's yield on interest  earning assets and cost
of  deposits  and  borrowings  will  continue to  decline.  Consequently,  it is
expected that a substantial portion of the Bank's loan portfolio will be subject
to refinancing at lower rates.  It is expected that the  refinancing of loans at
lower rates and repricing of loans tied to prime or treasury  rates will outpace
the repricing of deposits and borrowings.  Should interest rates remain at these
historically low levels,  the Bank would most likely experience a reduced margin
for the remainder of fiscal 2002.


                                       18
<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 JUNE 30, 2001 AND 2002

PROVISION FOR LOAN LOSSES
-------------------------

As a result of the growth in the loan  portfolio,  the growth  coming  primarily
from  commercial  real estate loans,  the provision for loan losses was $235,000
for the three  months  ended June 30, 2001  compared  to $350,000  for the three
months  ended June 30,  2002.  For the three  months  ended June 30,  2002,  net
charge-offs were $165,000  compared to net charge-offs of $234,000 for the three
months ended June 30, 2001.  The  allowance  for loan losses as a percentage  of
total loans was 1.42% at June 30, 2002,  compared to 1.42% at September 30, 2001
and 1.38% at June 30, 2001.  Loans delinquent 90 days or more were .71% of total
loans at June 30, 2002,  compared to .64% at September  30, 2001.  The allowance
for loan losses was 201% of loans delinquent more than 90 days at June 30, 2002,
as compared to 220% at September 30, 2001.  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 June 30, 2002, other income was $1.9 million compared
to $2.1  million  for the  three  months  ended  June 30,  2001.  As a result of
increased  transaction account balances of approximately $51.8 million, fees and
service  charges from deposit  accounts were $791,000 for the three months ended
June 30,  2002,  compared to $709,000  for the three months ended June 30, 2001.
Gain on sale of loans was $213,000 for the quarter ended June 30, 2002, compared
to $382,000 for the quarter ended June 30, 2001. Gain on sales of securities was
$70,000 for the quarter ended June 30, 2002,  compared to a gain of $286,000 for
the quarter ended June 30, 2001.  Other income was $840,000 for the three months
ended June 30, 2002, as compared to $915,000 for the three months ended June 30,
2001.

GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------

General and administrative  expenses increased from $4.7 million for the quarter
ended  June 30,  2001 to $5.5  million  for the  quarter  ended  June 30,  2002.
Salaries and employee benefits were $2.7 million for the three months ended June
30,  2001,  as compared to $3.2 million for the three months ended June 30, 2002
primarily  due to the  addition  of new Sales  Centers and  additional  business
banking  Associates.  Also as a result  of new  Sales  Centers,  net  occupancy,
furniture  and fixtures and data  processing  expenses  increased  $340,000 when
comparing the two periods.  The Bank had eleven,  twelve and seventeen operating
Sales Centers at September 30, 2000, 2001 and June 30, 2002, respectively. Other
expenses were $972,000 for the quarter ended June 30, 2002, compared to $939,000
for the quarter ended June 30, 2001. This increase is primary  attributed to the
disposal of telephone equipment of $70,000.

INCOME TAXES
------------

Income  taxes were $1.6 million for each of the three months ended June 30, 2001
and June 30, 2002, respectively.

EXTRAORDINARY ITEM
------------------

The extraordinary  item for the quarter ended June 30, 2002 relates to penalties
incurred  from the early  repayment of advances  from FHLB of  $107,000,  net of
income taxes of $41,000.


                                       19
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE NINE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, 2001 AND 2002.
-----------------------

GENERAL
-------

Net income  increased from $6.8 million for the nine months ended June 30, 2001,
to $7.5 million for the nine months ended June 30, 2002,  or 9.9%.  Net interest
income  increased  $4.1 million  primarily as a result of a decrease in interest
income of $6.2  million  offset  by a  decrease  of $10.3  million  in  interest
expense.  Provision for loan losses  increased from $730,000 for the nine months
ended June 30, 2001, to $855,000 for the nine months ended June 30, 2002.  Other
income decreased  $210,000.  General and administrative  expenses increased $2.7
million.

INTEREST INCOME
---------------

Interest  income for the nine months  ended June 30,  2002,  decreased  to $39.9
million as compared to $46.1 million for the nine months ended June 30, 2001. As
a result of  significantly  declining  interest  rates during  fiscal 2002,  the
Bank's yield on assets and cost of funds has declined.  At June 30, 2001 the one
year  treasury  rate and prime rate of  interest  were  approximately  3.46% and
6.75%,  respectively,  which  compared  to 2.13%  and  4.75%  at June 30,  2002,
respectively.  The earning  asset yield for the nine months ended June 30, 2002,
was 7.28%  compared to a yield of 8.37% for the nine months ended June 30, 2001.
The average yield on loans  receivable  for the nine months ended June 30, 2002,
was 7.73%  compared to 8.91% for the nine months ended June 30, 2001.  The yield
on investments  decreased to 6.30% for the nine months ended June 30, 2002, from
7.12% for the nine months ended June 30, 2001. Total average earning assets were
$735.8  million for the nine months  period ended June 30, 2002,  as compared to
$742.9 million for the nine month period ended June 30, 2001.

INTEREST EXPENSE
----------------

Interest expense on interest-bearing  liabilities was $16.1 million for the nine
months  ended June 30,  2002,  as compared to $26.4  million for the nine months
ended June 30, 2001. The average cost of deposits for the nine months ended June
30, 2002,  was 2.45%  compared to 4.23% for the nine months ended June 30, 2001.
The cost of  interest-bearing  liabilities  was 2.98% for the nine months  ended
June 30,  2002,  as compared to 4.84% for the nine months  ended June 30,  2001.
Total average interest-bearing liabilities decreased from $723.4 million at June
30, 2001 to $716.7 million at June 30, 2002.

NET INTEREST INCOME
-------------------

Net interest  income was $23.8  million for the nine months ended June 30, 2002,
as compared to $19.7  million for the nine months ended June 30,  2001.  The net
interest margin increased to 4.30% for the nine months ended June 30, 2002, from
3.53% for the nine months ended June 30, 2001.

PROVISIONS FOR LOAN LOSSES
--------------------------

As a result of the growth in the loan  portfolio,  the growth  coming  primarily
from commercial real estate loans, the provisions for loan losses increased from
$730,000  for the period  ended June 30,  2001,  to $855,000 for the nine months
ended June 30, 2002.  For the nine months ended June 30, 2002,  net  charge-offs
were $401,000  compared to net charge-offs of $634,000 for the nine months ended
June 30, 2001.  The allowance for loan losses as a percentage of total loans was
1.42% at June 30, 2002 and September 30, 2001, respectively. Management believes
that the current  level of  allowance  is  adequate  considering  the  Company's
current loss experience and delinquency trends, among other criteria.

                                       20
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002


OTHER INCOME
------------

For the nine months ended June 30, 2002 other  income was $5.8 million  compared
to $6.0  million  for the nine  months  ended June 30,  2001.  Fees and  service
charges for the nine months  ended June 30, 2002 were $2.3  million  compared to
$1.9  million for the nine months  ended June 30,  2001.  As a result of falling
interest rates, the Bank experienced  significant  refinancing of its adjustable
mortgage  loans.  The  majority of these loans were  refinanced  into fixed rate
mortgages, which were sold to the secondary market. As a result, gain on sale of
loans was $862,000  for the nine months  ended June 30,  2001,  compared to $1.0
million for the nine months ended June 30, 2002.  Gain on sale of securities was
$642,000 for the nine months ended June 30, 2001,  compared to gains of $141,000
for the nine months ended June 30,  2002.  Other income was $2.5 million for the
nine months  ended June 30,  2002,  compared to $2.9 million for the nine months
ended June 30, 2001.

GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------

General and  administrative  expenses  increased from $13.3 million for the nine
months  ended June 30, 2001 to $16.0  million for the nine months ended June 30,
2002.  Salaries and employee benefits increased $1.5 million, or 19.3% primarily
due  to  staffing  for  new  Sales  Centers  and  additional   business  banking
Associates.  Other expenses were $3.1 million for the nine months ended June 30,
2002,  compared to $2.5 million for the nine months  ended June 30,  2001.  As a
result of the Bank's name change from  Coastal  Federal  Savings Bank to Coastal
Federal  Bank,  in the first fiscal  quarter,  the Bank has incurred  additional
marketing  expenses  of $83,000  and a loss from the  disposal of old signage of
$60,000.  In addition,  in the second and third  quarters,  the Bank disposed of
telephone equipment and incurred a loss of $120,000.

INCOME TAXES
------------

Income  taxes  increased  from $4.2  million for the nine months  ended June 30,
2001,  to $4.6 million for the nine months  ended June 30, 2002,  as a result of
increased income before taxes.

EXTRAORDINARY ITEM
------------------

The  extraordinary  item for the nine  months  ended  June 30,  2002  relates to
prepayment  penalties on advances from FHLB of $782,000,  net of income taxes of
$297,000.


                                       21
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002


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)

<S>                                                  <C>            <C>       <C>            <C>         <C>            <C>
     As of June 30, 2002:
      Total Capital:                                 $65,466        12.95%    $40,440        8.00%       $50,550        10.00%
        (To Risk Weighted Assets)
      Tier 1 Capital:                                $59,388        11.75%        N/A         N/A        $30,330         6.00%
        (To Risk Weighted Assets)
      Tier 1 Capital:                                $59,388         6.93%    $34,443        4.00%       $43,054         5.00%
        (To Total Assets)
      Tangible Capital:                              $59,388         6.93%    $12,916        1.50%           N/A          N/A
        (To Total Assets)

</TABLE>




                                       22
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------------

In July 2001,  the FASB issued  Statement No. 141,  Business  Combinations,  and
Statement No. 142, Goodwill and Other Intangible Assets.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June  30,  2001  as  well  as  all  purchase  method  business
combinations  completed  after  June 30,  2001.  Statement  141  also  specifies
criteria  intangible  assets acquired in a purchase method business  combination
must meet to be recognized and reported apart from goodwill.  Statement 142 will
require that  goodwill and  intangible  assets with  indefinite  useful lives no
longer be amortized,  but instead  tested for  impairment  at least  annually in
accordance  with the  provisions of Statement  142.  Statement 142 also requires
that  intangible  assets with  estimable  useful lives be  amortized  over their
respective  estimated  useful  lives to their  estimated  residual  values,  and
reviewed for  impairment in accordance  with  Statement No. 121,  Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Company adopted  Statement 141 in July 2001 and adopted Statement 142 on October
1, 2001.  The  Company  does not have any  intangible  assets  affected by these
standards.

In August  2001,  the  Financial  Accounting  Standards  Board  issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived  Assets which  addresses
the  financial  accounting  and  reporting  for the  impairment  or  disposal of
long-lived  assets.  While  SFAS 144  supersedes  SFAS 121,  Accounting  for the
Impairment of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement.  The provisions of
SFAS  144 are  effective  for  financial  statements  issued  for  fiscal  years
beginning  after  December 15,  2001,  and interim  periods  within those fiscal
years.  The Company will adopt SFAS 144 on October 1, 2002 and does not expect a
material impact from its adoption.

In April 2002, the FASB issued Statement of Financial  Accounting  Standards No.
145 (Statement 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical  Corrections".  This Statement  rescinds
FASB Statement No. 4, "Reporting Gains and Losses from  Extinguishment of Debt",
and an amendment of that Statement,  FASB Statement No. 64,  "Extinguishment  of
Debt Made to Satisfy  Sinking-Fund  Requirements".  This Statement also rescinds
FASB Statement No. 44,  "Accounting  for Intangible  Assets of Motor  Carriers".
This  Statement  amends FASB  Statement  No. 13,  "Accounting  for  Leases",  to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects that are similar to  sale-leaseback  transactions.  This
Statement  also  amends  other  existing  authoritative  pronouncements  to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The company will adopt SFAS 145 on July 1, 2002.

In June 2002, the FASB issued  Statement of Financial  Accounting  Standards No.
146 (Statement  146),  "Accounting  for Costs  Associated  with Exit or Disposal
Activities,"  which  addresses  financial  accounting  and  reporting  for costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force  (EITF)  Issue No.  94-3,  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)."  This Statement applies to costs associated
with an exit  activity  that does not  involve  an entity  newly  acquired  in a
business  combination or with a disposal  activity covered by FASB Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. Those costs
include, but are not limited to, the following: a) termination benefits provided
to current  employees  that are  involuntarily  terminated  under the terms of a
benefit arrangement that, in substance, is not an ongoing benefit arrangement or
an  individual  deferred  compensation  contract  (hereinafter  referred  to  as
one-time termination  benefits),  b) costs to terminate a contract that is not a
capital lease and c) costs to consolidate facilities or relocate employees. This
Statement does not apply to costs associated with the retirement of a long-lived
asset  covered  by FASB  Statement  No.  143,  Accounting  for Asset  Retirement
Obligations. A liability for a cost associated with an exit or disposal activity
shall be  recognized  and measured  initially at its fair value in the period in
which the liability is incurred.  A liability for a cost associated with an exit
or disposal  activity is incurred when the definition of a liability is met. The
provisions of this Statement are effective for exit or disposal  activities that
are initiated after December 31, 2002, with early  application  encouraged.  The
impact of adoption on the Company is not known at this time.

                                       23
<PAGE>

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.


                                       24
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 3.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 2001 AND 2002


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------  ----------------------------------------------------------

At June 30, 2002, based upon currently available  information,  the Company does
not  believe  there are  material  changes  which have  occurred  in market risk
disclosures included in the Company's Annual Report to Stockholders for the year
ended September 30, 2001,  filed as an exhibit to the Company's Annual Report on
Form 10-K.


                                       25
<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.  Based upon current
information  received  from  counsel  representing  the  subsidiaries  in  these
matters,  the Company believes 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
        ---------------------------------------------------

     Not Applicable.

Item 5. Other Information
        -----------------

     Not Applicable.


                                       26
<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)

     99 (a)    Chief Executive Officer Certification

        (b)    Chief Financial Officer Certification

(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.


                                       27
<PAGE>


PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

(6)  Incorporated by reference to June 30, 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.


                                       28
<PAGE>