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

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

                                    FORM 10-Q

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

                     For the Quarter Ended March 31, 1999




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

               For the transition period from ________ to __________

                         Commission File Number: 0-19684

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


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


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

Registrant's telephone number, including area code  (843) 448-5151

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

                           YES    [   ]        NO    [ X  ]

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of March 31, 1999.

Common Stock $.01 Par Value Per Share                         6,433,651 Shares
-------------------------------------                         ---------------- 
             (Class)                                            (Outstanding)
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999

TABLE OF CONTENTS                                                  

PART I-      Consolidated Financial Information

Item
     1.  Consolidated Financial Statements (unaudited):

             Consolidated Statements of Financial Condition
             as of September 30, 1998 and March 31, 1999           

             Consolidated Statements of Operations for the three
             months ended March 31, 1998 and 1999                  

             Consolidated Statements of Operations for the six
             months ended March 31, 1998 and 1999                  

             Consolidated Statements of Cash Flows for the six
             months ended March 31, 1998 and 1999               

             Consolidated Statements of Stockholders' Equity       
             and Comprehensive Income

             Notes to Consolidated Financial Statements            

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

     3.  Quantitative and Qualitative Disclosures about            
             Market Risk


Part II - Other Information

Item
     1.Legal Proceedings                                           

     2.Changes in Securities and Use of Proceeds                   

     3.Default Upon Senior Securities                              

     4.Submission of Matters to a Vote of Securities Holders       

     5.Other information                                           

     6.Exhibits and Reports on Form 8-K                            

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

                                                      September 30,    March 31,
                                                          1998            1999
                                                         --------       --------
                                                              (Unaudited)
                                                         (Dollars in thousands)
<S>                                                      <C>            <C>     
ASSETS:
Cash & amounts due from banks ....................       $ 11,978       $ 14,533
Short-term interest-bearing deposits .............          3,688         10,290
Investment securities available for sale .........          9,841          4,395
Mortgage-backed securities available for sale ....        170,181        164,854
Loans receivable (net of allowance for
   loan losses of $5,668 at September 30,
   1998 and $6,160 at March 31, 1999) ............        414,264        428,120
Loans receivable held for sale ...................         10,486         24,817
Real estate acquired through foreclosure .........             35             35
Office property and equipment, net ...............          9,001          9,867
Federal Home Loan Bank stock, at cost ............          7,266          8,601
Accrued interest receivable on loans .............          2,546          2,614
Accrued interest receivable on investments .......          1,324          1,207
Other assets and deferred charges ................          2,950          3,208
                                                         --------       --------
                                                         $643,560       $672,541
                                                         ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits .........................................       $386,321       $385,397
Securities sold under agreements to
   repurchase ....................................         59,214         72,392
Advances from Federal Home Loan Bank .............        144,909        162,013
Other borrowings .................................          6,437          2,569
Drafts outstanding ...............................          1,615          1,514
Advances by borrowers for property taxes
  and insurance ..................................          1,329            844
Accrued interest payable .........................          1,352          1,252
Other liabilities ................................          4,532          5,721
                                                         --------       --------
  Total liabilities ..............................        605,709        631,702
                                                         --------       --------

STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued .......................           --             --
Common stock, $.01 par value, 15,000,000
   shares authorized; 6,263,777 shares at
   September 30, 1998 and 6,433,651 shares
   at March 31, 1999 issued and outstanding ......             63             64
Additional paid-in capital .......................          8,983          9,224
Retained earnings ................................         28,369         31,204
Accumulated other comprehensive
  income, net of tax .............................            436            347
                                                         --------       --------
  Total stockholders' equity .....................         37,851         40,839
                                                         --------       --------
                                                         $643,560       $672,541
                                                         ========       ========
</TABLE>
          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999

                                                        1998              1999
                                                     -----------      -----------
                                                              (Unaudited)
                                                         (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>        
Interest income:
    Loans receivable ...........................     $     9,036      $     9,800
    Investment securities ......................             387              398
     Mortgage-backed securities ................           1,287            2,177
     Other .....................................              63               77
                                                     -----------      -----------
     Total interest income .....................          10,773           12,452
                                                     -----------      -----------

Interest expense:
   Deposits ....................................           3,431            3,631
   Securities sold under agreements to
     repurchase ................................             901              896
   Advances from Federal Home Loan Bank ........           1,623            2,165
                                                     -----------      -----------
     Total interest expense ....................           5,955            6,692
                                                     -----------      -----------
   Net interest income .........................           4,818            5,760
Provision for loan losses ......................             250              225
                                                     -----------      -----------
   Net interest income after provision
     for loan losses ...........................           4,568            5,535
                                                     -----------      -----------

Other income:
   Fees and service charges ....................             508              594
   Income (loss) from real estate owned ........             (34)               3
  Income from real estate held for investment ..               3             --
   Gain on sale of loans receivable, net .......             340              216
   Gain on sale of securities available for sale             253               43
   Other income ................................             506              659
                                                     -----------      -----------
                                                           1,576            1,515
                                                     -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (continued)

                                                        1998              1999
                                                     -----------      -----------
                                                              (Unaudited)
                                                         (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>        
General and administrative expenses:
   Salaries and employee benefits ..............           1,823            2,131
   Net occupancy, furniture and fixtures
     and data processing expense ...............             769              909
   FDIC insurance premium ......................              54               54
   Other expenses ..............................             858              900
                                                     -----------      -----------
                                                           3,504            3,994
                                                     -----------      -----------
Earnings before income taxes ...................           2,640            3,056

Income taxes ...................................             961            1,117
                                                     -----------      -----------
Net income .....................................     $     1,679      $     1,939
                                                     ===========      ===========

Earnings per common share
  Basic ........................................     $       .27      $       .30
                                                     ===========      ===========
  Diluted ......................................     $       .26      $       .30
                                                     ===========      ===========

Weighted average common shares
  outstanding - basic ..........................       6,241,000        6,378,000
                                                     ===========      ===========

Weighted average common shares
  outstanding - diluted ........................       6,552,000        6,543,000
                                                     ===========      ===========

Dividends per share ............................     $       .07      $       .07
                                                     ===========      ===========
</TABLE>
          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999

                                                         1998             1999
                                                     -----------      -----------
                                                              (Unaudited)
                                                        (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>        
Interest income:
    Loans receivable ...........................     $    18,013      $    19,139
    Investment securities ......................             854              566
     Mortgage-backed securities ................           1,939            4,499
     Other .....................................             145              180
                                                     -----------      -----------
     Total interest income .....................          20,951           24,384
                                                     -----------      -----------

Interest expense:
   Deposits ....................................           7,033            7,484
   Securities sold under agreements to
     repurchase ................................           1,270            1,651
   Advances from Federal Home Loan Bank ........           3,099            4,386
                                                     -----------      -----------
     Total interest expense ....................          11,402           13,521
                                                     -----------      -----------
   Net interest income .........................           9,549           10,863
Provision for loan losses ......................             440              410
                                                     -----------      -----------
   Net interest income after provision
     for loan losses ...........................           9,109           10,453
                                                     -----------      -----------

Other income:
   Fees and service charges ....................             991            1,064
   Loss from real estate owned .................             (54)             (14)
  Income from real estate held for investment ..             221             --
   Gain on sale of loans receivable, net .......             697              577
   Gain on sale of securities available for sale             268              225
   Other income ................................             968            1,145
                                                     -----------      -----------
                                                           3,091            2,997
                                                     -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999 (continued)

                                                         1998             1999
                                                     -----------      -----------
                                                              (Unaudited)
                                                        (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>        
General and administrative expenses:
   Salaries and employee benefits ..............           3,707            4,160
   Net occupancy, furniture and fixtures
     and data processing expense ...............           1,558            1,801
   FDIC insurance premium ......................             106              106
   Other expenses ..............................           1,611            1,531
                                                     -----------      -----------
                                                           6,982            7,598
                                                     -----------      -----------
Earnings before income taxes ...................           5,218            5,852

Income taxes ...................................           1,911            2,123
                                                     -----------      -----------
Net income .....................................     $     3,307      $     3,729
                                                     ===========      ===========

Earnings per common share
  Basic ........................................     $       .53      $       .59
                                                     ===========      ===========
  Diluted ......................................     $       .50      $       .57
                                                     ===========      ===========

Weighted average common shares
  outstanding - basic ..........................       6,228,000        6,322,000
                                                     ===========      ===========

Weighted average common shares
  outstanding - diluted ........................       6,551,000        6,573,000
                                                     ===========      ===========

Dividends per share ............................     $       .14      $       .14
                                                     ===========      ===========
</TABLE>
          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999

                                                        1998            1999
                                                      ---------       ---------
                                                            (Unaudited)
                                                          (In thousands)
<S>                                                   <C>             <C>      
Cash flows from operating activities:
  Net earnings .................................      $   3,307       $   3,729
  Adjustments to reconcile net earnings
       to net cash provided by
      operating activities:
       Income from real estate
        held for investment ....................           (221)           --
       Depreciation ............................            490             565
       Provision for loan losses ...............            440             410
Origination of loans receivable
         held for sale .........................        (26,599)        (41,337)
Proceeds from sales of loans receivable
         held for sale .........................         30,241          27,006
(Increase) decrease in:
      Other assets and deferred charges ........         (1,851)           (258)
      Accrued interest receivable ..............           (152)             49
Increase (decrease) in:
      Accrued interest payable .................            375            (100)
     Other liabilities .........................           (441)          1,189
                                                      ---------       ---------
        Net cash provided by (used in)
             operating activities ..............          5,589          (8,747)
                                                      ---------       ---------
Cash flows from investing activities:
  Purchases of investment securities
       available for sale ......................         (9,311)         (4,718)
  Proceeds from sales of investment
       securities available for sale ...........          4,500           5,200
 Proceeds from maturities of investment
      securities available for sale ............         18,422           4,895
  Purchases of mortgage-backed securities
       available for sale ......................       (133,022)       (104,047)
 Proceeds from sales of mortgage-backed
       securities available for sale ...........         37,769          59,104
  Origination of loans receivable, net .........        (76,113)        (98,111)
  Purchase of loans receivable .................         (2,068)         (1,710)
 Principal collected on loans receivable
       and mortgage-backed securities, net .....         70,105         135,308
  Proceeds from sale of real estate
       acquired through foreclosure, net .......             23            --
  Purchases of office properties and
      equipment ................................           (932)         (1,431)
  Purchases of FHLB stock, net .................           (483)         (1,335)
                                                      ---------       ---------
      Net cash used in
             investing activities ..............        (91,110)         (6,845)
                                                      ---------       ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999 (CONTINUED)

                                                         1998             1999
                                                      ---------       ---------
                                                             (Unaudited)
                                                           (In thousands)
<S>                                                   <C>             <C>       
Cash flows from financing activities:
  Increase (decrease) in deposits, net .........      $   6,028       $    (924)
  Increase (decrease) in securities sold
   under agreement to repurchase, net ..........           (236)         13,178
  Proceeds from FHLB advances ..................        107,550         105,150
  Repayment of FHLB advances ...................        (94,009)        (88,046)
 Proceeds(repayments)from other
    borrowings, net ............................         68,390          (3,868)
 Decrease in advance payments by borrowers
     for property taxes and insurance, net .....           (591)           (485)
  Increase in drafts outstanding, net ..........           (610)           (101)
  Dividend to stockholders .....................           (833)           (894)
  Other financing activities, net ..............            628             739
                                                      ---------       ---------
  Net cash provided by financing ...............         86,317          24,749
                                                      ---------       ---------
    activities

Net increase in cash and cash equivalents ......            796           9,157
                                                      ---------       ---------
Cash and cash equivalents at beginning
  of the period ................................         13,411          15,666
                                                      ---------       ---------
Cash and cash equivalents at end
  of the period ................................      $  14,207       $  24,823
                                                      =========       =========

Supplemental information:
  Interest paid ................................      $  11,027       $  13,621
                                                      =========       =========

  Income taxes paid ............................      $   2,243       $   1,076
                                                      =========       =========

Supplemental schedule of non-cash investing
  and financing transactions:

  Transfer of mortgage loans to real estate
     acquired through foreclosure ..............      $       8       $    --
                                                      =========       =========

Securitization of mortgage loans into
     mortgage-backed securities ................      $    --         $   4,498
                                                      =========       =========
</TABLE>
          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                                                                                      Accumulated
                                                                                          Other
                                                            Additional                    Compre-        Total
                                    Common       Paid-In     Treasury       Retained      hensive     Stockholders'
                                    Stock        Capital       Stock       Earnings       Income        Equity
                                    -----        -------       -----       --------       ------        ------
                                                                   (Unaudited)
                                                                  (In thousands)
<S>                                <C>          <C>          <C>           <C>           <C>           <C>     
Balance at September
  30, 1997 ...................     $     46     $  8,698     $   (182)     $ 23,402      $    427      $ 32,391
Net income ...................         --           --           --           3,307          --           3,307
Other comprehensive
 income, net of tax:
Unrealized gains arising
 during period, net of
 taxes of $103,600 ...........         --           --           --            --             259          --
Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $107,200 ....         --           --           --            --            (161)         --
                                                                                         --------
Other comprehensive income - -         --           --           --                            98            98
                                                                                         --------      --------
Comprehensive income .........         --           --           --            --            --           3,405
                                                                                                       --------
Exercise of stock
  options ....................         --            191          182          (165)         --             208
Cash dividends ...............         --           --           --            (833)         --            (833)

Balance at March
  31, 1998 ...................     $     46     $  8,889     $      0      $ 25,711      $    525      $ 35,171
                                   ========     ========     ========      ========      ========      ========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(continued)

                                                                                      Accumulated
                                                                                          Other
                                                            Additional                    Compre-        Total
                                    Common       Paid-In     Treasury       Retained      hensive     Stockholders'
                                    Stock        Capital       Stock       Earnings       Income        Equity
                                    -----        -------       -----       --------       ------        ------
                                                                   (Unaudited)
                                                                  (In thousands)
<S>                                <C>          <C>          <C>           <C>           <C>           <C>     
Balance at September
  30, 1998 ...................     $     63     $  8,983     $      0      $ 28,369      $    436      $ 37,851
Net income ...................         --           --           --           3,729          --           3,729
Other comprehensive
 income, net of tax:
Unrealized gains arising
 during period, net of
 taxes of $18,400 ............         --           --           --            --              46          --
Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $90,000 .....         --           --           --            --            (135)         --
                                                                                         --------
Other comprehensive loss .....         --           --           --            --             (89)          (89)
                                                                                         --------      --------
Comprehensive income .........         --           --           --            --            --           3,640
                                                                                                       --------
Exercise of stock
  options ....................            1          241         --            --            --             242
Cash dividends ...............         --           --           --            (894)         --            (894)

Balance at March
  31, 1999 ...................     $     64     $  9,224     $      0      $ 31,204      $    347      $ 40,839
                                   ========     ========     ========      ========      ========      ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  BASIS OF PRESENTATION

The accompanying  unaudited  consolidated  financial statements were prepared in
accordance with  instructions for Form 10-Q and,  therefore,  do not include all
disclosures  necessary  for a  complete  presentation  of  financial  condition,
results  of  operations,  cash  flows and  changes  in  stockholders'  equity in
conformity  with generally  accepted  accounting  principles.  All  adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair  presentation of the interim financial  statements,  have
been  included.  The results of  operations  for the three and six month periods
ended March 31, 1999 are not necessarily  indicative of the results which may be
expected for the entire fiscal year.  These  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, 1998,  included in
the Company's 1998 Annual Report to Stockholders.  The principal business of the
Company is conducted by its  wholly-owned  subsidiary,  Coastal  Federal Savings
Bank  (the  "Bank").  The  information  presented  hereon,  therefore,   relates
primarily to the Bank.


(2)  LOANS RECEIVABLE, NET

Loans receivable, net consists of the following:
<TABLE>
<CAPTION>
                                                    September 30,      March 31,
                                                        1998             1999
                                                      ---------       ---------
                                                            (Unaudited)
                                                           (In thousands)
<S>                                                   <C>             <C>      
First mortgage loans:
   Single family to 4 family units .............      $ 248,781       $ 249,566
   Other, primarily commercial
    real estate ................................         95,420         104,967
   Construction loans ..........................         31,261          35,723
Consumer and commercial loans:
   Installment consumer loans ..................         19,489          18,524
   Mobile home loans ...........................            990           1,048
   Deposit account loans .......................          1,078           1,203
   Equity lines of credit ......................         18,655          19,196
   Commercial and other loans ..................         14,848          18,586
                                                      ---------       ---------
                                                        430,522         448,813
Less:
   Allowance for loan losses ...................          5,668           6,160
   Deferred loan fees (costs), net .............           (702)           (434)
   Undisbursed portion of loans in process .....         11,292          14,967
                                                      ---------       ---------
                                                      $ 414,264       $ 428,120
                                                      =========       =========
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in the  allowance  for loan losses  consist of the following for the
six months ended:
<TABLE>
<CAPTION>
                                                             Six Months Ended March 31,
                                                                  1998        1999
                                                                 -----      ------
                                                               (Dollars in thousands)
<S>                                                              <C>         <C>   
Allowance at beginning of
 period...........................................               $4,902      $5,668
Allowance recorded on
 acquired loans...................................                   29          21
Provision for loan losses.........................                  440         410
                                                                  -----      ------
Recoveries:
 Residential real estate..........................                   --          --
 Commercial real estate...........................                    -         137
 Consumer.........................................                    8          44
                                                                  -----      ------
   Total recoveries...............................                    8         181
                                                                  -----      ------
Charge-offs:
 Residential real estate..........................                   --          --
 Commercial real estate...........................                   --          --
 Consumer.........................................                  149         120
                                                                 ------      ------
   Total charge-offs..............................                  149         120
                                                                 ------      ------
   Net charge-offs (recoveries) ..................                  141         (61)
                                                                 ------      -------
 Allowance at end of period.......................               $5,230      $6,160
                                                                 ======      ======
Ratio of allowance to net
 loans outstanding at the
 end of the period................................               1.24%       1.36%

Ratio of net charge-offs (recoveries)
 to average loans outstanding
 during the period................................                .07%       (.03)%
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

                                                       At March 31, 1999
                                                       Percent of Loans in each
Balance at end of period applicable to:       Amount   category to total loans
                                              ------   -----------------------
<S>                                           <C>            <C>   
Residential Real Estate                       $1,526         74.14%
Commercial Real Estate                         4,015         27.11%
Consumer                                         619          1.25%
                                              ------         -----
                                              $6,160        100.00%
                                              ======        ====== 
</TABLE>
Non-accrual loans which were over ninety days delinquent  totaled  approximately
$601,000 at March 31, 1999.  For the six months  ended March 31, 1999,  interest
income which would have been recorded would have been approximately  $7,000, had
non-accruing loans been current in accordance with their original terms.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


(3)  DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
                                    September 30, 1998             March 31, 1999
                                  ----------------------       ------------------------
                                                Weighted                       Weighted
                                                Average                        Average
                                   Amount         Rate          Amount           Rate
                                  --------        ----         --------          ----   
                                                      (Unaudited)
                                                     (In thousands)
<S>                               <C>             <C>          <C>               <C>    
Transaction accounts .......      $193,926        3.12%        $207,173          2.99%  
Passbook accounts ..........        37,242        2.52           36,866          2.57   
Certificate accounts .......       155,153        5.38          141,358          5.06   
                                  --------        ----         --------          ----   
                                  $386,321        3.96%        $385,397          3.71%  
                                  ========        ====         ========          ====   
</TABLE>                                                             
(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>
                                    September 30, 1998             March 31, 1999
                                  ----------------------       ------------------------
                                                Weighted                       Weighted
                                                Average                        Average
                                   Amount         Rate          Amount           Rate
                                  --------        ----         --------          ----   
                                                      (Unaudited)
                                                     (In thousands)
<S>                               <C>             <C>          <C>               <C>    
Maturing within:                              
1 year                           $ 28,235         5.74%        $ 46,926          5.11%
2 years                             6,961         6.19            6,598          6.22
3 years                            32,146         4.83           32,990          4.87
4 years                             4,261         6.62           10,899          6.43
5 years and thereafter             73,306         5.21           64,600          5.05
                                 --------       ------         --------          ----
                                 $144,909         5.13%        $162,013          5.17%
                                 ========       ======         =======           ====
</TABLE>


At September 30, 1998,  and March 31, 1999,  the Bank had pledged first mortgage
loans with unpaid balances of  approximately  $231.2 million and $223.9 million,
respectively, as collateral for FHLB advances.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(5)  EARNINGS PER SHARE

Basic  earnings  per share for the three and six month  periods  ended March 31,
1998 and 1999,  are computed by dividing  net  earnings by the weighted  average
common  equivalent shares  outstanding  during the respective  periods.  Diluted
earnings per share for the three and six month  periods ended March 31, 1998 and
1999,  are computed by dividing net  earnings by the weighted  average  dilutive
equivalent shares outstanding during the respective  periods.  All share and per
share data have been retroactively restated for all common stock splits.

(6)  COMMON STOCK DIVIDENDS

On May 6, 1998, the Company declared a four-for-three  stock split,  aggregating
approximately   1,562,000  shares.  All  share  and  per  share  data  has  been
retroactively restated to give effect to the common stock split.
 
(7)  COMPREHENSIVE INCOME

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income
(Statement 130). SFAS No. 130 establishes standards for reporting and display of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial  statements.  Enterprises  are  required to  classify  items of "other
comprehensive income" by their nature in the financial statement and display the
balance of other  comprehensive  income  separately  in the equity  section of a
statement of  financial  position.  SFAS No. 130 is  effective  for fiscal years
beginning after December 15, 1997. Earlier application is permitted. Comparative
financial   statements   provided  for  earlier   periods  are  required  to  be
reclassified  to reflect the provisions of this  statement.  The Company adopted
Statement 130 in the first quarter of fiscal 1999 and the required disclosure is
presented in the accompanying consolidated statements of stockholder's equity.
<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,  general changes
in the economy  (particularly  in the markets  served by the  Company),  and the
impact of the Year 2000 computer issue.

DISCUSSION OF FINANCIAL  CONDITION  CHANGES FROM SEPTEMBER 30, 1998 TO MARCH 31,
1999
--------------------------------------------------------------------------------

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

In accordance with Office of Thrift Supervision (OTS)  regulations,  the Company
is required to maintain  specific  levels of cash and  "liquid"  investments  in
qualifying  types  of  United  States  Treasury,   Federal  Agency   Securities,
mortgage-backed securities, and certain other investments. The required level of
such  investments  is  calculated  on  a  "liquidity  base"  consisting  of  net
withdrawable accounts and short-term borrowings, and is currently equal to 4% of
such amount.  At March 31, 1999, the company's  regulatory  liquidity  level was
approximately 15%.

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 mortgage,  consumer and commercial  loan payments,  retail
customer deposits,  advances from the FHLB, and loan sales. The principal use of
cash flows is the  origination  of loans  receivable and purchase of securities.
The Company  originated  loans  receivable of $102.7  million for the six months
ended March 31, 1998,  compared to $139.4 million for the six months ended March
31, 1999. The majority of these loan originations were financed through loan and
mortgage-backed  securities principal repayments which amounted to $70.1 million
and $135.3  million  for the six month  periods  ended  March 31, 1998 and 1999,
respectively.  In addition,  the Company  sells  certain  loans in the secondary
market  to  finance  future  loan  originations.  Generally,  these  loans  have
consisted  only of  mortgage  loans  which have been  originated  in the current
period.  For the six month period  ended March 31, 1998,  the Company sold $30.2
million in  mortgage  loans  compared  to $27.0  million  sold for the six month
period ended March 31, 1999.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


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

For the six month period ended March 31, 1998, the Company purchased $142.3
million in investment and mortgage-backed  securities.  For the six month period
ended March 31, 1999,  the Company  purchased  $108.8  million in investment and
mortgage-backed securities.  These purchases were funded primarily by repayments
within the securities  portfolio,  short-term reverse repurchase  agreements and
FHLB advances.

The Bank experienced a slight decrease of $924,000 in deposits for the six month
period  ended March 31,  1999.  For the six month  period  ended March 31, 1999,
transaction  accounts increased $13.2 million.  This was offset by a decrease in
passbook accounts of $376,000 and certificate accounts of $13.8 million.

At March 31, 1999,  the Company had  commitments  to  originate  $9.3 million in
mortgage  loans,  and $30.2 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations.


At March 31, 1999,  the Company had $113.8 million of  certificates  of deposits
which were due to mature within one year.  Based upon previous  experience,  the
Company  believes  that a major portion of these  certificates  will be renewed.
Additionally,  at March 31, 1999, the Company had repurchase  agreement lines of
credit  and  available  collateral   consisting  of  investment  securities  and
mortgage-backed  securities of $99.2 million as well as federal funds  available
of $15.0 million.

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  $42.2 million at March 31,
1999,  exceeding the core capital  requirement  by $15.3  million.  At March 31,
1999, the Bank's risk-based capital of approximately  $46.5 million exceeded its
current   risk-based  capital   requirement  by  $16.4  million.   (For  further
information see Regulatory Capital Matters).

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF OPERATIONS  FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999
--------------------------------------------------------------------------------

GENERAL
-------

Net income  increased  from $1.7  million for the three  months  ended March 31,
1998,  to $1.9  million for three months  ended March 31,  1999,  or 15.5%.  Net
interest income increased  $942,000 primarily as a result of an increase of $1.7
million in interest  income offset by a $737,000  increase in interest  expense.
Provision  for loan losses  decreased  slightly  from  $250,000 for three months
ended March 31, 1998, to $225,000 for the three months ended March 31, 1999.
General and  administrative  expense increased from $3.5 million for the quarter
ended March 31, 1998, to $4.0 million for the quarter ended March 31, 1999.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999

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

Interest  income for the three months  ended March 31, 1999,  increased to $12.5
million as compared to $10.8  million for the three months ended March 31, 1998.
The earning  asset yield for the three months  ended March 31,  1999,  was 7.86%
compared  to a yield of 8.09% for the three  months  ended March 31,  1998.  The
average yield on loans  receivable for the three months ended March 31, 1999 and
1998 was 8.66%. The yield on investments decreased to 5.83% for the three months
ended March 31, 1999,  from 6.55% for the three months ended March 31, 1998. The
yield on  investment  securities  decreased  due to  increased  amortization  of
premiums  on ARM  mortgage-backed  securities  which had  higher  than  expected
prepayments.  The Bank expects that its yield on loans will  continue to decline
as certain  loans which  adjust  annually  continue to  reprice.  Total  average
interest-earning assets were $641.7 million for the quarter ended March 31, 1999
as compared to $538.7 million for the quarter ended March 31, 1998. The increase
in  average  interest-earning  assets is due to an  increase  in  average  loans
receivable of approximately  $35.2 million and securities of approximately $64.0
million.

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

Interest expense on interest-bearing  liabilities was $6.7 million for the three
months ended March 31, 1999, as compared to $6.0 million for March 31, 1998. The
average cost of deposits  for the three  months ended March 31, 1999,  was 3.77%
compared to 4.03% for the three months ended March 31, 1998.

The cost of  interest-bearing  liabilities  was 4.33% for the three months ended
March 31, 1999,  as compared to 4.58% for the three months ended March 31, 1998.
The cost of FHLB advances and reverse repurchase agreements was 5.19% and 5.46%,
respectively,  for the three months  ended March 31, 1999.  For the three months
ended March 31, 1998, the cost was 5.54% and 5.97%, respectively.  Total average
interest-bearing  liabilities increased from $519.7 million at March 31, 1998 to
$619.0  million at March 31,  1999.  The  increase  in average  interest-bearing
liabilities  is due to an increase in average  deposits of  approximately  $43.9
million,  FHLB  advances of $49.7 million and reverse  repurchase  agreements of
$5.3 million.

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

Net interest  income was $5.8 million for the three months ended March 31, 1999,
as compared to $4.8 million for the three  months ended March 31, 1998.  The net
interest  margin was 3.54% for the three months ended March 31, 1999,  and 3.50%
for the three months ended March 31, 1998.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999

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

The  provision for loan losses  decreased  slightly from $250,000 for the period
ended March 31, 1998, to $225,000 for the three months ended March 31, 1999. For
the three months ended March 31, 1999, net recoveries were $119,000  compared to
net charge-offs of $92,000 for the three months ended March 31, 1998. During the
second quarter of fiscal 1999, the Company  recovered from two loans  previously
charged off amounting to $137,000. The allowance for loan losses as a percentage
of total loans was 1.36% at March 31, 1999,  compared to 1.33% at September  30,
1998.  Loans  delinquent  90 days or more were .13% of total  loans at March 31,
1999,  compared to .54% at September 30, 1998. The allowance for loan losses was
1,025% of loans  delinquent  more than 90 days at March 31, 1999, as compared to
251% at  September  30,  1998.  Management  believes  that the current  level of
allowances is adequate  considering  the Company's  current loss  experience and
delinquency trends, among other criteria.

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

For the three  months  ended  March 31,  1999,  other  income  was $1.5  million
compared to $1.6 million for the quarter ended March 31, 1998.  Fees and service
charges on loan and deposit  accounts  was  $594,000  for the three months ended
March 31, 1999  compared to $508,000  for the three  months ended March 31, 1998
primarily  due to growth in core  checking  accounts.  Gain on sale of loans was
$216,000  for the  quarter  ended March 31,  1999  compared to $340,000  for the
quarter ended March 31, 1998. The Company  experienced lower gains on sales as a
result of rising  interest  rates  during the period and reduced  sales.  In the
quarter  ended March 31, 1999,  the Company sold $8.4 million  compared to $16.0
million in the prior year period. Gain on sale of securities was $43,000 for the
three  months  ended March 31, 1999  compared to $253,000  for the three  months
ended  March 31,  1998.  These were offset by other  income of $659,000  for the
quarter  ended March 31, 1999  compared to $506,000 for the quarter  ended March
31, 1998.

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

General and  administrative  expenses  increased from $3.5 million for the three
months  ended March 31,  1998,  to $4.0 million for the three months ended March
31, 1999.  Salaries and employee  benefits  increased  from $1.8 million for the
three months  ended March 31,  1998,  to $2.1 million for the three months ended
March 31, 1999  primarily due to increased  lending  Associates.  Net occupancy,
furniture  and fixtures and data  processing  expenses  increased  $140,000 when
comparing the two periods. This is primarily a result of increased  maintenance,
lease  expense  and  depreciation  expense  due to the  addition  of the Coastal
Federal  University  facility and the North Carolina Office in Sunset Beach, NC.
Other  expenses were $900,000 for the quarter ended March 31, 1999,  compared to
$858,000 for the quarter ended March 31, 1998, primarily due to normal growth.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999

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

Income taxes  increased from $961,000 for the three months ended March 31, 1998,
to $1.1  million  for the three  months  ended  March 31,  1999,  as a result of
increased income before taxes.

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF OPERATIONS  FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999
--------------------------------------------------------------------------------

GENERAL
-------

Net income  increased from $3.3 million for the six months ended March 31, 1998,
to $3.7  million for six months  ended March 31,  1999,  or 12.8%.  Net interest
income  increased $1.3 million  primarily as a result of an increase in interest
income of $3.4  million  offset  by an  increase  of $2.1  million  in  interest
expense.  Provision for loan losses decreased slightly from $440,000 for the six
months  ended March 31,  1998,  to $410,000  for the six months  ended March 31,
1999.  Other  income  decreased  $94,000.  General and  administrative  expenses
increased $616,000.

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

Interest  income for the six months  ended March 31,  1999,  increased  to $24.4
million as compared to $21.0  million for the six months  ended March 31,  1998.
The earning  asset  yield for the six months  ended  March 31,  1999,  was 7.79%
compared  to a yield of 8.25%  for the six  months  ended  March 31,  1998.  The
average yield on loans  receivable  for the six months ended March 31, 1999, was
8.65%  compared to 8.70% for the six months ended March 31,  1998.  The yield on
investments  decreased to 5.68% for the six months  ended March 31,  1999,  from
6.63% for the six months ended March 31, 1998. Total average earning assets were
$634.0  million for the six month period  ended March 31,  1999,  as compared to
$513.0 million for the six month period ended March 31, 1998.

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

Interest expense on  interest-bearing  liabilities was $13.5 million for the six
months  ended March 31,  1999,  as compared to $11.4  million for the six months
ended March 31,  1998.  The average  cost of deposits  for the six months  ended
March 31, 1999,  was 3.85%  compared to 4.10% for the six months ended March 31,
1998.  The cost of  interest-bearing  liabilities  was 4.40% for the six  months
ended March 31,  1999,  as compared to 4.61% for the six months  ended March 31,
1998. Total average  interest-bearing  liabilities increased from $495.1 million
at March 31, 1998 to $614.0 million at March 31, 1999.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999

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

Net interest  income was $10.9  million for the six months ended March 31, 1999,
as compared to $9.5  million for the six months  ended March 31,  1998.  The net
interest margin decreased to 3.39% for the six months ended March 31, 1999, from
3.64% for the six months ended March 31, 1998.  Since a high  percentage  of the
Company's  assets are  adjustable  rate mortgage  loans which  reprice  annually
versus many of the Company's liabilities which reprice more quickly, the Company
may  experience a decrease in its interest  rate spread  should  interest  rates
increase rapidly.

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

The  provision for loan losses  decreased  slightly from $440,000 for the period
ended March 31, 1998,  to $410,000 for the six months ended March 31, 1999.  For
the six months ended March 31, 1999, net recoveries were $61,000 compared to net
charge-offs  of $141,000 for the six months ended March 31, 1998.  The allowance
for loan  losses as a  percentage  of total  loans was 1.36% at March 31,  1999,
compared to 1.33% at September  30, 1998.  Management  believes that the current
level of  allowances  is  inadequate  considering  the  Company's  current  loss
experience and delinquency trends, among other criteria.

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

For the six months ended March 31, 1999, other income decreased  $94,000 to $3.0
million  compared to $3.1 million for the six months ended March 31, 1998.  Fees
and  service  charges  for the six months  ended  March 31,  1999 were  $991,000
compared to $1.1 million for the six months ended March 31, 1999  primarily  due
to growth in core checking  accounts.  Other income  increased from $968,000 for
the six months ended March 31, 1998  compared to $1.1 million for the six months
ended  March 31,  1999.  Gain on sale of loans was  $697,000  for the six months
ended March 31,  1998,  compared to $577,000  for the six months ended March 31,
1999.  The  Company  experienced  lower  gains on sales  as a result  of  rising
interest rates during the period and reduced  sales.  Gain on sale of securities
was $268,000  for the six months ended March 31, 1999,  compared to $225,000 for
the six months ended March 31, 1999.

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

General and  administrative  expenses  increased  from $7.0  million for the six
months ended March 31, 1998,  to $7.6 million for the six months ended March 31,
1999. Salaries and employee benefits increased $453,000, or 12.2% primarily as a
result of increased lending personnel. Net occupancy, furniture and fixtures and
data processing  expense increased  $243,000  primarily as a result of increased
maintenance,  lease expense and depreciation  expense due to the addition of the
Coastal  Federal  University  facility and the North  Carolina  Office in Sunset
Beach,  NC.  Other  expense was $1.6  million for the six months ended March 31,
1998, compared to $1.5 million for the six months ended March 31, 1999.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999


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

Income  taxes  increased  from $1.9  million for the six months  ended March 31,
1998,  to $2.1 million for the six months  ended March 31, 1999,  as a result of
increased income before taxes.

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 March 31, 1999:                                                                                                           
 Total Capital:                    $46,543         12.36%          $30,127               8.00%             $37,659      10.00%  
   (To Risk Weighted Assets)                                                                                                    
 Tier 1 Capital:                   $42,205         11.21%             $N/A                N/A%             $22,595       6.00%  
   (To Risk Weighted Assets)                                                                                                    
 Tier 1 Capital:                   $42,205          6.28%          $26,902               4.00%             $33,627       5.00%  
   (To Total Assets)                                                                                                            
 Tangible Capital:                 $42,205          6.28%          $10,088               1.50%                $N/A        N/A%  
   (To Total Assets)                                                                                                   
</TABLE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1997,  the FASB issued SFAS No. 131,  Disclosures  about  Segments of an
Enterprise and Related  Information  (Statement  131).  SFAS No. 131 establishes
standards  for the way public  business  enterprises  are to report  information
about  operating  segments in annual  financial  statements  and requires  those
enterprises to report selected  information about operating  segments in interim
financial  reports  issued  to  shareholders.  SFAS  No.  131 is  effective  for
financial statements for fiscal years beginning after December 15, 1997. Earlier
application  is  encouraged.  In the initial  year of  application,  comparative
information for earlier years is to be restated,  unless it is impractical to do
so.  SFAS No. 131 need not be applied to  interim  financial  statements  in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application.  The Company is reviewing the
standard to determine if additional disclosure is required.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999


SFAS  133,   Accounting  for  Derivative   Instruments  and  Hedging  Activities
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative instruments embedded in other contracts and hedging
activities.  It requires  that an entity  recognize  all  derivatives  as either
assets or liabilities in the statement of financial position,  and measure those
instruments  at fair value.  If certain  conditions are met, a derivative may be
specifically  designated  as (a) a hedge of the  exposure to changes in the fair
value of a recognized asset and liability or a firm  commitment,  (b) a hedge of
the exposure to variable cash flows of a forecasted transaction,  or (c) a hedge
of the foreign currency  exposure of a net investment in a foreign  corporation.
This statement is effective for fiscal  quarters of years  beginning  after June
15, 1999. It is not anticipated  that this standard will  materially  affect the
Company.

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.

YEAR 2000 COMPLIANCE
--------------------

The Company is a user of computers,  computer  software and equipment  utilizing
embedded  microprocessors that will be affected by the year 2000 issue. The year
2000 issue exists because many computer  systems and  applications use two-digit
date  fields  to  designate  a  year.   As  the  century  date  change   occurs,
date-sensitive  systems may recognize the year 2000 as 1900, or not at all. This
inability  to  recognize  or  properly  treat the year 2000 may cause  erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.

The Company's year 2000 committee consists of the Chief Executive Officer, three
Executive  Vice  Presidents,  two Vice  Presidents,  and one Associate  from the
Internal Audit Group. The committee makes a monthly progress report to the Board
of Directors.  The committee has developed and is  implementing a  comprehensive
plan to make all information  and  non-information  technology  assets year 2000
compliant. The plan is comprised of the following phases:
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999


1.   Awareness - Educational  initiatives on year 2000 issues and concerns. This
     phase is ongoing,  especially  as it relates to informing  customers of the
     Company's year 2000 preparedness.

2.   Assessment  - Inventory  of all  technology  assets and  identification  of
     third-party vendors vendors and service providers. This phase was completed
     as of August 31, 1998.

3.   Renovation  - Review of  vendor  and  service  providers  responses  to the
     Company's  year 2000  inquires  and  development  of a  follow-up  plan and
     timeline. This phase was completed as of October 15, 1998.

4.   Validation - Testing all systems and third-party vendors for year 2000
     compliance.  The Company is currently in this phase of its plan.  A third-
     party service bureau processes all customer transactions and has completed
     upgrades to its systems to be year 2000 compliant.  The Company will test
     the third-party systems by reviewing the results of transactions at six
     different test dates before and after the year 2000 date change covering
     all of the applications used by the Company.  Testing was completed as of
     November 16, 1998.  The results of the test were all positive.  In the
     event that testing reveals that the third-party systems are not year 2000
     compliant, the Company's service bureau intends to either transfer the
     Company to other systems that are year 2000 compliant and provide
     additional resources to resolve the year 2000 issues.

     Other parties whose year 2000 compliance may effect the Company include the
     FHLB of Atlanta, brokerage firms, the operator of the Company's ATM network
     and the Company's 401K  administrator.  These  third-parties have indicated
     their compliance or intended compliance. Where it is possible to do so, the
     Company has scheduled  testing with these  third-parties to be completed by
     June 30,  1999.  Where  testing is not  possible,  the Company will rely on
     certifications from vendors and service providers.

5.   Implementation - Replacement or repair of non-compliant technology.  As the
     Company progresses through the validation phase, the Company expects to
     determine necessary remedial actions and provide for their implementation.
     The Company has already implemented a new year 2000 compliant computerized
     teller system and has verified the year 2000 compliance of its computer
     hardware and other equipment containing embedded microprocessors. The
     Company's plan provides for year 2000 readiness to be completed by June
     30, 1999.

     The  Company  estimates  its  total  cost to  replace  computer  equipment,
     software programs or other equipment  containing  embedded  microprocessors
     that were not year 2000  compliant  to be $228,000,  of which  $116,677 has
     been  incurred as of March 31, 1999.  System  maintenance  or  modification
     costs are charged to expense as incurred,  while the cost of new  hardware,
     software  or other  equipment  is  capitalized  and  amortized  over  their
     estimated  useful lives. The Company does not separately track the internal
     costs and time that its own Associates spend on year 2000 issues, which are
     principally payroll costs.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1998 AND 1999

4. Validation (continued)

     Because the Company depends substantially on its computer systems and those
     of  third-parties,  the failure of these systems to be year 2000  compliant
     could cause substantial disruption of the Company's business and could have
     a material adverse financial impact on the Company. Failure to resolve year
     2000 issues  presents the following  risks to the Company;  (1) the Company
     could lose customers to other financial  institutions,  resulting in a loss
     of  revenue,  if the  Company's  third-party  service  bureau  is unable to
     properly process customer transactions;  (2) governmental agencies, such as
     the Federal Home Loan Company, and correspondent institutions could fail to
     provide funds to the Company,  which could materially  impair the Company's
     liquidity  and affect  the  Company's  ability  to fund  loans and  deposit
     withdrawals;  (3) concern on the part of  depositors  that year 2000 issues
     could impair access to their deposit  account  balances could result in the
     Company  experiencing  deposit outflows prior to December 31, 1999; and (4)
     the Company could incur increased  personnel  costs if additional  staff is
     required to perform functions that inoperative systems would have otherwise
     performed.  Management  believes  that it is not  possible to estimate  the
     potential  lost  revenue  due to the year 2000  issue,  as the  extent  and
     longevity  of  any  potential   problem   cannot  be   predicted.   Because
     substantially  all  of the  Company's  loan  portfolio  consists  of  loans
     primarily secured by real estate management  believes that year 2000 issues
     will not  significantly  impair the ability of the  Company's  borrowers to
     repay their debt.

     There  can  be no  assurances  that  the  Company's  year  2000  plan  will
     effectively  address the year 2000 issues,  that the Company's estimates of
     the timing and costs of completing the plan will  ultimately be accurate or
     that the impact of any  failure of the Company or its  third-party  vendors
     and service  providers to be year 2000  compliant  will not have a material
     adverse effect on the Company's business, financial condition or results of
     operations.

     The Company has  developed  a  contingency  plan for year 2000 in the event
     there is a malfunction  in any of the critical  application  software.  The
     plan provides for alternative methods to conduct business until application
     problems can be rectified.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 1999, no material  changes have occurred in market risk disclosures
included  in the  Company's  Annual  Report to  Stockholders  for the year ended
September 30, 1998.
<PAGE>
PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 1.  Legal Proceedings
         -----------------

     The Company is not a party to any legal  proceedings at this time. The Bank
is a defendant in one significant  lawsuit.  The action commenced on December 1,
1997,  and the  Plaintiffs  are  seeking  approximately  $1.5  million in actual
damages  as well as  punitive  damages.  The  causes  of  action  are  breach of
fiduciary  duties,  negligence,  fraud,  civil conspiracy and breach of contract
arising out of a lending  relationship.  At this date, the Bank does not know if
or when the action will go to trial.  The Bank will vigorously  defend this suit
and does not anticipate any settlement discussions.

Item 2.  Changes In Securities and Use of Proceeds
         -----------------------------------------

     Not Applicable.

Item 3.  Defaults Upon Senior Securities
         -------------------------------

     Not Applicable.

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

At the  Company's  annual  stockholders  meeting held on January 25,  1999,  the
following items were ratified:

     (a) The election as directors of all  nominees:  James C. Benton,  James P.
     Creel and Wilson B. Springs.

     A total of 6,264,467 votes were entitled to be cast.  Votes for Benton were
     4,920,255 with 2,945 withheld; votes for James P. Creel were 4,914,387 with
     8,813 votes  withheld;  and votes for Wilson B. Springs were 4,919,784 with
     3,416 withheld.

     G. David  Bishop,  Harold D. Clardy,  J.T.  Clemmons,  James H.  Dusenbury,
     Michael C. Gerald and Samuel A. Smart are directors  whose terms  continued
     after the meeting.

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

     Not Applicable.

<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**

                  3  (b)   Certificate of Amendment to Certificate of   
                           Incorporation of Coastal Financial Corporation*******

                     (c)   Bylaws of Coastal Financial Corporation**

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

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

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

                     (d)   Employment Agreement with Allen W. Griffin***

                     (e)   Employment Agreement with Jimmy R. Graham***

                     (f)   Employment Agreement with Steven J. Sherry*******

                     (g)   1990 Stock Option Plan***

                     (h)   Directors Performance Plan****

                     (i)   Loan Agreement with Bankers Bank******

                  27                Financial Data Schedule

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

*          Incorporated by reference from the Annual Report to Stockholders  
           for the fiscal year ended September 30, 1997, attached as an  
           exhibit hereto.

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

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

****       Incorporated by reference to the proxy statement for the 1996   
           Annual Meeting of Stockholders.

*****      Incorporated by reference to 1997 Form 10-K filed with the     
           Securities and Exchange Commission on January 2, 1998.
<PAGE>

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

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

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

<PAGE>



                                   SIGNATURES


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



                                     COASTAL FINANCIAL CORPORATION

May 14, 1999                         /s/  Michael C. Gerald
Date                                 Michael C. Gerald
                                     President and Chief Executive Officer

May 14, 1999                         /s/  Jerry L. Rexroad
Date                                 Jerry L. Rexroad
                                     Executive Vice President and
                                     Chief Financial Officer