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

                                    FORM 10-Q

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

           For the Quarter Ended December 31, 2001

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

           For the transition period from ________ to __________

                         Commission File Number: 0-19684

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


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


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

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

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

     YES [X]            NO [ ]

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

Common Stock $.01 Par Value Per Share                         10,616,481 Shares
--------------------------------------------------------------------------------
(Class)                                                           (Outstanding)


<PAGE>


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

TABLE OF CONTENTS                                                         PAGE

PART I- Consolidated Financial Information

Item
        1. Consolidated Financial Statements (unaudited):

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

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

           Consolidated Statements of Cash Flows for the three
           months ended December 31, 2000 and 2001                        6-7

           Consolidated Statements of Stockholders' Equity
           and Comprehensive Income for the three months ended
           December 31, 2000 and 2001                                       8

           Notes to Consolidated Financial Statements                    9-12

        2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations                13-17

        3. Quantitative and Qualitative Disclosures About                  18
           Market Risk


Part II - Other Information

Item
        1. Legal Proceedings                                               19

        2. Changes in Securities and Use of Proceeds                       19

        3. Defaults Upon Senior Securities                                 19

        4. Submission of Matters to a Vote of Securities Holders           19

        5. Other information                                               19

        6. Exhibits and Reports on Form 8-K                             20-21

Signatures                                                                 22


                                       2


<PAGE>


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

                                                      September 30,December 31,
                                                       2001            2001
                                                       ----            ----
                                                             (Unaudited)
                                                           (In thousands,
                                                         except share data)
ASSETS:
Cash and amounts due from banks                     $  24,966       $  23,044
Short-term interest-bearing deposits                    9,354             418
Investment securities available for sale              192,553         197,965
Loans receivable (net of allowance for
   loan losses of $7,159 at September 30,
   2001 and $7,244 at December 31, 2001)              488,754         493,586
Loans receivable held for sale                         16,274          19,834
Real estate acquired through foreclosure                2,363           1,969
Office property and equipment, net                     13,150          13,525
Federal Home Loan Bank stock, at cost                   7,624           7,764
Accrued interest receivable on loans                    2,783           2,525
Accrued interest receivable on investments              1,341           1,323
Other assets and deferred charges                       4,052           4,938
                                                    ---------       ---------
                                                    $ 763,214       $ 766,891
                                                    =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits                                            $ 530,364       $ 521,132
Securities sold under agreements to
   repurchase                                          18,703          27,160
Advances from Federal Home Loan Bank                  140,036         144,575
Other borrowings                                        2,069           2,069
Drafts outstanding                                      2,577           1,961
Advances by borrowers for property taxes
  and insurance                                         1,250             283
Accrued interest payable                                1,184           1,277
Other liabilities                                       9,783          10,851
                                                    ---------       ---------
 Total liabilities                                    705,966         709,308
                                                    ---------       ---------

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 10,616,481 shares
   at December 31, 2001 issued and outstanding            107             106
Additional paid-in capital                              9,744           9,744
Retained earnings                                      47,496          49,351
Treasury stock, at cost (324,483 and 401,327
   shares, respectively)                               (3,620)         (4,183)
Accumulated other comprehensive income,
 net of tax                                             3,521           2,565
                                                    ---------       ---------
  Total stockholders' equity                           57,248          57,583
                                                    ---------       ---------
                                                    $ 763,214       $ 766,891
                                                    =========       =========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       3


<PAGE>


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

                                               2000            2001
                                               ----            ----
                                                   (Unaudited)
                                                   (In thousands,
                                                 except share data)
Interest income:
    Loans receivable                          $ 11,998       $ 10,252
    Investment securities                          623            575
   Mortgage-backed securities                    2,876          2,473
   Other                                           158             68
                                              --------       --------
   Total interest income                        15,655         13,368
                                              --------       --------

Interest expense:
   Deposits                                      4,755          3,609
   Securities sold under agreements to
     repurchase                                  1,190            127
   Advances from Federal Home Loan Bank          3,500          1,926
                                              --------       --------
   Total interest expense                        9,445          5,662
                                              --------       --------
   Net interest income                           6,210          7,706
                                              --------       --------
   Provision for loan losses                       270            250
                                              --------       --------
   Net interest income after provision
     for loan losses                             5,940          7,456
                                              --------       --------

Other income:
   Fees and service charges                        551            768
   Loss from real estate owned                     (90)          (106)
   Gain on sale of loans receivable, net           150            556
   Gain on sale of securities
     available for sale                             30            131
   Other income                                    997            824
                                              --------       --------
                                                 1,638          2,173
                                              --------       --------
General and administrative expenses:
   Salaries and employee benefits                2,415          3,002
   Net occupancy, furniture and fixtures
     and data processing expense                   928          1,112
   FDIC insurance premium                           20             23
   Other expenses                                  737          1,113
                                              --------       --------
                                                 4,100          5,250
                                              --------       --------
Income before income taxes and
     extraordinary item                          3,478          4,379

Income taxes                                     1,261          1,621
                                              --------       --------

Income before extraordinary item                 2,217          2,758
                                              --------       --------



                                                            (CONTINUED)


                                       4


<PAGE>


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

                                                  2000                 2001
                                                  ----                 ----
                                                         (Unaudited)
                                                        (In thousands,
                                                      except share data)

Extraordinary loss on extinguishment of
     debt, net of income taxes of $182                  --                  298
                                               -----------          ------------
Net income                                     $     2,217          $     2,460
                                               ===========          ===========

Earnings per common share
   before extraordinary item
   Basic                                       $       .20          $       .26
                                               ===========          ===========
   Diluted                                     $       .20          $       .25
                                               ===========          ===========

Effect of extraordinary item on
   earnings per common share
   Basic                                       $        --          $      (.03)
                                               ===========          ===========
   Diluted                                     $        --          $      (.02)
                                               ===========          ===========

Earnings per common share
   after extraordinary item
   Basic                                       $       .20          $       .23
                                               ===========          ===========
   Diluted                                     $       .20          $       .23
                                               ===========          ===========

Weighted average common shares
   outstanding - basic                          10,907,000           10,664,000
                                               ===========          ===========

Weighted average common shares
   outstanding - diluted                        10,997,000           10,927,000
                                               ===========          ===========

Dividends per share                            $      .043          $       .05
                                               ===========          ===========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       5


<PAGE>


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

                                                      2000            2001
                                                      ----            ----
                                                            (Unaudited)
                                                          (In thousands)

Cash flows from operating activities:
  Net earnings                                      $  2,217       $  2,460
  Adjustments to reconcile net income
       to net cash provided by
      operating activities:
  Depreciation                                           364            458
  Provision for loan losses                              270            250
  Origination of loans receivable
       held for sale                                  (3,548)       (31,968)
  Proceeds from sales of loans receivable
       held for sale                                   4,540         28,408
(Increase) decrease in:
       Other assets and deferred charges                (642)          (886)
       Accrued interest receivable                      (254)           276
 Increase in:
       Accrued interest payable                          522             93
       Other liabilities                                 773          1,654
                                                    --------       --------
       Net cash provided by
             operating activities                      4,242            745
                                                    --------       --------

Cash flows from investing activities:
  Purchases of investment securities
       available for sale                            (40,408)       (39,803)
  Proceeds from sales of investment
       securities available for sale                  32,826         39,712
  Origination of loans receivable, net               (25,508)       (67,302)
  Principal collected on loans receivable, net        19,868         36,262
  Principal collected on mortgage-backed
       securities, net                                 6,771         18,960
  Proceeds from sale of real estate
       acquired through foreclosure, net                 404            529
  Purchases of office properties and
          equipment                                     (699)          (833)
  Purchases of FHLB stock, net                            --           (140)
                                                    --------       --------

       Net cash used in
             investing activities                     (6,746)       (12,615)
                                                    --------       --------


                                       6


<PAGE>


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

                                                       2000             2001
                                                       ----             ----
                                                          (Unaudited)
                                                         (In thousands)

Cash flows from financing activities:
  Increase (decrease) in deposits, net              $  23,136       $  (9,232)
  Increase (decrease) in securities sold
   under agreement to repurchase, net                 (11,962)          8,457
  Proceeds from FHLB advances                         204,000          55,762
  Repayment of FHLB advances                         (213,901)        (51,223)
  Decrease in advance payments by borrowers
   for property taxes and insurance, net               (1,068)           (967)
  Decrease in drafts outstanding, net                  (1,127)           (616)
  Repurchase of treasury stock, at cost                  (369)           (698)
  Dividends to stockholders                              (471)           (530)
  Exercise of stock options                                 7              59
                                                    ---------       ---------
  Net cash provided by (used in) financing             (1,755)          1,012
     activities                                     ---------       ---------

 Net decrease in cash and cash
     equivalents                                       (4,259)        (10,858)
                                                    ---------       ---------
Cash and cash equivalents at beginning
  of the period                                        17,167          34,320
                                                    ---------       ---------
Cash and cash equivalents at end
  of the period                                     $  12,908       $  23,462
                                                    ---------       ---------
Supplemental information:
  Interest paid                                     $   8,923       $   5,569
                                                    =========       =========
  Income taxes paid                                 $     427       $   1,330
                                                    =========       =========
Supplemental schedule of non-cash investing
  and financing transactions:

Transfer of mortgage loans to real estate
     acquired through foreclosure                   $     303       $     135
                                                    =========       =========
Securitization of mortgage loans into
     mortgage-backed securities                     $      --       $  25,823
                                                    =========       =========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       7


<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                                                           Other
                                                                                                          Compre-
                                                           Additional                                     hensive      Total
                                             Common          Paid-In        Treasury       Retained        Income      Stockholders'
                                             Stock           Capital         Stock         Earnings        (Loss)         Equity
                                             -----           -------         -----         --------        ------         ------
                                                                           (Unaudited)
                                                                          (In thousands)
<S>                                         <C>             <C>            <C>             <C>             <C>             <C>
Balance at September
  30, 2000                                  $     73        $  9,780       $ (1,702)       $ 40,319        $ (1,525)       $ 46,945
Net income                                        --              --             --           2,217              --           2,217
Other comprehensive
 income, net of tax:
 Unrealized gains arising
 during period, net of
 taxes of $919                                    --              --             --              --           2,419              --
 Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $11                              --              --             --              --             (19)             --
                                                                                                           --------
Other comprehensive income                        --              --             --              --           2,400           2,400
                                                                                                           --------        --------
Comprehensive income                              --              --             --              --              --           4,617
                                                                                                                           --------
Treasury stock repurchases                        (1)             --           (368)             --              --            (369)
Exercise of stock
  options                                         --              --              8              (1)             --               7
Cash dividends                                    --              --             --            (471)             --            (471)
Balance at December 31,                                                                                                    ---------
2000                                        $     72        $  9,780       $ (2,062)       $ 42,064        $    875        $ 50,729
                                            ========        ========       ========        ========        ========        ========



Balance at September
  30, 2001                                  $    107        $  9,744       $ (3,620)       $ 47,496        $  3,521        $ 57,248
Net income                                        --              --             --           2,460              --           2,460
Other comprehensive
 loss, net of tax:
 Unrealized losses arising
 during period, net of
 taxes of $536                                    --              --             --              --            (875)             --
 Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $50                              --              --             --              --             (81)             --
                                                                                                           --------
Other comprehensive loss                          --              --             --              --            (956)           (956)
                                                                                                           --------        --------
Comprehensive income                              --              --             --              --              --           1,504
                                                                                                                           ---------
Treasury stock repurchases                        (1)             --           (697)             --              --            (698)
Exercise of stock
  options                                         --              --            134             (75)             --              59
Cash dividends                                    --              --             --            (530)             --            (530)
Balance at December                         --------        --------       --------        --------        --------        --------
  31, 2001                                  $    106        $  9,744       $ (4,183)       $ 49,351        $  2,565        $ 57,583
                                            ========        ========       ========        ========        ========        ========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       8


<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 month  period  ended
December 31, 2001 are not  necessarily  indicative  of the results  which may be
expected for the entire  fiscal year.  These  unaudited  consolidated  financial
statements should be read in conjunction with the Company's audited consolidated
financial  statements  and related notes for the year ended  September 30, 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.


(2)  LOANS RECEIVABLE, NET

Loans receivable, net consists of the following:

                                                  September 30,     December 31,
                                                      2001             2001
                                                      ----             ----
                                                           (Unaudited)
                                                          (In thousands)
First mortgage loans:
    Single family to 4 family units                $ 252,396         $ 241,482
    Other, primarily commercial
    real estate                                      137,282           143,113
    Construction loans                                60,765            67,268
Consumer and commercial loans:
    Installment consumer loans                        14,539            13,890
    Mobile home loans                                  2,056             7,135
    Deposit account loans                              1,221             1,166
    Equity lines of credit                            22,379            22,017
    Commercial and other loans                        18,886            16,430
                                                   ---------         ---------
                                                     509,524           512,501
Less:
    Allowance for loan losses                          7,159             7,244
    Deferred loan costs, net                            (372)             (381)
    Undisbursed portion of loans in process           13,983            12,052
                                                   ---------         ---------
                                                   $ 488,754         $ 493,586
                                                   =========         =========


                                       9


<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 three months ended:


                                                 Three Months Ended December 31,
                                                     2000            2001
                                                         (Unaudited)
                                                    (Dollars in thousands)

Allowance at beginning of period .............     $7,064           $7,159
Provision for loan losses ....................        270              250
                                                   ------           ------
Recoveries:
 Residential real estate .....................         --               --
 Commercial real estate ......................         --               --
 Consumer ....................................         14                4
                                                   ------           ------
   Total recoveries ..........................         14                4
                                                   ------           ------

Charge-offs:
 Residential real estate .....................         47               57
 Commercial real estate ......................         --               --
 Consumer ....................................        140              112
                                                   ------           ------
   Total charge-offs .........................        187              169
                                                   ------           ------
   Net charge-offs ...........................        173              165
                                                   ------           ------
 Allowance at end of period ..................     $7,161           $7,244
                                                   ======           ======

Ratio of allowance to net
 loans outstanding at the
 end of the period ...........................       1.36%            1.41%
                                                   ======           ======

Ratio of net charge-offs
 to average loans outstanding
 during the period (annualized) ..............        .13%             .13%
                                                   ======           ======


Non-accrual loans, which were over ninety days delinquent, totaled approximately
$5.4  million and $4.7  million at  December  31, 2001 and  December  31,  2000,
respectively.  For the three months ended  December 31, 2000 and 2001,  interest
income,  which would have been recorded,  would have been approximately  $67,000
and $131,000,  respectively,  had non-accruing  loans been current in accordance
with their original terms.

At December 31, 2001,  impaired  loans  totaled  $3.2  million.  There were $4.4
million in impaired  loans at December 31, 2000.  Included in the  allowance for
loan losses at December 31, 2001 was $236,000 related to impaired loans compared
to $545,000 at December 31, 2000.  The average  recorded  investment in impaired
loans for the three months ended December 31, 2001 was $3.3 million  compared to
$4.4 million for the quarter  ended  December 31, 2000.  No interest  income was
recognized on impaired loans for the quarter ended  December 31, 2001.  Interest
income of  $53,000  was  recognized  on  impaired  loans for the  quarter  ended
December 31, 2000.


(3)  DEPOSITS

Deposits consist of the following:

                             September 30, 2001            December 31, 2001
                             --------------------------------------------------
                                         Weighted                      Weighted
                                          Average                       Average
                              Amount       Rate         Amount           Rate
                              ------       ----         ------           ----
                                              (Unaudited)
                                             (In thousands)
Transaction accounts         $298,655      1.96%       $284,895          1.40%
Passbook accounts              33,317      1.70          33,278          1.21
Certificate accounts          198,392      4.82         202,959          4.19
                             --------      ----        --------          ----
                             $530,364      3.01%       $521,132          2.48%
                             ========      ====        ========          ====



                                       10


<PAGE>


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


(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

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

                                 September 30, 2001         December 31, 2001
                                 --------------------------------------------
                                             Weighted                   Weighted
                                             Average                    Average
                               Amount          Rate        Amount        Rate
                               ------          ----        ------        ----
Maturing within:                                  (Unaudited)
                                                 (In thousands)
1 year                        $  1,400         4.15%     $  7,800        1.91%
2 years                         23,231         4.30        23,355        3.15
3 years                          2,220         5.21           235        4.92
4 years                            400         5.24        27,400        6.21
5 years and thereafter         112,785         5.73        85,785        5.57
                              --------         ----      --------        ----
                              $140,036         5.46%     $144,575        5.10%
                              ========         ====      ========        ====


At September  30,  2001,  and  December  31,  2001,  the Bank had pledged  first
mortgage  loans  and   mortgage-backed   securities   with  unpaid  balances  of
approximately $204.0 million and $192.6 million, respectively, as collateral for
FHLB  advances.  At September 30, 2001,  included in the one, two and four years
maturities  were  $109.0  million of  advances  subject to call  provisions.  At
December 31, 2001,  included in the one, two, 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.

(5)  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

RECONCILIATION OF AVERAGE SHARES OUTSTANDING
(Unaudited in thousands)
                                                        For the Quarter Ended December 31,

                                           2000                   2000     2001                  2001
                                           ----------------------------------------------------------
                                           BASIC               DILUTED     BASIC              DILUTED
                                           ----------------------------------------------------------

<S>                                        <C>              <C>            <C>             <C>
Weighted average shares outstanding        10,907,000       10,907,000     10,664,000      10,664,000
                                           ----------------------------------------------------------
Effective of Dilutive Securities:
Stock options                                    - -            90,000            - -         263,000
                                           ----------------------------------------------------------
                                           10,907,000       10,997,000     10,664,000      10,927,000
                                           ----------------------------------------------------------

</TABLE>


                                       11


<PAGE>


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


(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  December 31,  2001,  relates to
prepayment  penalties on advances from FHLB of $480,000,  net of income taxes of
$182,000.

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

FORWARD LOOKING STATEMENTS

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


                                       12


<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 DECEMBER 31, 2001
                     ---------------------------------------

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

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

The principal  sources of funds for the Company are cash flows from  operations,
consisting mainly of 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 investment  securities.  The Company originated
loans  receivable of $29.1 million for the three months ended December 31, 2000,
compared  to $99.3  million  for the  three  months  ended  December  31,  2001,
primarily  as a result  of  reduced  interest  rates.  A portion  of these  loan
originations were financed through loan principal repayments,  which amounted to
$19.9 million and $36.3  million for the three month periods ended  December 31,
2000 and 2001, respectively. In addition, the Company sells certain loans in the
secondary  market to finance future loan  originations.  Generally,  these loans
have consisted only of mortgage  loans,  which have been  originated  within the
previous  year.  For the three month period ended December 31, 2000, the Company
sold $4.5  million in mortgage  loans held for sale,  compared to $28.4  million
sold for the three month period ended December 31, 2001.

For the three month period ended December 31, 2000, the Company  purchased $40.4
million in investment and mortgage-backed securities. For the three month period
ended December 31, 2001, the Company  purchased  $39.8 million in investment and
mortgage-backed securities.  These purchases were funded primarily by repayments
of $19.0  million  within  the  securities  portfolio  and  sales of  investment
securities of $39.7 million.

Overall  the Bank  experienced  a decrease of $9.2  million in deposits  for the
three month  period ended  December  31, 2001.  For the three month period ended
December 31, 2001,  transaction accounts decreased $13.8 million and certificate
accounts  increased  $4.6 million.  At December 31, 2001, the Company had $172.2
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.

At December 31, 2001, the Company had  commitments to originate $11.7 million in
mortgage  loans,  and $38.2 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal  operations.  Additionally,  at December 31,
2001, the Company had federal funds available of $10.0 million.

As a result of $2.5  million  in net  income,  less the cash  dividends  paid to
stockholders  of   approximately   $530,000,   treasury  stock   repurchases  of
approximately  $698,000  and the net  change in  unrealized  gain on  securities
available  for  sale,  net of  income  tax  of  $956,000,  stockholders'  equity
increased  from $57.2 million at September 30, 2001 to $57.6 million at December
31, 2001.

OTS  regulations  require  that  the  Bank  calculate  and  maintain  a  minimum
regulatory capital requirement on a quarterly basis and satisfy such requirement
as of the calculation  date and throughout the quarter.  The Bank's capital,  as
calculated under OTS regulations, is approximately $57.2 million at December 31,
2001,  exceeding the core capital  requirement by $26.6 million. At December 31,
2001, the Bank's risk-based capital of approximately  $62.8 million exceeded its
current   risk-based  capital   requirement  by  $25.7  million.   (For  further
information see Regulatory Capital Matters)

GENERAL
-------

Net income  increased  from $2.2 million for the three months ended December 31,
2000, to $2.5 million for three months ended  December 31, 2001,  or 11.0%.  Net
interest  income  increased $1.5 million  primarily as a result of a decrease of
$2.3 million in interest income and a $3.8 million decrease in interest expense.
Provision  for loan losses was $270,000 for the three months ended  December 31,
2000 compared to $250,000 for the quarter ended December 31, 2001.  Other income
increased $535,000.  General and administrative expense was $4.1 million for the
quarter  ended  December 31, 2000 compared to $5.3 million for the quarter ended
December 31, 2001.


                                       13


<PAGE>


PART1.     FINANCIAL INFORMATION
Item 2.    COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 2000 AND 2001

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

Interest income for the three months ended December 31, 2001, decreased to $13.4
million as compared to $15.7  million for the three  months  ended  December 31,
2000.  The earning asset yield for the three months ended December 31, 2001, was
7.55% compared to a yield of 8.61% for the three months ended December 31, 2000.
The average yield on loans  receivable  for the three months ended  December 31,
2001,was  8.01%  compared to 9.17% for the three months ended December 31, 2000.
The yield on investments  decreased to 6.43% for the three months ended December
31, 2001, from 7.19% for the three months ended December 31, 2000. Total average
interest-earning  assets were $714.6  million for the quarter ended December 31,
2001 as compared to $737.7  million for the quarter ended December 31, 2000. The
decrease in average  interest-earning  assets is primarily  due to a decrease in
average  loans  receivable  of   approximately   $11.6  million  and  investment
securities of approximately $4.9 million.

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

Interest expense on interest-bearing  liabilities was $5.7 million for the three
months ended  December  31,  2001,  as compared to $9.4 million for December 31,
2000. The average cost of deposits for the three months ended December 31, 2001,
was 2.73%  compared to 4.41% for the three months ended  December 31, 2000.  The
cost of  interest-bearing  liabilities  was  3.28% for the  three  months  ended
December 31, 2001, as compared to 5.25% for the three months ended  December 31,
2000. The cost of FHLB advances and reverse repurchase  agreements was 5.38% and
2.85%, respectively, for the three months ended December 31, 2001. For the three
months ended December 31, 2000, the cost of FHLB advances and reverse repurchase
agreements  was 6.48% and 6.71%,  respectively.  Total average  interest-bearing
liabilities decreased from $716.5 million at December 31, 2000 to $691.2 million
at December 31, 2001.  The decrease in average  interest-bearing  liabilities is
due to an increase in average deposits of approximately $97.4 million.  This was
offset primarily by a decrease in reverse repurchase agreements of $57.2 million
and FHLB advances of $72.9 million.

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

Net interest  income was $7.7  million for the three  months ended  December 31,
2001, as compared to $6.2 million for the three months ended  December 31, 2000.
The net interest  margin was 4.27% for the three months ended December 31, 2001,
compared  to 3.37%  for the three  months  ended  December  31,  2000.  With the
reduction in interest rates, resulting from the Federal Reserve Board's decision
to reduce the discount  rate,  it is expected  that the Bank's yield on interest
earning assets and cost of deposits and borrowings  will decline.  Consequently,
it is expected that a substantial  portion of the Bank's loan  portfolio will be
subject to  refinancing  at lower rates.  Should  refinancing  of loans at lower
rates  and  repricing  of loans  tied to prime or  treasury  rates  outpace  the
repricing of deposits and borrowings the Bank could  experience a  significantly
reduced  margin in the  future.  Should the Federal  Reserve  continue to reduce
rates, the Bank could experience reductions in its net interest margin.

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

The provision  for loan losses was $270,000 for the three months ended  December
31, 2000 compared to $250,000 for the three months ended  December 31, 2001. For
the three months ended December 31, 2001, net charge-offs were $165,000 compared
to net charge-offs of $173,000 for the three months ended December 31, 2000. The
allowance  for loan losses as a percentage  of total loans was 1.41% at December
31,  2001,  compared to 1.42% at  September  30, 2001 and 1.36% at December  31,
2000. Loans delinquent 90 days or more were 1.04% of total loans at December 31,
2001,  compared to .64% at September 30, 2001. The allowance for loan losses was
135% of loans  delinquent more than 90 days at December 31, 2001, 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.


                                       14


<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 DECEMBER 31, 2000 AND 2001

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

For the three  months ended  December  31,  2001,  other income was $2.2 million
compared to $1.6  million for the three months  ended  December  31, 2000.  As a
result of increased transaction account balances of approximately $86.6 million,
fees and service  charges  from  deposit  accounts  were  $768,000 for the three
months ended December 31, 2001,  compared to $551,000 for the three months ended
December 31, 2000.  As a result of increased  loan sales,  gain on sale of loans
was $556,000 for the quarter ended  December 31, 2001,  compared to $150,000 for
the quarter  ended  December  31, 2000.  The Bank's  margin on loans sold in the
secondary market has improved as a result of the low interest rate  environment.
Gain on sales of  securities  was  $131,000 for the quarter  ended  December 31,
2001,  compared to $30,000 for the quarter ended December 31, 2000. Other income
was  $824,000 for the three  months  ended  December  31,  2001,  as compared to
$997,000 for the three months ended December 31, 2000.

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

General and  administrative  expenses  were $4.1  million for the quarter  ended
December 31, 2000  compared to $5.3 million for the quarter  ended  December 31,
2001.  Salaries  and  employee  benefits  were $2.4 million for the three months
ended  December 31, 2000, as compared to $3.0 million for the three months ended
December  31,  2001  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
$184,000 when  comparing the two periods.  Other  expenses were $1.1 million for
the quarter ended December 31, 2001,  compared to $737,000 for the quarter ended
December 31, 2000.

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

Income taxes were $1.3  million for the three  months  ended  December 31, 2000,
compared to $1.6 million for the three months ended December 31, 2001.


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

The  extraordinary  item for the quarter  ended  December  31,  2001  relates to
penalties  incurred from the early  repayment of advances from FHLB of $480,000,
net of income taxes of $182,000.


                                       15


<PAGE>


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


REGULATORY CAPITAL MATTERS
--------------------------

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

<TABLE>
<CAPTION>
                                                                                           Categorized as "Well
                                                                                            Capitalized" Under
                                                                     For Capital            Prompt Corrective
                                            Actual                Adequacy Purposes          Action Provision
                                            ------                -----------------          ----------------

                                    Amount         Ratio        Amount          Ratio      Amount          Ratio
                                    ------         -----        ------          -----      ------          -----

                                                                (Dollars In Thousands)

<S>                                 <C>             <C>            <C>             <C>        <C>             <C>
As of December 31, 2001:
Total Capital:                      $62,777         13.53%         $38,089         8.00%      $47,611         10.00%
  (To Risk Weighted Assets)
Tier 1 Capital:                     $57,174         12.32%             N/A          N/A       $28,566          6.00%
  (To Risk Weighted Assets)
Tier 1 Capital:                     $57,174          7.48%         $30,662         4.00%      $38,328          5.00%
  (To Total Assets)
Tangible Capital:                   $57,174          7.48%         $11,498         1.50%          N/A            N/A
  (To Total Assets)


</TABLE>



                                       16


<PAGE>


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


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 will also require
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 has not yet
determined the impact from adoption.


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.


                                       17


<PAGE>


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


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

At  December  31,  2001,  no  material  changes  have  occurred  in market  risk
disclosures included in the Company's Annual Report to Stockholders for the year
ended September 30, 2001,  filed as an exhibit to the Company's Annual Report on
form 10-K.


                                       18


<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.


                                       19


<PAGE>


PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K

  (a)  Exhibits

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

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

           (c)         Bylaws of Coastal Financial Corporation (1)

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

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

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

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

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

           (f)         1990 Stock Option Plan (2)

           (g)         Directors Performance Plan (3)

           (h)         Loan Agreement with Bankers Bank (5)

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


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

_____________


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

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

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

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

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


                                       20


<PAGE>


PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

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

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

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


                                       21


<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

February 14, 2002                     /s/ Michael C. Gerald
-----------------                         --------------------------------------
Date                                      Michael C. Gerald
                                          President and Chief Executive Officer

February 14, 2002                     /s/ Jerry L. Rexroad
-----------------                         --------------------------------------
Date                                      Jerry L. Rexroad
                                          Executive Vice President and
                                          Chief Financial Officer


                                       22