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, 1997

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

               For the transition period from ________ to __________

                         Commission File Number: 0-19684

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


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


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

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

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

                           YES    [ X ]        NO    [   ]


         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of (December 31, 1997).

Common Stock $.01 Par Value Per Share                         4,674,325 Shares
--------------------------------------------------------------------------------
            (Class)                                             (Outstanding)
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997

TABLE OF CONTENTS                                                           

PART I-      Consolidated Financial Information

Item
       1.    Consolidated Financial Statements (unaudited):

             Consolidated Statements of Financial Condition
             as of September 30, 1997 and December 31, 1997                 

             Consolidated Statements of Operations for the three
             months ended December 31, 1996 and 1997                        

             Consolidated Statements of Cash Flows for the three
             months ended December 31, 1996 and 1997                        

             Consolidated Statements of Stockholders' Equity                

             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,   December 31,
                                                             1997           1997
                                                        ---------      ---------
                                                                (Unaudited)
                                                          (Dollars in thousands)
<S>                                                     <C>            <C>
ASSETS:
Cash & amounts due from banks .....................     $  12,852      $  18,397
Short-term interest-bearing deposits ..............           559          2,175
Investment securities available for sale ..........        26,171         30,915
Mortgage-backed securities available for sale .....        23,023         72,982
Loans receivable (net of allowance for
   loan losses of $4,902 at September 30,
   1997 and $5,072 at December 31, 1997) ..........       403,570        411,519
Loans receivable held for sale ....................         8,359          6,806
Real estate acquired through foreclosure ..........           250            254
Office property and equipment, net ................         7,561          7,864
Federal Home Loan Bank stock, at cost .............         5,618          6,518
Accrued interest receivable on loans ..............         2,814          2,674
Accrued interest receivable on investments ........           452            809
Other assets and deferred charges .................         2,774          2,953
                                                        ---------      ---------
                                                        $ 494,003      $ 563,866
                                                        =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits ..........................................     $ 347,116      $ 343,748
Securities sold under agreements to
   repurchase .....................................         2,666         45,496
Advances from Federal Home Loan Bank ..............       101,478        130,358
Other borrowings ..................................         2,193          2,665
Drafts outstanding ................................         1,018          1,265
Advances by borrowers for property taxes
  and insurance ...................................         1,409            495
Accrued interest payable ..........................           952          1,071
Other liabilities .................................         4,780          5,080
                                                        ---------      ---------
  Total liabilities ...............................       461,612        530,178
                                                        ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)

                                                       September 30,   December 31,
                                                             1997           1997
                                                        ---------      ---------
                                                                (Unaudited)
                                                          (Dollars in thousands)
<S>                                                     <C>            <C>

STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued ........................          --             --
Common stock, $.01 par value, 5,000,000
   shares authorized;  4,646,534 shares at
   September 30, 1997 and 4,674,325 shares
   at December 31, 1997 issued and outstanding ....            46             46
Additional paid-in capital ........................         8,698          8,730
Retained earnings .................................        23,402         24,453
Treasury stock, at cost (9,760 shares) ............          (182)          --
Unrealized gain on securities available
  for sale, net of income taxes ...................           427            459
                                                        ---------      ---------
  Total stockholders' equity ......................        32,391         33,688
                                                        ---------      ---------
                                                        $ 494,003      $ 563,866
                                                        =========      =========
</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 DECEMBER 31, 1996 AND 1997

                                                        1996             1997
                                                     -----------      -----------
                                                             (Unaudited)
                                                         (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>
Interest income:
   Loans receivable ............................     $     8,121      $     8,977
  Investment securities ........................             289              468
   Mortgage-backed securities ..................             488              652
   Other .......................................              99               80
                                                     -----------      -----------
   Total interest income .......................           8,997           10,177
                                                     -----------      -----------

Interest expense:
   Deposits ....................................           3,342            3,602
   Securities sold under agreement to
     repurchase ................................              25              333
   Advances from Federal Home Loan Bank ........           1,352            1,476
   Other borrowings ............................              91               36
                                                     -----------      -----------
  Total interest expense .......................           4,810            5,447
                                                     -----------      -----------
   Net interest income .........................           4,187            4,730
Provision for loan losses ......................             230              190
                                                     -----------      -----------
   Net interest income after provision
     for loan losses ...........................           3,957            4,540
                                                     -----------      -----------
Other income:
   Fees and service charges ....................             426              483
   Loss from real estate owned .................             (55)             (20)
   Income from real estate held for investment .             327              218
   Gain on sale of loans receivable, net .......             228              357
   Gain on sale of securities available for sale              18               16
   Other income ................................             419              461
                                                     -----------      -----------
                                                           1,363            1,515
                                                     -----------      -----------
General and administrative expenses:
   Salaries and employee benefits ..............           1,688            1,884
   Net occupancy, furniture and fixtures
     and data processing expense ...............             760              789
   FDIC insurance premium ......................             129               52
   Other expenses ..............................             731              753
                                                     -----------      -----------
                                                           3,308            3,478
                                                     -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

                                                        1996             1997
                                                     -----------      -----------
                                                             (Unaudited)
                                                         (Dollars in thousands,
                                                         except per share data)
<S>                                                  <C>              <C>
Earnings before income taxes ...................           2,012            2,577

Income taxes ...................................             734              950
                                                     -----------      -----------

Net income .....................................     $     1,278      $     1,627
                                                     ===========      ===========

Earnings per common share
  Basic ........................................     $       .28      $       .35
                                                     ===========      ===========
  Diluted ......................................     $       .26      $       .33
                                                     ===========      ===========

Common Shares Outstanding ......................       4,603,000        4,674,000
                                                     ===========      ===========

Weighted average common equivalent
  shares outstanding ...........................       4,841,000        4,911,000
                                                     ===========      ===========

Dividends per share ............................     $     .0825      $       .09
                                                     ===========      ===========
</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 THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

                                                         1996              1997
                                                       --------        --------
                                                              (Unaudited)
                                                            (In thousands)
<S>                                                    <C>             <C>
Cash flows from operating activities:
  Net earnings .................................       $  1,278        $  1,627
  Adjustments to reconcile net earnings
       to net cash provided by
      operating activities:
       Income from real estate
        held for investment ....................           (327)           (218)
       Depreciation ............................            213             239
       Provision for loan losses ...............            230             190
Origination of loans receivable
         held for sale .........................        (10,904)        (12,661)
Proceeds from sales of loans receivable
         held for sale .........................         11,647          14,214
(Increase) decrease in:
      Other assets and deferred charges ........            (82)           (179)
      Accrued interest receivable ..............            (24)           (217)
Increase (decrease) in:
      Accrued interest payable .................            (27)            119
     Other liabilities .........................           (746)            300
                                                       --------        --------

        Net cash provided by
             operating activities ..............          1,258           3,414
                                                       --------        --------
Cash flows from investing activities:
  Purchases of investment securities
       available for sale ......................         (1,502)         (8,808)
  Proceeds from sales of investment
       securities available for sale ...........           --             1,000
 Proceeds from maturities of investment
      securities available for sale ............          4,356           3,113
  Purchases of mortgage-backed securities
       available for sale ......................         (2,411)        (58,306)
 Proceeds from sales of mortgage-backed
       securities available for sale ...........           --             7,151
  Origination of loans receivable, net .........        (32,145)        (50,946)
  Purchase of loans receivable .................           --            (2,068)
  Principal collected on loans receivable
       and mortgage-backed securities, net .....         28,050          46,088
  Proceeds from sale of real estate
       acquired through foreclosure, net .......             65               4
  Purchases of office properties and
      equipment ................................           (343)           (542)
  Purchases (sales)of FHLB stock, net ..........            683            (900)
  Other investing activities, net ..............             51            --
                                                       --------        --------

      Net cash used in
             investing activities ..............         (3,196)        (64,214)
                                                       --------        --------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997 (CONTINUED)

                                                  1996          1997
                                                --------      --------
                                                     (Unaudited)
                                                   (In thousands)
<S>                                             <C>           <C>
Cash flows from financing activities:
  Increase (decrease) in deposits, net ....     $  8,618      $ (3,368)
  Increase (decrease) in securities sold
   under agreement to repurchase, net .....         (618)       42,830
  Proceeds from FHLB advances .............       21,000        82,080
  Repayment of FHLB advances ..............      (34,650)      (53,200)
  Proceeds from other borrowings ..........        1,587           472
  Decrease in advance payments by borrowers
     for property taxes and insurance .....       (1,005)         (914)
  Decrease in drafts outstanding, net .....       (1,163)          247
  Dividend to stockholders ................         (380)         (416)
  Other financing activities, net .........        1,129           230
                                                --------      --------
  Net cash (used in) provided by ..........       (5,482)       67,961
                                                --------      --------
    financing activities

Net increase (decrease)
   in cash and cash equivalents ...........       (7,420)        7,161
                                                --------      --------
Cash and cash equivalents at beginning
  of the period ...........................       20,861        13,411
                                                --------      --------
Cash and cash equivalents at end
  of the period ...........................     $ 13,441      $ 20,572
                                                ========      ========

Supplemental information:
  Interest paid ...........................     $  4,837      $ 10,058
                                                ========      ========

  Income taxes paid .......................     $     20      $    216
                                                ========      ========

Supplemental schedule of non-cash investing
  and financing transactions:
  Transfer of mortgage loans to real estate
     acquired through foreclosure .........     $    --       $      8
                                                ========      ========


</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

                                          Additional                                              Total
                                Common     Paid-In       Retained       Treasury               Stockholders'
                                Stock      Capital       Earnings        Stock        Other       Equity
                              --------     --------      --------      --------     --------      --------
                                                              (Unaudited)
                                                             (In thousands)
<S>                           <C>          <C>          <C>           <C>           <C>          <C>
Balance at September
  30, 1996 ..............     $     46     $  8,698     $ 20,015      $ (1,185)     $    107     $ 27,681
Exercise of stock
  options ...............         --           --           (786)        1,003          --            217
Cash paid for fractional
  shares ................         --           --            (18)         --            --            (18)
Cash dividends ..........         --           --         (1,600)         --            --         (1,600)
Unrealized gain on
  securities available
  for sale, net of
  income taxes ..........         --           --           --            --             320          320
Net income ..............         --           --          5,791          --            --          5,791
                              --------     --------      --------      --------     --------      --------
Balance at September
  30, 1997 ..............     $     46     $  8,698     $ 23,402      $   (182)     $    427     $ 32,391
Exercise of stock
  options ...............         --             32         (160)          182          --             54
Cash dividends ..........         --           --           (416)         --            --           (416)
Change in unrealized gain
  on securities available
  for sale, net of
  income taxes ..........         --           --           --            --              32           32
Net income ..............         --           --          1,627          --            --          1,627
                              --------     --------      --------      --------     --------      --------

Balance at December
   31, 1997 .............     $     46     $  8,730     $ 24,453      $   --        $    459      $ 33,688
                              ========     ========      ========      ========     ========      ========
</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 month  period  ended
December 31, 1997 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, 1997,  included in
the Company's 1997 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 consist of the following:
<TABLE>
<CAPTION>
                                                    September 30,     December 31,
                                                         1997            1997
                                                             (Unaudited)
                                                           (In thousands)
<S>                                                   <C>             <C>
First mortgage loans:
   Single family to 4 family units .............      $ 237,964       $ 250,755
   Other, primarily commercial
    real estate ................................         97,680          94,292
   Construction loans ..........................         34,216          30,624
Consumer and commercial loans:
   Installment consumer loans ..................         24,378          23,090
   Mobile home loans ...........................          1,291           1,220
   Deposit account loans .......................          1,336           1,387
   Equity lines of credit ......................         15,294          16,219
   Commercial and other loans ..................         10,939          10,745
                                                      ---------       ---------
                                                        423,098         428,332
Less:
   Allowance for loan losses ...................          4,902           5,072
   Deferred loan fees (costs) ..................           (458)           (564)
   Undisbursed portion of loans in process .....         15,084          12,305
                                                      ---------       ---------
                                                      $ 403,570       $ 411,519
                                                      =========       =========
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The changes in the  allowance  for loan losses  consist of the following for the
three months ended:
<TABLE>
<CAPTION>

                                                             December 31,
                                                     --------------------------
                                                      1996                1997
                                                     -------            -------
                                                             (Unaudited)
                                                           (In thousands)
<S>                                                  <C>                <C>

Beginning allowances .....................           $ 4,172            $ 4,902
Provision for loan losses ................               230                190
Allowance on acquired loans ..............              --                   29
Loan recoveries ..........................                29                  2
Loan charge-offs .........................               (54)               (51)
                                                     -------            -------

Ending allowance .........................           $ 4,377            $ 5,072
                                                     =======            =======
</TABLE>

(3)  DEPOSITS

Deposits consist of the following:
<TABLE>
<CAPTION>


                                     September 30, 1997       December 31, 1997
                                  ----------------------    ---------------------
                                                Weighted                 Weighted
                                    Amount        Rate      Amount          Rate
                                  --------        ----      --------       ----
                                                   (Unaudited)
                                                 (In thousands)
<S>                               <C>             <C>       <C>            <C>
Transaction accounts .......      $167,014        3.10%     $170,815       3.34%
Passbook accounts ..........        39,445        2.62        36,904       2.51
Certificate accounts .......       140,657        5.58       136,029       5.66
                                  --------        ----      --------       ----
                                  $347,116        4.02%     $343,748       4.17%
                                  ========        ====      ========       ====
</TABLE>

(4)  ADVANCES FROM FEDERAL HOME LOAN BANK
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>

                                     September 30, 1997       December 31, 1997
                                  ----------------------    ---------------------
                                                Weighted                 Weighted
                                    Amount        Rate      Amount          Rate
                                  --------        ----      --------       ----
                                                   (Unaudited)
                                                 (In thousands)
Maturing within:                                       
<S>                               <C>             <C>       <C>            <C>
1 year .....................      $ 23,620        6.15 %    $ 28,484       6.32%
2 years ....................        28,435        6.06        23,951       5.61
3 years ....................         6,761        6.45         5,861       6.47
4 years ....................         7,646        6.49         8,846       5.99
5 years and thereafter .....        35,016        6.79        63,216       5.31
                                  --------        ----      --------       ----
                                  $101,478        5.86%     $130,358       5.68%
                                  ========        ====      ========       ====
</TABLE>


At September  30,  1997,  and  December  31,  1997,  the Bank had pledged  first
mortgage loans with unpaid balances of  approximately  $213.9 million and $205.8
million,  respectively,  as collateral for FHLB advances. At September 30, 1997,
included in the five years and thereafter maturity were $25.0 million subject to
call provisions. At December 31, 1997, included in the five years and thereafter
maturity were $50.0 million were subject to call provisions. Call provisions are
more likely to be exercised by the FHLB when rates rise.

(5)  EARNINGS PER SHARE

Diluted  earnings per share for the three month periods ended  December 31, 1996
and 1997,  are computed by dividing net earnings by the weighted  average common
equivalent  shares  outstanding  during the  respective  periods.  Common  share
equivalents include dilutive common stock option share equivalents determined by
using  the  treasury  stock  method.  All  share  and per  share  data have been
retroactively restated for all common stock dividends.


(6)  COMMON STOCK DIVIDENDS

On May 30, 1995,  the Company  declared a 5% common stock  dividend  aggregating
102,003  shares.  On January 9, 1996 and June 20, 1996,  the Company  declared a
five for four  stock  splits in the form of a 25% stock  dividends,  aggregating
approximately 542,000 and 687,000 shares,  respectively.  On April 30, 1997, the
Company  declared  a four for  three  stock  split  in the  form of a 33%  stock
dividend,  aggregating  approximately  1,160,000 shares. All share and per share
data  has  been  retroactively  restated  to give  effect  to the  common  stock
dividends.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

DISCUSSION OF FINANCIAL  CONDITION  CHANGES FROM  SEPTEMBER 30, 1997 TO DECEMBER
31, 1997

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 economy (particularly in the markets served by the Company).

GENERAL

The Company  reported  $1.6  million in net  earnings for the three months ended
December 31, 1997, compared to net earnings of $1.3 million for the three months
ended December 31, 1996. Net interest income increased  $543,000  primarily as a
result of an increase in interest  income of $1.2 million which was offset by an
increase in interest  expense of $637,000.  Provision for loan losses  decreased
from $230,000 for the three months ended  December 31, 1996, to $190,000 for the
three months ended December 31, 1997.  Other income  increased from $1.4 million
for the three  months ended  December  31,  1996,  to $1.5 million for the three
months ended December 31, 1997.  General and  administrative  expenses increased
from $3.3 million for the three months ended  December 31, 1996, to $3.5 million
for the three months ended December 31, 1997.

Liquid assets,  consisting of cash,  interest-bearing  deposits,  and investment
securities  available  for sale,  increased  from $62.6 million at September 30,
1997, to $124.5 million at December 31, 1997.


LIQUIDITY AND CAPITAL RESOURCES

In accordance with Office of Thrift Supervision (OTS)  regulations,  the Company
is required to maintain  specific  levels of cash and  "liquid"  investments  in
qualifying  types of United States  Treasury and Federal  Agency  Securities and
other  investments  generally  having  maturities  of five  years or  less.  The
required  level  of  such  investments  is  calculated  on  a  "liquidity  base"
consisting of net withdrawable accounts and short-term borrowings,  and is equal
to 4% of such amount.

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.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

The  principal  use of cash flows is the  origination  of loans  receivable  and
purchase of securities. The Company originated loans receivable of $43.0 million
for the three months ended December 31, 1996,  compared to $63.6 million for the
three months ended  December 31, 1997.  The majority of these loan  originations
were financed through loan and mortgage-backed  securities  principal repayments
which  amounted to $28.1  million and $46.1  million for the three month periods
ended December 31, 1996 and 1997,  respectively.  In addition, the Company sells
certain  loans in the  secondary  market to finance  future  loan  originations.
Generally,  these loans have  consisted  only of mortgage  loans which have been
originated in the current period.  For the three month period ended December 31,
1996, the Company sold $11.6 million in mortgage loans compared to $12.7 million
sold for the three month period ended December 31, 1997.

For the three month period ended December 31, 1996,  the Company  purchased $3.9
million in investment and mortgage-backed securities. For the three month period
ended December 31, 1997, the Company  purchased  $67.1 million in investment and
mortgage-backed  securities.  The investment  securities purchased generally had
maturities less than five years. The mortgage-backed  securities  purchased were
primarily  secured by one year ARMs.  These purchases were funded primarily with
reverse repurchase agreements and FHLB advances.

The Bank  experienced a decrease of $3.4 million in deposits for the three month
period ended December 31, 1997,  primarily as a result of decreased  certificate
of deposit  accounts.  During fiscal 1997,  the Company  funded a portion of its
loan growth and increase in securities available for sale with advances from the
FHLB and reverse repurchase agreements.

At December 31, 1997,  the Company had  commitments to originate $3.9 million in
mortgage  loans,  and $30.7 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations.

At December 31, 1997, the Company had $105.3 million of certificates of deposits
which were due to mature within one year.  Based upon previous  experience,  the
Company  believes  that a major portion of these  certificates  will be renewed.
Additionally, at December 31, 1997, the Company had pledged first mortgage loans
in the amount of $205.8  million to the FHLB which could  support  approximately
$24.0 million in additional advances.

As  a  condition  of  deposit  insurance,   current  Federal  Deposit  Insurance
Corporation(FDIC)  regulations  require that the Bank  calculate  and maintain a
minimum  regulatory  capital  requirement on a quarterly  basis and satisfy such
requirement as of the  calculation  date and throughout the quarter.  The Bank's
capital is approximately $33.7 million at December 31, 1997,  exceeding tangible
and core capital requirements by $25.3 million and $16.9 million,  respectively.
At December 31,  1997,  the Bank's  risk-based  capital of  approximately  $37.4
million exceeded its current  risk-based  capital  requirement by $10.4 million.
(For further information see Regulatory Matters).
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF OPERATIONS  FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1997

GENERAL

Net income  increased  from $1.3 million for the three months ended December 31,
1996, to $1.6 million for three months ended  December 31, 1997,  or 27.3%.  Net
interest income increased  $543,000 primarily as a result of an increase of $1.2
million in interest  income offset by a $637,000  increase in interest  expense.
Provision  for loan  losses  decreased  from  $230,000  for three  months  ended
December  31, 1996,  to $190,000  for the three months ended  December 31, 1997.
Other income increased  $152,000  primarily as a result of increased income from
gain on sale of loans.

INTEREST INCOME

Interest income for the three months ended December 31, 1997, increased to $10.2
million as compared to $9.0  million for the three  months  ended  December  31,
1996.  The earning asset yield for the three months ended December 31, 1997, was
8.41% compared to a yield of 8.39% for the three months ended December 31, 1996.
The average yield on loans  receivable  for the three months ended  December 31,
1997,  was 8.71% compared to 8.57% for the three months ended December 31, 1996.
The  increase  in  yield  primarily  resulted  from  repricing  of  teaser  rate
adjustable-rate  mortgage  loans  originated in 1996.  The yield on  investments
decreased to 6.72% for the three months ended December 31, 1997,  from 6.76% for
the three months ended December 31, 1996. Total average  interest-earning assets
were $487.3  million for the quarter  ended  December 31,  1997,  as compared to
$431.6  million for the quarter ended December 31, 1996. The increase in average
interest-earning  assets is due to an increase in average  loans  receivable  of
approximately  $33.2  million,   investment  securities  of  $10.8  million  and
mortgage-backed securities of $13.1 million.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $5.4 million for the three
months ended  December  31,  1997,  as compared to $4.8 million for December 31,
1996. The average cost of deposits for the three months ended December 31, 1997,
was 4.18%  compared to 4.17% for the three months ended  December 31, 1996.  The
cost on  interest-bearing  liabilities  was  4.61% for the  three  months  ended
December 31, 1997, as compared to 4.59% for the three months ended  December 31,
1996. The cost of FHLB advances and reverse repurchase  agreements was 5.82% and
5.77%, respectively, for the three months ended December 31, 1997. For the three
months ended December 31, 1996, the cost was 6.07% and 5.36% respectively. Total
average  interest-bearing  liabilities increased from $417.5 million at December
31,  1996 to $470.3  million at  December  31,  1997.  The  increase  in average
interest  bearing  liabilities  is due to an  increase  in average  deposits  of
approximatley  $24.4  million,  FHLB  advances  of  $12.4  million  and  reverse
repurchase agreements of $16.2 million.

NET INTEREST INCOME

Net interest  income was $4.7  million for the three  months ended  December 31,
1997, as compared to $4.2 million for the three months ended  December 31, 1996.
The net interest  margin  remained  constant at 3.80% for the three months ended
December 31, 1996 and 1997.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

PROVISION FOR LOAN LOSSES

The  provision  for loan losses  decreased  from  $230,000  for the period ended
December 31, 1996, to $190,000 for the three months ended December 31, 1997. For
the three months ended December 31, 1997, net charge-offs  were $49,000 compared
to net  charge-offs of $25,000 for the three months ended December 31, 1996. The
allowance  for loan losses as a percentage  of total loans was 1.22% at December
31, 1997,  compared to 1.19% at September 30, 1997.  Loans delinquent 90 days or
more  were  .75% of total  loans  at  December  31,  1997,  compared  to .06% at
September 30, 1997.  The allowance for loan losses was 184% of loans  delinquent
more than 90 days at December 31, 1997,  as compared to 1,906% at September  30,
1997.  Non  performing  loans  included two  significant  loans with balances of
approximately  $2.3  million  dollars.   The  Bank  has  initiated   foreclosure
proceedings on both properties. At the present time, management does not know if
or when the loans will become performing.  However, the Bank does not expect any
material losses or charge-offs in regard to the loans.  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 December 31, 1997,  other income  increased  11.2% to
$1.5 million  compared to $1.4  million for the three months ended  December 31,
1996.  Fees and service charges were $483,000 for the quarter ended December 31,
1997, compared to $426,000 for the quarter ended December 31, 1996. Gain on sale
of loans was $357,000  for the quarter  ended  December  31,  1997,  compared to
$228,000  for the quarter  ended  December  31,  1996,  as a result of increased
volume in the Company's  mortgage  subsidiary.  These were partially offset by a
decrease in income from real estate held for investment of $109,000.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased from $3.3 million for the three
months  ended  December  31,  1996,  to $3.5  million for the three months ended
December 31, 1997.  Salaries and employee  benefits  increased from $1.7 million
for the three  months ended  December  31,  1996,  to $1.9 million for the three
months ended December 31, 1997 primarily due to increased  personnel in lending.
Net occupancy,  furniture and fixtures and data  processing  expenses  increased
$29,000 when comparing the two periods.  FDIC  insurance  premiums were $129,000
for the quarter  ended  December 31,  1996,  compared to $52,000 for the quarter
ended December 31, 1997 as a result of the  recapitalization  of the SAIF during
1996.  As a result  of the  recapitalization  the  Company's  deposit  insurance
premiums  decreased from .23% of insured deposits to .065% of insured  deposits.
Other expenses were $753,000 for the quarter ended  December 31, 1997,  compared
to $731,000 for the quarter ended December 31, 1996.

INCOME TAXES

Income taxes  increased  from  $734,000 for the three months ended  December 31,
1996,  to $950,000 for the three months ended  December 31, 1997, as a result of
increased income before taxes.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

REGULATORY MATTERS

 Under the FDICIA prompt corrective action provisions applicable to banks, to be
categorized  as  "Well  Capitalized",  the  institution  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
                                    ------         -----           ------               -----              ------           -----
<S>                                <C>             <C>             <C>                   <C>               <C>              <C>
(Dollar In Thousands)

As of December 31, 1997:
 Total Capital:                    $37,361         11.09%          $26,956               8.00%             $33,695          10.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $33,747         10.02%             $N/A                N/A%             $20,217           6.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $33,747          5.98%          $16,916               3.00%             $28,193           5.00%
   (To Total Assets)
 Tangible Capital:                 $33,747          5.98%           $8,458               1.50%                $N/A            N/A%
   (To Total Assets)

</TABLE>

<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In February  1997,  the FASB issued SFAS No. 128,  Earnings per Share,  which is
effective for both interim and annual  periods  ending after  December 15, 1997.
This statement supersedes  Accounting  Principles Board Opinion No. 15, Earnings
per Share.  The purpose of this statement is to simplify  current  reporting and
make  U.S.  reporting  comparable  to  international  standards.  The  statement
requires  dual  presentation  of basic and diluted EPS by entities  with complex
capital  structures  (as defined by the  statement).  The Company  adopted  this
standard in fiscal 1998 which did not have a material affect on EPS.

Also, in February 1997, the FASB issued SFAS No. 129,  Disclosure of information
about Capital Structure, which is effective for financial statements for periods
ending  after  December  15,  1997.  This  statement  applies to both public and
nonpublic entities. The new statement requires no change for entities subject to
the existing requirements. The Company anticipates that adoption of the standard
will not have a material affect on the Company.

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial  Accounting  Standards  No. 130,  Reporting  Comprehensive  Income
(Statement 130).  Statement 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. Statement 130 is effective for both interim and
annual  periods  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 will adopt Statement 130 effective September 30, 1998.

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards No. 131,  Disclosures  about  Segments of an
Enterprise and Related  Information  (Statement 131).  Statement 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.  Statement  131 is  effective  for
financial  statements for periods  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.  Statement  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.  It is not anticipated  that
this standard will materially effect the Company.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997

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 began working on year 2000 compliance issues in early 1997. Its data
processor  is  currently  approximately  65%  complete  with their  programming.
Testing will begin in May 1998 and the Company  expects to be in full compliance
by December 31, 1999.  Internal  software  applications and hardware  compliance
issues will be resolved by December 31, 1998, to allow testing in early 1999. In
February 1998, the Company  engaged a national  consulting firm to assist in the
identification  and testing of year 2000  issues.  The  Company  believes it has
adequate  resources  and funds to address the year 2000  issues.  The Company is
also in the process of addressing  any loan  relationships  it believes could be
materially  effected  by year 2000  issues.  The Company  currently  expects the
expenses  related to addressing  the year 2000 issues to be between  $100,000 to
$200,000 and expects  additional  hardware and software capital  expenditures of
approximately  $100,000.  However,  no assurance can be given that such expenses
and capital expenditures will not exceed these expected amounts.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At  December  31,  1997,  no  material  changes  have  occurred  in market  risk
disclosures  included in the Company's form 10K for the year ended September 30,
1997.
<PAGE>
PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 1.  Legal Proceedings

     The Bank is a defendant in one significant lawsuit as summarized below.

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
cause of  action  is  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

     Not Applicable.

<PAGE>
PART II.  OTHER INFORMATION - CONTINUED
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 5.  Other Information

     Not Applicable.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

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

                  3  (b)   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 Richard L. Granger***

                     (g) Employment Agreement with Robert S. O'Harra***

                     (h)   1990 Stock Option Plan***

                     (i)   Directors Performance Plan****

                     (j)   Loan Agreement with Bankers Bank

                  27       Financial Data Schedule

     (b)  No reports on Form 8-K have been filed during the last quarter of the 
          fiscal year coverd 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 10K 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 10K filed with the  Securities
         and Exchange Commission on January 2, 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

Date   February 13, 1998                   /s/Michael C. Gerald 
                                           -------------------- 
                                           Michael C. Gerald
                                           President and Chief Executive Officer

Date   February 13, 1998                   /s/Jerry L. Rexroad  
                                           ------------------- 
                                           Jerry L. Rexroad   
                                           Executive Vice President and
                                           Chief Financial Officer