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, 2000

               [ ]        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, 2000.

Common Stock $.01 Par Value Per Share                 7,248,318 Shares
--------------------------------------------------------------------------------
(Class)                                                (Outstanding)



<PAGE>


COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2000

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

PART I- Consolidated Financial Information

Item

        1. Consolidated Financial Statements (unaudited):

           Consolidated Statements of Financial Condition
           as of September 30, 2000 and December 31, 2000                 3

           Consolidated Statements of Operations for the three
           months ended December 31, 1999 and 2000                        4

           Consolidated Statements of Cash Flows for the three
           months ended December 31, 1999 and 2000                      5-6

           Consolidated Statements of Stockholders' Equity
           and Comprehensive Income for the three months ended
           December 31, 1999 and 2000                                     7

           Notes to Consolidated Financial Statements                   8-11

        2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations                11-16

        3. Quantitative and Qualitative Disclosures about                 17
           Market Risk


Part II - Other Information

Item

        1. Legal Proceedings                                              18

        2. Changes in Securities and Use of Proceeds                      18

        3. Defaults Upon Senior Securities                                18

        4. Submission of Matters to a Vote of Securities Holders          18

        5. Other information                                              18

        6. Exhibits and Reports on Form 8-K                            19-20

Signatures                                                                21



                                       2
<PAGE>


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

                                                   September 30,    December 31,
                                                       2000            2000
                                                       ----            ----
                                                           (Unaudited)
                                                         (In thousands,
                                                        except share data)
ASSETS:

Cash and amounts due from banks                     $  14,999       $  11,847
Short-term interest-bearing deposits                    2,168           1,061
Investment securities available for sale                8,548           3,514
Mortgage-backed securities available for sale         189,239         198,954
Loans receivable (net of allowance for
   loan losses of $7,064 at September 30,
   2000 and $7,161 at December 31, 2000)              511,701         516,768
Loans receivable held for sale                         10,194           9,202
Real estate acquired through foreclosure                  867             766
Office property and equipment, net                     11,518          11,853
Federal Home Loan Bank stock, at cost                  11,899          11,899
Accrued interest receivable on loans                    3,117           3,331
Accrued interest receivable on investments              1,555           1,595
Other assets and deferred charges                       3,033           3,675
                                                    ---------       ---------
                                                    $ 768,838       $ 774,465
                                                    =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:

Deposits                                            $ 406,217       $ 429,353
Securities sold under agreements to
   repurchase                                          75,858          63,896
Advances from Federal Home Loan Bank                  225,224         215,323
Other borrowings                                        2,069           2,069
Drafts outstanding                                      2,475           1,348
Advances by borrowers for property taxes
  and insurance                                         1,257             189
Accrued interest payable                                2,531           3,053
Other liabilities                                       6,262           8,505
                                                    ---------       ---------
  Total liabilities                                   721,893         723,736
                                                    ---------       ---------
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued                                 --              --
Common stock, $.01 par value, 15,000,000
   shares authorized; 7,287,498 shares at
   September 30, 2000 and 7,248,318 shares
   at December 31, 2000 issued and outstanding             73              72
Additional paid-in capital                              9,780           9,780
Retained earnings                                      40,319          42,064
Treasury stock, at cost (161,316 and 200,496
   shares, respectively)                               (1,702)         (2,062)
Accumulated other comprehensive income
  (loss), net of tax                                   (1,525)            875
                                                    ---------       ---------
  Total stockholders' equity                           46,945          50,729
                                                    ---------       ---------
                                                    $ 768,838       $ 774,465
                                                    =========       =========


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, 1999 AND 2000

                                                  1999                2000
                                                  ----                ----
                                                         (Unaudited)
                                                        (In thousands,
                                                      except share data)
Interest income:
   Loans receivable                           $    10,273       $    11,998
   Investment securities                              525               623
   Mortgage-backed securities                       2,584             2,876
   Other                                              261               158
                                              -----------       -----------
   Total interest income                           13,643            15,655
                                              -----------       -----------

Interest expense:
   Deposits                                         3,758             4,755
   Securities sold under agreements to
     repurchase                                     1,569             1,190
   Advances from Federal Home Loan Bank             2,292             3,500
                                              -----------       -----------
   Total interest expense                           7,619             9,445
                                              -----------       -----------
   Net interest income                              6,024             6,210
   Provision for loan losses                          245               270
                                              -----------       -----------
   Net interest income after provision
     for loan losses                                5,779             5,940
                                              -----------       -----------

Other income:
   Fees and service charges                           567               551
   Loss from real estate owned                        (20)              (90)
   Gain on sale of loans receivable, net              191               150
   Gain on sale of securities
     available for sale                                11                30
   Other income                                       714               997
                                              -----------       -----------
                                                    1,463             1,638
                                              -----------       -----------
General and administrative expenses:
   Salaries and employee benefits                   2,297             2,415
   Net occupancy, furniture and fixtures
     and data processing expense                      979               928
   FDIC insurance premium                              58                20
   Other expenses                                     775               737
                                              -----------       -----------
                                                    4,109             4,100
                                              -----------       -----------
Earnings before income taxes                        3,133             3,478

Income taxes                                        1,128             1,261
                                              -----------       -----------
Net income                                    $     2,005       $     2,217
                                              ===========       ===========

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

Weighted average common shares
   outstanding - basic                          7,416,000         7,271,000
                                              ===========       ===========
Weighted average common shares
   outstanding - diluted                        7,536,000         7,331,000
                                              ===========       ===========
Dividends per share                           $      .064       $      .065
                                              ===========       ===========



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 2000

                                                       1999            2000
                                                       ----            ----
                                                           (Unaudited)
                                                          (In thousands)
Cash flows from operating activities:
  Net income                                        $  2,005       $  2,217
  Adjustments to reconcile net earnings
       to net cash provided by (used in)
      operating activities:
       Depreciation                                      335            364
       Provision for loan losses                         245            270
  Origination of loans receivable
       held for sale                                  (8,826)        (3,548)
  Proceeds from sales of loans receivable
       held for sale                                   6,291          4,540
(Increase) decrease in:
       Other assets and deferred charges               2,288           (642)
       Accrued interest receivable                        51           (254)
Increase (decrease) in:
       Accrued interest payable                        1,499            522
      Other liabilities                               (1,084)           773
                                                    --------       --------
       Net cash provided by (used in)
             operating activities                     (2,804)         4,242
                                                    --------       --------
Cash flows from investing activities:
  Purchases of investment securities
       available for sale                             (5,015)            --
  Proceeds from sales of investment
       securities available for sale                   2,000          5,225
  Purchases of mortgage-backed securities
       available for sale                            (27,300)       (40,408)
  Proceeds from sales of mortgage-backed
       securities available for sale                  20,031         27,601
  Origination of loans receivable, net               (37,838)       (25,508)
  Purchase of loans receivable                        (4,027)            --
  Principal collected on loans receivable, net        20,769         19,868
  Principal collected on mortgage-backed
       securities, net                                 6,612          6,771
  Proceeds from sale of real estate
       acquired through foreclosure, net                  96            404
  Proceeds from disposition of office
       properties and equipment                           --              8
Purchases of office properties and
       equipment                                        (746)          (707)
  Sales of FHLB stock, net                               562             --
                                                    --------       --------
       Net cash used in
             investing activities                    (24,856)        (6,746)
                                                    --------       --------

                                                                     (CONTINUED)
                                       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, 1999 AND 2000 (CONTINUED)

<TABLE>
<CAPTION>

                                                                               1999             2000
                                                                               ----             ----
                                                                                    (Unaudited)
                                                                                  (In thousands)
<S>                                                                          <C>             <C>
Cash flows from financing activities:
  Increase in deposits, net                                                  $  18,585       $  23,136
  Increase (decrease) in securities sold
   under agreement to repurchase, net                                           24,195         (11,962)
  Proceeds from FHLB advances                                                   86,650         204,000
  Repayment of FHLB advances                                                   (97,900)       (213,901)
  Decrease in advance payments by borrowers
     for property taxes and insurance, net                                        (934)         (1,068)
  Increase (decrease) in drafts outstanding, net                                   454          (1,127)
  Repurchase of treasury stock, at cost                                           (569)           (369)
  Dividends to stockholders                                                       (473)           (471)
  Exercise of stock options                                                        322               7
  Other financing activities, net                                                1,028              --
                                                                             ---------       ---------
   Net cash provided by (used in) financing                                     31,358          (1,755)
    activities                                                               ---------       ---------

Net increase (decrease) in cash and cash
    equivalents                                                                  9,306          (4,259)
                                                                             ---------       ---------
Cash and cash equivalents at beginning
  of the period                                                                 24,233          17,167
                                                                             ---------       ---------
Cash and cash equivalents at end
  of the period                                                              $  33,539       $  12,908
                                                                             =========       =========
Supplemental information:
  Interest paid                                                              $   6,120       $   8,923
                                                                             =========       =========
  Income taxes paid                                                          $     276       $     427
                                                                             =========       =========

Supplemental schedule of non-cash investing and financing transactions:

  Transfer of mortgage loans to real estate
     acquired through foreclosure                                            $      --       $     303
                                                                             =========       =========

Securitization of mortgage loans into
     mortgage-backed securities                                              $   6,205       $      --
                                                                             =========       =========
</TABLE>


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       6
<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, 1999                      $     74       $  9,313      $   (356)      $ 34,288       $ (2,082)      $ 41,237
Net income                            --             --            --          2,005             --          2,005
Other comprehensive
 income, net of tax:
Unrealized losses arising
 during period, net of
 taxes of $622,000                    --             --            --             --         (1,637)            --
Less: reclassification
 adjustment for gains
 included in net income,
 net of taxes of $4                   --             --            --             --             (7)            --
                                                                                             ------
Other comprehensive loss              --             --            --             --         (1,644)        (1,644)
                                                                                             ------         ------
Comprehensive income                  --             --            --             --             --            361
                                                                                                            ------
Treasury stock repurchases            --             --          (569)            --             --           (569)
Exercise of stock
  options                             --            300            59            (37)            --            322
Cash dividends                        --             --            --           (473)            --           (473)
Common stock dividend                  3          4,491            --         (4,494)            --             --
                                --------       --------      --------       --------       --------       --------
Balance at December
  31, 1999                      $     77       $ 14,104      $   (866)      $ 31,289       $ (3,726)      $ 40,878
                                ========       ========      ========       ========       ========       ========



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
                                ========       ========      ========       ========       ========       ========
</TABLE>



          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       7
<PAGE>



15

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, 2000 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, 2000,
included in the  Company's  2000 Annual  Report to  Stockholders.  The principal
business of the Company is conducted  by its  wholly-owned  subsidiary,  Coastal
Federal Savings Bank (the "Bank"). The information presented hereon,  therefore,
relates primarily to the Bank.

(2)  LOANS RECEIVABLE, NET

Loans receivable, net consists of the following:

                                                 September 30,   December 31,
                                                    2000            2000
                                                    ----            ----
                                                        (Unaudited)
                                                       (In thousands)
First mortgage loans:
    Single family to 4 family units              $ 273,657       $ 273,505
    Other, primarily commercial
    real estate                                    133,569         136,995
    Construction loans                              54,905          51,102
Consumer and commercial loans:
    Installment consumer loans                      20,641          18,726
    Mobile home loans                                1,374           1,943
    Deposit account loans                            1,063           1,105
    Equity lines of credit                          23,009          23,934
    Commercial and other loans                      23,357          28,265
                                                 ---------       ---------
                                                   531,575         535,575
Less:
    Allowance for loan losses                        7,064           7,161
    Deferred loan costs, net                          (519)           (570)
    Undisbursed portion of loans in process         13,329          12,216
                                                 ---------       ---------
                                                 $ 511,701       $ 516,768
                                                 =========       =========


                                       8
<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,
                                 -------------------------------
                                       1999          2000
                                       ----          ----
                                         (Unaudited)
                                    (Dollars in thousands)

Allowance at beginning of
 period .......................      $6,430       $7,064
Allowance recorded on
 acquired loans ...............          50           --
Provision for loan losses .....         245          270
                                     ------       ------
Recoveries:
 Residential real estate ......          --           --
 Commercial real estate .......          --           --
 Consumer .....................          21           14
                                     ------       ------
   Total recoveries ...........          21           14
                                     ------       ------

Charge-offs:
 Residential real estate ......          10           47
 Commercial real estate .......          --           --
 Consumer .....................         120          140
                                     ------       ------
   Total charge-offs ..........         130          187
                                     ------       ------
   Net charge-offs ............         109          173
                                     ------       ------
 Allowance at end of period ...      $6,616       $7,161
                                     ======       ======

Ratio of allowance to net
 loans outstanding at the
 end of the period ............        1.34%        1.36%
                                       ====         ====

Ratio of net charge-offs
 to average loans outstanding
 during the period (annualized)         .09%         .13%
                                        ===          ===


ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES


                                                       At December 31, 2000
                                                     Percent of Loans in each
Balance at end of period applicable to:      Amount   category to total loans
                                             ------  -------------------------
Residential Real Estate .................    $2,065           63.28%
Commercial Real Estate ..................     4,832           32.24
Consumer ................................       264            4.48
                                             ------          ------
                                             $7,161          100.00%
                                             ======          ======

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

At December  31,  2000,  impaired  loans  totaled  $4.4  million.  There were no
impaired  loans at December 31, 1999.  Included in the allowance for loan losses
at  December  31,  2000 was  $545,000  related to  impaired  loans.  The average
recorded  investment in impaired  loans for the quarter ended  December 31, 2000
was $4.4 million.  Interest  income of $53,000 was  recognized on impaired loans
for the three months ended December 31, 2000.


                                       9
<PAGE>

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


(3)  DEPOSITS

Deposits consist of the following:

                           September 30, 2000           December 31, 2000
                           ------------------           -----------------
                                      Weighted                   Weighted
                                       Average                    Average
                            Amount      Rate           Amount      Rate
                            ------      ----           ------      ----
                                            (Unaudited)
                                          (In thousands)
Transaction accounts      $204,292      3.11%         $198,258    3.18%
Passbook accounts           36,205      2.63            31,156    2.47
Certificate accounts       165,720      6.03           199,939    6.26
                          --------      ----          --------    ----
                          $406,217      4.26%         $429,353    4.57%
                          ========      ====          ========    ====

At  September  30,  2000  and  December  31,  2000,  respectively,  included  in
certificate  accounts  there were $31.8 million and $46.5 million of certificate
accounts  originated by brokers.  These accounts generally mature within 90 days
of origination.

(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

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


                             September 30, 2000          December 31, 2000
                             ------------------          -----------------
                                        Weighted                  Weighted
                                         Average                   Average
                             Amount       Rate           Amount     Rate
                             ------       ----           ------     ----
Maturing within:                              (Unaudited)
                                             (In thousands)
1 year                      $116,476     6.68%         $ 73,675     6.62%
2 years                        3,211     6.93            11,726     6.31
3 years                       12,667     6.39            10,052     6.44
4 years                        6,000     6.35             5,000     6.43
5 years and thereafter        86,870     6.13           114,870     5.86
                            --------     ----          --------     ----
                            $225,224     6.44%         $215,323     6.18%
                            ========     ====          ========     ====

At September  30,  2000,  and  December  31,  2000,  the Bank had pledged  first
mortgage  loans  and   mortgage-backed   securities   with  unpaid  balances  of
approximately $247.3 million and $251.3 million, respectively, as collateral for
FHLB advances. At September 30, 2000 and December 31, 2000, included in the four
and five years and thereafter  maturities were $89.0 million and $115.0 million,
respectively,  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 periods ended December 31, 1999 and
2000, 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 periods ended  December 31, 1999 and 2000,  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.


                                       10
<PAGE>

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

<TABLE>
<CAPTION>
                                                    For the Quarter Ended December 31,

                                           2000           2000           1999             1999
                                           BASIC         DILUTED         BASIC           DILUTED
                                       ----------------------------------------------------------
<S>                                    <C>             <C>             <C>             <C>
Net Income                             $    2,217      $    2,217      $    2,005      $    2,005
                                       ----------      ----------      ----------      ----------

Weighted average shares
Outstanding                             7,271,000       7,271,000       7,416,000       7,416,000
Effective of Dilutive Securities:
Stock options                                              60,000                         120,000
                                        ---------       ---------       ---------       ---------
                                        7,271,000       7,331,000       7,416,000       7,536,000
                                        ---------       ---------       ---------       ---------

Per-share amount                       $     0.30      $     0.30      $     0.27      $     0.27
                                       ==========      ==========      ==========      ==========
</TABLE>

(6)  COMMON STOCK DIVIDENDS

On November  10,  1999,  the Company  declared a 5% stock  dividend  aggregating
approximately  321,000  shares.  On March 14, 2000,  the Company  declared a 10%
stock dividend aggregating approximately 671,000 shares. All share and per share
data have been retroactively restated for all common stock splits and dividends.

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.

DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 2000 TO
DECEMBER 31, 2000

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 mortgage,  consumer and commercial  loan payments,  retail
customer deposits,  advances from the FHLB, and loan sales. The principal use of
cash flows is the  origination  of loans  receivable and purchase of securities.
The Company  originated  loans  receivable of $46.7 million for the three months
ended December 31, 1999, compared to $29.1 million for the three months ended


                                       11
<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

December 31, 2000. A portion of these loan  originations  were financed  through
loan and  mortgage-backed  securities  principal  repayments,  which amounted to
$27.4 million and $26.6  million for the three month periods ended  December 31,
1999 and 2000, 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, 1999, the Company
sold $6.3 million in mortgage loans held for sale, compared to $4.5 million sold
for the three month period ended December 31, 2000.

For the three month period ended December 31, 1999, the Company  purchased $32.3
million in investment and mortgage-backed securities. For the three month period
ended December 31, 2000, the Company  purchased  $40.4 million in investment and
mortgage-backed securities.  These purchases were funded primarily by repayments
of $6.8  million  within  the  securities  portfolio,  sales of  mortgage-backed
securities of $27.6 million,  securities sold under agreements to repurchase and
FHLB advances.

Overall the Bank  experienced  an increase of $23.1  million in deposits for the
three month  period ended  December  31, 2000.  For the three month period ended
December  31, 2000,  transaction  accounts  decreased  $6.0 million and passbook
accounts  decreased $5.0 million.  This was offset by an increase in certificate
accounts of $34.2 million.  The market in which the Bank operates is primarily a
seasonal market.  Consequently,  checking deposits tend to decline in the winter
months. The increase in certificate accounts is partially due to a $14.7 million
growth in brokered deposits.

At December 31, 2000,  the Company had  commitments to originate $7.0 million in
mortgage  loans,  and $33.7 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations.

At  December  31,  2000,  the  Company  had $161.7  million of  certificates  of
deposits,  which were due to mature within one year.  Additionally,  at December
31, 2000, the Company had federal funds available of $10.0 million.

As a result of $2.2  million  in net  income,  less the cash  dividends  paid to
stockholders  of   approximately   $471,000,   treasury  stock   repurchases  of
approximately  $369,000  and the net  change in  unrealized  gain on  securities
available  for sale,  net of income tax of $2.4  million,  stockholders'  equity
increased  from $46.9 million at September 30, 2000 to $50.7 million at December
31, 2000.

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 $52.1 million at December 31,
2000,  exceeding the core capital  requirement by $21.2 million. At December 31,
2000, the Bank's risk-based capital of approximately  $57.5 million exceeded its
current   risk-based  capital   requirement  by  $21.1  million.   (For  further
information see Regulatory Capital Matters)


                                       12
<PAGE>


PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 2000


MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND 2000

GENERAL

        Net  income  increased  from $2.0  million  for the three  months  ended
    December 31, 1999, to $2.2 million for three months ended December 31, 2000,
    or 10.6%. Net interest income increased $186,000 primarily as a result of an
    increase  of $2.0  million  in  interest  income  offset  by a $1.8  million
    increase in interest  expense.  Provision  for loan losses were $245,000 for
    the three months ended December 31, 1999, compared to $270,000 for the three
    months ended December 31, 2000. Other income increased $175,000. General and
    administrative  expense was $4.1 million for the quarter ended  December 31,
    1999 and 2000.

INTEREST INCOME

        Interest income for the three months ended December 31, 2000,  increased
    to $15.7  million as compared to $13.6  million for the three  months  ended
    December  31,  1999.  The  earning  asset yield for the three  months  ended
    December  31,  2000,  was 8.61%  compared  to a yield of 8.00% for the three
    months ended  December 31, 1999.  The average yield on loans  receivable for
    the three months ended December 31, 2000,was 9.17% compared to 8.51% for the
    three months ended December 31, 1999. The yield on investments  increased to
    7.19% for the three months ended December 31, 2000, from 6.83% for the three
    months ended  December 31, 1999. In January 2001,  the Federal  Reserve Bank
    reduced  the  discount  rate by 100  basis  points.  Consequently,  the Bank
    expects its yield on loans and investments to decline in fiscal 2001.  Total
    average  interest-earning  assets were $737.7  million for the quarter ended
    December  31,  2000 as compared  to $690.6  million  for the  quarter  ended
    December 31, 1999. The increase in average interest-earning assets is due to
    an increase in average loans receivable of  approximately  $40.3 million and
    securities of approximately $12.6 million.

INTEREST EXPENSE

        Interest  expense on  interest-bearing  liabilities was $9.4 million for
    the three  months ended  December 31, 2000,  as compared to $7.6 million for
    December 31,  1999.  The average cost of deposits for the three months ended
    December  31, 2000,  was 4.41%  compared to 3.74% for the three months ended
    December 31, 1999. The cost of  interest-bearing  liabilities  was 5.25% for
    the three months ended December 31, 2000, as compared to 4.48% for the three
    months  ended  December  31,  1999.  The cost of FHLB  advances  and reverse
    repurchase  agreements  was 6.48%  and  6.71%,  respectively,  for the three
    months  ended  December 31,  2000.  For the three months ended  December 31,
    1999, the cost of FHLB advances and reverse repurchase  agreements was 5.42%
    and  5.88%,   respectively.   Total  average  interest-bearing   liabilities
    increased  from  $677.6  million at December  31, 1999 to $716.5  million at
    December 31, 2000. The increase in average  interest-bearing  liabilities is
    due to an increase in average  deposits of  approximately  $29.2 million and
    FHLB advances of $46.9 million.  This was offset  primarily by a decrease in
    reverse repurchase agreements of $35.7 million.

NET INTEREST INCOME

        Net interest income was $6.2 million for the three months ended December
    31, 2000,  as compared to $6.0  million for the three months ended  December
    31,  1999.  The net  interest  margin was 3.37% for the three  months  ended
    December 31, 2000, compared to 3.52% for the three months ended December 31,
    1999.  With the recent  reduction  in  interest  rates,  resulting  from the
    Federal  Reserve  Bank's  decision to reduce the discount  rate by 100 basis
    points,  it is expected that interest rates will decline rapidly in calendar
    2001. Consequently,  it is expected that a substantial portion of the Bank's
    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 reduced margin in fiscal 2001.


                                       13
<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, 1999 AND 2000

PROVISION FOR LOAN LOSSES

        The  provision  for loan losses was  $245,000 for the three months ended
    December 31, 1999  compared to $270,000 for the three months ended  December
    31, 2000. For the three months ended December 31, 2000, net charge-offs were
    $173,000  compared to net charge-offs of $109,000 for the three months ended
    December  31,  1999.  During the last  quarter of fiscal  2000 and the first
    quarter of fiscal 2001, the Bank has  experienced an increase in charge-offs
    of consumer  loans.  The Bank believes these increases are indicative of the
    slow down in the  economy  and  believes  it has  provided  properly  in its
    allowance.  The allowance for loan losses as a percentage of total loans was
    1.36% at December 31, 2000,  compared to 1.35% at September 30, 2000.  Loans
    delinquent  90 days or more were .90% of total loans at December  31,  2000,
    compared to .92% at September  30, 2000.  The  allowance for loan losses was
    151% of loans delinquent more than 90 days at December 31, 2000, as compared
    to 148% at September 30, 2000. Management believes that the current level of
    allowance is adequate  considering the Company's current loss experience and
    delinquency trends, among other criteria.

OTHER INCOME

        For the three  months ended  December  31,  2000,  other income was $1.6
    million  compared to $1.5 million for the three  months  ended  December 31,
    1999.  Fees and service  charges  were  $551,000  for the three months ended
    December 31, 2000,  compared to $567,000 for the three months ended December
    31, 1999.  Gain on sale of loans was $150,000 for the quarter ended December
    31, 2000, compared to $191,000 for the quarter ended December 31, 1999. Gain
    on sales of securities  was $30,000 for the quarter ended December 31, 2000,
    compared to $11,000 for the quarter  ended  December 31, 1999.  Other income
    was $997,000 for the three  months ended  December 31, 2000,  as compared to
    $714,000 for the three months ended December 31, 1999.

GENERAL AND ADMINISTRATIVE EXPENSES

        General and  administrative  expenses  were $4.1 million for the quarter
    ended December 31, 1999 and 2000.  Salaries and employee  benefits were $2.3
    million for the three  months ended  December 31, 1999,  as compared to $2.4
    million  for the three  months  ended  December  31,  2000.  Net  occupancy,
    furniture and fixtures and data processing  expenses  decreased $51,000 when
    comparing the two periods.  During the quarter the Bank received a refund of
    certain expenses of approximately $150,000. Other expenses were $737,000 for
    the quarter  ended  December 31, 2000,  compared to $775,000 for the quarter
    ended December 31, 1999.

INCOME TAXES

        Income taxes were $1.1  million for the three months ended  December 31,
    1999, compared to $1.3 million for the three months ended December 31, 2000.


                                       14
<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, 1999 AND 2000


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, 2000:

 Total Capital:                      $57,546       12.64%              $36,432        8.00%          $45,539     10.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                     $52,123       11.45%                  N/A         N/A           $27,323      6.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                     $52,123        6.74%              $30,963        4.00%          $38,704      5.00%
   (To Total Assets)
 Tangible Capital:                   $52,123        6.74%              $11,611        1.50%              N/A        N/A
   (To Total Assets)

</TABLE>

                                       15
<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, 1999 AND 2000


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities,  an  Amendment of FASB 133"  establishes  accounting  and  reporting
standards  for  derivative  and hedging  activities.  It requires that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial position,  and measure those instruments at fair value. Changes in the
fair  value  of  those  derivatives  will  be  reported  in  earnings  or  other
comprehensive  income  depending  on the use of the  derivative  and whether the
derivative  qualifies  for hedge  accounting.  SFAS No. 133 and SFAS No. 138 are
effective for all fiscal  quarters of all fiscal years  beginning after June 30,
2000.  The Company  adopted SFAS No. 133, as amended by SFAS No. 138, on October
1, 2000.

On October 1, 2000, the Company had no embedded derivative instruments requiring
separate  accounting   treatment.   The  Company  has  freestanding   derivative
instruments  consisting of an interest rate cap  agreement,  interest rate floor
agreements and fixed rate  conforming loan  commitments.  The notional amount of
the interest rate cap and interest rate floor agreements  totaled $62 million at
December 31, 2000 and October 1, 2000.  The fair value of these  agreements  was
$33,000 and zero at December  31,  2000 and  October 1, 2000,  respectively.  In
addition,  the Company had commitments to originate mortgage loans at October 1,
2000 and December 31, 2000.  The value of these  commitments  was  immaterial at
both  October 1, 2000 and  December  31,  2000.  The adoption of SFAS No. 133 on
October 1, 2000 as well as the impact of applying  SFAS No. 133 at December  31,
2000 was not material to the Company's consolidated financial statements.

In September  2000,  the FASB issued SFAS No. 140,  Accounting for Transfers and
Servicing of  Financial  Assets and  Extinguishments  of  Liabilities.  This new
statement replaces SFAS No. 125 and provides further standards on accounting and
reporting for transfers and servicing of financial assets and extinguishments of
liabilities.  SFAS No. 140 is effective for transfers  occurring after March 31,
2001 and for disclosures relating to securitization  transactions and collateral
for fiscal years ending after  December 15, 2000.  The Company has not completed
the  analysis  of the  impact  that  this  standard  may  have on the  Company's
financial statements.

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.

                                       16

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 3.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 2000


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At  December  31,  2000,  no  material  changes  have  occurred  in market  risk
disclosures included in the Company's Annual Report to Stockholders for the year
ended September 30, 2000.



                                       17
<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. 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.



                                       18
<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 Allen W. Griffin (2)

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

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

                (g)    1990 Stock Option Plan (2)

                (h)    Directors Performance Plan (3)

                (i)    Loan Agreement with Bankers Bank (5)

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

             27        Financial Data Schedule

        (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.

                                       19
<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.


                                       20
<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 13, 2001                         /s/ Michael C. Gerald
-----------------                         ---------------------
Date                                      Michael C. Gerald
                                          President and Chief Executive Officer


February 13, 2001                         /s/ Jerry L. Rexroad
-----------------                         --------------------
Date                                      Jerry L. Rexroad
                                          Executive Vice President and
                                          Chief Financial Officer