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

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

                                    FORM 10-Q

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

               For the Quarter Ended March 31, 1998

      (   )    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 March 31, 1998.

Common Stock $.01 Par Value Per Share                         6,247,623 Shares
--------------------------------------------------------------------------------
(Class)                                                         (Outstanding)
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998

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 March 31, 1998               

       Consolidated Statements of Operations for the three
       months ended March 31, 1997 and 1998                      

       Consolidated Statements of Operations for the six
       months ended March 31, 1997 and 1998                      

       Consolidated Statements of Cash Flows for the six
       months ended March 31, 1997 and 1998                      

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

                                                     September 30,      March 31,
                                                         1997             1998
                                                       ---------       ---------
                                                              (Unaudited)
                                                         (Dollars in thousands)
<S>                                                    <C>             <C>
ASSETS:
Cash & amounts due from banks ...................      $  12,852       $  13,348
Short-term interest-bearing deposits ............            559             859
Investment securities available for sale ........         26,171          12,531
Mortgage-backed securities available for sale ...         23,023         111,951
Loans receivable (net of allowance for
   loan losses of $4,902 at September 30,
   1997 and $5,230 at March 31, 1998) ...........        403,570         410,098
Loans receivable held for sale ..................          8,359          12,001
Real estate acquired through foreclosure ........            250             235
Office property and equipment, net ..............          7,561           8,072
Federal Home Loan Bank stock, at cost ...........          5,618           6,101
Accrued interest receivable on loans ............          2,814           2,612
Accrued interest receivable on investments ......            452             806
Other assets and deferred charges ...............          2,774           4,625
                                                       ---------       ---------
                                                       $ 494,003       $ 583,239
                                                       =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits ........................................      $ 347,116       $ 353,144
Securities sold under agreements to
   repurchase ...................................          2,666           2,430
Advances from Federal Home Loan Bank ............        101,478         115,019
Other borrowings ................................          2,193          70,583
Drafts outstanding ..............................          1,018             408
Advances by borrowers for property taxes
  and insurance .................................          1,409             818
Accrued interest payable ........................            952           1,327
Other liabilities ...............................          4,780           4,339
                                                       ---------       ---------
  Total liabilities .............................        461,612         548,068
                                                       ---------       ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)

                                                     September 30,      March 31,
                                                         1997             1998
                                                       ---------       ---------
                                                              (Unaudited)
                                                         (Dollars in thousands)
<S>                                                    <C>             <C>
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
   authorized and unissued ......................           --              --
Common stock, $.01 par value, 15,000,000
   shares authorized; 6,195,379 shares at
   September 30, 1997 and 6,247,623 shares
   at March 31, 1998 issued and outstanding .....             46              46
Additional paid-in capital ......................          8,698           8,889
Retained earnings ...............................         23,402          25,711
Treasury stock, at cost (9,760 shares) ..........           (182)           --
Unrealized gain on securities available
  for sale, net of income taxes .................            427             525
                                                       ---------       ---------
  Total stockholders' equity ....................         32,391          35,171
                                                       ---------       ---------
                                                       $ 494,003       $ 583,239
                                                       =========       =========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

                                                        1997            1998
                                                     -----------      -----------
                                                             (Unaudited)
                                                        (Dollars in thousands,
                                                        except per share data)
<S>                                                  <C>              <C>
Interest income:
   Loans receivable ............................     $     8,275      $     9,036
Investment securities ..........................             322              387
   Mortgage-backed securities ..................             560            1,287
   Other .......................................              72               63
                                                     -----------      -----------
   Total interest income .......................           9,229           10,773
                                                     -----------      -----------

Interest expense:
   Deposits ....................................           3,365            3,431
   Securities sold under agreement to
     repurchase ................................             214               29
   Advances from Federal Home Loan Bank ........           1,273            1,623
   Other borrowings ............................            --                872
                                                     -----------      -----------
  Total interest expense .......................           4,852            5,955
                                                     -----------      -----------
   Net interest income .........................           4,377            4,818
Provision for loan losses ......................             120              250
                                                     -----------      -----------
   Net interest income after provision
     for loan losses ...........................           4,257            4,568
                                                     -----------      -----------

Other income:
   Fees and service charges ....................             417              508
   Loss from real estate owned .................             (18)             (34)
   Income from real estate held for investment .            --                  3
   Gain on sale of loans receivable, net .......             175              340
   Gain on sale of securities available for sale              12              253
   Other income ................................             433              506
                                                     -----------      -----------
                                                           1,019            1,576
                                                     -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (CONTINUED)

                                                        1997            1998
                                                     -----------      -----------
                                                             (Unaudited)
                                                        (Dollars in thousands,
                                                        except per share data)
<S>                                                  <C>              <C>
General and administrative expenses:
   Salaries and employee benefits ..............           1,649            1,823
   Net occupancy, furniture and fixtures
     and data processing expense ...............             696              769
   FDIC insurance premium ......................              50               54
   Other expenses ..............................             715              858
                                                     -----------      -----------
                                                           3,110            3,504
                                                     -----------      -----------
Earnings before income taxes ...................           2,166            2,640

Income taxes ...................................             790              961
                                                     -----------      -----------
Net income .....................................     $     1,376      $     1,679
                                                     ===========      ===========

Earnings per common share
  Basic ........................................     $       .22      $       .27
                                                     ===========      ===========
  Diluted ......................................     $       .21      $       .26
                                                     ===========      ===========

Weighted average common shares
  outstanding - basic ..........................       6,183,000        6,248,000
                                                     ===========      ===========

Weighted average common shares
  outstanding - diluted ........................       6,473,000        6,552,000
                                                     ===========      ===========

Dividends per share ............................     $     .0619      $     .0675
                                                     ===========      ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

                                                       1997             1998
                                                   -----------      -----------
                                                           (Unaudited)
                                                       (Dollars in thousands)
<S>                                                <C>              <C>
Interest income:
   Loans receivable ..........................     $    16,397      $    18,013
   Investment securities .....................             611              854
   Mortgage-backed securities ................           1,048            1,939
   Other .....................................             170              145
                                                   -----------      -----------
   Total interest income .....................          18,226           20,951
                                                   -----------      -----------

Interest expense:
   Deposits ..................................           6,706            7,033
   Securities sold under agreement to
     repurchase ..............................             330            1,270
   Advances from Federal Home Loan Bank ......           2,626            3,099
                                                   -----------      -----------
   Total interest expense ....................           9,662           11,402
                                                   -----------      -----------
   Net interest income .......................           8,564            9,549
Provision for loan losses ....................             350              440
                                                   -----------      -----------
   Net interest income after provision
     for loan losses .........................           8,214            9,109
                                                   -----------      -----------

Other income:
   Fees and service charges ..................             843              991
   Loss from real estate owned ...............             (74)             (54)
   Income from real estate held for investment             278              221
   Gain on sale of loans receivable, net .....             403              697
   Gain on sale of securities
    available for sale .......................              30              268
   Other income ..............................             853              968
                                                   -----------      -----------
                                                         2,333            3,091
                                                   -----------      -----------

General and administrative expenses:
   Salaries and employee benefits ............           3,337            3,707
   Net occupancy, furniture and fixtures
     and data processing expense .............           1,456            1,558
   FDIC insurance premium ....................             179              106
   Other expenses ............................           1,398            1,611
                                                   -----------      -----------
                                                         6,370            6,982
                                                   -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

                                                       1997             1998
                                                   -----------      -----------
                                                           (Unaudited)
                                                       (Dollars in thousands)
<S>                                                <C>              <C>
Earnings before income taxes .................           4,177            5,218

Income taxes .................................           1,523            1,911
                                                   -----------      -----------
Net income ...................................     $     2,654      $     3,307
                                                   ===========      ===========

Earnings per common share
    Basic ....................................     $       .43      $       .53
                                                   ===========      ===========
    Diluted ..................................     $       .41      $       .50
                                                   ===========      ===========

Weighted average common shares
  outstanding - basic ........................       6,183,000        6,248,000
                                                   ===========      ===========

Weighted average common
  shares outstanding - diluted ...............       6,464,000        6,551,000
                                                   ===========      ===========

Dividends per share ..........................     $      .124      $      .135
                                                   ===========      ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998
                                                          1997           1998
                                                       ---------      ---------
                                                              (Unaudited)
                                                            (In thousands)
<S>                                                    <C>            <C>
Cash flows from operating activities:
  Net earnings ...................................     $   2,654      $   3,307
  Adjustments to reconcile net earnings
       to net cash provided by
      operating activities:
       Income from real estate
        held for investment ......................          (278)          (221)
       Depreciation ..............................           427            490
       Provision for loan losses .................           350            440
Origination of loans receivable
         held for sale ...........................       (17,979)       (26,599)
Proceeds from sales of loans receivable
         held for sale ...........................        19,734         30,241
(Increase) decrease in:
      Other assets and deferred charges ..........        (1,056)        (1,851)
      Accrued interest receivable ................          (221)          (152)
Increase (decrease) in:
      Accrued interest payable ...................           (67)           375
     Other liabilities ...........................          (582)          (441)
                                                       ---------      ---------
        Net cash provided by
             operating activities ................         2,982          5,589
                                                       ---------      ---------
Cash flows from investing activities:
  Purchases of investment securities
       available for sale ........................       (14,177)        (9,311)
  Proceeds from sales of investment
       securities available for sale .............          --            4,500
 Proceeds from maturities of investment
      securities available for sale ..............         5,686         18,422
  Proceeds from maturities of mortgage-backed
      securities available for sale ..............           949           --
  Purchases of mortgage-backed securities
       available for sale ........................       (15,167)      (133,022)
 Proceeds from sales of mortgage-backed
       securities available for sale .............          --           37,769
  Origination of loans receivable, net ...........       (59,956)       (76,113)
  Purchase of loans receivable ...................        (3,065)        (2,068)
  Principal collected on loans receivable
       and mortgage-backed securities, net .......        52,712         70,105
  Proceeds from sale of real estate
       acquired through foreclosure, net .........            75             23
  Purchases of office properties and
      equipment ..................................          (606)          (932)
  Purchases (sales)of FHLB stock, net ............           616           (483)
  Other investing activities, net ................            51           --
                                                       ---------      ---------
      Net cash used in
             investing activities ................       (32,882)       (91,110)
                                                       ---------      ---------
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 (CONTINUED)

                                                    1997          1998
                                                ---------      ---------
                                                        (Unaudited)
                                                      (In thousands)
<S>                                             <C>            <C>
Cash flows from financing activities:
  Increase in deposits, net ...............     $  18,763      $   6,028
  Decrease in securities sold
   under agreement to repurchase, net .....        (1,934)          (236)
  Proceeds from FHLB advances .............        62,500        107,550
  Repayment of FHLB advances ..............       (81,109)       (94,009)
 Proceeds from other borrowings, net ......        26,434         68,390
 Decrease in advance payments by borrowers
     for property taxes and insurance, net           (637)          (591)
  Decrease in drafts outstanding, net .....          (325)          (610)
  Dividend to stockholders ................          (769)          (833)
  Other financing activities, net .........           510            628
                                                ---------      ---------
  Net cash (used in) provided by ..........       (23,433)        86,317
                                                ---------      ---------
    financing activities

Net increase (decrease)
   in cash and cash equivalents ...........        (6,467)           796
                                                ---------      ---------
Cash and cash equivalents at beginning
  of the period ...........................        20,861         13,411
                                                ---------      --------
Cash and cash equivalents at end
  of the period ...........................     $  14,394      $  14,207
                                                =========      =========

Supplemental information:
  Interest paid ...........................     $   9,729      $  11,027
                                                =========      =========

  Income taxes paid .......................     $     270      $   2,243
                                                =========      =========

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>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
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)
Change in 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 ...............         --            191         (165)          182          --            208
Cash dividends ..........         --           --           (833)         --            --           (833)
Change in unrealized gain
  on securities available
  for sale, net of
  income taxes ..........         --           --           --            --              98           98
Net income ..............         --           --          3,307          --            --          3,307
                              --------     --------     --------      --------      --------      --------

Balance at March
   31, 1998 .............     $     46     $  8,889     $ 25,711      $   --        $    525     $ 35,171
                              ========     ========     ========      ========      ========     ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  BASIS OF PRESENTATION

The accompanying  unaudited  consolidated  financial statements were prepared in
accordance with  instructions for Form 10-Q and,  therefore,  do not include all
disclosures  necessary  for a  complete  presentation  of  financial  condition,
results  of  operations,  cash  flows and  changes  in  stockholders'  equity in
conformity  with generally  accepted  accounting  principles.  All  adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair  presentation of the interim financial  statements,  have
been  included.  The results of  operations  for the three and six month periods
ended March 31, 1998 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,      March 31,
                                                        1997              1998
                                                      ---------       ---------
                                                              (Unaudited)
                                                            (In thousands)
<S>                                                   <C>             <C>
First mortgage loans:
   Single family to 4 family units .............      $ 237,964       $ 234,180
   Other, primarily commercial
    real estate ................................         97,680         100,534
   Construction loans ..........................         34,216          38,657
Consumer and commercial loans:
   Installment consumer loans ..................         24,378          22,063
   Mobile home loans ...........................          1,291           1,096
   Deposit account loans .......................          1,336           1,248
   Equity lines of credit ......................         15,294          17,021
   Commercial and other loans ..................         10,939          11,409
                                                      ---------       ---------
                                                        423,098         426,208
Less:
   Allowance for loan losses ...................          4,902           5,230
   Deferred loan fees (costs) ..................           (458)           (561)
   Undisbursed portion of loans in process .....         15,084          11,441
                                                      ---------       ---------
                                                      $ 403,570       $ 410,098
                                                      =========       =========
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in the  allowance  for loan losses  consist of the following for the
six months ended:
<TABLE>
<CAPTION>
                                                               March 31,
                                                       1997               1998
                                                     -------            -------
                                                             (Unaudited)
                                                            (In thousands)
<S>                                                  <C>                <C>
Beginning allowances .....................           $ 4,172            $ 4,902
Provision for loan losses ................               350                440
Allowance on acquired loans ..............                25                 29
Loan recoveries ..........................                43                  8
Loan charge-offs .........................              (113)              (149)
                                                     -------            -------

Ending allowance .........................           $ 4,477            $ 5,230
                                                     =======            =======
</TABLE>

(3)  DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
                                    September 30, 1997              March 31, 1998
                                  ------------------------     ------------------------
                                                  Weighted                     Weighted
                                                   Average                      Average
                                   Amount           Rate        Amount           Rate
                                   ------           ----        ------           ----
                                                       (Unaudited)
                                                      (In thousands)
<S>                               <C>               <C>        <C>               <C>
Transaction accounts .......      $167,014          3.10%      $181,292          3.24%
Passbook accounts ..........        39,445          2.62         36,442          2.52
Certificate accounts .......       140,657          5.58        135,410          5.60
                                  --------          ----       --------          ----
                                  $347,116          4.02%      $353,144          4.07%
                                  ========          ====       ========          ====
</TABLE>
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4)  ADVANCES FROM FEDERAL HOME LOAN BANK

Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>
                                         September 30, 1997            March 31, 1998
                                      -----------------------    -------------------------
                                                     Weighted                     Weighted
                                                     Average                      Average
                                       Amount          Rate       Amount          Rate
                                       ------          ----       ------          ----
Maturing within:                                         (Unaudited)
                                                        (In thousands)
<S>                                   <C>              <C>       <C>              <C>
1 year .........................      $ 23,620         6.15 %    $ 17,506         6.08 %
2 years ........................        28,435         5.79        22,050         5.80
3 years ........................         6,761         6.45         8,846         5.99
4 years ........................         7,646         5.91        34,161         5.45
5 years and thereafter .........        35,016         5.60        32,456         5.17
                                      --------         ----      --------         ----
                                      $101,478         5.86 %    $115,019         5.57 %
                                      ========         ====      ========         ====
</TABLE>

At September 30, 1997,  and March 31, 1998,  the Bank had pledged first mortgage
loans with unpaid balances of  approximately  $213.9 million and $207.6 million,
respectively,  as collateral for FHLB advances.  At September 30, 1997, included
in the four and five years and thereafter  maturities were $30.0 million subject
to call  provisions.  At March 31,  1998,  included in the three,  four and five
years and thereafter  maturities were $55.0 million 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 and six month  periods ended March 31,
1997 and 1998,  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.  On May 6,  1998,  the
Company  declared  a  four-for-three  stock  split  in the  form of a 33%  stock
dividend,  aggregating  approximately  1,562,000 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 MARCH 31,
1998

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).

LIQUIDITY AND CAPITAL RESOURCES

In accordance with Office of Thrift Supervision (OTS)  regulations,  the Company
is required to maintain  specific  levels of cash and  "liquid"  investments  in
qualifying  types  of  United  States  Treasury,   Federal  Agency   Securities,
mortgage-backed securities, and certain other investments. The required level of
such  investments  is  calculated  on  a  "liquidity  base"  consisting  of  net
withdrawlable accounts and short-term  borrowings,  and is currently 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. The principal use of
cash flows is the  origination  of loans  receivable and purchase of securities.
The Company  originated  loans  receivable  of $77.9  million for the six months
ended March 31, 1997, compared to $102.7 million
<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 MARCH 31, 1997 AND 1998

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

for the six months ended March 31, 1998. The majority of these loan originations
were financed through loan and mortgage-backed  securities  principal repayments
which  amounted  to $52.7  million and $98.1  million for the six month  periods
ended March 31, 1997 and 1998,  respectively.  In  addition,  the Company  sells
certain  loans in the  secondary  market to finance  future  loan  originations.
Generally,  these loans have  consisted  only of mortgage  loans which have been
originated in the current period. For the six month period ended March 31, 1997,
the Company sold $19.7 million in mortgage  loans compared to $30.2 million sold
for the six month period ended March 31, 1998.

 For the six month  period  ended March 31, 1997,  the Company  purchased  $29.3
million in investment and mortgage-backed  securities.  For the six month period
ended March 31, 1998,  the Company  purchased  $142.3  million in investment and
mortgage-backed securities. The securities purchased generally had maturities of
less than five years. The  mortgage-backed  securities  purchased were primarily
secured by one year ARMs.  These purchases were funded primarily with short-term
reverse repurchase agreements and FHLB advances.

The Bank  experienced  an increase of $6.0 million in deposits for the six month
period  ended March 31, 1998,  primarily  as a result of  increased  transaction
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 March 31, 1998,  the Company had  commitments  to originate  $13.6 million in
mortgage  loans,  and $29.2 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations.

At March 31, 1998,  the Company had $100.1 million of  certificates  of deposits
which were due to mature within one year.  Based upon previous  experience,  the
Company  believes  that a major portion of these  certificates  will be renewed.
Additionally, at March 31, 1998, the Company had pledged first mortgage loans in
the amount of $207.6 million to the FHLB which could support approximately $40.7
million in additional advances.

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 is
approximately  $36.4  million at March 31,  1998,  exceeding  tangible  and core
capital requirements by $27.8 million and $19.1 million,  respectively. At March
31, 1998, the Bank's risk-based capital of approximately  $40.2 million exceeded
its current  risk-based  capital  requirement  by $12.4  million.  (For  further
information see Regulatory Matters).

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF OPERATIONS  FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998

GENERAL
Net income  increased  from $1.4  million for the three  months  ended March 31,
1997,  to $1.7  million for three months  ended March 31,  1998,  or 22.0%.  Net
interest income increased $441,000 primarily as a result of an increase of
<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 MARCH 31, 1997 AND 1998

GENERAL - CONTINUED

$1.5 million in interest  income  offset by a $1.1 million  increase in interest
expense.  Provision  for loan losses  increased  from  $120,000 for three months
ended March 31,  1997,  to $250,000  for the three  months ended March 31, 1998.
Other income increased  $557,000  primarily as a result of increased income from
gain on sale of  loans,  and  securities.  General  and  administrative  expense
increased  from $3.1  million for the  quarter  ended  March 31,  1997,  to $3.5
million for the quarter ended March 31, 1998.

INTEREST INCOME

Interest  income for the three months  ended March 31, 1998,  increased to $10.8
million as compared to $9.2  million for the three  months ended March 31, 1997.
The earning  asset yield for the three months  ended March 31,  1998,  was 8.09%
compared  to a yield of 8.45% for the three  months  ended March 31,  1997.  The
average yield on loans  receivable for the three months ended March 31, 1998 and
1997 was 8.66%.  Approximately $168,000 of interest income on loans was reserved
during the March 31, 1998 quarter for two significant non performing loans. This
reserve  impacted the average loan yield by 16 basis points.  See "Provision for
Loan Losses." The yield on  investments  decreased to 6.55% for the three months
ended March 31,  1998,  from 6.69% for the three  months  ended March 31,  1997.
Total average  interest-earning assets were $538.7 million for the quarter ended
March 31, 1998,  as compared to $440.6  million for the quarter  ended March 31,
1997. The increase in average  interest-earning  assets is due to an increase in
average loans receivable of approximately $35.4 million,  investment  securities
of approximately  $4.4 million and  mortgage-backed  securities of approximately
$58.0 million.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $6.0 million for the three
months ended March 31, 1998, as compared to $4.9 million for March 31, 1997. The
average cost of deposits  for the three  months ended March 31, 1998,  was 4.03%
compared  to 4.14% for the  three  months  ended  March  31,  1997.  The cost on
interest-bearing  liabilities  was 4.58% for the three  months  ended  March 31,
1998,  as compared to 4.51% for the three months ended March 31, 1997.  The cost
of FHLB  advances  and  reverse  repurchase  agreements  was  5.54%  and  5.97%,
respectively,  for the three months  ended March 31, 1998.  For the three months
ended March 31, 1997, the cost was 5.79% and 5.50%, respectively.  Total average
interest-bearing  liabilities increased from $426.1 million at March 31, 1997 to
$519.7  million at March 31,  1998.  The  increase  in average  interest-bearing
liabilities  is due to an increase in average  deposits of  approximately  $15.9
million,  FHLB  advances of $29.1 million and reverse  repurchase  agreements of
$47.5 million.

NET INTEREST INCOME

Net interest  income was $4.8 million for the three months ended March 31, 1998,
as compared to $4.4 million for the three  months ended March 31, 1997.  The net
interest  margin was 3.50% for the three months ended March 31, 1998,  and 3.94%
for the three months  ended March 31, 1997.  During the quarter the Bank entered
into a leverage strategy by purchasing ARM mortgage-backed securities which were
<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 MARCH 31, 1997 AND 1998

funded by repurchase  agreements  and short-term  advances.  This strategy has a
negligible  spread  during  the  first  year.  However,   upon  repricing  these
securities  should yield  approximately  180-200  basis point above the one year
treasury.  The ultimate yield will depend on the securities  speed of repayment.
The majority of these ARM  mortgage-backed  securities may reprice in an average
of approximately ten months.

PROVISION FOR LOAN LOSSES

The provision for loan losses increased from $120,000 for the period ended March
31, 1997,  to $250,000 for the three months ended March 31, 1998  primarily as a
result of continued increased growth in commercial lending. For the three months
ended March 31, 1998, net charge-offs  were $92,000  compared to net charge-offs
of $45,000 for the three  months ended March  31,1997.  The  allowance  for loan
losses as a percentage  of total loans was 1.24% at March 31, 1998,  compared to
1.19% at September  30,  1997.  Loans  delinquent  90 days or more were 1.20% of
total loans at March 31,  1998,  compared to .06% at  September  30,  1997.  The
allowance  for loan  losses  was 104% of loans  delinquent  more than 90 days at
March 31, 1998,  as compared to 1,906% at September  30,  1997.  Non  performing
loans included two significant loans with balances of approximately $4.0 million
dollars.  The Bank has initiated  foreclosure  proceedings  on both  properties.
Subsequent to March 31, 1998, one loan became current, however,  management does
not know if or when the other loan will become performing.  Presently,  the Bank
does not  expect  any  material  losses  or  charge-offs  regarding  this  loan.
Management believes that the current level of allowances is adequate considering
the  Company's  current loss  experience  and  delinquency  trends,  among other
criteria.

OTHER INCOME

For the three months ended March 31, 1998,  other income increased 54.7% to $1.6
million compared to $1.0 million for the three months ended March 31, 1997. Fees
and service charges were $508,000 for the quarter ended March 31, 1998, compared
to $417,000 for the quarter ended March 31, 1997.  This  increase  resulted from
approximately  9% growth in core deposits since September 30, 1997. Gain on sale
of loans was $340,000 for the quarter ended March 31, 1998, compared to $175,000
for the quarter  ended March 31,  1997.  This is due to a  decreasing  long-term
interest rate environment which has led to increased mortgage refinancing.  Gain
on sale of  securities  was  $253,000  for the  quarter  ended  March 31,  1998,
compared to $12,000 for the quarter ended March 31, 1997.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased from $3.1 million for the three
months  ended March 31,  1997,  to $3.5 million for the three months ended March
31, 1998.  Salaries and employee  benefits  increased  from $1.6 million for the
three months  ended March 31,  1997,  to $1.8 million for the three months ended
March 31, 1998  primarily  due to  increased  number of lending  personnel.  Net
occupancy, furniture and fixtures and data processing expenses increased $73,000
when  comparing  the two periods.  Other  expenses were $858,000 for the quarter
ended March 31, 1998, compared to $715,000 for the quarter ended March 31, 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 MARCH 31, 1997 AND 1998

INCOME TAXES

Income taxes  increased from $790,000 for the three months ended March 31, 1997,
to $961,000 for the three months ended March 31, 1998,  as a result of increased
income before taxes.

GENERAL

Net income  increased from $2.7 million for the six months ended March 31, 1997,
to $3.3  million for six months  ended March 31,  1998,  or 24.6%.  Net interest
income  increased  $985,000  primarily  as a result of an  increase  in interest
income of $2.7  million  offset  by an  increase  of $1.7  million  in  interest
expense.  Provision for loan losses increased from $350,000 for six months ended
March 31,  1997,  to $440,000  for the six months  ended March 31,  1998.  Other
income increased $758,000.
General and administrative expenses increased $612,000.

INTEREST INCOME

Interest  income for the six months  ended March 31,  1998,  increased  to $21.0
million as compared to $18.2  million for the six months  ended March 31,  1997.
The earning  asset  yield for the six months  ended  March 31,  1998,  was 8.25%
compared  to a  yield  of  8.43%  for the  six  months  ended  March  31,  1997.
Approximately  $202,000 of interest  income on loans was reserved during the six
months  ended March 31, 1998 for two  significant  non  performing  loans.  This
reserve  impacted the average loan yield by 10 basis points.  See "Provision for
Loan  Losses." The average  yield on loans  receivable  for the six months ended
March 31, 1998,  was 8.70%  compared to 8.63% for the six months ended March 31,
1997. The yield on investments decreased to 6.63% for the six months ended March
31,  1998,  from 6.72% for the six months ended March 31,  1997.  Total  average
earning  assets were $513.0  million  for the six month  period  ended March 31,
1998,  as compared to $436.2  million for the six month  period  ended March 31,
1997.

INTEREST EXPENSE

Interest expense on  interest-bearing  liabilities was $11.4 million for the six
months  ended March 31,  1998,  as  compared to $9.7  million for the six months
ended March 31,  1997.  The average  cost of deposits  for the six months  ended
March 31, 1998,  was 4.10%  compared to 4.16% for the six months ended March 31,
1997.  The cost of  interest-bearing  liabilities  was 4.61% for the six  months
ended March 31,  1998,  as compared to 4.48% for the six months  ended March 31,
1997. Total average  interest-bearing  liabilities increased from $429.1 million
at March 31, 1997 to $495.1 million at March 31, 1998.

NET INTEREST INCOME

Net interest income was $9.5 million for the six months ended March 31, 1998, as
compared  to $8.6  million  for the six months  ended  March 31,  1997.  The net
interest margin decreased to 3.64% for the six months ended March 31, 1998, from
3.95% for the six  months  ended  March 31,  1997.  Since  the  majority  of the
<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 MARCH 31, 1997 AND 1998

Company's  assets are  adjustable  rate mortgage  loans which  reprice  annually
versus many of the Company's liabilities which reprice more quickly, the Company
may  experience a decrease in its interest  rate spread  should  interest  rates
increase rapidly.

PROVISION FOR LOAN LOSSES

The provision for loan losses increased from $350,000 for the period ended March
31,  1997,  to $440,000  for the six months  ended March 31,  1998.  For the six
months ended March 31,  1998,  net  charge-offs  were  $141,000  compared to net
charge-offs  of $70,000 for the six months ended March 31, 1997.  The  allowance
for loan  losses as a  percentage  of total  loans was 1.24% at March 31,  1998,
compared to 1.19% at  September  30, 1997.  Non  performing  loans  included two
significant loans with balances of approximately $4.0 million dollars.

The Bank has initiated foreclosure proceedings on both properties. Subsequent to
March 31, 1998, one loan became current; however, management does not know if or
when the other loan will become performing.  Presently, the Bank does not expect
any material losses or charge-offs regarding this loan. 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 six months ended March 31, 1998,  other income  increased  32.5% to $3.1
million compared to $2.3 million for the six months ended March 31, 1997. Fees &
service  charges for the six months ended March 31, 1997 were $843,000  compared
to  $991,000  for the six months  ended  March 31,  1998.  This is the result of
approximately  9% growth in core deposits since September 30, 1997. Other income
increased  from  $853,000  for the six months  ended March 31, 1997  compared to
$968,000 for the six months ended March 31, 1998. Due to a decreasing  long-term
interest rate environment which has resulted in increased mortgage  refinancing,
gain on sale of loans was  $403,000  for the six months  ended  March 31,  1997,
compared to $697,000  for the six months  ended March 31,  1998.  Proceeds  from
sales of mortgages were $26.6 million,  an increase of 42.9%,  for the first six
months of 1998 compared to $18.0 million for the comparable 1997 period. Gain on
sale of securities was $30,000 for the six months ended March 31, 1997, compared
to $268,000 for the six months ended March 31, 1998.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased  from $6.4  million for the six
months ended March 31, 1997,  to $7.0 million for the six months ended March 31,
1998. Salaries and employee benefits increased $370,000, or 11.1% primarily as a
result of increased lending personnel. Net occupancy, furniture and fixtures and
data processing  expense increased  $102,000  primarily as a result of increased
maintenance,  lease expense and depreciation  expense due to the addition of the
Coastal Federal University facility.  Other expense was $1.4 million for the six
months ended March 31,  1997,  compared to $1.6 million for the six months ended
March 31, 1998. These were partially offset by lower FDIC premiums of $73,000.

INCOME TAXES

Income  taxes  increased  from $1.5  million for the six months  ended March 31,
1997,  to $1.9 million for the six months  ended March 31, 1998,  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 SIX MONTHS ENDED MARCH 31, 1997 AND 1998

REGULATORY 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
                                   ------           -----          ------             -----         ------           -----
                                                                     (Dollar In Thousands)
<S>                                <C>              <C>            <C>                 <C>          <C>              <C>

As of March 31, 1998:
 Total Capital: ............       $40,153          11.58%         $27,731             8.00%        $34,664          10.00%
   (To Risk Weighted Assets)
 Tier 1 Capital: ...........       $36,406          10.50%         $   N/A              N/A%        $20,798           6.00%
   (To Risk Weighted Assets)
 Tier 1 Capital: ...........       $36,406           6.31%         $17,318             3.00%        $28,864           5.00%
   (To Total Assets)
 Tangible Capital: .........       $36,406           6.31%         $ 8,659             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 SIX MONTHS ENDED MARCH 31, 1997 AND 1998

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the 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 fiscal years  beginning  after  December 15, 1997.  Earlier
application is permitted.  Comparative financial statements provided for earlier
periods  are  required to be  reclassified  to reflect  the  provisions  of this
statement.  The Company will adopt  Statement 130 in the first quarter of fiscal
1999.

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 fiscal years beginning after December 15, 1997. Earlier
application  is  encouraged.  In the initial  year of  application,  comparative
information for earlier years is to be restated,  unless it is impractical to do
so.  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.

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
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998

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  (to be  expensed as  incurred)  and expects  additional  hardware  and
software capital expenditures of approximately  $100,000. Most of these expenses
will be incurred in fiscal 1998 and 1999.  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 March 31, 1998, no material  changes have occurred in market risk disclosures
included in the Company's form 10-K 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. 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

At the  Company's  annual  stockholders  meeting held on January 26,  1998,  the
following items were ratified.

(a) The  election as  directors  of all  nominees:  Harold D.  Clardy,  James H.
Dusenbury and Michael C. Gerald.

A total of  4,655,982  votes were  entitled  to be cast.  Votes for Clardy  were
4,019,977 with 48,309 withheld; votes for James H. Dusenbury were 4,065,367 with
2,019 withheld; votes for Michael C. Gerald were 4,065,621 with 1,765 withheld.

James C. Benton,  G. David Bishop,  J. T.  Clemmons,  James P. Creel,  Wilson B.
Springs  and Samuel A.  Smart are  directors  whose  terms  continued  after the
meeting.

(b) Ratification of an amendment to Coastal Financial Corporation's  Certificate
of  Incorporation  to increase the  authorized  number of shares of common stock
from 5,000,000 to 15,000,000

A total of 4,655,928  votes were  entitled to be cast.  Votes for the  amendment
were 3,972,890 and votes against were 90,427 and votes abstained were 4,069.
<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)   Certificate of Amendment to Certificate of
                           Incorporation of Coastal Financial Corporation

                     (c)   Bylaws of Coastal Financial Corporation**

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

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

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

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

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

                     (f)   1990 Stock Option Plan***

                     (g)   Directors Performance Plan****

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

                  27       Financial Data Schedule

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

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

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

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

****     Incorporated  by reference to the proxy  statement  for the 1996 Annual
         Meeting of Stockholders.
<PAGE>
PART II.  OTHER INFORMATION - CONTINUED
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

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

******   Incorporated  by  reference  to December  31, 1997 Form 10-Q filed with
         Securities and Exchange Commission on February 13, 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 May 15, 1998                          /s/ Michael C. Gerald  
                                           ---------------------- 
                                           Michael C. Gerald
                                           President and Chief Executive Officer

Date May 15, 1998                          /s/ Jerry L. Rexroad
                                           Jerry L. Rexroad
                                           Executive Vice President and
                                           Chief Financial Officer