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 June 30, 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 June 30, 1998.

Common Stock $.01 Par Value Per Share                         6,255,589 Shares
-------------------------------------                         ----------------
            (Class)                                             (Outstanding)

<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 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 June 30, 1998                   

       Consolidated Statements of Operations for the three
       months ended June 30, 1997 and 1998                          

       Consolidated Statements of Operations for the nine
       months ended June 30, 1997 and 1998                          

       Consolidated Statements of Cash Flows for the nine
       months ended June 30, 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>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                     September 30,      June 30,
                                                          1997            1998
                                                       ---------       ---------
                                                              (Unaudited)
                                                         (Dollars in thousands)
ASSETS:
<S>                                                    <C>             <C>      
Cash & amounts due from banks ...................      $  12,852       $  13,908
Short-term interest-bearing deposits ............            559             284
Investment securities available for sale ........         26,171          14,217
Mortgage-backed securities available for sale ...         23,023         150,732
Loans receivable (net of allowance for
   loan losses of $4,902 at September 30,
   1997 and $5,519 at June 30, 1998) ............        403,570         405,985
Loans receivable held for sale ..................          8,359          10,184
Real estate acquired through foreclosure ........            250             271
Office property and equipment, net ..............          7,561           8,437
Federal Home Loan Bank stock, at cost ...........          5,618           6,361
Accrued interest receivable on loans ............          2,814           2,695
Accrued interest receivable on investments ......            452           1,198
Other assets and deferred charges ...............          2,774           2,615
                                                       ---------       ---------
                                                       $ 494,003       $ 616,887
                                                       =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Deposits ........................................      $ 347,116       $ 367,922
Securities sold under agreements to
   repurchase ...................................          2,666          76,226
Advances from Federal Home Loan Bank ............        101,478         123,209
Other borrowings ................................          2,193           5,186
Drafts outstanding ..............................          1,018           1,141
Advances by borrowers for property taxes
  and insurance .................................          1,409           1,088
Accrued interest payable ........................            952           1,168
Other liabilities ...............................          4,780           4,569
                                                       ---------       ---------
  Total liabilities .............................        461,612         580,509
                                                       ---------       ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)

                                                     September 30,      June 30,
                                                          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 6,255,589 shares
   at June 30, 1998 issued and outstanding ......             62              62
Additional paid-in capital ......................          8,682           8,873
Retained earnings ...............................         23,402          27,017
Treasury stock, at cost (9,760 shares) ..........           (182)           --
Unrealized gain on securities available
  for sale, net of income taxes .................            427             426
                                                       ---------       ---------
  Total stockholders' equity ....................         32,391          36,378
                                                       ---------       ---------
                                                       $ 494,003       $ 616,887
                                                       =========       =========

</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998

                                                          1997            1998
                                                          ----            ----
                                                             (Unaudited)
                                                        (Dollars in thousands,
                                                        except per share data)
<S>                                                  <C>              <C>        
Interest income:
   Loans receivable ............................     $     8,542      $     9,169
   Investment securities ........................            513              241
   Mortgage-backed securities ..................             713            1,793
   Other .......................................              38               91
                                                     -----------      -----------
   Total interest income .......................           9,806           11,294
                                                     -----------      -----------
Interest expense:
   Deposits ....................................           3,410            3,612
   Securities sold under agreements to
     repurchase ................................             523            1,068
   Advances from Federal Home Loan Bank ........           1,280            1,649
                                                     -----------      -----------
     Total interest expense ....................           5,213            6,329
                                                     -----------      -----------
   Net interest income .........................           4,593            4,965
Provision for loan losses ......................             190              240
                                                     -----------      -----------
   Net interest income after provision
     for loan losses ...........................           4,403            4,725
                                                     -----------      -----------
Other income:
   Fees and service charges ....................             367              469
   Loss from real estate owned .................             (33)             (22)
   Gain on sale of loans receivable, net .......             225              279
   Gain on sale of securities available for sale               3              242
   Other income ................................             432              553
                                                     -----------      -----------
                                                             994            1,521
                                                     -----------      -----------
General and administrative expenses:
   Salaries and employee benefits ..............           1,714            1,898
   Net occupancy, furniture and fixtures
     and data processing expense ...............             677              837
   FDIC insurance premium ......................              52               53
   Other expenses ..............................             556              656
                                                     -----------      -----------
                                                           2,999            3,444
                                                     -----------      -----------
Earnings before income taxes ...................           2,398            2,802

Income taxes ...................................             882            1,040
                                                     -----------      -----------
Net income .....................................     $     1,516      $     1,762
                                                     ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998 (CONTINUED)

                                                          1997            1998
                                                          ----            ----
                                                             (Unaudited)
                                                        (Dollars in thousands,
                                                        except per share data)
<S>                                                  <C>              <C>        
Earnings per common share
  Basic ........................................     $       .24      $       .28
                                                     ===========      ===========
  Diluted ......................................     $       .23      $       .27
                                                     ===========      ===========

Weighted average common shares
  outstanding - basic ..........................       6,188,000        6,256,000
                                                     ===========      ===========

Weighted average common shares
  outstanding - diluted ........................       6,531,000        6,581,000
                                                     ===========      ===========

Dividends per share ............................     $     .0675      $       .07
                                                     ===========      ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998

                                                       1997              1998
                                                   -----------      -----------
                                                            (Unaudited)
                                                       (Dollars in thousands)
<S>                                                <C>              <C>        
Interest income:
   Loans receivable ..........................     $    24,939      $    27,182
   Investment securities .....................           1,123            1,095
   Mortgage-backed securities ................           1,761            3,732
   Other .....................................             209              236
                                                   -----------      -----------
   Total interest income .....................          28,032           32,245
                                                   -----------      -----------
Interest expense:
   Deposits ..................................          10,116           10,645
   Securities sold under agreements to
     repurchase ..............................             854            2,338
   Advances from Federal Home Loan Bank ......           3,906            4,748
                                                   -----------      -----------
   Total interest expense ....................          14,876           17,731
                                                   -----------      -----------
   Net interest income .......................          13,156           14,514
Provision for loan losses ....................             540              680
                                                   -----------      -----------
   Net interest income after provision
     for loan losses .........................          12,616           13,834
                                                   -----------      -----------
Other income:
   Fees and service charges ..................           1,209            1,292
   Loss from real estate owned ...............            (106)             (76)
   Income from real estate held for investment             278              221
   Gain on sale of loans receivable, net .....             628              976
   Gain on sale of securities
    available for sale .......................              33              510
   Other income ..............................           1,287            1,519
                                                   -----------      -----------
                                                         3,329            4,442
                                                   -----------      -----------
General and administrative expenses:
   Salaries and employee benefits ............           5,051            5,605
   Net occupancy, furniture and fixtures
     and data processing expense .............           2,133            2,395
   FDIC insurance premium ....................             231              158
   Other expenses ............................           1,955            2,100
                                                   -----------      -----------
                                                         9,370           10,258
                                                   -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998 (CONTINUED)

                                                       1997              1998
                                                   -----------      -----------
                                                            (Unaudited)
                                                       (Dollars in thousands)
<S>                                                <C>              <C>        
Earnings before income taxes .................           6,575            8,018

Income taxes .................................           2,405            2,949
                                                   -----------      -----------
Net income ...................................     $     4,170      $     5,069
                                                   ===========      ===========

Earnings per common share
    Basic ....................................     $       .67      $       .81
                                                   ===========      ===========
    Diluted ..................................     $       .65      $       .77
                                                   ===========      ===========

Weighted average common shares
  outstanding - basic ........................       6,188,000        6,256,000
                                                   ===========      ===========

Weighted average common
  shares outstanding - diluted ...............       6,464,000        6,546,000
                                                   ===========      ===========

Dividends per share ..........................     $     .2025      $       .21
                                                   ===========      ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
                                                     1997            1998
                                                  ---------      ---------
                                                         (Unaudited)
                                                        (In thousands)
<S>                                               <C>            <C>      
Cash flows from operating activities:
  Net earnings ..............................     $   4,170      $   5,069
  Adjustments to reconcile net earnings
       to net cash provided by  
       operating activities:
       Income from real estate
        held for investment .................          (278)          (221)
       Depreciation .........................           643            753
       Provision for loan losses ............           540            680
Origination of loans receivable
         held for sale ......................       (29,652)       (50,611)
Proceeds from sales of loans receivable
         held for sale ......................        31,123         52,436
(Increase) decrease in:
      Other assets and deferred charges .....        (1,052)           159
      Accrued interest receivable ...........          (875)          (627)
Increase (decrease) in:
      Accrued interest payable ..............            50            216
     Other liabilities ......................          (401)          (211)
                                                  ---------      ---------
        Net cash provided by
             operating activities ...........         4,268          7,643
                                                  ---------      ---------
Cash flows from investing activities:
  Purchases of investment securities
       available for sale ...................       (20,023)       (15,167)
  Proceeds from sales of investment
       securities available for sale ........         2,399          4,500
 Proceeds from maturities of investment
      securities available for sale .........         5,936         22,596
  Proceeds from maturities of mortgage-backed
      securities available for sale .........           949           --
  Purchases of mortgage-backed securities
       available for sale ...................       (24,636)      (226,852)
 Proceeds from sales of mortgage-backed
       securities available for sale ........         4,712         77,947
  Origination of loans receivable, net ......      (103,523)       (99,314)
  Purchase of loans receivable ..............        (3,065)       (10,442)
 Principal collected on loans receivable
       and mortgage-backed securities, net ..        89,517        124,164
  Proceeds from sale of real estate
       acquired through foreclosure, net ....           135             27
  Purchases of office properties and
      equipment .............................          (888)        (1,629)
  Purchases (sales)of FHLB stock, net .......           491           (743)
  Other investing activities, net ...........            51           --
                                                  ---------      ---------
      Net cash used in
             investing activities ...........       (47,945)      (124,913)
                                                  ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998 (CONTINUED)

                                                         1997              1998
                                                      ---------       ---------
                                                              (Unaudited)
                                                             (In thousands)
<S>                                                   <C>             <C>      
Cash flows from financing activities:
  Increase in deposits, net ....................      $  18,566       $  20,806
  Increase in securities sold
   under agreement to repurchase, net ..........         34,963          73,560
  Proceeds from FHLB advances ..................        122,470         176,025
  Repayment of FHLB advances ...................       (134,694)       (154,294)
 Proceeds from other borrowings, net ...........            (40)          2,993
 Decrease in advance payments by borrowers
     for property taxes and insurance, net .....           (332)           (321)
  Decrease in drafts outstanding, net ..........           (876)            123
  Dividend to stockholders .....................         (1,198)         (1,271)
  Other financing activities, net ..............            611             430
                                                      ---------       ---------
  Net cash provided by financing ...............         39,470         118,051
                                                      ---------       ---------
    activities

Net increase (decrease)
   in cash and cash equivalents ................         (4,207)            781
                                                      ---------       ---------
Cash and cash equivalents at beginning
  of the period ................................         20,861          13,411
                                                      ---------       ---------
Cash and cash equivalents at end
  of the period ................................      $  16,654       $  14,192
                                                      =========       =========

Supplemental information:
  Interest paid ................................      $  14,826       $  17,515
                                                      =========       =========

  Income taxes paid ............................      $   1,410       $   2,872
                                                      =========       =========

Supplemental schedule of non-cash investing
  and financing transactions:
  Transfer of mortgage loans to real estate
     acquired through foreclosure ..............      $     357       $      48
                                                      =========       =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
Item 1.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                      Additional                                    Total
                              Common        Paid-In     Retained      Treasury                  Stockholders'
                               Stock        Capital     Earnings        Stock          Other       Equity
                               -----        -------     --------        -----          -----       ------
                                                               (Unaudited)
                                                              (In thousands)
<S>                           <C>          <C>          <C>           <C>           <C>           <C>     
Balance at September
  30, 1996 ..............     $     62     $  8,682     $ 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 ..............     $     62     $  8,682     $ 23,402      $   (182)     $    427      $ 32,391
Exercise of stock
  options ...............         --            191         (183)          182          --             190
Cash dividends ..........         --           --         (1,271)         --            --          (1,271)
Change in unrealized gain
  on securities available
  for sale, net of
  income taxes ..........         --           --           --            --              (1)           (1)
Net income ..............         --           --          5,069          --            --           5,069
                              --------     --------      --------      --------      --------      --------

Balance at June
   30, 1998 .............     $     62     $  8,873     $ 27,017       $  --         $   426      $ 36,378
                              ========     ========     ========       ========      ========      ========
</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 nine month periods
ended June 30, 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,    June 30,
                                                           1997           1998
                                                        ---------      ---------
                                                              (Unaudited)
                                                            (In thousands)
<S>                                                     <C>            <C>      
First mortgage loans:
   Single family to 4 family units ................     $ 237,964      $ 251,157
   Other, primarily commercial
    real estate ...................................        97,680         91,135
   Construction loans .............................        34,216         27,088
Consumer and commercial loans:
   Installment consumer loans .....................        24,378         20,829
   Mobile home loans ..............................         1,291          1,144
   Deposit account loans ..........................         1,336            951
   Equity lines of credit .........................        15,294         17,225
   Commercial and other loans .....................        10,939         10,145
                                                        ---------      ---------
                                                          423,098        419,674
Less:
   Allowance for loan losses ......................         4,902          5,519
   Deferred loan fees (costs) .....................          (458)          (698)
   Undisbursed portion of loans in process ........        15,084          8,868
                                                        ---------      ---------
                                                        $ 403,570      $ 405,985
                                                        =========      =========
</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
nine months ended:
<TABLE>
<CAPTION>

                                                               June 30,
                                                       1997               1998
                                                     -------            -------
                                                             (Unaudited)
                                                            (In thousands)
<S>                                                  <C>                <C>    
Beginning allowances .....................           $ 4,173            $ 4,902
Provision for loan losses ................               540                680
Allowance on acquired loans ..............                25                109
Loan recoveries ..........................                57                 34
Loan charge-offs .........................              (195)              (206)
                                                     -------            -------

Ending allowance .........................           $ 4,600            $ 5,519
                                                     =======            =======

</TABLE>

(3)  DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
                                     September 30, 1997                 June 30, 1998
                                  -----------------------          -----------------------
                                                 Weighted                         Weighted
                                                  Average                          Average
                                   Amount           Rate            Amount           Rate
                                   ------           ----            ------           ----
                                                        (Unaudited)
                                                       (In thousands)
<S>                               <C>               <C>            <C>               <C>   
Transaction accounts .......      $167,014          3.10%          $183,943          3.24% 
Passbook accounts ..........        39,445          2.62             35,481          2.73  
Certificate accounts .......       140,657          5.58            148,498          5.37  
                                  --------          ----           --------          ----  
                                  $347,116          4.02%          $367,922          4.05% 
                                  ========          ====           ========          ==== 
</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               June 30, 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 %      $ 29,435         5.78 %
2 years ........................        28,435         5.79           5,861         6.23
3 years ........................         6,761         6.45          10,246         5.79
4 years ........................         7,646         5.91           2,519         6.40
5 years and thereafter .........        35,016         5.60          75,148         5.25
                                      --------         ----        --------         ----
                                      $101,478         5.86 %      $123,209         5.49 %
                                      ========         ====        ========         ====
</TABLE>

At September 30, 1997,  and June 30, 1998,  the Bank had pledged first  mortgage
loans with unpaid balances of  approximately  $213.9 million and $203.6 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 June 30, 1998,  included in the three and five years and
thereafter  maturities  were  $67.0  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 nine month  periods ended June 30,
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 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 JUNE 30,
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 $133.2 million for the nine months
ended June 30, 1997,  compared to $149.9  million for the nine months ended June
30, 1998. The majority of these loan originations were financed through loan and
mortgage-backed  securities principal repayments which amounted to $89.5 million
and $70.1  million  for the nine month  periods  ended  June 30,  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 nine month period  ended June 30, 1997,  the Company sold $31.1
million in  mortgage  loans  compared to $52.4  million  sold for the nine month
period ended June 30, 1998.

For the nine month  period  ended June 30,  1997,  the Company  purchased  $44.7
million in investment and mortgage-backed  securities. For the nine month period
ended June 30, 1998,  the Company  purchased  $242.0  million in investment  and
mortgage-backed  securities.  The securities purchased generally reprice in less
than five years.  A majority of 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.
<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 JUNE 30, 1997 AND 1998

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

The Bank experienced an increase of $20.8 million in deposits for the nine month
period  ended June 30,  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 June 30, 1998,  the Company had  commitments  to originate  $10.2  million in
mortgage  loans,  and $31.1 million in  undisbursed  lines of credit,  which the
Company expects to fund from normal operations.

At June 30, 1998,  the Company had $116.7  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 June 30, 1998, the Company had pledged first mortgage loans in
the amount of $203.6 million to the FHLB which could support approximately $29.5
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  $37.7  million  at June 30,  1998,  exceeding  tangible  and core
capital requirements by $28.5 million and $13.1 million,  respectively.  At June
30, 1998, the Bank's risk-based capital of approximately  $41.3 million exceeded
its current  risk-based  capital  requirement  by $14.7  million.  (For  further
information see Regulatory Matters).

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF OPERATIONS  FOR THE THREE MONTHS ENDED
JUNE 30, 1997 AND 1998

GENERAL
Net income increased from $1.5 million for the three months ended June 30, 1997,
to $1.8 million for three months  ended June 30,  1998,  or 16.2%.  Net interest
income increased  $372,000  primarily as a result of an increase of $1.5 million
in interest  income  offset by a $1.1  million  increase  in  interest  expense.
Provision  for loan losses  increased  from $190,000 for three months ended June
30, 1997,  to $240,000  for the three  months ended June 30, 1998.  Other income
increased  $527,000  primarily  as a result of  increased  income  from fees and
service  charges and gain on sales of  securities.  General  and  administrative
expense increased from $3.0 million for the quarter ended June 30, 1997, to $3.4
million for the quarter ended June 30, 1998.

INTEREST INCOME

Interest  income for the three months  ended June 30,  1998,  increased to $11.3
million as compared to $9.8  million for the three  months  ended June 30, 1997.
The earning  asset yield for the three  months  ended June 30,  1998,  was 8.07%
compared  to a yield of 8.51% for the three  months  ended  June 30,  1997.  The
average yield on loans  receivable  for the three months ended June 30, 1998 was
<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 JUNE 30, 1997 AND 1998

LIQUIDITY AND CAPITAL RESOURCES - CONTINUED

8.83%  compared to 8.77% for the three months ended June 30, 1997.  The yield on
investments  decreased to 6.77% for the three  months ended June 30, 1998,  from
6.90% for the three months ended June 30, 1997.  Total average  interest-earning
assets were $565.5  million for the quarter  ended June 30, 1998, as compared to
$464.6  million for the quarter  ended June 30,  1997.  The  increase in average
interest-earning  assets is due to an increase in average  loans  receivable  of
approximately  $25.8 million and  mortgage-backed  securities  of  approximately
$85.4 million.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $6.3 million for the three
months ended June 30, 1998,  as compared to $5.2 million for June 30, 1997.  The
average cost of deposits  for the three  months  ended June 30, 1998,  was 4.05%
compared  to  4.13%  for the  three  months  ended  June 30,  1997.  The cost on
interest-bearing liabilities was 4.57% for the three months ended June 30, 1998,
as compared to 4.60% for the three months ended June 30, 1997.  The cost of FHLB
advances and reverse  repurchase  agreements was 5.57% and 5.67%,  respectively,
for the three months  ended June 30,  1998.  For the three months ended June 30,
1997, the cost was 5.96% and 5.69%, respectively. Total average interest-bearing
liabilities  increased from $453.3 million at June 30, 1997 to $538.2 million at
June 30, 1998. The increase in average interest-bearing liabilities is due to an
increase in average  deposits of approximately  $26.5 million,  FHLB advances of
$32.5 million and reverse repurchase agreements of $25.4 million.

NET INTEREST INCOME

Net  interest  income was $5.0 million for the three months ended June 30, 1998,
as compared to $4.6 million for the three  months  ended June 30, 1997.  The net
interest  margin was 3.50% for the three months  ended June 30, 1998,  and 3.91%
for the three months ended June 30, 1997.  During the second  quarter,  the Bank
entered into a leverage  strategy by purchasing ARM  mortgage-backed  securities
which  were  funded by  repurchase  agreements  and  short-term  advances.  This
strategy has an expected spread of  approximately  fifty basis points during the
first year.

PROVISION FOR LOAN LOSSES

The provision for loan losses  increased from $190,000 for the period ended June
30, 1997,  to $240,000  for the three months ended June 30, 1998.  For the three
months  ended June 30,  1998,  net  charge-offs  were  $80,000  compared  to net
charge-offs  of $68,000 for the three months ended June 30, 1997.  The allowance
for loan  losses as a  percentage  of total  loans  was 1.33% at June 30,  1998,
compared to 1.19% at September 30, 1997.  Loans  delinquent 90 days or more were
 .64% of total loans at June 30, 1998,  compared to .06% at  September  30, 1997.
The allowance for loan losses was 208% of loans  delinquent more than 90 days at
June 30, 1998,  as compared to 1,906% at September  30,  1997.  Non-  performing
<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 JUNE 30, 1997 AND 1998

PROVISION FOR LOAN LOSSES - CONTINUED

loans  included  one  significant  loan with a  balance  of  approximately  $2.0
million.  The Bank  has  initiated  foreclosure  proceedings  on this  property.
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 June 30, 1998,  other income  increased 53.0% to $1.5
million  compared to $1.0 million for the three months ended June 30, 1997. Fees
and service charges were $469,000 for the quarter ended June 30, 1998,  compared
to $367,000 for the quarter  ended June 30, 1997.  This  increase  resulted from
approximately  10% growth in core  deposits  and  increased  charges for certain
deposit  services since  September 30, 1997.  Gain on sale of loans was $279,000
for the quarter ended June 30, 1998,  compared to $225,000 for the quarter ended
June 30, 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
$242,000 for the quarter ended June 30, 1998, compared to $3,000 for the quarter
ended June 30, 1997.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased from $3.0 million for the three
months ended June 30, 1997,  to $3.4 million for the three months ended June 30,
1998.  Salaries and employee benefits  increased from $1.7 million for the three
months ended June 30, 1997,  to $1.9 million for the three months ended June 30,
1998  primarily due to increased  number of lending  personnel.  Net  occupancy,
furniture  and fixtures and data  processing  expenses  increased  $160,000 when
comparing the two periods. This is primarily a result of increased  maintenance,
lease  expense  and  depreciation  expense  due to the  addition  of the Coastal
Federal University facility.  Other expenses were $656,000 for the quarter ended
June 30, 1998, compared to $556,000 for the quarter ended June 30, 1997.

INCOME TAXES

Income taxes  increased  from $882,000 for the three months ended June 30, 1997,
to $1.0  million  for the  three  months  ended  June 30,  1998,  as a result of
increased income before taxes.

MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF  OPERATIONS  FOR THE NINE MONTHS ENDED
JUNE 30, 1997 AND 1998

GENERAL

Net income  increased from $4.2 million for the nine months ended June 30, 1997,
to $5.1 million for the nine months ended June 30, 1998, or 21.6%.  Net interest
income  increased $1.4 million  primarily as a result of an increase in interest
income of $4.2  million  offset  by an  increase  of $2.9  million  in  interest
expense.  Provision for loan losses  increased from $540,000 for the nine months
ended June 30, 1997, to $680,000 for the nine months ended June 30, 1998.  Other
income increased $1.1 million.  General and  administrative  expenses  increased
$888,000.
<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 JUNE 30, 1997 AND 1998

GENERAL - CONTINUED

Interest  income for the nine months  ended June 30,  1998,  increased  to $32.2
million as compared to $28.0  million for the nine months  ended June 30,  1997.
The  earning  asset  yield for the nine months  ended June 30,  1998,  was 8.19%
compared  to a  yield  of  8.44%  for the  nine  months  ended  June  30,  1997.
Approximately  $178,000 of interest income on loans was reserved during the nine
months ended June 30, 1998 for a $2.0 million non performing  loan. This reserve
impacted the average loan yield by 6 basis  points.  The average  yield on loans
receivable  for the nine months ended June 30, 1998, was 8.75% compared to 8.65%
for the nine months ended June 30, 1997. The yield on  investments  decreased to
6.69% for the nine months  ended June 30,  1998,  from 6.80% for the nine months
ended June 30, 1997.  Total average  earning  assets were $530.6 million for the
nine month  period ended June 30,  1998,  as compared to $445.7  million for the
nine month period ended June 30, 1997.

INTEREST EXPENSE

Interest expense on interest-bearing  liabilities was $17.7 million for the nine
months  ended June 30,  1998,  as compared to $14.9  million for the nine months
ended June 30, 1997. The average cost of deposits for the nine months ended June
30, 1998,  was 4.08%  compared to 4.15% for the nine months ended June 30, 1997.
The cost of  interest-bearing  liabilities  was 4.57% for the nine months  ended
June 30, 1998 and 1997.  Total average  interest-bearing  liabilities  increased
from $432.3 million at June 30, 1997 to $511.7 million at June 30, 1998.

NET INTEREST INCOME

Net interest  income was $14.5  million for the nine months ended June 30, 1998,
as compared to $13.2  million for the nine months ended June 30,  1997.  The net
interest margin decreased to 3.62% for the nine months ended June 30, 1998, from
3.87%  for the nine  months  ended  June 30,  1997.  Since the  majority  of the
Company's  assets are  adjustable  rate mortgage  loans which  reprice  annually
versus many of the Company's liabilities which reprice more quickly, the Company
may  experience a decrease in its interest  rate spread  should  interest  rates
increase rapidly.

PROVISION FOR LOAN LOSSES

The provision for loan losses  increased from $540,000 for the period ended June
30, 1997,  to $680,000  for the nine months  ended June 31,  1998.  For the nine
months  ended June 30,  1998,  net  charge-offs  were  $172,000  compared to net
charge-offs  of $138,000 for the nine months ended June 30, 1997.  The allowance
for loan  losses as a  percentage  of total  loans  was 1.33% at June 30,  1998,
compared to 1.19% at  September  30, 1997.  Non  performing  loans  included one
significant loan with a balance of approximately $2.0 million dollars.  The Bank
has initiated foreclosure proceedings on this property. 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.
<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 JUNE 30, 1997 AND 1998

OTHER INCOME

For the nine months ended June 30, 1998,  other income  increased  33.4% to $4.4
million compared to $3.3 million for the nine months ended June 30, 1997. Fees &
service  charges  for the nine  months  ended  June 30,  1997 were $1.2  million
compared to $1.3 million for the nine months  ended June 30,  1998.  This is the
result of  approximately  10% growth in core deposits and increased  charges for
certain deposit  services since September 30, 1997.  Other income increased from
$1.3  million for the nine months  ended June 30, 1997  compared to $1.5 million
for the nine months ended June 30, 1998. Due to a decreasing  long-term interest
rate environment which has resulted in increased mortgage  refinancing,  gain on
sale of loans was $628,000 for the nine months ended June 30, 1997,  compared to
$976,000  for the nine  months  ended  June 30,  1998.  Proceeds  from  sales of
mortgage  loans were $52.4  million,  an increase  of 68.5%,  for the first nine
months of 1998 compared to $31.1 million for the comparable 1997 period. Gain on
sale of securities was $33,000 for the nine months ended June 30, 1997, compared
to $510,000 for the nine months ended June 30, 1998.

GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  increased  from $9.4 million for the nine
months ended June 30, 1997,  to $10.3 million for the nine months ended June 30,
1998. Salaries and employee benefits increased $554,000, or 11.0% primarily as a
result of increased lending personnel. Net occupancy, furniture and fixtures and
data processing  expense increased  $262,000  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 $2.0 million for the nine
months ended June 30,  1997,  compared to $2.1 million for the nine months ended
June 30, 1998. These were partially offset by lower FDIC premiums of $73,000.

INCOME TAXES

Income  taxes  increased  from $2.4  million for the nine months  ended June 30,
1997,  to $2.9 million for the nine months  ended June 30, 1998,  as a result of
increased income before taxes.

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.
<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 JUNE 30, 1997 AND 1998

REGULATORY MATTERS - CONTINUED

<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 June 30, 1998:
 Total Capital:                    $41,270         12.43%          $26,564               8.00%             $33,205          10.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $37,684         11.35%             $N/A                N/A%             $19,923           6.00%
   (To Risk Weighted Assets)
 Tier 1 Capital:                   $37,684          6.14%          $18,414               3.00%             $30,689           5.00%
   (To Total Assets)
 Tangible Capital:                 $37,684          6.14%           $9,207               1.50%                $N/A            N/A%
   (To Total Assets)

</TABLE>
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.
<PAGE>
PART I.  FINANCIAL INFORMATION
Item 2.  COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998

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 has gone through  testing and as of May 15, 1998, the core  processing
system is Year 2000 qualified.  Another test is scheduled for August 23, 1998 to
test local programs, hardware and communications.  In February 1998, the Company
engaged a national  consulting firm to assist in the  identification and testing
of year 2000 issues. The Company believes it has adequate resources and funds to
address the year 2000 issues.  The Company is also in the process of  addressing
any loan  relationships  it believes  could be materially  effected by year 2000
issues.  The Company  currently  expects the expenses  related to addressing the
year 2000 issues to be between $100,000 to $200,000 (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. The Company does not intend
to change its data processor prior to year 2000. Contingency plans are currently
being written by the Company in the event that they have to process  manually in
January 2000.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 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

     Not Applicable.

Item 5.  Other Information

     Not Applicable.


<PAGE>

PART II.  OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

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

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

                     (c)   Bylaws of Coastal Financial Corporation**

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

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

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

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

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

                     (f)   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.

*****    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.

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

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

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