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

                                FORM 10-K

        [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                  THE  SECURITIES  EXCHANGE  ACT  OF  1934

                  For  the  Fiscal  Year  Ended  DECEMBER 31, 1996
                                                     OR
        [   ]     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:  0-24526

                           COASTAL BANCORP, INC.
            (Exact name of Registrant as specified in its charter)


                                Texas                  76-0428727
(State  or  other  jurisdiction  of          (I.R.S.  Employer
incorporation  or  organization)          Identification  No.)

                         8 Greenway Plaza, Suite 1500
                              Houston, Texas 77046
                   (Address of principal executive office)

                                 (713) 623-2600
                       (Registrant's telephone number)

         Securities registered pursuant to Section 12(b) of the Act:

      Title of each class     Name of each exchange on which registered
           N/A                                                  N/A

         Securities registered pursuant to section 12(g) of the Act:
                  Common Stock, $0.01 par value per share
                               (Title of Class)

Indicate  by  check  mark  whether  the  registrant  (1) has filed all reports
required  by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12 months and (2) has been subject to such filing requirements
for  the  past  90  days.      Yes      X  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-K is not contained herein, and will not be contained, to the
best  of registrant's knowledge, in definitive proxy or information statements
incorporated  by  reference  in Part III of this Form 10-K or any amendment to
this  Form  10-K.    [  ]

As  of  March  14, 1997, the aggregate market value of the 3,959,759 shares of
Common  Stock of the Registrant issued and outstanding on such date, excluding
1,008,832  shares  held  by  all  directors  and  executive  officers  of  the
Registrant  as a group, was $108,893,372.  This figure is based on the closing
sale  price  of  $27.50  per  share of the Company's Common Stock on March 14,
1997,  as  reported  in  The  Wall  Street  Journal  on  March  17,  1997.

Number of shares of Common Stock outstanding as of March 14, 1997:   4,968,591

     DOCUMENTS  INCORPORATED  BY  REFERENCE
     List  hereunder the following documents incorporated by reference and the
Part  of  Form  10-K  into  which  the  document  is  incorporated:
(1)         Portions of the Registrant's Annual Report to Stockholders for the
fiscal  year ended December 31, 1996, are incorporated into Part II, Items 5-8
of  this  Form  10-K.
(2)       Portions of the Registrant's definitive proxy statement for its 1997
Annual  Meeting of Stockholders are incorporated into Part III, Items 10-13 of
this  Form  10-K.
                                      48



PART  I.

ITEM  1.  BUSINESS

     COASTAL  BANCORP,  INC.

     Coastal  Bancorp,  Inc.  (the  "Company")  is  engaged  primarily  in the
business  of serving as the ultimate holding company for Coastal Banc ssb (the
"Bank").    The Company was incorporated in March 1994  in connection with the
reorganization  of  Coastal  Banc Savings Association (the "Association") into
the holding company form of organization.  The reorganization occurred in July
1994.    In  addition,  in  July  1994,  the  Association  converted  to  a
Texas-chartered  savings  bank  operating under the name Coastal Banc ssb.  On
November  30, 1996, Coastal Banc Holding Company, Inc. ("HoCo") was created as
a  Delaware  unitary savings bank holding company in accordance with the terms
of  an  agreement  and  plan  of  reorganization  dated  August  19, 1996 (the
"Agreement").    Pursuant  to  the  terms  of the Agreement, the Bank became a
wholly-owned  subsidiary  of HoCo and HoCo became a wholly-owned subsidiary of
the  Company.    The reorganizations were treated as combinations similar to a
pooling  of  interests.  Accordingly, the financial information and references
presented  herein  have  been restated to give effect where appropriate, as if
the  reorganizations  had  occurred  at  the  earliest  date  presented.

     On  June 30, 1995, the Company issued $50.0 million of 10.0% Senior Notes
due  June  30,  2002 (the "Senior Notes").  The Senior Notes are redeemable at
the  Company's option, in whole or in part, on or after June 30, 2000, at par,
plus  accrued  interest to the redemption date.  Of the proceeds received from
the  issuance  of  the Senior Notes, $44.9 million was used to purchase 11.13%
Noncumulative  Preferred Stock, Series B, of the Bank (the "Series B Preferred
Stock")  which  is  now  owned  by  HoCo.

     At  December  31, 1996, the Company had total consolidated assets of $2.9
billion,  total  deposits of $1.3 billion, $28.8 million in Series A Preferred
Stock  and  stockholders'  equity  of  $94.1  million.

     The  Company  is  subject  to examination and regulation by the Office of
Thrift  Supervision  (the  "OTS")  and the Company and the Bank are subject to
examination  and  regulation  by  the  Texas  Savings and Loan Department (the
"Department").    The  Company  is also subject to various reporting and other
requirements  of  the  Securities  and  Exchange  Commission  (the  "SEC").

     The  Company's  executive  offices  are  located at Coastal Banc Tower, 8
Greenway  Plaza, Suite 1500, Houston, Texas 77046, and its telephone number is
(713)  623-2600.

     COASTAL  BANC  SSB

     The  Bank is a Texas-chartered, Federally insured state savings bank.  It
is  headquartered  in Houston, Texas and operates through 37 branch offices in
metropolitan  Houston,  Corpus Christi, Austin and small cities in central and
south  Texas.

     The  Bank  was originally acquired by an investor group (which includes a
majority  of  the  Board  of  Directors and the present Chairman of the Board,
President  and Chief Executive Officer of the Company) in 1986 as a vehicle to
take  advantage  of  the  failures  and consolidation in the Texas banking and
thrift  industries.    The  Bank  has  acquired deposits and branch offices in
transactions  with  the  Federal government and other private institutions, in
addition  to  acquiring  an  independent  national bank in 1995, as a base for
developing an ongoing savings bank business. At February 28, 1986 (the date of
change in ownership), the Bank had one full service office and total assets of
approximately  $10.7  million.   Accordingly, although originally organized in
1954,  the Bank in its current form effectively commenced operations  with the
1986  change  in  control.  By  December 31, 1996, the Bank's total assets had
increased  to $2.9 billion, total deposits were $1.3 billion and stockholders'
equity  totaled  $165.4  million.

     The Bank attempts to maximize profitability through the generation of net
interest  income  and  fee  income.    To  meet  this  objective, the Bank has
implemented  a  strategy of building its core deposit base while deploying its
funds  in assets which provide an attractive return with relatively low credit
risk.    In carrying out this strategy and to ultimately provide a respectable
return  to  the  Company's  shareholders,  the  Bank adheres to four operating
principles:    (i) continuing to expand its low cost core deposit base through
acquisitions;  (ii)  minimizing  interest  rate  risk; (iii) minimizing credit
risk; and (iv) maintaining a low level of general overhead expense relative to
its  peers.    These  operating  principles  are  briefly  discussed  below.

     CORE  DEPOSITS.   The Bank has implemented the first operating principle,
developing  and  expanding  a  core  deposit base, beginning in 1988 through a
series  of  transactions  with  the  Federal  government  and  private  sector
financial  institutions,  gaining in the process entry into additional markets
in  Houston,  Corpus  Christi,  Austin,  San  Antonio  and  south  Texas.

     In  1988, the Bank became the first acquiror of failed or failing savings
institutions  under  the  Federal  government's  "Southwest  Plan."    In this
transaction  (the  "Southwest  Plan  Acquisition"), the Bank acquired from the
Federal Savings and Loan Insurance Corporation ("FSLIC"), as receiver for four
insolvent  savings  associations  (the "Acquired Associations"), approximately
$543.4  million of assets and assumed approximately $543.4 million of deposits
and  other  liabilities.   The Bank acquired an aggregate of 14 branch offices
from  the  Acquired  Associations  in  new  and  existing markets in southwest
Houston, west of Houston along the Houston-San Antonio corridor and in the Rio
Grande  Valley.    See  "The  Southwest  Plan  Acquisition."

     Since  completion of the Southwest Plan Acquisition, the Bank has entered
into  five branch office acquisitions and one whole bank acquisition: two with
an  instrumentality  of  the  Federal  government  (acting  as the receiver of
insolvent  financial  institutions) and four with other private institutions. 
In  each, the Bank generally agreed to acquire certain assets in consideration
of  the  assumption  of  certain deposit and other liabilities with respect to
each  institution.    In  addition,  in  1996 the Bank chose to exit two Texas
cities,  San  Antonio and San Angelo.  The Bank sold its San Angelo branch and
swapped  its  three  San  Antonio  branches for one branch in Bay City, Texas.

     In  the  first  branch  acquisition,  completed in 1990, the Bank assumed
deposits  of  $151.1 million in connection with the acquisition of nine branch
offices,  which are primarily located in the northwestern Houston metropolitan
area.    The  acquisition  provided  the  Bank with further penetration in the
Houston market.  In the second branch acquisition, completed in 1991, the Bank
assumed  deposits  of  $71.4  million in connection with the acquisition of an
office  located  in  Victoria, Texas.  The acquisition of that office expanded
the  Bank's  presence  in  the small cities market southwest of Houston toward
Port  Lavaca.    In  the third branch acquisition, completed in 1993, the Bank
assumed  deposits of $386.4 million in connection with the acquisition of nine
branches  located  in Corpus Christi, San Antonio, Conroe, Brenham and Sealy. 
The  Corpus  Christi  and  San Antonio branch acquisitions allowed the Bank to
enter  new markets.  In the fourth branch acquisition, also completed in 1993,
the  Bank  assumed deposits of $45.7 million and acquired two branches located
in  Harlingen  and  McAllen,  two small cities southwest of Houston in the Rio
Grande  Valley  (the  "Valley").    As  a result of this acquisition, the Bank
increased  its presence in the Valley.  In the fifth branch acquisition, which
was  completed  in  December 1994, the Bank assumed deposits of $150.2 million
and  acquired  eight  branches located in San Angelo, Marble Falls, Kingsland,
Llano,  Giddings,  Buchanan  Dam,  Mason and Burnet, which allowed the Bank to
enter  new  markets  in  central  Texas.

     In  1995, the Bank continued to expand its market presence by opening two
de  novo branches in the Houston metropolitan area and by completing its first
whole  bank  acquisition.    On  November  1,  1995,  the Bank consummated the
acquisition  of  all  of  the  outstanding  capital  stock  of  Texas  Capital
Bancshares,  Inc.  ("Texas Capital").  As a result of the acquisition of Texas
Capital,  Texas  Capital Bank, N.A., a national banking association, with five
branch offices, located in Houston, Katy, Richmond and Austin and total assets
of  $170.7  million,  was  merged  with  and  into  the  Bank.

     In  1996,  the Bank consummated the sale of its San Angelo location which
had  $14.9  million  in  deposits and was acquired in the Bank's December 1994
branch  acquisition.    In  connection  with  this  sale,  the Bank recorded a
$521,000  gain before applicable income taxes.  On September 5, 1996, the Bank
consummated  the exchange of its three San Antonio branches having deposits of
$53.8  million  for  a  branch  in  Bay  City,  Texas having deposits of $79.8
million.

     All  of these transactions resulted in the net assumption of $1.5 billion
of  deposits  and  the  acquisition of 45 branch offices (after the San Angelo
branch  sale  and  the  swap  of the San Antonio branches).  The Bank has also
opened six de novo branches since inception.  Since its first acquisition, the
Bank  has  been  able to achieve operating economies and improve efficiency by
closing  an  aggregate  of  15 branch offices and transferring the deposits to
other  offices  located  in  the  same  market  areas.

     The  Bank  will  continue  to pursue acquisitions as vehicles for growth,
although  there  can be no assurance that the Bank will be able to continue to
grow  through  acquisitions  in  the future.  In the absence of any available,
cost-effective  acquisitions,  management will continue to focus on internally
generated  earnings  growth  including  further  development  of  the  Bank's
commercial  lending  and  commercial  business  deposits.

     INTEREST  RATE  RISK.    The  Bank  has  implemented the second operating
principle, minimizing interest rate risk, by matching, to the extent possible,
the  repricing  or  maturity  of  its  interest-earning  assets  to  its
interest-earning  liabilities  as well as the basis or index (for example, the
London Interbank Offered Rate ("LIBOR") or the 11th District Federal Home Loan
Bank  cost  of  funds  index ("COFI")) upon which these assets and liabilities
reprice.   Generally this is achieved through management of the composition of
its assets and liabilities.  The Bank also undertakes to lock in an acceptable
interest  rate  spread  between  interest-earning  assets and interest-bearing
liabilities  by  altering the Bank's cost of funds, or, at times, the yield on
certain  assets  in its portfolio.  To accomplish this, the Bank has purchased
interest  rate  swaps  and caps.  See "Management's Discussion and Analysis of
Financial  Condition  and  Results  of  Operations  -  Asset  and  Liability
Management"  set  forth  in  Item  7  hereof.

     The  Bank will originate and purchase for retention in its portfolio only
those loans and investments which provide a positive interest rate spread over
funding  liabilities  matched  with  similar maturities.  Consistent with this
philosophy,  a  significant portion of the Bank's assets have been invested in
adjustable-rate  high  quality  mortgage-backed  securities.   At December 31,
1996,  of  the Bank's $1.5 billion of mortgage-backed securities, $1.3 billion
or  84.2%,  were invested in adjustable rate mortgage-backed securities.  To a
lesser  extent,  the  Bank has purchased first lien mortgages on single-family
residences,  the majority of which are adjustable rate mortgages.  At December
31,  1996,  $591.3 million, or 48.1% of the Bank's loans receivable portfolio,
net  was  comprised of such adjustable rate single-family residential mortgage
loans.

     The  Bank  also  originates  and  purchases  fixed  and  adjustable  rate
long-term,  single-family  residential  loans  primarily  for  sale  into  the
secondary  market.    Prior  to 1996, this and certain other lending functions
were  performed  for the Bank by its wholly-owned mortgage banking subsidiary,
CBS  Mortgage  Corp.  ("CBS  Mortgage").    Beginning in 1996, the origination
function  was  performed  by the Bank.  By originating such loans for sale and
generally  obtaining  a  commitment for the purchase of such loans at the time
that the loan applications are approved, the Bank avoids a significant portion
of  the  interest rate risk associated with holding fixed-rate mortgage loans.

     CREDIT  RISK.    The  Bank has implemented the third operating principle,
minimizing  credit  risk, by (i) investing a substantial portion of its assets
in cash and mortgage-backed securities, and (ii) taking a cautious approach to
the  development  of  its direct lending operations.  At December 31, 1996, of
the  Company's  $2.9  billion  in total assets, $1.5 billion or 53.0% of total
assets  consisted  of  mortgage-backed securities and $27.7 million or 1.0% of
total  assets  consisted  of cash and cash equivalents.  At December 31, 1996,
the Company's total net loans receivable portfolio amounted to $1.2 billion or
42.8%  of  total  assets  comprised  primarily of $788.9 million of first lien
residential  mortgage  loans and $138.4 million of multifamily mortgage loans,
which  constituted  64.2% and 11.3%, respectively, of the net loans receivable
portfolio.    The  balance  of  the  net loans receivable portfolio, by dollar
amount  and  percent of the portfolio, was comprised of the following:  $116.8
million  (or 9.5%) of commercial real estate loans, $53.4 million (or 4.4%) of
warehouse loans to residential mortgage originators ("Warehouse loans"), $44.6
million  (or  3.6%) of residential construction loans, $22.6 million (or 1.8%)
of  consumer  and  other  loans,  $21.6  million  (or  1.8%)  of  real  estate
acquisition and development loans, $21.2 million (or 1.7%) of loans secured by
purchased mortgage servicing rights ("PMSR loans") and $20.7 million (or 1.7%)
of  commercial,  financial  and  industrial  loans.  The Company's non-accrual
loans  as  of such date were $12.8 million or 1.04% of total loans receivable,
and  the  Company's total nonperforming assets were $16.0 million, or 0.56% of
total  assets.

     The Bank will develop and seek to market loan products actively only when
and as management concludes that the Texas economy supports such steps without
the  incidence  of  undue  credit  risk.    This is consistent with the Bank's
approach  in  its  lending  activities.    See  "Lending  Activities-General."

     NONINTEREST  EXPENSE.    The  Bank  has  implemented the fourth operating
principle, maintaining a low level of general overhead expense relative to its
peers  by  operating an efficiently staffed branch office system which is able
to  administer and deliver its products and services in an economical manner. 
The  Bank  believes  that  it  has  significant  operating  leverage, and that
continued  incremental growth will not cause its overhead expenses to increase
by  a  corresponding amount.  The growth achieved from the Bank's acquisitions
has  facilitated reduced overhead levels as a proportion of assets and a lower
cost  of  funds  from  a  more  meaningful market share of core deposits.  The
Company's  ratio  of  noninterest  expense  to  average  total  assets  on  a
consolidated  basis  has decreased, from 2.71% for the year ended December 31,
1988  to  1.40%  for the year ended December 31, 1996, before the 1996 Savings
Association  Insurance Fund ("SAIF") insurance special assessment.  The Bank's
unconsolidated  ratio of noninterest expense to average total assets was 1.36%
for  the  year  ended  December  31,  1996,  before  the  1996  SAIF insurance
assessment.

     On  September  30,  1996,  the  Bank recorded the one-time SAIF insurance
special  assessment  (the  "Special Assessment") of $7.5 million ($4.8 million
after  applicable  income  taxes) as a result of the Federal Deposit Insurance
Act,  as  amended  (the "FDIA") being signed into law.  The Special Assessment
pursuant  to  the  FDIA  was equal to 65.7 basis points on the SAIF assessment
base  of  deposits  existing  as  of  March  31,  1995.

     The  Bank  is  subject to regulation by the Department, as its chartering
authority  and  by the FDIC, which regulates the Bank and insures its deposits
to  the  fullest  extent provided by law.  The Bank also is subject to certain
regulation  by  the  Board  of  Governors  of  the Federal Reserve System (the
"Federal  Reserve  Board")  and  is  a member of the Federal Home Loan Bank of
Dallas  (the  "FHLB"), one of the 12 regional banks which comprise the Federal
Home  Loan  Bank  System.

LENDING  ACTIVITIES

     GENERAL.    The Bank has taken a cautious approach to the development and
growth  of its direct lending operations to minimize credit risk.  In order to
avoid  incurring  undue  credit  risk,  the  Bank  historically  invested  a
significant  percentage  of  its  assets in alternative financial instruments,
particularly mortgage-backed securities, most of which have certain repayments
guaranteed  by  the  government or Government Sponsored Enterprises ("GSEs"). 
See  "Mortgage-Backed  Securities."   The Bank will originate and purchase for
retention  in  its portfolio only those loans determined by management to have
an  acceptable  credit  risk and which provide a positive interest rate spread
over  funding  liabilities  matched with similar maturities.  This strategy is
designed  to achieve an acceptable risk adjusted rate of return, as determined
and  continuously  evaluated  by  the  Board  of  Directors.

     Consistent  with  the  Bank's  lending  strategy, the Bank originates and
purchases  single-family  residential loans for sale into the secondary market
and  to retain in its portfolio.  Through 1995, this and certain other lending
functions  described  herein  were performed for the Bank by CBS Mortgage, its
wholly-owned  mortgage  banking  subsidiary.    Beginning  in  1996,  the Bank
performed  these functions.  By originating and purchasing such loans for sale
and  generally  obtaining  a  commitment for the purchase of such loans at the
time  that the loan applications are approved or the purchase is approved, the
Bank  believes  that  it avoids a significant amount of the interest rate risk
associated  with  holding fixed rate mortgage loans. Although the Bank and CBS
Mortgage  have  from  time  to  time originated adjustable rate and short-term
fixed  residential mortgage loans for the Bank's portfolio, the number of such
loans  has been relatively small compared to the bulk loan purchases described
below.

     In  1995,  the  Bank  completed  the acquisition of Texas Capital and its
$103.3 million in loans.  The loans acquired from Texas Capital included first
lien  residential,  multifamily,  commercial  real  estate,  residential
construction,  real  estate acquisition and development, commercial, financial
and  industrial  and  consumer  loans.    Utilizing  this  acquisition  as  a
springboard,  the  Bank  implemented  its  strategic  shift towards building a
commercial  banking  business.


<PAGE>
     The  following table sets forth information concerning the composition of
the  Bank's  net  loans  receivable  portfolio  by  type  of loan at the dates
indicated.    The  table  does not include loans which were subject to special
coverage  by  the  Federal  government  in  connection with the Southwest Plan
Acquisition.

<TABLE>

<CAPTION>



                                                        At December 31,
                                                    -----------------------  
                                           1996               1995             1994
                                      ----------           ----------          ------       
                                       Amount       Percent    Amount    Percent      Amount
                                      ------------------  ----------  ------  --------  ----
                                                    (Dollars in thousands)
<S>                                   <C>              <C>         <C>     <C>         <C>  

Real-estate mortgage loans:
 First lien residential           $   791,337        61.96%   $ 742,880    66.38%  $428,237 
 Multifamily                          139,486        10.92       95,297     8.52     75,142 
 Residential construction              77,146          6.04      33,935     3.03     27,777 
 Acquisition and development           26,132         2.05       15,517     1.39     14,119 
 Commercial                           119,004         9.32      122,622    10.96     30,405 
 Commercial construction                3,963         0.31           --       --         -- 
Commercial, warehouse                  53,573         4.19       48,822     4.36     15,724 
Commercial, PMSR                       21,380         1.67       21,548     1.93     11,625 
Commercial, financial and industrial   21,965         1.72       19,860     1.77         -- 
Loans secured by savings deposits       8,849         0.69        8,292     0.74      5,141 
Consumer and other                     14,400         1.13       10,316     0.92      4,179 
                                   ---------------------------------------------------------

 Total loans                        1,277,235       100.00%    1,119,089   100.00%   612,349
                                   ---------------==========--------------------------------

Loans in process                      (38,742)                   (11,526)           (12,970)
Premium (discount) to record
 purchased loans, net                     479                     (1,366)            (8,925)
Unearned interest and loan fees        (2,344)                    (1,939)            (1,264)
Allowance for loan losses              (6,880)                    (5,703)            (2,158)
                                   ---------------------------------------------------------
 Total loans receivable, net      $ 1,229,748             $    1,098,555            $587,032 
                                   =========================================================







            At December 31,
             ---------------
                 1994
                ------
                                    Percent
                                    -------
<S>                                   <C>

Real-estate mortgage loans:
 First lien residential                69.93%
 Multifamily                           12.27 
 Residential construction               4.54 
 Acquisition and development            2.30 
 Commercial                             4.97 
 Commercial construction                  -- 
Commercial, warehouse                   2.57 
Commercial, PMSR                        1.90 
Commercial, financial and industrial      -- 
Loans secured by savings deposits       0.84 
Consumer and other                      0.68 
                                      -------

 Total loans                          100.00%
                                      -------

Loans in process
Premium (discount) to record
 purchased loans, net
Unearned interest and loan fees
Allowance for loan losses
 Total loans receivable, net

</TABLE>




<PAGE>
     SCHEDULED  MATURITIES.             The following table sets forth certain
information  at  December  31,  1996  regarding  the principal amount of loans
maturing  in  the Bank's loans receivable portfolio based on their contractual
terms  to  maturity.    Demand  loans,  loans  having  no  stated  schedule of
repayments  and  no  stated maturity are reported as due in one year or less. 
First  lien  residential  mortgage,  multifamily  mortgage and commercial real
estate  loans  are  based  on  their contractual terms to maturity assuming no
periodic  amortization  of  principal.

<TABLE>

<CAPTION>



                                  AT DECEMBER 31. 1996
                                 ----------------------                        
                          More than      More than       More than       More than      Over
            One year     one year to    three years    five years to   ten years to   twenty
            or less      three years   to five years     ten years     twenty years    years
--------------------------------------------------------------------------------------------
                                     (In thousands)
<S>                                   <C>          <C>     <C>     <C>      <C>       <C>

First lien residential mortgage      $5,512     $6,755   $8,406  $33,918  $168,019  $568,727
Multifamily mortgage                 31,207     88,450   16,864      508     2,457        --
Residential construction             35,957      9,028       --       --        --        --
Real estate acquisition and
 development                          5,184     16,919       --       --        --        --
Commercial real estate               15,301     39,837   23,700   14,275    25,891        --
Commercial construction                 805         71      135       --       400        --
Commercial, other                    69,807     16,199    9,937      975        --        --
Consumer and other                   11,343      5,923    4,279      906       798        --
                                 -----------------------------------------------------------

 Total loans                     $  175,116  $ 183,182 $ 63,321  $50,582  $197,565  $568,727
                                 ===========================================================






                                   Total
                                 ----------

<S>                              <C>

First lien residential mortgage  $  791,337
Multifamily mortgage                139,486
Residential construction             44,985
Real estate acquisition and
 development                         22,103
Commercial real estate              119,004
Commercial construction               1,411
Commercial, other                    96,918
Consumer and other                   23,249
                                 ----------

 Total loans                     $1,238,493
                                 ==========
</TABLE>



     The  average maturity of loans is generally substantially less than their
average  contractual  terms  because  of  prepayments  and,  in  the  case  of
conventional  mortgage  loans,  due-on-sale  clauses, which generally give the
Bank  the  right  to  declare a loan immediately due and payable in the event,
among  other  things, that the borrower sells the real property subject to the
mortgage and the loan is not repaid.  The average life of mortgage loans tends
to  increase  when  current  mortgage loan rates are substantially higher than
rates  on  existing  mortgage  loans  and,  conversely, decrease when rates on
existing  mortgages  are  substantially lower than current mortgage loan rates
(due  to refinancings or adjustable-rate and fixed-rate loans at lower rates).
Under  the latter circumstances, the weighted average yield on loans decreases
as  higher  yielding  loans  are  repaid  or  refinanced  at  lower  rates.


<PAGE>
     The  following  table  sets forth the amounts of loans due after one year
from  December  31, 1996 by category and which have fixed or adjustable rates.

<TABLE>

<CAPTION>



                                            Interest-Rate
                                            --------------                      
                                                Fixed          Adjustable    Total
                                            --------------     ----------  ----------
<S>                                      <C>  <C>             <C>  <C>         <C>

                                            (In thousands)

First lien residential mortgage          $         195,298  $     590,527  $  785,825

Multifamily mortgage                                20,545         87,734     108,279

Residential construction                             8,628            400       9,028

Real estate acquisition and development                 --         16,919      16,919

Commercial real estate                              53,568         50,135     103,703

Commercial construction                                400            206         606

Commercial, other                                    4,182         22,929      27,111

Consumer and other                                  11,344            562      11,906
                                            -----------------------------------------
 Total                                   $         293,965  $     769,412  $1,063,377
                                            =========================================
</TABLE>



<PAGE>

     ORIGINATION,  PURCHASE AND SALE OF LOANS.  The following table sets forth
the  loan  origination,  purchase  and  sale  activity  of the Bank during the
periods  indicated.    The table does not reflect the activity of CBS Mortgage
for  other  institutions,  GSEs or entities during the periods presented.  See
"Mortgage  Banking  Activities."
<TABLE>

<CAPTION>



                                                                Year Ended December 31,
                                                              -------------------------
                                                            1996        1995        1994
                                                           -----------------------------
                                                                          (In thousands)
<S>                                                          <C>         <C>      <C>

First lien mortgage loan originations:
 Adjustable rate                                           $3,542          $985   $ 12,760 
 Fixed rate                                                 5,471           746      5,269 
 Adjustable rate by correspondent lenders                  67,461        92,911      4,842 
 Fixed rate by correspondent lenders                        4,058            --         -- 
Residential construction and
   acquisition and development loan originations          154,182        61,713     83,804 
Warehouse loan originations                               887,252       549,628    388,303 
PMSR loan originations                                     69,172        67,578     41,084 
Multifamily loan originations                              67,657        42,366     26,013 
Commercial real estate loan originations                   41,170        29,595     26,756 
Commercial construction originations                        3,806            --         -- 
Commercial, financial and industrial loan originations     30,080         5,100         -- 
Consumer loan originations                                 22,256        12,429      7,236 
                                                         -----------------------------------
   Total loan originations                              1,356,107       863,051    596,067 
Purchase of residential mortgage loans                    115,928       298,613    144,290 
Loans acquired (net) in connection with 
acquisition and disposition transactions                    1,018       103,319      2,428 
Purchase of multifamily and commercial real estate loans    4,604        25,045         -- 
Multifamily and commercial real estate
 loans transferred from Covered Assets                         --            --      6,671 
                                                         ----------------------------------
   Total loan originations and purchases                1,477,657     1,290,028    749,456 
                                                       ------------------------------------
Foreclosures                                                4,363         3,394      2,386 
Principal repayments and reductions to 
 principal balance                                      1,339,691       776,084    609,995 
Residential loans sold                                         --           679        732 
Total foreclosures, repayments and sales of loans       1,344,054       780,157    613,113 
                                                      -------------------------------------
Amortization of premiums and discounts and 
fees on loans                                               (485)         3,316      1,519 
Provision for loan losses                                 (1,925)        (1,664)      (934)
                                                      -------------------------------------
   Net increase in loans receivable                   $  131,193     $  511,523   $136,928 
                                                      =====================================
</TABLE>



<PAGE>
     The  following table sets forth the number of bulk loan purchases and the
amount  of  first lien residential mortgage loans acquired by the Bank through
bulk  purchases  for  the  periods  indicated.

<TABLE>

<CAPTION>



                        Year Ended December 31,
                      -------------------------
                         1996       1995      1994
                      ---------  --------  --------
                   (Dollars in thousands)
<S>                     <C>         <C>       <C>

Amount purchased  $    112,395  $296,452  $141,775
Number of bulk
 loan purchases              9        24        22
</TABLE>



     Personnel  from  the  Bank  generally  analyze loan bid packages, as they
become  available,  and  the  Securities  Investment  Subcommittee of the Bank
reviews  the  information in the loan packages to determine whether to bid (or
make an offer) on a package and the price of such bid (or offer).  The pricing
with  respect to such loan packages is based on a number of factors, including
the  ability  to  create  spread  income  with  a funding source of comparable
maturity, the pricing of alternative investments, particularly mortgage-backed
securities, which  offer little or no credit risk, and the credit risk profile
of  the  portfolio  offered.    The  Bank analyzes credit risk in a whole loan
package  through its due diligence investigation, which is designed to provide
management with basic underwriting information on each loan or group of loans,
including  loan-to-value,  payment history, insurance and other documentation.
Because  the  Bank  is  purchasing  loans  in  bulk,  the Bank prices the loan
packages  that  it  bids  on  to  take into consideration, among other things,
delinquency  and  foreclosure assumptions based on the risk characteristics of
the  loan  packages.  The Bank intends to continue to make competitive bids on
loan  portfolios  that  meet  the  Bank's  purchase  criteria.

     Beginning  in  1994,  the  Bank  has  been  originating  adjustable  rate
residential  mortgage  loans  through approximately 18 correspondent lenders. 
The correspondents originate and immediately sell such loans to the Bank.  All
such  loans  are  underwritten  in  accordance  with  the  Bank's policies and
procedures.    During  1996,  loans  purchased  from the correspondent lenders
totaled  $74.3  million.

     The  Bank  will  directly sell mortgage loans and mortgage loan servicing
from time to time in order to replace the loans and servicing with instruments
which  have  higher credit quality and which generate less interest rate risk.

     While  the Bank has the general authority to originate and purchase loans
secured  by  real  estate  located  anywhere in the United States, the largest
concentration  of  its  residential  first lien mortgage and construction loan
portfolios  is secured by realty located in Texas.  Other than in Texas, there
are  no  other  concentrations  of  ten  percent  or  more.

     RESIDENTIAL  CONSTRUCTION  LENDING.    The  Bank initiated a construction
lending program with local builders in the latter part of 1989 which has grown
considerably  since  its inception.  At the time of initiation of the program,
management  of  the  Bank surveyed the members of the residential construction
industry  in the Bank's Houston market area and targeted those companies which
management  believed, based upon its market research, to be financially strong
and  reputable.    Loans are made primarily to fund residential construction. 
Construction loans are made on pre-sold and speculative residential homes only
in  well  located,  viable  subdivisions  and  planned  unit  developments.

     The  builders with whom the Bank does business generally apply for either
a  non-binding  short-term  line  of  credit  or  for an annual line of credit
(subject  to  covenants) from the Bank for a maximum amount of borrowing to be
outstanding at any one time.  The line of credit applications are processed by
the  loan  administration  and  credit departments and are underwritten by the
Lending  Subcommittee.    Loans to any one builder are limited to $5.0 million
for new lines and $12.0 million for increases or renewals of existing lines if
approved  by  this  Committee,  or  up to the regulatory loans to one borrower
limit  if approved by the Board of Directors' Loan Committee. Upon approval of
the  line  of  credit, the Bank issues a letter which indicates to the builder
the  maximum  amount  which  will be available under the line, the term of the
line  of  credit, which is generally 90 days to one year, the interest rate of
the loans to be offered under the line, which is set at a rate above the local
prime rate or LIBOR on the outstanding monthly loan balance, and the loan fees
payable.    When the builder desires to draw upon a short-term line of credit,
it  must  make  a separate loan application under the line for a specific loan
amount.   Each loan commitment under a short-term line of credit is separately
underwritten  and approved by at least two members of the Lending Subcommittee
after  the builder's master file is updated and reviewed.  The Bank also funds
construction  loans  outstanding  to  builders or individuals under individual
construction  loans.

     The  terms of the Bank's construction loans are generally for nine months
or less, unless extended by the Bank.  If a construction loan is extended, the
borrower  is  generally  charged a loan fee for each 90 day extension period. 
The  Bank  reserves  the right to extend any loan term, but generally does not
permit  the  original  term  and  all  extensions  to exceed 24 months without
amortization  of  principal  either  in  monthly  increments  or  a  lump sum.

     The  Bank  generally  requires  that  construction  loans  be  personally
guaranteed  by  the  borrower  and  its principals.  The maximum loan-to-value
ratio  of  any  construction  loan  may  not  exceed  the lesser of 80% of the
appraised  value  of  the  collateral  property,  80%  of the proposed sale or
contract  price  or 100% of the actual cost.  All individual loans are limited
in  dollar  amount  based upon the project proposed by the builder.  Draws for
lot  purchases  are generally limited to the contracted sales price of the lot
(to  include  escalations)  not  to exceed 100% of the lot's appraised value. 
Other  special  conditions  which  the Bank attaches to its construction loans
include  a requirement that limits the number and dollar amount of loans which
may  be  made  based  upon  unsold  inventory.  The Bank may also, in its sole
discretion,  discontinue  making  any  further  loans  if the builder's unsold
inventory  exceeds  a certain level from all lending sources or if the builder
fails  to  pay  its  suppliers  or  subcontractors  in  a  timely  manner.

     The  Bank  provides  construction  financing for homes that generally are
priced  below  $450,000, with most homes priced between $70,000 and $175,000. 
In  this  price range, the Bank has experienced the shortest duration of term,
the  highest  annualized yield and the least likelihood of defaults because of
the  generally  high  number of pre-completion sales.  The Bank will also make
individual  construction loans to builders or individuals on single homes or a
panel of homes on substantially the same terms and conditions as loans granted
under  the  Bank's  line  of  credit  program.

     At  December  31,  1996,  the  Bank  had  $45.0  million  in  outstanding
residential construction loans (net of loans in process).  Of the construction
loans  outstanding  at  December  31,  1996, $35.6 million were to 16 builders
originated  under  the  Bank's line of credit program and $9.4 million were to
builders  or  individuals under individual construction loans.  At the present
time,  the  Bank  has  approved  builders  in  the Houston, Dallas, and Austin
metropolitan  areas  and  is  selectively  soliciting  new  builders  for  its
residential  construction lending program.  The Bank intends to continue to do
business  with  the  companies  involved  in  its  line  of credit program and
believes  that  it  will  continue  to  have construction loan demand from the
builders  with whom it currently has an established lending relationship.  The
Bank  does  not  otherwise  actively  solicit  construction  loans directly or
through  the  mass  media.

     Construction financing is generally considered to involve a higher degree
of  risk  than  long-term  financing  on  improved,  occupied residential real
estate,  due  to the lender's reliance on the borrower to add to the estimated
value  of the property through construction within the budget set forth in the
loan  application.    The  Bank  attempts to limit its risk exposure by, among
other  things:  limiting  the  number  of  borrowers  to  whom  it  lends  and
establishing  specific  qualification  requirements  for  borrowers generally;
continually  monitoring  the general economic conditions in the market, recent
housing starts and sales; continually monitoring the financial position of its
borrowers throughout the term of the loan through periodic builder reports and
inquiries  to  the  builder's  suppliers  and  subcontractors;  continually
monitoring  the  progress of the development through site inspections prior to
loan  disbursements;  utilizing  only  qualified,  approved  appraisers;  and
requiring  that  the  builder  maintain  a  pre-approved  ratio (generally not
greater  than  50%)  of  speculative  to  pre-sold  homes  in the development.

     MULTIFAMILY  MORTGAGE  AND  COMMERCIAL REAL ESTATE LENDING.  Beginning in
1993,  the  Bank  initiated  a  program  to  actively  seek  loans  secured by
multifamily  or  commercial  properties  (primarily retail shopping centers). 
Multifamily mortgage and commercial real estate loans typically involve higher
principal  amounts and repayment of the loans generally is dependent, in large
part,  on sufficient cash flow being generated by the underlying properties to
cover  operating  expenses  and  loan repayments.  Market values may vary as a
result  of  economic  events or governmental regulations which are outside the
control of the borrower or lender and which can affect the future cash flow of
the  properties.    The loans are for a short to medium term of between one to
seven  years,  and  have  floating rates or fixed rates based on a spread over
similarly  fixed  borrowings from the FHLB.  The properties securing the loans
originated  by  the Bank are generally located in Texas.  The Bank attempts to
limit  its  risk  exposure  by,  among  other  things:  lending  to  proven
developers/owners,  only  considering  properties  with  existing  operating
performance  which  can  be  analyzed,  requiring  conservative  debt coverage
ratios, and continually monitoring the operation and physical condition of the
collateral.   At December 31, 1996, multifamily mortgage loans totaling $139.5
million  and commercial real estate loans of $119.0 million were outstanding. 
The  decision  to  increase  commercial real estate lending resulted primarily
from the improvement in the local economies throughout Texas, which was caused
by  improved  occupancy  in retail centers together with an improvement in the
quality  of  the borrowers seeking such loans.  At December 31, 1996, the Bank
had  outstanding  commercial  real  estate loans (acquired from Texas Capital)
totaling  approximately  $32,000  that  were  on  non-accrual  status.

     The  Bank  began  seeking multifamily mortgage and commercial real estate
construction  loans  in 1996.  The Bank will generally underwrite these loans,
with  principal  balances  up  to  $5.0  million, in the same way it currently
underwrites  its  multifamily  mortgage lending and will attempt to manage the
risk  of  such loans by requiring that the builders provide more equity in the
project  than  is  required  in  refinancings,  lending to those builders with
strong financial statements and requiring that borrowers purchase, if required
by the movement of general market interest rates, interest rate caps for their
loans.    At  December  31,  1996, commercial construction loans totaling $4.0
million  were  outstanding.

     WAREHOUSE  LENDING.  Since 1992, the Bank has provided lines of credit to
mortgage  companies  generally  for  their  origination  of  single  family
residential  loans  which  are  normally  sold  no  more  than  90  days  from
origination to the Federal National Mortgage Association (the "FNMA"), Federal
Home  Loan  Mortgage  Corporation  ("FHLMC"),  Government  National  Mortgage
Association  ("GNMA")  or  to  private  investors.  The  lines  of  credit are
generally  renewable  annually.    Borrowers  pay the Bank a commitment and/or
non-usage  fee  and  pay  interest  on  funds  drawn  at  a floating rate.  In
addition,  the  Bank  receives  a  fee for each loan file processed.  The Bank
holds  the  original mortgage loan notes and other documentation as collateral
until  repayment  of  the related lines of credit.  The lines of credit may be
drawn  to  the extent of 98.0% of the principal balance of the mortgages being
financed  or  to  the lesser of 100% of the sale commitment amount or the note
amount  of  each mortgage being financed depending on the agreement.  The Bank
generally  will  not  accept  any  loan  older  than 60 days as collateral and
generally  requires  the  originator to pay down the line for any loan held as
collateral  which  is 90 days or older from the date of its origination. Thus,
the  overall  security for the lines of credit is easily valued, highly liquid
and  turns  over  rapidly.

     Warehouse  loans  are  underwritten  in accordance with Bank policies and
procedures.    Interested loan originators who contact or are contacted by the
Bank  are asked to prepare a loan application which seeks detailed information
on  the  originator's  business.    After  evaluating  the  application  and
independently  verifying  the  applicant's  credit  history, if the originator
appears  to  be a likely candidate for approval, Bank personnel will visit the
originator  and  review,  among  other  things,  its  business  organization,
management, quality control, funding sources, risk management, loan volume and
historical  delinquency  rate, financial condition, contingent obligations and
regulatory  compliance.  The originator pays a fee for this review to offset a
portion  of  the Bank's expense, which amount is deducted from the origination
fee  if  the  line  of  credit  is  approved.    If  the  originator meets the
established criteria, its application is submitted to the Lending Subcommittee
for  review and if required, is thereafter referred to the Board of Directors'
Loan  Committee.

     Bank personnel attempt to minimize the risk of making Warehouse loans by,
among  other  things,  (i)  taking  physical  possession  of  the originator's
collateral,  (ii)  directly  receiving payment from secondary market investors
when  the  loans  are  sold  and  remitting  any balance to the borrower after
deducting  the  amount  borrowed  for that particular loan, (iii) visiting the
originator's  office  from  time  to  time  to  review its financial and other
records  and  (iv)  monitoring each originator:  (a) by periodically reviewing
each  originator's  financial  statements,  loan  production  delinquency  and
commitment reports; and, (b) on an annual basis, by reviewing the originator's
audited  financial  statements  and  the  auditor's letter to the originator's
board  of  directors.

     During  1996,  the  Bank originated $887.3 million of Warehouse loans and
had  such  loans  outstanding  of  $53.6  million  at  December  31,  1996.

     PMSR  LENDING.    Since  1992,  the  Bank  has  loaned  funds to mortgage
companies  for  their  purchase of mortgage servicing rights or to finance the
mortgage  companies  ongoing  operations  to  originate  and  retain  mortgage
servicing.    The mortgage companies receive fees for servicing mortgage loans
which  include collecting and remitting loan payments to FNMA, FHLMC and other
investors. Loans of this nature generally have terms of one to five years, and
are generally limited to the lesser of 65.0% of the price paid by the mortgage
company  for servicing rights, or the value of the originated servicing rights
(subject to the regulatory maximum for loans to one borrower).  PMSR loans are
made  at  adjustable  rates  of interest tied to LIBOR or the Bank's borrowing
rate  plus  a  spread  and  a  commitment  or  non-usage  fee.  PMSR loans are
collateralized  by  purchased  or  originated mortgage servicing rights to the
remaining  cash  flows  after  remittance  of payments to FNMA, FHLMC or other
investors  on  the  servicing  portfolio.    PMSR  loans  are  underwritten in
substantially  the  same  manner  as  Warehouse loans.  Bank personnel closely
monitor  PMSR  borrowers  on  a  semi-annual  basis  by,  among  other things,
reviewing the borrower's financial condition and operations in the same manner
as  they  do  for Warehouse loans and by examining the value of the borrower's
PMSR portfolio (through evaluation of the estimated future net cash flows from
the servicing rights) in order to ensure that the loan-to-value ratio does not
exceed  70.0%  during  the  life of the loan.  If the continuing loan-to-value
ratio  exceeds  that  amount,  the borrower is asked to repay a portion of the
principal balance to maintain the ratio limit.  At December 31, 1996, the Bank
had  $21.4  million  in  outstanding  PMSR  loans.

     REAL  ESTATE ACQUISITION AND DEVELOPMENT LENDING.  The Bank has increased
the  number  of  loans  originated  to  residential  real  estate builders and
developers for the acquisition and/or development of vacant land. The proceeds
of  the  loans  are  generally  used  to  acquire  the  land and make the site
improvements necessary to develop the land into saleable lots.  The Bank lends
only  to  the  major  developers in Houston with good track records and strong
financial  capacity  and on property where substantially all of the lots to be
developed  are pre-sold.  The term of the loans have generally been from 18 to
24 months at a spread over the prime rate, plus an origination fee.  Repayment
on  the  loans  is  generally  made  as  the  lots are sold to builders.  Land
acquisition  and  development  loans involve additional risks when compared to
loans  on  existing  residential  properties.    These loans typically involve
relatively  large  loan  balances  to  single  borrowers,  and  the  repayment
experience  is  dependent  upon the successful development of the land and the
resale  of  the lots.  These risks can be significantly impacted by supply and
demand  conditions  and  the  general  economic conditions in the local market
area.    At  December  31,  1996,  the  Bank  had $26.1 million of real estate
acquisition  and  development  loans  outstanding.

     COMMERCIAL  BUSINESS  LENDING.    Development  of  a  commercial business
lending  program  is  a  strategic goal of Bank management.  The Texas Capital
acquisition  provided the Bank with an established commercial business lending
program  to  small  and  medium  sized  companies primarily in the Houston and
Austin  metropolitan  areas.  In  1996,  management  continued  to develop the
infrastructure  for  commercial  business  lending in most of the Bank's major
markets.  The commercial, financial and industrial loans ("Commercial Business
loans")  are  generally  made to provide working capital financing or purchase
financing  to  businesses  and are generally secured by the borrower's working
capital assets (i.e. accounts receivable, inventory, etc.) or assets purchased
by  the borrower (i.e. operating assets, equipment, etc.). Commercial Business
loans  generally have shorter terms (one to five years) at a spread over prime
rate  and  are  of  greater risk than real estate secured loans because of the
type  and  nature  of  the  collateral.  In addition, Commercial Business loan
collections  are  more  dependent on the continuing financial stability of the
borrower.  The Bank intends to expand the acquired commercial business lending
program,  while  managing  the associated credit risk by monitoring borrowers'
financial  position and underlying collateral securing the loans.  At December
31,  1996,  Commercial  Business  loans  outstanding totaled $22.0 million, of
which  $496,000  (acquired  from  Texas  Capital)  was  on non-accrual status.

     CONSUMER  LENDING.   The Bank makes available traditional consumer loans,
such  as  home  improvement, new and used car financing, new and used boat and
recreational  vehicle  financing  and  loans secured by savings deposits.  The
interest  rate on loans secured by savings deposits is typically set at a rate
above  that  paid  on  the  underlying  account and adjusts if the rate on the
account changes.  At December 31, 1996, the Bank had $23.2 million in consumer
loans  outstanding,  of which $8.8 million were savings deposit secured loans.

     Consumer  loans (other than savings deposit secured loans) generally have
shorter  terms  and  higher  interest  rates  than  mortgage loans but usually
involve greater credit risk than mortgage loans because of the type and nature
of the collateral.  In addition, consumer lending collections are dependent on
the  borrower's  continuing  financial  stability,  and  are thus likely to be
adversely  affected  by  job  loss,  marital  status,  illness  and  personal
bankruptcy.    In  many cases, repossessed collateral for a defaulted consumer
loan  will not provide an adequate source of repayment of the outstanding loan
balance  because  of  depreciation  of  the  underlying  collateral.  The Bank
believes  that the generally higher yields earned on consumer loans compensate
for  the  increased  credit  risk associated with such loans and that consumer
loans  are  important  to  its  efforts  to  serve  the  credit  needs  of the
communities  that  it  serves.

     The  Bank's  consumer  loan  lending  territory  approximates the markets
served  by its retail branches.  Persons desiring consumer loans are typically
individuals  who  have  a  pre-existing  banking  relationship  with the Bank.

     ASSET  QUALITY.  The Bank, like all financial institutions, is exposed to
certain  credit  risks  related  to  the value of the collateral which secures
loans  held in its portfolio and the ability of borrowers to repay their loans
during  the  term  thereof.   Management of the Bank closely monitors the loan
portfolio  and  the  Bank's  real  estate  acquired as a result of foreclosure
("REO")  for  potential problems on a weekly basis and reports to the Board of
Directors  on  a  monthly basis. When a borrower fails to make a required loan
payment  or other weaknesses are detected in a borrower's financial condition,
the  Bank  attempts to determine an appropriate course of action by contacting
the  borrower.    Delinquencies  are    cured  promptly in most cases.  If the
delinquency  on  a  mortgage loan exceeds 90 days and is not cured through the
Bank's  normal  collection  procedures,  or  an  acceptable arrangement is not
worked  out  with the borrower, the Bank will institute measures to remedy the
default,  including  commencing  a foreclosure action.  As a matter of policy,
the  Bank generally does not accept from the mortgagor a voluntary deed of the
secured  property  in  lieu  of  foreclosure.  If foreclosure is effected, the
property  is  sold  at a public auction in which the Bank may participate as a
bidder.    If the Bank is the successful bidder, the foreclosed real estate is
then  included  in  the  Bank's  REO  portfolio  until  it  is  sold.

     Upon  acquisition,  REO  is  recorded  at  the  lower of unpaid principal
balance  adjusted for any remaining acquisition premiums or discounts less any
applicable valuation allowance or estimated fair value, based on an appraisal,
less estimated selling costs.  All costs incurred from the date of acquisition
forward  relating  to  maintaining  the  property  are  recorded  as a current
expense.

     It is the Bank's general policy not to recognize interest income on loans
past  due  90  days  or  more.    When a loan is placed on non-accrual status,
previously  accrued  but  unpaid interest is reversed against current interest
income.    On  a  loan-by-loan  basis,  Bank management may continue to accrue
interest on loans that are past due more than 90 days, primarily if management
believes  that  the  individual  loan  is in the process of collection and the
interest  is fully collectible.  At December 31, 1996, 1995 and 1994, the Bank
had  the  following  loans  which  were 90 days or more delinquent and were on
accrual  status:

<PAGE>

<TABLE>

<CAPTION>



                                          At December 31,
                                      -----------------------                         
                                       1996            1995         1994
                                      -------------------------------------
                                      (Dollars in thousands)
<S>                                 <C> <C>      <C>  <C>        <C>  <C>

First lien single family mortgage     $ 106        $  --          $  --

Residential construction                 52           --             --

Commercial real estate                  881           --             --

Commercial, financial and industrial     14          231             --

Consumer                                142           --             --
                                    =========================================

 Total                              $ 1,195        $ 231          $  --
                                    =========================================
</TABLE>



The  following  table  sets forth information regarding the Bank's non-accrual
loans  and  REO  as  of  the  dates  shown.

<TABLE>

<CAPTION>



                                                       At December 31,
                                                       ----------------  
                                           1996                 1995           1994
                                     ----------------------------------------------------
                                                       (Dollars in thousands)
<S>                                 <C>       <C>    <C>       <C>      <C>  <C>

Non-accrual loans:
 First lien single family            $       12,238   $      12,925            $  6,077 
   mortgage
 Residential construction                        --             353                -- 
 Commercial real estate                          32             965                -- 
 Commercial, financial and
   industrial                                   496             337                -- 
 Consumer                                        73              42                25 
                                     --------------------------------------------------
 Total non-accrual loans                     12,839          14,622             6,102 
Total REO                                     3,161           4,216               781 
                                     -------------------------------------------------
Total nonperforming assets           $       16,000   $      18,838          $  6,883 
                                     =================================================
Ratio of nonperforming
 assets to total assets                       0.56%           0.68%             0.30%
Ratio of non-accrual loans to total
 loans receivable                             1.04%           1.33%             1.04%
                                     ==================================================
</TABLE>




<PAGE>
     At  December  31,  1996,  approximately  $816,000  in additional interest
income  would  have  been  recorded  in the year then ended on the above loans
accounted  for  on  a  non-accrual  basis  if  such  loans had been current in
accordance  with  their original terms and had been outstanding throughout the
period  or  since  origination  if  held for part of the period.  For the year
ended  December  31,  1996,  $507,000  in  interest income was included in net
income  for these same loans prior to the time they were placed on non-accrual
status.

     The  increase  in  total  nonperforming  assets  between 1994 and 1996 is
largely  attributable  to  the  growth in the Bank's single family residential
mortgage  loan  portfolio,  which occurred primarily as a result of whole loan
acquisitions  through  bulk  purchases,  and  due to the loans acquired in the
Texas  Capital acquisition.  At December 31, 1996, the Bank had 200 first lien
residential  mortgage  loans in non-accrual status, aggregating $12.2 million,
with  an  average  balance  of approximately $61,000.  A total of 181 of these
loans,  with an aggregate balance of $10.3 million, were acquired through bulk
loan  purchases,  3 of these loans, with an aggregate balance of $26,000, were
acquired  through the Southwest Plan Acquisition and 2 of these loans, with an
aggregate balance of $197,000, were acquired in the Texas Capital acquisition.
Of  the  181  residential  mortgage  loans acquired through bulk purchases, at
December  31, 1996, 39 of such loans totaling $1.8 million were being serviced
by  other  institutions,  which  constituted  4.6%  of  the  $38.2  million of
aggregate  loans  serviced  by  others.

     The commercial real estate and commercial, financial and industrial loans
on  non-accrual status at December 31, 1996 were acquired in the Texas Capital
acquisition.

     At December 31, 1996, nonperforming assets included REO with an aggregate
book  value  of  $3.2  million.   At such date, the Bank's REO consisted of 36
single  family  residential  properties  and  six  commercial properties (also
acquired  from  Texas  Capital).

     At December 31, 1996, in addition to the loans in non-accrual status, the
Bank  had $8.0 million in loans classified as substandard, $126,000 classified
as  loss  and  $10.0  million  of  loans  designated  as "special mention" for
regulatory  purposes.    Of these loans, $2.5 million of the substandard loans
and  $1.3  million  of  the  "special  mention" loans were acquired from Texas
Capital.    The  loans  classified  as loss at December 31, 1996 were consumer
loans specifically provided for in the allowance for loan losses allocation at
that  date.   Loans designated as "special mention" are not currently required
to be classified for regulatory purposes but have potential weaknesses or risk
characteristics  that  could  result  in  future  problems.

     On  January  1, 1995, the Bank adopted the Financial Accounting Standards
Board's  (the  "FASB")  Statement  of  Financial  Accounting Standards No. 114
(Statement  114),  "Accounting  by  Creditors  for  Impairment  of a Loan," as
amended  by Statement 118.  Under Statement 114, a loan is impaired when it is
"probable"  that  a  creditor will be unable to collect all amounts due (i.e.,
both  principal  and  interest) according to the contractual terms of the loan
agreement.    Statement 114 requires that the measurement of impaired loans be
based on (i) the present value of the expected future cash flows discounted at
the  loan's  effective interest rate, (ii) the loan's observable market price,
or  (iii)  the  fair  value  of the loan's collateral.  Statement 114 does not
apply  to  large  groups  of  smaller  balance  homogeneous  loans  that  are
collectively  evaluated  for  impairment.    The Bank collectively reviews all
first-lien  residential  loans  under $500,000 as a group and all consumer and
other loans as a group for impairment, excluding loans in which foreclosure is
probable.   The adoption of Statement 114, as amended by Statement 118, had no
material  impact on the Bank's consolidated financial statements as the Bank's
existing  policy  of  measuring  loan impairment was generally consistent with
methods  prescribed  in  these  standards.

     The  Bank  considers  a  loan  to  be  impaired  when, based upon current
information and events, it is probable that the Bank will be unable to collect
all  amounts  due according to the contractual terms of the loan agreement. In
determining  impairment,  the  Bank  considers,  among  other  things,  large
non-homogeneous  loans  which  may  include  nonaccrual loans or troubled debt
restructurings,  and  performing  loans  which  exhibit,  among  other
characteristics,  high  loan-to-value  ratios,  low  debt  coverage ratios, or
indications  that the borrowers are experiencing increased levels of financial
difficulty.   The Bank bases the measurements of collateral-dependent impaired
loans on the fair value of their collateral.  The amount by which the recorded
investment in the loan exceeds the measure of the fair value of the collateral
securing  the  loan  is  recognized  by  recording  a valuation allowance.  At
December  31,  1996,  the  carrying  value  of loans that are considered to be
impaired under Statement 114 totaled approximately $725,000 (all of which were
on  non-accrual)  and  the related allowance for loan losses on those impaired
loans totaled $524,000.  The average balance of impaired loans during the year
ended  December  31,  1996  was  approximately  $846,000.   For the year ended
December  31,  1996,  the  Bank  did  not  recognize  interest income on loans
considered  impaired.

     The  Bank  had  loaned  $77.1  million  at  December  31, 1996, under its
residential construction lending program to multiple borrowers who are engaged
in  similar  activities.    These  borrowers  could  be  similarly impacted by
economic  conditions  in  the  Houston  metropolitan  area.   See "Residential
Construction  Lending."    Except  for concentrations in its Warehouse lending
lines,  the  Bank had no other loan concentrations.  At December 31, 1996, the
Bank  had  $53.6  million  of  Warehouse  loans  outstanding.   See "Warehouse
Lending."


<PAGE>
ALLOWANCE  FOR LOAN LOSSES.  The Bank maintains loan loss allowances to absorb
future  and  known  losses  that  may  be  realized  on  its  loans receivable
portfolio.    The  following table summarizes activity in the Bank's allowance
for  loan  losses  during  the  periods  indicated.

<TABLE>

<CAPTION>




                                             Year Ended December 31,
                                            -------------------------              
                                          1996           1995       1994
                                      ----------------------------------------
                                                 (Dollars in thousands)
<S>                                  <C>    <C>  <C>       <C>   <C>  <C>

Balance at beginning of year          $   5,703   $      2,158   $  1,527 
Total charge-offs, net(1)                  (748)          (387)      (303)
Provisions for loan losses                1,925          1,664        934 
Acquisition allowance adjustment(2)          --          2,268         -- 
                                      ------------------------------------
Balance at end of the year            $   6,880   $      5,703   $  2,158 
                                      ====================================
Ratio of net charge-offs during the
period to average net loans
outstanding during the period              0.06%          0.05%      0.06%
                                      ====================================
</TABLE>




1Net  charge-offs  in  all  years  are  fully  attributable  to  single family
residential  loans, except for $154,000 in 1996 and $45,000 in 1995, which are
attributable  to  consumer  and  other  loans.    Net charge-offs also include
recoveries  of  $103,000  in  1996,  $17,000  in  1995  and  $26,000  in 1994.

2The  acquisition allowance adjustment in 1995 represents the amount allocated
to the allowance for loan losses during the year in connection with (i) a bulk
loan  package  acquired  and  (ii)  the  loans  acquired  in the Texas Capital
acquisition.


<PAGE>
     The  following  table sets forth the allocation of the allowance for loan
losses  by  type  of  loan  outstanding  at  the  dates  indicated.

<TABLE>

<CAPTION>



                                                      At December 31,
                                                     ----------------  
                                               1996             1995         1994
                                             -------            -----        -----
                                          (In thousands)
<S>                                      <C>               <C>    <C>    <C>  <C>

First lien residential mortgage                $    2,217  $      2,992  $  1,191
Multifamily mortgage                                  369           249       188
Residential construction                              223           307       278
Real estate acquisition and development               261           130       142
Commercial real estate                              1,151         1,072       152
Commercial construction                                20            --        --
Commercial, Warehouse and PMSR                        361           230        98
Commercial, financial and industrial                  985           395        --
Consumer and other                                    374           177       109
Unallocated                                           919           151        --
                                                 --------------------------------
                                              $     6,880  $      5,703  $  2,158
                                                 ================================
</TABLE>



<PAGE>
     The following table sets forth the allocation of the provision 
(reduction of  allowance)for  loan  losses  by  loan  type  during  
the  periods  indicated.

<TABLE>

<CAPTION>



                                                        At December 31,
                                                        ---------------- 
                                                  1996           1995         1994
                                               --------          -----       ------
                                                        (In thousands)
<S>                                      <C>               <C>    <C>     <C>  <C>

First lien residential mortgage           $       (180)  $      1,032      $   743 
Multifamily mortgage                               120             23           60 
Residential construction                           (84)           (67)        (174)
Real estate acquisition and development            131            (25)         106 
Commercial real estate                              79            479          128 
Commercial construction                             20             --           -- 
Commercial, Warehouse and PMSR                     131            132          (49)
Commercial, financial and industrial               618             --           -- 
Consumer and other                                 322             90          120 
Unallocated                                        768             --           -- 
                                              -------------------------------------
 $                                               1,925   $      1,664      $   934 
                                              =====================================
</TABLE>



     Provisions  for  loan losses, currently $450,000 per quarter, are charged
to  earnings  to  bring  the  total allowance to a level deemed appropriate by
management based on such factors as historical experience, the volume and type
of lending conducted by the Bank, the amount of nonperforming assets, industry
standards,  regulatory  policies,  generally  accepted  accounting principles,
general economic conditions, particularly as they relate to the Bank's lending
area,  and  other  factors  related  to  the collectibility of the Bank's loan
portfolio.

     The  Bank  periodically  reviews  its  loan  loss  allowance policy, at a
minimum,  annually.  As a result of a comprehensive revision of such policy in
1996,  the  Bank changed its method of assessing the adequacy of the allowance
for  loan  losses.    The  revised policy provides that the Bank will annually
establish  a  monthly  provision  amount to be added to the allowance for loan
losses and the resultant allowance will be "tested" monthly for adequacy based
on  the  allocation methodology described below.  The policy provides that any
"excess"  based  on  this  calculation will be maintained in the allowance for
loan  losses as "unallocated".  The minimum allowance allocation to first lien
residential  mortgage  loans  greater  than  90  days  delinquent is a general
allocation  of  5%  of  the  aggregate  net  book value.  All other first lien
residential  mortgage  loans are allocated a general allowance of 0.10% of the
aggregate  net  book  value.    The  Bank generally allocates the allowance to
multifamily,  residential  construction,  commercial construction, real estate
acquisition  and  development,  commercial  real  estate,  Warehouse,  PMSR,
Commercial  Business and consumer and other loans in the following percentages
of  outstanding  principal  amounts:  0.25%, 0.25%, 0.50%, 1.0%, 0.50%, 0.25%,
0.50%,  1.0-2.0%  and  1.0%.    In addition, a general allowance allocation is
calculated  on  unfunded  commitments  and letters of credit using the general
allowance  percentages described above for the applicable loan type.  Specific
allowances  are  established  by  management  on  specific loans as considered
necessary.

     The Bank's management believes that its present allowance for loan losses
is  adequate  based  upon,  among  other considerations, the factors discussed
above,  its low level of nonperforming loans and its nominal loss experience. 
Management  continues  to  review  its loan portfolio to determine whether its
loan  loss  allowance  policy should be altered in light of current conditions
and  to  make  any additional provisions which may be deemed necessary.  While
management  uses  the  best information available to make such determinations,
additional provisions for loan losses may be required to be established in the
future should economic or other conditions change substantially.  In addition,
the  FDIC  and  the  Department,  as  an  integral  part  of their examination
processes,  periodically  review  the  Bank's  loan  loss  allowances.   These
agencies  may  require  the Bank to establish additional loan loss allowances,
based  on  their respective judgments of the information available at the time
of  the  examinations.

MORTGAGE  BANKING  ACTIVITIES

     LOAN  ORIGINATIONS  AND  SALES.    Through  1995, the Bank's wholly-owned
subsidiary, CBS Mortgage, originated loans for the Bank and for others secured
by  first  lien  mortgages  on  completed  single  family  residences  located
principally  in  the  Houston  metropolitan  area  and  in  geographic  areas
surrounding  the  Bank's  branch locations.  Beginning on January 1, 1996, the
origination function was performed by the Bank, with CBS Mortgage's activities
then  limited  to  primarily  loan servicing.  The Bank's present policy is to
originate  and  sell  to  third  party  investors  residential  mortgage loans
principally  to  generate  fee  income,  while  avoiding the interest rate and
credit  risk  associated  with holding fixed rate mortgage loans in portfolio.
During  the  years  ended  1996,  1995  and  1994,  the Bank (in 1996) and CBS
Mortgage  (in  1995  and 1994) originated or purchased with the intent to sell
$11.2  million, $8.8 million and $25.0 million, respectively, of single family
residential  mortgage  loans  and  sold  $11.7 million, $8.3 million and $10.2
million,  respectively,  of such loans to secondary market investors ("SMI"). 
During  1996,  1995 and 1994, the Bank (in 1996) and CBS Mortgage (in 1995 and
1994)  originated  residential  real  estate loans for portfolio totaling $9.0
million,  $1.7  million,  and  $18.0  million,  respectively.

     "Pipeline risk," which is inherent in mortgage lending operations, arises
when the originator of a loan makes an uncovered commitment to lend funds to a
borrower  at  a  locked-in  rate  of interest over the period of time which is
required  for  the  lender  to  close  and/or sell the loan.  The risk is that
market  rates  of  interest will move higher in the period between the time of
commitment  and  the  time of funding the loan, and the lender will thereafter
have difficulty finding a buyer for such loan at a break-even or better price.
 Management of the Bank and of CBS Mortgage believes that its loan origination
strategy  eliminates  to  a  large extent any "pipeline risk." The majority of
applications  taken  are  accepted  on  the  basis  that  rates  will  be  set
immediately  prior  to  closing.  Applications that carry a locked in rate are
covered  for  interest  rate  risk  by  the  use  of  the  forward  sales  of
mortgage-backed  securities  or by registering each loan with an investor that
offers  loan-by-loan  protection  until  closing and delivery to the investor.

     Through  1995, CBS Mortgage made available a variety of mortgage products
designed  to  respond to consumer needs and competitive factors.  Beginning on
January 1, 1996, with the transfer of the origination function, these mortgage
products  were  being  made  available from the Bank.  Conventional conforming
loans that are secured by first liens on completed residential real estate are
originated  for  up  to  95%  of  the  appraised value or selling price of the
mortgaged  property, whichever is less. All loans with loan-to-value ratios in
excess of 80% require the borrower to purchase private mortgage insurance from
approved  third  party  insurers.   Conventional non-conforming mortgage loans
(i.e., loans for single family homes with an original balance in excess of the
maximum loan balance amount set by FNMA or FHLMC, which is presently $203,150,
or loans that do not otherwise meet the criteria established by FNMA or FHLMC)
are  also  originated.    Such  loans  are  originated  based  on underwriting
guidelines or standards required by the SMI to whom such loans are intended to
be  sold.  During 1996, fewer than 10% of the mortgage loans originated by the
Bank  were  non-conforming  mortgage  loans.

     In  addition  to 15-year and 30-year conventional mortgages, CBS Mortgage
offered,  and  now  the Bank offers special products designed to provide lower
rates  of interest or lower principal and interest payments to its customers. 
Borrowers may choose from a wide variety of combinations of interest rates and
points  on  many of its products so that its customers may elect to pay higher
points  at  closing  and  lower  interest  over the life of the loan, or pay a
higher  interest  rate and reduce the points payable at closing.  In addition,
from  time  to  time mortgages are offered in the following categories:  those
which allow the borrower to make lower monthly payments for the first one, two
or  three  years  of  the  loan;  fixed  rate  mortgages;  and adjustable rate
mortgages  having  interest  rate  adjustments  every one, five or seven years
based  upon  a  specified  independent  index.

     Borrower demand for adjustable rate mortgage loans compared to fixed rate
mortgage  loans  is  a function of interest rate levels, consumer expectations
for  changes in interest rate levels and the difference between interest rates
and  loan  fees  offered for fixed rate mortgage loans and for adjustable rate
mortgage  loans.    The  Bank's and CBS Mortgage's loan origination volume has
been  subject  to  some minor seasonal variations, with the heaviest demand in
the  late  spring  and  summer  months.    Loan demand is also affected by the
general  interest  rate  environment  and,  to a large measure, by the general
state  of  the  local  economy.

     During  times  of  relatively  lower  market  interest  rates,  demand by
previous borrowers for refinancings increases.  Refinancings are not solicited
by  CBS  Mortgage  or  the  Bank.   However, if a request for a refinancing is
received,  borrowers  are offered current mortgage loan products. Refinancings
are  processed  in a manner identical to original originations and are charged
the  same  fees  as  charged  for  original  originations.

     LOAN  SERVICING.    CBS  Mortgage  services residential real estate loans
owned  by  the  Bank  as  well  as for others, including FNMA, FHLMC and other
private  mortgage investors.  Loan servicing includes collecting and remitting
loan payments, accounting for principal and interest, making advances to cover
delinquent  payments,  making  inspections  as required of mortgaged premises,
contacting  delinquent  mortgagors,  supervising  foreclosures  and  property
dispositions  in  the event of unremedied defaults and generally administering
the  loans.  Funds  that  have  been  escrowed by borrowers for the payment of
mortgage  related  expenses,  such  as  property taxes and hazard and mortgage
insurance  premiums,  are  maintained  in non-interest-bearing accounts at the
Bank. At December 31, 1996, the Bank had $5.5 million deposited in such escrow
accounts.

     CBS  Mortgage receives fees for servicing mortgage loans, which generally
range  from  0.250%  to 0.375% per annum on the declining principal balance of
fixed rate mortgage loans and from 0.375% to 0.500% per annum on the declining
principal  balance  of  adjustable  rate  mortgage  loans.  Such fees serve to
compensate  CBS  Mortgage for the costs of performing the servicing function. 
Other  sources  of  loan  servicing  revenues  include  late charges and other
ancillary  fees. For the years ended 1996, 1995 and 1994, the Bank earned $3.0
million,  $3.5 million and $3.7 million, respectively, in conjunction with CBS
Mortgage's loan servicing. Servicing fees are collected by CBS Mortgage out of
the  monthly  mortgage  payments  made  by  borrowers.

     CBS  Mortgage's  servicing  portfolio  is  subject to reduction by normal
amortization,  by  prepayment  or  by  foreclosure  of  outstanding loans.  At
December 31, 1996, 1995 and 1994, CBS Mortgage had an aggregate loan servicing
portfolio  of  $1.7  billion, $1.7 billion and $1.5 billion, respectively.  Of
these  amounts  at  such respective dates, CBS Mortgage serviced loans for the
Bank  aggregating  $958.2 million, $824.6 million and $481.8 million and loans
for  others  aggregating  $776.7 million, $900.7 million and $1.0 billion.  At
December  31,  1996,  55.2% of the dollar value of loans being serviced by CBS
Mortgage was for the Bank, 16.1% was being serviced for FHLMC, 26.6% was being
serviced  for  FNMA  and  2.1% was being serviced for others.  At December 31,
1996,  $33.4 million of the loans serviced for private mortgage investors were
being  subserviced  for  CBS  Mortgage  by  a  third  party  mortgage company.

     Beginning  in  1990,  in order to increase the size of its loan servicing
portfolio,  CBS Mortgage began to purchase bulk packages of mortgage servicing
rights from the Federal government and other institutions on a competitive bid
basis.    The  PMSRs,  which  were  acquired  in 1990 and 1991, were primarily
conventional  loans  secured  by  real property.  The bulk purchase market for
loan  servicing  was  attractive  to  purchasers in the early 1990s due to the
relatively  large  amounts  of  such  servicing rights that were being sold by
banks  and  thrift  institutions  due  to  the  introduction of new regulatory
capital  standards,  and  by  the  Resolution Trust Corporation as part of its
liquidation function.  Prices bid on these bulk offerings ranged from 0.35% to
1.25%  of the principal balance of the underlying mortgages.  Between 1992 and
1994,  CBS  Mortgage pursued the purchase of PMSRs from private institutions. 
The  packages  of  servicing  rights  purchased  from the private institutions
during  this  period  were  purchased  at  prices  which have generally ranged
between 0.82% to 1.47% on the principal balances of the underlying mortgages. 
No  servicing  rights  were  purchased by CBS Mortgage in 1996 or 1995.  As of
December  31,  1996,  an  aggregate  of  $776.7 million of CBS Mortgage's $1.7
billion  servicing  portfolio,  or  44.8%,  was loans serviced for others.  At
December  31,  1996,  CBS Mortgage had no commitments for further purchases of
PMSRs.

     The  amount,  if  any,  by  which  PMSRs  exceed  the  lower  of  90%  of
determinable  fair  market value, 90% of origination cost or current amortized
book  value  must be deducted from capital in calculating regulatory capital. 
See  "Regulation  -  Regulatory  Capital Requirements."  At December 31, 1996,
there  were  no  deductions  from  capital  for  PMSR  valuation  adjustments.


<PAGE>
     The  following  table  sets  forth  certain  information  regarding  CBS
Mortgage's  servicing  portfolio  of mortgage loans for the periods indicated.

<TABLE>

<CAPTION>



                                             Year Ended December 31,
                                           -------------------------                                    
                                          1996               1995     1994
                                   ---------------------------------------------                
                                     (In thousands)
<S>                             <C>        <C>        <C>    <C>        <C>

Beginning servicing portfolio   $     1,725,400  $      1,511,263  $ 1,239,756
                                      ----------------------------------------
Loans originated(1)                          --             8,810       24,965
Bulk servicing acquired                      --                --      323,149
Bank loan originations                  104,023            68,960       52,769
Bank whole loans acquired               185,176           390,230      139,621
                                      ----------------------------------------
 Total servicing originated
 and acquired                           289,199           468,000      540,504
                                      ----------------------------------------
Loans sold servicing
 released                                    47             2,602          210
Amortization and payoffs                273,219           246,223      263,903
Foreclosures                              6,244             5,038        4,884
                                      ----------------------------------------
 Total servicing reductions             279,510           253,863      268,997
                                      ----------------------------------------
Ending servicing portfolio      $     1,735,089  $      1,725,400  $ 1,511,263
                                      ========================================
</TABLE>


________________________

1Includes  loans  originated  for  the  Bank  in  1995  and  1994.

MORTGAGE-BACKED  SECURITIES

     The  Bank maintains a significant portfolio of mortgage-backed securities
as  a  means  of investing in housing-related mortgage instruments without the
costs  associated with originating mortgage loans for portfolio retention.  At
December  31,  1996,  the  Company's  mortgage-backed  securities  portfolio
(including  $180.7  million of mortgage-backed securities available-for-sale),
net  of unamortized premiums and unearned discounts, amounted to $1.5 billion,
or  53.0%,  of  total  assets.    By  investing in mortgage-backed securities,
management  seeks  to achieve a positive spread over the cost of funds used to
purchase  these  securities.    At  December  31,  1996,  the  Company's  net
mortgage-backed  securities  had  an  aggregate  market value of $1.5 billion.

<PAGE>
     The  following  table  sets  forth  the  composition  of  the  Company's
mortgage-backed  securities  portfolio  at  the  dates  indicated.

<TABLE>

<CAPTION>



                                        At December 31,
                                    1996            1995      1994
                                 ----------      --------     ------  

                              Amount      Percent    Amount  Percent    Amount       Percent
                           -----------------------------------------------------------------
                                                (Dollars in thousands)
<S>                        <C>  <C>         <C>     <C>       <C>      <C>      <C>      <C>

Held-to-maturity:
 REMICS                $  1,213,849       90.25%  $1,241,999    89.00%  $1,426,757    88.90%
 FNMA certificates           77,324        5.75       90,061     6.45      101,633     6.33 
 GNMA certificates           33,900        2.52       39,363     2.82       44,843     2.79 
 Non-agency certificates     19,826        1.48       24,091     1.73       30,431     1.90 
 FHLMC certificates              --          --           --       --        1,239     0.08 
 Interest-only securities        38          --           55       --           81       -- 
                          ------------------------------------------------------------------
                          1,344,937      100.00%   1,395,569   100.00%   1,604,984   100.00%
                                        ========               =======               =======
 Unamortized premium          3,153                    3,841                 4,550 
 Unearned discount           (3,503)                  (3,657)               (3,695)
                          ------------------------------------------------------------------
Total held-to-maturity   $1,344,587               $1,395,753            $1,605,839 
                         ===================================================================

Available-for-sale:
 REMICS                  $  185,651      100.00%  $  186,505    99.52%  $   32,978   100.00%
 Non-agency certificates         --        0.00          908     0.48           --       -- 
                         -------------------------------------------------------------------
                            185,651      100.00%     187,413   100.00%      32,978   100.00%
                                        ========               =======               =======
 Unamortized premium             33                       44                     6 
 Unearned discount             (255)                    (284)                   --
 Net unrealized loss         (4,773)                    (759)                 (735)
                         -------------------------------------------------------------------
Total available-for-sale  $ 180,656               $  186,414            $   32,249 
                         ===================================================================

Total mortgage-backed
 securities              $1,525,243               $1,582,167            $1,638,088 
                         ===================================================================
</TABLE>



     The  mortgage-backed securities which the Bank purchases and maintains in
portfolio  can  include  FNMA,  FHLMC and GNMA certificates, certain privately
issued,  credit-enhanced  mortgage-backed  securities  which  are rated "A" or
better  by  the  national  securities  rating  agencies,  certain  types  of
collateralized  mortgage  obligations  ("CMOs")  and  interest-only  ("IO")
certificates.  The FNMA, FHLMC and GNMA certificates are modified pass-through
mortgage-backed  securities, which represent undivided interests in underlying
pools  of  fixed-rate,  or  certain  types  of  adjustable rate, single family
residential  mortgages  issued  by these quasi-governmental (GNMA) and private
(FNMA  and  FHLMC)  corporations.    FNMA  and GNMA provide to the certificate
holder  a  guarantee (which is backed by the full faith and credit of the U.S.
government  in  the  case of GNMA certificates) of timely payments of interest
and  scheduled  principal  payments,  whether or not they have been collected.
FHLMC  guarantees  the  timely  payment  of  interest and the full (though not
necessarily  timely)  payment  of principal.  The guarantees of FNMA and FHLMC
are  not  backed  by  the  full  faith and credit of the U.S. government.  The
mortgage-backed securities acquired by the Bank that have been pooled and sold
by  private issuers, generally large investment banking firms, provide for the
timely payments of principal and interest either through insurance issued by a
reputable  insurer  or  the  right  to  receive certain payments thereunder is
subordinated  in  a  manner  which  is sufficient to have such mortgage-backed
securities  earn  a  credit  rating  of  "A" or better from one or more of the
national  securities  rating  agencies.

     A  CMO  is  a  special  type  of pay-through debt obligation in which the
stream  of  principal  and  interest  payments  on the underlying mortgages or
mortgage-backed securities is used to create classes with different maturities
and,  in  some  cases,  amortization schedules and a residual class of the CMO
security  being  sold,  with  each  such  class  possessing  different  risk
characteristics. The residual interest sold represents any residual cash flows
which  result  from  the excess of the monthly receipts generated by principal
and  interest  payments  on  the  underlying  mortgage  collateral  and  any
reinvestment  earnings  thereon, less the cash payments to the CMO holders and
any  administrative  expenses.    As  a  matter  of  policy,  due  to the risk
associated  with  residual interests, the Bank has never invested in, and does
not  intend  to  invest  in,  residual  interests  in  CMOs.    CMOs and other
mortgage-backed  securities  may  be  structured  as  Real  Estate  Mortgage
Investment  Conduits  ("REMICs")  for  U.S.  Federal  income  tax  purposes.

     Mortgage-backed  securities  generally  yield  less  than the loans which
underlie  such  securities  because  of  their  payment  guarantees  or credit
enhancements which reduce credit risk. In addition, mortgage-backed securities
are  more  liquid  than  individual  mortgage  loans  and  may  be  used  to
collateralize  obligations  of the Bank.  Mortgage-backed securities issued or
guaranteed by FNMA or FHLMC (except IO securities or the residual interests in
CMOs)  are  weighted  at  no  more  than  20% for risk-based capital purposes,
compared  to a weight of 50% to 100% for residential loans.  See "Regulation -
Regulatory  Capital  Requirements."

     The  FDIC  has  issued  a  statement  of policy which states, among other
things,  that  mortgage  derivative products (including CMOs and CMO residuals
and  stripped  mortgage-backed  securities  such as IOs) which possess average
life  or  price  volatility  in  excess  of  a  benchmark  fixed  rate 30 year
mortgage-backed pass-through security are "high-risk mortgage securities," are
not  suitable investments for depository institutions, and if considered "high
risk"  at  purchase must be carried in the institution's trading account or as
assets  held  for  sale,  and must be marked to market on a regular basis.  In
addition,  if  a  security  was not considered "high risk" at purchase but was
later  found  to be "high risk" based on the tests, the security may remain in
the  held-to-maturity  portfolio  as  long as the institution has the positive
intent  to hold the security to maturity and has a documented plan in place to
manage  the  higher  risk.  At December 31, 1996, the Bank had mortgage-backed
securities  considered  "high  risk"  with  a  recorded  booked  value  of
approximately  $114.3  million.    These  securities were not considered "high
risk" at purchase, but were later found to be "high risk" based on the results
of  the  required  tests.    The  Bank  has  the positive intent to hold these
securities to maturity and has documented the Bank's plan to manage the higher
risk  of these securities.  If the Bank should elect to consider a new type of
security  for its portfolio, the Bank intends to ascertain in advance that the
security  does  not fail any of the tests that will qualify it as a "high risk
mortgage  security."   The Bank will not purchase any security that fails such
tests  unless  it  has in place a documented plan to manage the higher risk of
that  security  and  has  approval  from  the  Board  of  Directors.


<PAGE>
The  following  table  sets  forth  the  Company's  activities with respect to
mortgage-backed securities (including held-to-maturity and available-for-sale)
during  the  periods  indicated.

<TABLE>

<CAPTION>



                                                             Year Ended December 31,

                                                      1996           1995       1994
                                               ----------------------------------------
                                                                 (In thousands)
<S>                                                  <C>               <C>        <C>

Mortgage-backed securities 
held-to-maturity purchased                     $       ---        $ 52,741   $511,847
                                               --------------------------------------

Available-for-sale securities sold(1)                  864          72,298        794

Amortization of premiums, net of discount 
accretion                                              552             495      1,589

Change in unrealized loss on mortgage-backed   
securities available-for-sale                        4,013              24        735

Principal repayments on mortgage-backed 
securities                                          51,495           35,845    195,545
                                               ----------------------------------------
   Total decrease                                   56,924          108,662    198,663
                                               ----------------------------------------
Net increase (decrease) in mortgage-backed 
securities                                    $    (56,924)        $(55,921)  $313,184
                                                ======================================
</TABLE>





1Securities  sold  in  1995    after  reclassification  from  held-to-maturity
portfolio pursuant to the FASB's Special Report, "A Guide to Implementation of
Statement  115  on  Accounting  for  Certain  Investments  in  Debt and Equity
Securities."

     On  January  1, 1994, the Company adopted the FASB Statement of Financial
Accounting  Standards  No.  115  (Statement  115),  "Accounting  for  Certain
Investments in Debt and Equity Securities."  In accordance with Statement 115,
the  Company  classifies  securities  as  either  held-to-maturity  or
available-for-sale.    Securities  are classified as held-to-maturity when the
Company  has  the  positive  intent  and  ability  to  hold such securities to
maturity.    Securities  held-to-maturity  are  recorded  at  amortized cost. 
Permanent  declines in the value of held-to-maturity securities are charged to
earnings  in  the  periods  in  which the declines are determined.  Securities
available-for-sale  are  securities  other  than those held-to-maturity or for
trading  purposes  and  are  recorded at fair value, with unrealized gains and
losses  excluded  from  earnings  and  recorded  as  a  separate  component of
stockholders'  equity.    In connection with the adoption of Statement 115, in
1994  the  Company  transferred approximately $50.8 million of mortgage-backed
securities  to  the available-for-sale category.  Realized gains and losses on
securities  are recorded in earnings in the year of sale based on the specific
identification  of  each  individual security sold.  Premiums and discounts on
mortgage-backed  securities  are  amortized  or accreted as a yield adjustment
over  the  life  of  the  securities  using  the  interest  method,  with  the
amortization  or  accretion  being adjusted when the prepayments are received.

     In  November  1995,  the  FASB  issued  the  Special  Report, "A Guide to
Implementation  of Statement 115 on Accounting for Certain Investments in Debt
and  Equity  Securities."    Provisions  in  this  Special  Report granted all
entities  a  one-time  opportunity,  until no later than December 31, 1995, to
reassess the appropriateness of the classifications of all securities held and
to  account  for  any  resulting reclassifications at fair value in accordance
with  Statement  115.  The provisions of the Special Report also directed that
any reclassifications as a result of this one-time reassessment would not call
into  question  the  intent  to  hold other debt securities to maturity in the
future.    In  accordance  with this Special Report, on November 20, 1995, the
Company  reclassified  approximately  $226.6  million  of  mortgage-backed
securities  to  the  available-for-sale  category.  These  mortgage-backed
securities reclassified to the available-for-sale category were primarily COFI
securities  and  gave  the  Company  the  opportunity  to  somewhat change the
composition  of  the  portfolio  by  selling  certain  securities  if that was
considered  necessary.   In 1996 and 1995, the Company sold $864,000 and $72.3
million, respectively, of these mortgage-backed securities available-for-sale.

INVESTMENT  ACTIVITIES

     Under  the  Texas  Savings Bank Act (the "Act"), the Bank is permitted to
invest  in  obligations of, or guaranteed as to principal and interest by, the
United  States  or  the  State of Texas, in the stock or in any obligations or
consolidated  obligations  of  the  FHLB,  and  in  various  other  specified
instruments.    The Bank holds investment securities from time to time to help
meet  its  liquidity requirements and as temporary investments until funds can
be utilized to purchase mortgage-backed securities, residential mortgage loans
or  to  originate  construction  loans  for the Bank's portfolio.  See Item 7,
"Management's  Discussion  and  Analysis of Financial Condition and Results of
Operations-  Liquidity  and  Capital  Resources."

SOURCES  OF  FUNDS

     GENERAL.    Advances  from  the FHLB, deposits, sales of securities under
agreements  to repurchase and maturities and principal repayments on loans and
mortgage-backed securities have been the major sources of funds for use in the
Bank's  lending  and  investments,  and  for  other general business purposes.
Management  of  the Bank closely monitors rates and terms of competing sources
of  funds on at least a weekly basis and utilizes the source which is the more
cost  effective.

     DEPOSITS.    The  Bank's  market  for  deposits is competitive, which has
necessitated  the Bank's emphasis on primarily short term certificate accounts
that  are more responsive to market interest rates than savings accounts.  The
Bank  offers  a  traditional line of deposit products which currently includes
savings,  interest-bearing checking (NOW), noninterest-bearing checking, money
market  demand  accounts  and certificates of deposit which generally range in
terms  from  three  to  60  months.  Included among these deposit products are
individual  retirement  account  certificates.  During 1996 and early in 1997,
the  Bank  began  to  offer  a  range  of  products  for commercial businesses
including  Small  Business  Checking,  Business  Interest  Checking,  Analysis
Checking  and Commercial Money Market Accounts, the amounts of which, in 1996,
are  not  material  for  separate  presentation.

<PAGE>
     The  following  table  shows  the  distribution  of  and  certain  other
information relating to the Bank's deposits by type as of the dates indicated.

<TABLE>

<CAPTION>

                                               At December 31,
                                             ----------------             
                                       1996(1)                  1995(2)

                                                  Percent               Percent  
                                                    of                     of     
                                       Amount     Deposits    Amount    Deposits   
                               --------------------------------------------------------

                                        (Dollars in Thousands)
<S>                                     <C>          <C>          <C>          <C>

Demand deposit accounts:
 Noninterest-bearing checking        $ 85,259       6.50%  $        81,207     6.31%
 NOW                                   56,862       4.34            47,476     3.69 
 Savings                               22,135       1.69            22,374     1.74 
 Money market demand                  151,046      11.52           165,214    12.83 
                                   -------------------------------------------------
   Total demand deposit accounts      315,302      24.05           316,271    24.57 
                                   -------------------------------------------------
Certificate accounts:
 Within 1 year                        772,690      58.94           704,966    54.76 
 1-2 years                            158,583      12.10           188,400    14.63 
 2-3 years                             40,961       3.12            32,556     2.53 
 3-4 years                             18,268       1.39            29,717     2.31 
 4-5 years                              5,064       0.39            15,210     1.18 
 Over 5 years                             165       0.01               319     0.02 
     Total certificate accounts       995,731      75.95           971,168    75.43 
                              ------------------------------------------------------
                                    1,311,033     100.00%        1,287,439   100.00%
                                                =========                   =========
 Discount to record
   savings deposits at fair value, net   (198)                       (355)         
                                    ------------------------------------------------
     Total                        $ 1,310,835             $     1,287,084          
                                   ===========                  ==========         










                                         At December 31,
                                              1994(3)

                                                      Percent
                                                        of
                                           Amount     Deposit
                                       (Dollars in thousands)
<S>                                     <C>             <C>

Demand deposit accounts:
 Noninterest-bearing checking           $   39,656     3.48%
 NOW                                        25,477     2.23 
 Savings                                    22,146     1.94 
 Money market demand                       204,188    17.90 
                                        --------------------
   Total demand deposit accounts           291,467    25.55 
                                        --------------------
Certificate accounts:
 Within 1 year                             640,021    56.11 
 1-2 years                                 125,578    11.01 
 2-3 years                                  24,901     2.18 
 3-4 years                                  28,610     2.51 
 4-5 years                                  29,673     2.60 
 Over 5 years                                  407     0.04 
                                        --------------------
     Total certificate accounts            849,190    74.45 
                                        --------------------
                                         1,140,657   100.00%
                                         ===================
 Discount to record
   savings deposits at fair value, net      (1,035)
                                        -----------         
     Total                              $1,139,622 
                                        ===========         
</TABLE>


_______________
1In  1996,  the  Bank  assumed  approximately $11.1 million in net deposits in
connection  with  the exchange of three branch offices for one and the sale of
another  branch  office.
2In  1995,  the  Bank  assumed  approximately  $157.2  million  in deposits in
connection  with  the  acquisition of five branch offices of another financial
institution.
3In  1994,  the  Bank  assumed  approximately  $150.2  million  in deposits in
connection  with  the acquisition of eight branch offices of another financial
institution.


<PAGE>
     The  following  table sets forth the average balance of each deposit type
and  the  average  rate  paid  on each deposit type for the periods indicated.


<TABLE>

<CAPTION>



                                                Year Ended December 31,
                                               -------------------------     
                                   1996                   1995                1994
                                            --------------------------------------
                                                    (Dollars in Thousands)
                              Average    Average     Average   Average    Average    Average
                              Balance    Rate Paid   Balance  Rate Paid   Balance  Rate Paid
                               -----------------------------------------------------------
<S>                               <C>      <C>        <C>      <C>         <C>         <C>

Demand deposit accounts:
 Noninterest-bearing checking  $85,469      --%  $   62,164      --%  $   54,831        --%
 NOW                            49,181    2.07       29,904    2.06       22,041       1.79
 Savings                        22,104    2.32       20,162    2.52       21,754       2.49
 Money market demand           157,933    3.64      156,730    3.61      214,092       3.11
Certificate accounts           970,433    5.42      909,992    5.49      707,324       4.34
                             --------------------------------------------------------------
 Total deposits             $1,285,120    4.66%  $1,178,952    4.81%  $1,020,042       3.75%
                             ===============================================================


</TABLE>




     The  following  table  presents  by  various interest rate categories the
amounts  of  certificate  accounts  at  the dates indicated and the amounts of
certificate  accounts  at  December  31, 1996, which mature during the periods
indicated.

<TABLE>

<CAPTION>
                                                    Amounts at December 31, 1996 Maturing
                                                             (In thousands)
                                                  --------------------------------------- 
                                                           One Year
                               Amounts at December 31,     or Less
                           ---------------------------------------
                            1996           1995
                          ----------     ---------  
                                (In thousands)
<S>                            <C>           <C>            <C> 

Certificate accounts:
2.00% to 3.99%               $14,835      $14,387        $14,223  
4.00% to 5.99%               871,852      721,943        715,884  
6.00 to 7.99%                104,092      223,310         40,363  
8.00 to 9.99%                  4,686        6,513          2,053  
10.00% to 11.99%                 266        5,015            167  
                         -----------------------------------------
Total                       $995,731     $971,168       $772,690  
                         =========================================










                                                    Greater than
                        Two Years   Three Years     Three Years
                        ----------------------------------------


<S>                     <C>           <C>               <C>

Certificate accounts:
2.00% to 3.99%              376       $    95       $   141
4.00% to 5.99%          136,942        11,565         7,461
6.00 to 7.99%            19,495        28,438        15,796
8.00 to 9.99%             1,766           768            99
10.00% to 11.99%              4            95            --
                        -----------------------------------
Total                   158,583       $40,961       $23,497
                        ===================================
</TABLE>





<PAGE>
     Certificates  maturing within one year consist primarily of six month and
one  year  certificates.  Historically, a majority of such certificate holders
roll  over  their  balances  into  new  certificates with similar terms at the
Bank's  then  current  interest  rates.    The  Bank believes that its pricing
strategy  will  help  the Bank to achieve balance levels deemed appropriate by
management  on  a  continuing  basis.

     The  following  table sets forth the net deposit flows of the Bank during
the  periods  indicated.
<TABLE>

<CAPTION>




                                           Year Ended December 31,
                                          -------------------------                              
                                          1996        1995        1994
                                          --------     -------     -------
                                               (In thousands)
<S>                                    <C>  <C>       <C>  <C>      <C>  <C>

Net increase (decrease) before 
 interest credited(1)                $   (34,707)  $   91,052  $   77,893
Interest credited                         58,458       56,410      38,624

Net deposit increase                 $    23,751   $  147,462  $  116,517
                                        ========     =======     =======
</TABLE>




1For  the years ended December 31, 1996, 1995 and 1994, reflects the effect of
the  assumption  of  $11.1  million,  $157.2 million and $150.2 million of net
deposit  liabilities  in  connection  with  branch office transactions in each
respective  year.    The  net  deposit  outflow  in  1996 was primarily due to
financial  disintermediation  as  described  below.

     The  following  table sets forth the amount of the Bank's certificates of
deposits  which  are  $100,000  or more by time remaining until maturity as of
December  31,  1996.
<TABLE>

<CAPTION>



                               At December 31, 1996
                                ----------------------        
                               Number of            Deposit
                                accounts            Amount
                         ----------------------     -------
                         (Dollars in thousands)
<S>                            <C>                  <C>  <C>

Three months or less               277            $   29,242
Over three through six
 months                            265               29,599
Over six through twelve
 months                            280               29,397
Over twelve months                 190               21,133
   Total                         1,012           $  109,371
                             ==========       =============
</TABLE>



     The  Bank's deposits are obtained primarily from residents of central and
south Texas.  Currently, the principal methods used by the Bank to attract and
retain  deposit  accounts  include  competitive  interest rates, having branch
locations  in  under-served markets and offering a variety of services for the
Bank's  customers.  The Bank uses traditional marketing methods to attract new
customers  and  savings  deposits,  including  newspaper advertising.  Through
1996,  the  Bank has not solicited brokered deposit accounts and generally has
not  negotiated  rates  on  larger  denomination (i.e., jumbo) certificates of
deposit.  The Bank did, however, acquire deposits, classified on the books and
records of a prior entity as brokered, through the branch acquisition in 1994.
 In  addition,  in  early 1997, the Bank has begun the solicitation of deposit
accounts  through  a  "money  desk."    Money  desk  rates are only offered to
institutions (primarily credit unions and municipal utility districts) and are
generally  up to 50 basis points higher than on regular certificate of deposit
accounts.

     Management  of  the  Bank  intensified  its  deposit  product  marketing
beginning  in  1993  in  order  to  increase its share of core deposits in the
markets in which it operates.  Management believes that the combination of the
new  packaged  deposit  products  (which generally have higher minimum balance
requirements  and  which  provide value-added incentives to the customer, such
as,  for  example,  free  traveler's checks, reduced or waived monthly service
charges  and  free  money  orders) plus increased advertising, sales training,
branch  promotion  and cross-selling of products will help maintain the volume
of the Bank's deposits and strengthen customer relationships without requiring
the  Bank  to  alter its deposit pricing strategy.  The Bank's management also
believes  that  such  efforts  will  assist  the Bank in maintaining deposits,
particularly  during  periods  of  relatively  low  deposit rates, which might
otherwise  flow  out of the institution due to disintermediation (the movement
of  funds  away  from savings institutions and into direct investment vehicles
such as government and corporate securities and mutual funds). Notwithstanding
this  plan,  the  ability of the Bank to attract and maintain deposits and the
Bank's  cost  of  funds  have  been,  and  will  continue to be, significantly
affected  by  general  money  market  conditions.

     The  Bank  also  provides its customers with the opportunity to invest in
mutual  funds, including government bond funds, tax-free municipal bond funds,
growth  funds,  income growth funds, and sector funds specific to an industry,
which  are  provided  through  a third party arrangement with another company,
which maintains representatives at the Bank's branch offices. The Bank earns a
fee  after  the  payment of all expenses, which was not material to the Bank's
financial  condition.


<PAGE>
     BORROWINGS.  The following table sets forth certain information regarding
the  borrowings  of  the  Bank  at  or  for  the  dates  indicated.

<TABLE>

<CAPTION>



                                     At or For the Year
                                     Ended December 31,
                                   -----------------------                                  
                                                           1996          1995         1994
                                                       ----------     --------     --------

                                   (Dollars in thousands)
<S>                                <C>                      <C>         <C>  <C>       <C>  <C>

FHLB advances:

 Average balance outstanding       $                      387,296   $  367,895   $  511,407 

 Maximum amount outstanding
   at any month-end during the
   period                                                 491,930      405,016      914,279 

 Balance outstanding at end of
   period                                                 409,720      312,186      386,036 

 Average interest rate during the
   period                                                   5.62%        6.01%        4.46%

 Average interest rate at end of
   period                                                   5.61%        5.88%        5.99%

Securities sold under agreements
 to repurchase:

 Average balance outstanding       $                     930,706   $  752,427   $  593,054 

 Maximum amount outstanding
   at any month-end during the
   period                                              1,022,085      993,832      763,952 

 Balance outstanding at end of
   period                                                966,987      993,832      645,379 

 Average interest rate during the
   period                                                   5.52%        5.98%        4.65%

 Average interest rate at end of
   period                                                   5.55%        5.78%        6.16%
</TABLE>



     The  Bank  obtains  long  term,  fixed rate and short term, variable rate
advances  from  the FHLB upon the security of certain of its residential first
mortgage  loans, mortgage-backed securities and other assets, provided certain
standards related to creditworthiness of the Bank have been met. FHLB advances
are  generally  available  for general business purposes to expand lending and
investing  activities.    Borrowings  have  generally  been  used  to fund the
purchase  of  loans  receivable  and  mortgage-backed  securities.

     Advances  from  the  FHLB  are  made pursuant to several different credit
programs,  each  of  which has its own interest rate and range of maturities. 
The  programs  of  the  FHLB currently utilized by the Bank include a variable
rate line of credit, various short-term, variable rate advances and long term,
fixed  and  variable-rate  advances.  At December 31, 1996, the Bank had total
FHLB  advances of $409.7 million at a weighted average interest rate of 5.61%.

     The  Bank  also  obtains funds from the sales of securities to investment
dealers  and  the  FHLB  under  agreements  to repurchase ("reverse repurchase
agreements").    In  a reverse repurchase agreement transaction, the Bank will
generally  sell  a  mortgage-backed security agreeing to repurchase either the
same  or  a  substantially  identical security on a specified later date  at a
price  less  than  the original sales price.  The difference in the sale price
and  purchase  price  is  the  cost  of  the  use  of  the  proceeds.    The
mortgage-backed  securities  underlying  the  agreements  are delivered to the
dealers  who  arrange  the transactions.  For agreements in which the Bank has
agreed to repurchase substantially identical securities, the dealers may sell,
loan  or  otherwise  dispose  of the Bank's securities in the normal course of
their  operations;  however,  such dealers or third party custodians safe-keep
the  securities which are to be specifically repurchased by the Bank.  Reverse
repurchase  agreements  represent  a  competitive  cost funding source for the
Bank;  however, the Bank is subject to the risk that the lender may default at
maturity  and  not  return the collateral. In order to minimize this potential
risk,  the  Bank only deals with large, established investment brokerage firms
when  entering into these transactions.  At December 31, 1996, the Company had
$967.0 million in borrowings under reverse repurchase agreements at a weighted
average interest rate of 5.55%.  At December 31, 1996, the Company had amounts
of  securities  at  risk  under securities sold under agreements to repurchase
with  three  individual  counterparties  which  exceeded  ten  percent  of
stockholders' equity.  The amount at risk with Solomon Brothers Inc. was $12.3
million with an average maturity of 708 days at December 31, 1996.  The amount
at  risk with Credit Suisse First Boston Corporation was $33.6 million with an
average  maturity  of  20  days at December 31, 1996.  The amount at risk with
Goldman  Sachs  was  $38.3  million  with  an  average  maturity of 27 days at
December  31,  1996.

     The  Securities Investment Subcommittee of the Bank attempts to match the
maturity  of  reverse repurchase agreements with particular repricing dates of
certain  assets  in  order to maintain a pre-determined interest rate spread. 
The  Bank's  objective is to minimize the increase or decrease in the interest
rate  spread  during periods of fluctuating interest rates from that which was
contemplated  at  the  time  the  assets and liabilities were first put on the
Bank's  books.    The Bank attempts to alter the interest rate risk associated
with  the reverse repurchase agreements through the use of interest rate swaps
and  interest  rate  caps purchased from the FHLB and certain large securities
dealers.  See "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations  -  Asset  and Liability Management" in Item 7 hereof.

SUBSIDIARIES  OF  THE  BANK

     GENERAL.    The  Bank  is  permitted  to  invest  in  the  capital stock,
obligations  and  other securities of its service corporations in an aggregate
amount  not  to  exceed 10.0% of the Bank's assets.  In addition, the Bank may
make  conforming loans in an amount not exceeding 50% of the Bank's regulatory
capital  to  service  corporations of which the Bank owns more than 10% of the
stock.    At  December  31,  1996,  the  Bank was authorized to have a maximum
investment  of  approximately  $287.3  million  in  its  subsidiaries.

     At  December 31, 1996, the Bank had two active wholly-owned subsidiaries,
the activities of which are described below.  At December 31, 1996, the Bank's
aggregate  equity  investment  in all of its subsidiaries was $7.1 million and
the total amount of conforming loans outstanding to such subsidiaries was $1.1
million.

     CBS  MORTGAGE  CORP.  The Bank is the sole stockholder of CBS Mortgage, a
Texas  corporation  formed  in  1989 to engage in the business of originating,
purchasing,  selling  and  servicing  loans secured by first lien mortgages on
completed  one-to  four-family  dwelling units.  Beginning on January 1, 1996,
the  origination,  purchasing  and  selling  functions  of  the  Company  were
performed  by  the  Bank,  with  CBS  Mortgage's  activities  then  limited to
primarily  loan  servicing.    For  a  detailed  discussion  of CBS Mortgage's
business  operations,  see  "Mortgage  Banking  Activities."

     The Bank and CBS Mortgage have entered into a ten year mortgage warehouse
revolving  loan  agreement  pursuant to which the Bank has established a $15.0
million  revolving  line  of  credit to be drawn upon from time to time by CBS
Mortgage  to  finance  the  acquisition  of  PMSRs  and,  prior  to  1996, the
origination  or  acquisition  of  mortgage loans and the holding of such loans
until  they  were  sold,  delivered  or pledged to secondary market investors.

     The  advances  drawn  by  CBS  Mortgage  are secured by a promissory note
payable  upon  demand.  Interest  on the funds advanced by the Bank is payable
monthly at the local prime rate plus 1% per annum. The promissory note between
the  Bank  and  CBS  Mortgage provides that CBS Mortgage is credited an amount
equal to the local prime rate less 1% per annum on the average monthly balance
of  all  escrowed  funds held by the Bank.  The credit is limited in amount to
the  interest  charged  by the Bank.  As a result of such credit, CBS Mortgage
made  no  interest  payments  to  the  Bank under this loan for the year ended
December  31,  1996.    Principal balances under the loan are generally repaid
through  servicing  income  generated  from  PMSRs.  At December 31, 1996, the
Bank's  equity  investment in CBS Mortgage was $7.0 million and the balance of
all  intercompany  advances  (including  advances  under the revolving line of
credit)  was  $1.0 million.  CBS Mortgage had net income of $2.3 million, $1.3
million and $1.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

     COASTALBANC  FINANCIAL  CORP.    CoastalBanc  Financial Corp. ("Financial
Corp.")  was  formed  in 1986 to act as an investment advisor to other insured
financial  institutions.  The Bank is the sole stockholder of Financial Corp. 
Over the past three years, Financial Corp. has been inactive in its investment
advisory  capacity.   Financial Corp. became active during the last quarter of
1992  in  connection  with  the  sale  of  mutual  funds through a third party
intermediary.    Fees  generated  net of expenses, resulted in a net income of
$40,000,  $34,000  and $47,000 for the years ended December 31, 1996, 1995 and
1994,  respectively.

THE  SOUTHWEST  PLAN  ACQUISITION

     During  the  latter  half  of  the  1980's,  severely  depressed economic
conditions  prevailed  in  the  southwestern  United  States,  and in Texas in
particular,  which  seriously  impaired  the  operating  results  of  many
corporations.    A  large  number of savings institutions suffered significant
losses,  which  were attributable to the economic deterioration in the region,
as  well as, in some instances, to improper or fraudulent practices by persons
affiliated with such institutions.  In an attempt to address the problems of a
record  number  of  savings institution failures, in February 1988 the Federal
Home  Loan  Bank  Board  as  operating  head  of  the  FSLIC,  announced  the
establishment  of  its  "Southwest  Plan,"  which  was designed to consolidate
failed  or  failing  savings  institutions  located in the southwestern United
States  with  healthy  savings  institutions,  shrink  the  number  of savings
institutions  in  the Southwest and promote the infusion of additional capital
into  the  savings industry through financial assistance and other incentives.

     During  this  period,  the  Bank  developed  a business strategy oriented
toward  growth and increasing profitability through prudent acquisitions, with
assistance  from the Federal government.  The strategy was designed to utilize
the  deposits  obtained in such transactions as an inexpensive source of funds
for  growth, which would facilitate reduced overhead levels as a proportion of
assets  from economies of scale and lower cost of funds from a more meaningful
market  share of core deposits.  In order to implement this strategy, the Bank
decided  to  participate  in  the Southwest Plan and on May 13, 1988, the Bank
became  the first acquiror of failed or failing savings institutions under the
FSLIC's  Southwest  Plan.    The  Southwest  Plan  Acquisition was implemented
pursuant  to  the  terms of an Assistance Agreement, entered into by the FSLIC
and  the  Bank.    The  Southwest Plan Acquisition significantly increased the
total  size  and  market  penetration  of  the  Bank.

     The  FSLIC  agreed  in  the Assistance Agreement to provide the Bank with
certain  forms  of  financial assistance, including a guaranteed yield on, and
reimbursement for losses incurred or write-downs directed by the government or
provided  by  the  Bank  with  respect  to,  certain  assets acquired from the
Acquired  Associations  (the "Guaranteed Assets") and certain additional forms
of  financial  assistance.

     On  April 15, 1994, the Bank and the FDIC announced the early termination
of the Assistance Agreement, effective March 31, 1994.  Under the terms of the
agreement,  the Bank transferred substantially all of its remaining Guaranteed
Assets  to  the  FDIC  in exchange for cash of $37.4 million and also received
cash  of  $12.7  million  for  the remaining receivable from the government in
order  to  record  acquired  assets  at  fair  value.    In addition, the Bank
repurchased  for $5.9 million a warrant to purchase Bank common stock that had
been  granted  to the Federal government. The Federal government will continue
to  receive  the  future federal income tax benefits of the net operating loss
carryforwards  acquired from the Acquired Associations.  See "Taxation-Federal
Taxation"  and  Note 20 of the Notes to the Consolidated Financial Statements.

REGULATION

     Set  forth  below  is a brief description of certain laws and regulations
which  relate  to the regulation of the Company and the Bank.  The description
does  not purport to be complete and is qualified in its entirety by reference
to  applicable  laws  and  regulations.

THE  COMPANY

     REGULATIONS.    The  Company  and HoCo are registered unitary savings and
loan  holding  companies  and  are  subject  to OTS and Department regulation,
examination,  supervision and reporting requirements. In addition, because the
capital  stock  of  the  Company  is  registered  under  Section  12(g) of the
Securities  Exchange  Act  of  1934,  the  Company  is also subject to various
reporting and other requirements of the SEC.  As a subsidiary of a savings and
loan  holding  company,  the Bank is also subject to certain Federal and state
restrictions  in  its  dealings  with  the  Company  and  affiliates  thereof.

     FEDERAL  ACTIVITIES RESTRICTIONS.  There are generally no restrictions on
the  activities  of  a  savings  and loan holding company which holds only one
subsidiary  savings  bank. However, if the Director of the OTS determines that
there  is  reasonable  cause to believe that the continuation by a savings and
loan  holding  company  of  an  activity  constitutes  a  serious  risk to the
financial safety, soundness or stability of its subsidiary savings institution
(i.e.,  a  savings  association or savings bank), the Director may impose such
restrictions  as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings institution; (ii) transactions between the
savings  institution  and  its  affiliates;  and  (iii)  any activities of the
savings  institution  that might create a serious risk that the liabilities of
the  holding  company  and  its  affiliates  may  be  imposed  on  the savings
institution.    Notwithstanding  the  foregoing,  if  the  savings institution
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL")  test,  then such unitary holding company also shall become subject to
the  activities  restrictions  applicable to multiple savings and loan holding
companies  and, unless the savings institution requalifies as a QTL within one
year  thereafter,  shall  register  as, and become subject to the restrictions
applicable  to,  a  bank  holding  company.    See "- Regulation of The Bank -
Qualified  Thrift  Lender  Test."

     If  the  Company  were to acquire control of another savings institution,
other  than  through  merger  or other business combination with the Bank, the
Company  would  thereupon become a multiple savings and loan holding company. 
Except  where  such  acquisition  is  pursuant  to  the  authority  to approve
emergency  thrift  acquisitions  and where each subsidiary savings institution
meets  the QTL test, as set forth below, the activities of the Company and any
of  its  subsidiaries  (other  than  the  Bank  or  other  subsidiary  savings
institutions)  would  thereafter  be  subject  to  further  restrictions.   No
multiple savings and loan holding company or subsidiary thereof which is not a
savings institution shall commence or continue beyond a limited period of time
after  becoming  a  multiple  savings  and  loan holding company or subsidiary
thereof  any  business  activity,  other  than:  (i)  furnishing or performing
management  services  for a subsidiary savings institution; (ii) conducting an
insurance  agency  or escrow business; (iii) holding, managing, or liquidating
assets  owned  by  or  acquired  from  a  subsidiary savings institution; (iv)
holding  or  managing  properties  used  or  occupied  by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) those activities
authorized  by  regulation  as  of  March 5, 1987 to be engaged in by multiple
savings and loan holding companies; or (vii) unless the Director of the OTS by
regulation  prohibits  or  limits such activities for savings and loan holding
companies,  those  activities  authorized  by  the  Federal  Reserve  Board as
permissible  for  bank  holding  companies.    The activities described in (i)
through  (vi)  above  may be engaged in only after giving the OTS prior notice
and  being  informed  that  the  OTS  does  not  object to such activities. In
addition, the activities described in (vii) above also must be approved by the
Director  of  the OTS prior to being engaged in by a multiple savings and loan
holding  company.

     RESTRICTIONS  ON  ACQUISITIONS.    Except  under  limited  circumstances,
savings  and  loan  holding  companies  are prohibited from acquiring, without
prior  approval  of  the Director of the OTS, (i) control of any other savings
institution  or  savings  and  loan  holding  company or substantially all the
assets  thereof  or  (ii)  more  than  5%  of  the  voting shares of a savings
institution or holding company thereof which is not a subsidiary.  Except with
the  prior  approval  of  the Director of the OTS, no director or officer of a
savings  and  loan holding company or person owning or controlling by proxy or
otherwise  more  than  25% of such company's stock, may acquire control of any
savings  institution,  other  than a subsidiary savings institution, or of any
other  savings  and  loan  holding  company.

     The  Director  of  the  OTS  may  approve  acquisitions  resulting in the
formation  of  a  multiple  savings  and  loan  holding company which controls
savings  institutions  in more than one state only if (i) the multiple savings
and  loan  holding  company  involved  controls  a  savings  institution which
operated a home or branch office located in the state of the association to be
acquired  as  of  March  5,  1987;  (ii) the acquiror is authorized to acquire
control  of  the  savings  institution  pursuant  to the emergency acquisition
provisions  of  the  FDIA,  or  (iii)  the  statutes of the state in which the
institution  to  be acquired is located specifically permit institutions to be
acquired  by  the  state-chartered  institutions  or  savings and loan holding
companies  located in the state where the acquiring entity is located (or by a
holding  company  that  controls  such  state-chartered savings institutions).

     TEXAS  REGULATIONS.    Under  the  Texas  Savings Bank Act ("TSBA"), each
registered  holding  company, such as the Company, is required to file reports
with  the  Department  as  required by the Texas Savings and Loan Commissioner
("Commissioner")  and  is  subject to such examination as the Commissioner may
prescribe.

REGULATION  OF  THE  BANK

     The  Bank  is  required  to file reports with the Department and the FDIC
concerning  its  activities  and financial condition, in addition to obtaining
regulatory  approvals prior to entering into certain transactions, such as any
merger  or  acquisition  with  another  institution.  The regulatory system to
which  the  Bank  is  subject  is intended primarily for the protection of the
deposit  insurance  fund  and  depositors,  not  stockholders.  The regulatory
structure  also  provides  the  Department  and  the  FDIC  with  substantial
discretion  in  connection  with their supervisory and enforcement functions. 
The Department and the FDIC conduct periodic examinations of the Bank in order
to assess its compliance with federal and state regulatory requirements.  As a
result  of  such examinations, the Department and the FDIC may require various
corrective  actions.

     Virtually  every  aspect  of  the  Bank's business is subject to numerous
federal  and/or state regulatory requirements and restrictions with respect to
such  matters as, for example, the nature and amounts of loans and investments
that may be made, the issuance of securities, the amount of reserves that must
be  established  against  deposits,  the  establishment  of branches, mergers,
non-banking  activities  and  other operations.  Numerous laws and regulations
also  set  forth special restrictions and procedural requirements with respect
to  the  extension of credit, credit practices, the disclosure of credit terms
and  discrimination  in  credit  transactions.

     The  description  of  statutory  provisions and regulations applicable to
savings  banks  set  forth in this Form 10-K does not purport to be a complete
description  of  such statutes and regulations and their effects on the Bank. 
Moreover,  because  some  of  the  provisions  of  the FDIA, as amended by the
FDICIA,  have  not  yet  been  fully  implemented  through  the  adoption  of
regulations by the various federal banking agencies, the Bank cannot yet fully
assess  the  impact  of  these  provisions  on  its  operations.

     In  particular,  the Bank cannot predict whether it will be in compliance
with such new regulations at the time they become effective.  Furthermore, the
Bank cannot predict what other new regulatory requirements might be imposed in
the  future.

     LIMITATIONS  ON  TRANSACTIONS  WITH  AFFILIATES.    Transactions  between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act.  An affiliate of a savings institution is any company
or entity which controls, is controlled by or is under common control with the
savings institution.  In a holding company context, the parent holding company
of  a  savings  institution  (such as the Company) and any companies which are
controlled  by  such  parent  holding  company  are  affiliates of the savings
institution.    Generally,  Sections 23A and 23B (i) limit the extent to which
the  savings  institution  or  its  subsidiaries  may  engage  in  "covered
transactions"  with  any  one  affiliate  to  an  amount  equal to 10% of such
institution's capital stock and surplus, and contain an aggregate limit on all
such  transactions  with  all  affiliates  to  an  amount equal to 20% of such
capital  stock  and  surplus and (ii) require that all such transactions be on
terms  substantially  the same, or at least as favorable to the institution or
subsidiary,  as  those  provided  to  a  non-affiliate.    The  term  "covered
transaction"  includes  the making of loans, purchase of assets, issuance of a
guarantee  and  similar transactions.  In addition to the restrictions imposed
by  Sections  23A  and  23B,  no savings institution may (i) loan or otherwise
extend  credit to an affiliate, except for any affiliate which engages only in
activities  which are permissible for bank holding companies, or (ii) purchase
or  invest  in  any stocks, bonds, debentures, notes or similar obligations of
any  affiliate,  except  for  affiliates which are subsidiaries of the savings
institution.

     In  addition,  Sections  22(h)  and  (g) of the Federal Reserve Act place
restrictions  on  loans  to  executive  officers,  directors  and  principal
stockholders.   Under Section 22(h), loans to a director, an executive officer
and  to  a greater than 10% stockholder of a savings institution (a "principal
stockholder"),  and  certain  affiliated  interests  of  each of them, may not
exceed,  together  with  all  other  outstanding  loans  to  such  person  and
affiliated  interests,  the  savings institution's loans to one borrower limit
(generally  equal to 15% of the institution's unimpaired capital and surplus).
Section  22(h)  also  requires that loans to directors, executive officers and
principal  stockholders  be made on terms substantially the same as offered in
comparable  transactions  to  other  persons  and  also  requires  prior board
approval  for  certain loans.  In addition, the aggregate amount of extensions
of  credit  by  a  savings  institution  to  all  insiders  cannot  exceed the
institution's  unimpaired  capital  and  surplus.   Furthermore, Section 22(g)
places  additional  restrictions  on loans to executive officers.  At December
31,  1996,  the  Bank  was  in  compliance  with  the  above  restrictions.

     REGULATORY CAPITAL REQUIREMENTS.  Federally-insured state-chartered banks
are  required  to  maintain  minimum  levels  of  regulatory  capital.   These
standards  generally  must  be  as  stringent  as  the  comparable  capital
requirements imposed on national banks.  The FDIC also is authorized to impose
capital  requirements  in  excess  of these standards on individual banks on a
case-by-case  basis.

     Under current FDIC regulations, the Bank is required to comply with three
separate  minimum  capital  requirements:    a  "Tier 1 capital ratio" and two
"risk-based" capital requirements.  "Tier 1 capital" generally includes common
stockholders'  equity  (including retained earnings), qualifying noncumulative
perpetual  preferred  stock and any related surplus, and minority interests in
the  equity  accounts  of  fully  consolidated  subsidiaries, minus intangible
assets,  other  than  properly valued PMSRs up to certain specified limits and
minus  net  deferred  tax  assets  in  excess of certain specified limits.  At
December 31, 1996, the Bank did not have any net deferred tax assets in excess
of  the  specified  limits.

     TIER 1 CAPITAL RATIO.  FDIC regulations establish a minimum 3.0% ratio of
Tier  1  capital  to  total  assets for the most highly-rated state-chartered,
FDIC-supervised banks, with an additional cushion of at least 100 to 200 basis
points for all other state-chartered, FDIC-supervised banks, which effectively
imposes a minimum Tier 1 capital ratio for such other banks of between 4.0% to
5.0%.    Under  FDIC  regulations,  highly-rated banks are those that the FDIC
determines  are  not  anticipating or experiencing significant growth and have
well  diversified  risk,  including  no  undue  interest  rate  risk exposure,
excellent  asset  quality,  high liquidity and good earnings.  At December 31,
1996,  the  required Tier 1 capital ratio for the Bank was 4.0% and its actual
Tier  1  capital  ratio  was  5.35%.

     RISK-BASED  CAPITAL  REQUIREMENTS.    The risk-based capital requirements
contained  in  FDIC regulations generally require the Bank to maintain a ratio
of  Tier  1  capital  to risk-weighted assets of at least 4.00% and a ratio of
total  risk-based  capital  to  risk-weighted  assets  of  at least 8.00%.  To
calculate  the  amount  of  capital required, assets are placed in one of four
categories  and  given a percentage weight (0%, 20%, 50% or 100%) based on the
relative  risk  of  the  category.   For example, U.S. Treasury Bills and GNMA
securities  are placed in the 0% risk category.  FNMA and FHLMC securities are
placed  in  the  20%  risk  category,  loans  secured  by  one-to-four  family
residential properties and certain privately-issued mortgage-backed securities
are  generally  placed  in  the  50% risk category and commercial and consumer
loans  and  other  assets  are generally placed in the 100% risk category.  In
addition,  certain  off-balance  sheet  items  are  converted to balance sheet
credit  equivalent amounts and each amount is then assigned to one of the four
categories.

     For  purposes  of  the  risk-based  capital requirements, "total capital"
means  Tier  1  capital  plus  supplementary or Tier 2 capital, so long as the
amount  of  supplementary  or  Tier  2  capital  that  is  used to satisfy the
requirement  does  not  exceed the amount of Tier 1 capital.  Supplementary or
Tier  2  capital  includes,  among  other  things, so-called permanent capital
instruments  (cumulative  or  other  perpetual  preferred  stock,  mandatory
convertible  subordinated  debt  and  perpetual  subordinated debt), so-called
maturing  capital  instruments  (mandatorily  redeemable  preferred  stock,
intermediate-term preferred stock, mandatory convertible subordinated debt and
subordinated  debt), and a certain portion of the allowance for loan losses up
to  a  maximum  of  1.25%  of  risk-weighted  assets.

     At  December  31, 1996, the Bank's Tier 1 capital to risk-weighted assets
ratio  was  11.77%  and  its  total risk-based capital to risk weighted assets
ratio  was  12.30%.

     The  following  table  sets forth information with respect to each of the
Bank's  capital  requirements  as  of  the  dates  shown.

<TABLE>

<CAPTION>



                                As of December 31,

                                     1996                      1995                1994
                                -------------------             -------             -------      
                                Actual     Required   Actual   Required   Actual   Required
                           --------------  ---------  -------  ---------  -------  ---------
<S>                                <C>          <C>        <C>      <C>        <C>      <C>

Tier 1 capital to total assets      5.35%      4.00%    5.30%      4.00%    4.54%      4.00%
Tier 1 risk-based capital
 to risk weighted assets           11.77       4.00    12.36       4.00    12.37       4.00 
Total risk-based capital
 risk to risk weighted assets      12.30       8.00    12.84       8.00    12.63       8.00 
</TABLE>





<PAGE>
     The  following  table  sets  forth  a  reconciliation  between the Bank's
stockholders'  equity and each of its three regulatory capital requirements at
December  31,  1996.

<TABLE>

<CAPTION>



                                                                     Tier 1        Total
                                        Tier 1                     Risk-based   Risk-based
                                        Capital                     Capital      Capital
                                -----------------------             -----------  -----------                   

                                (Dollars in thousands)
<S>                             <C>             <C>          <C>          <C>       <C>  <C>

Total stockholders' equity      $               165,425   $            165,425   $  165,425 
Unrealized loss on securities
 available-for-sale                               3,103                  3,103        3,103 
Less nonallowable assets:
 Goodwill                                       (15,596)               (15,596)     (15,596)
Plus allowances for loan
 and lease losses                                    --                     --        6,880 
                                             -----------               --------     --------
Total regulatory capital                        152,932                152,932      159,812 
Minimum required capital                        114,377                 51,970      103,940 
Excess regulatory capital       $                38,555   $            100,962   $   55,872 
                                            ===========               ========     ========

Bank's regulatory capital
 percentage (1)                                   5.35%                 11.77%       12.30%

Minimum regulatory capital
 required percentage                              4.00%                  4.00%        8.00%
                                            -----------               --------     --------

Bank's regulatory capital
 percentage in excess of
   requirement                                    1.35%                  7.77%        4.30%
                                            ===========               ========     ========
</TABLE>


_______________


1Tier  1 capital is computed as a percentage of total assets of $2.9 billion. 
Risk-based  capital  is  computed  as  a  percentage of adjusted risk-weighted
assets  of  $1.3  billion.


     FDIC  INSURANCE  PREMIUMS.    The deposits of the Bank are insured to the
maximum  extent permitted by the SAIF and the Bank Insurance Fund (the "BIF"),
both  of  which are administered by the FDIC, and are backed by the full faith
and  credit of the U.S. Government.  As the insurer, the FDIC is authorized to
conduct  examinations  of,  and  to  require  reporting  by,  FDIC-insured
institutions.  It also may prohibit any FDIC-insured institution from engaging
in  any  activity the FDIC determines by regulation or order to pose a serious
threat  to  the FDIC.  The FDIC also has the authority to initiate enforcement
actions  against  savings  institutions.


<PAGE>
     The Bank currently pays deposit insurance premiums to the FDIC based on a
risk-based  assessment  system  established  by  the  FDIC for all SAIF-member
institutions.    In  addition,  because the Bank acquired approximately $157.2
million  in  deposits  from  Texas Capital as of November 1, 1995 and $79.8 in
deposits  as a result of the Bay City branch acquisition on September 5, 1996,
the  Bank  became  responsible  for  paying deposit insurance premiums on such
deposits  at the BIF premium rate.  Under applicable regulations, institutions
are  assigned  to  one of three capital groups based solely on the level of an
institution's  capital  -  "well  capitalized,"  "adequately  capitalized" and
"undercapitalized"  -  which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the FDIA.
 These  three  groups  are  then  divided  into  three subgroups which reflect
varying  levels  of supervisory concern, from those which are considered to be
healthy  to  those  which  are  considered  to  be  of substantial supervisory
concern.    The  matrix  so  created  results  in  nine  assessment  risk
classifications,  with rates, prior to the FDIA, as amended, being signed into
law,  ranging from .23% for well capitalized, healthy SAIF-member institutions
to  .31%  for  undercapitalized  SAIF-member  institutions  with  substantial
supervisory  concerns. On November 14, 1995, the FDIC adopted a new assessment
rate schedule of zero to 27 basis points (subject to a $2,000 minimum) for BIF
members  (or institutions, like the Bank, having BIF deposits) while retaining
the  existing  assessment  rate  schedule  for  SAIF-member  institutions.

     On  September 30, 1996, amendments to the FDIA were signed into law.  The
FDIA  and  implementing regulations provided that all SAIF-member institutions
would  pay  a  special  one  time  assessment of 65.7 basis points on the SAIF
assessment  base  as  of March 31, 1995 to recapitalize the SAIF, which in the
aggregate, would be sufficient to bring the reserve ratio in the SAIF to 1.25%
of  insured  deposits.  The Bank's special assessment amounted to $7.5 million
($4.8  million  after  applicable  income  taxes)  pursuant  to  the FDIA.  In
addition  to  the  recapitalization  provisions,  the  FDIA equalized the rate
schedule  for SAIF and BIF institutions with the rates ranging from zero to 27
basis  points  beginning  October 1, 1996.  At December 31, 1996, the Bank was
categorized  as  well  capitalized.

     The  FDIA  provided  for  FICO  debt  sharing  by  banks and thrifts with
proration  sharing  in  the  year  2000.  Prior to the year 2000, SAIF insured
institutions  will  pay  approximately  6.5  basis  points for FICO, while BIF
insured  institutions  will  pay  approximately  1.3  basis  points.  The FICO
provisions  of  the  FDIA  also prohibit deposit migration strategies to avoid
SAIF  premiums.  The FDIA also provided for the merger of the BIF and the SAIF
on  January  1,  1999,  with  such  merger  being  conditioned  upon the prior
elimination  of  the  federal  thrift  charter.

     Under  Section 593 of the Internal Revenue Code, thrift institutions such
as the Bank, which meet certain definitional tests primarily relating to their
assets  and  the  nature  of  their business, are permitted to establish a tax
reserve  for  bad  debts and to make annual additions thereto, which additions
may,  within  specified  limitations, be deducted in arriving at their taxable
income.    The  Bank's  deduction with respect to "qualifying loans" which are
generally  loans secured by certain interests in real property, prior to 1996,
could  be  computed using an amount based on the Bank's actual loss experience
(the  "experience method") or a percentage of taxable income, computed without
regard to this deduction, and with additional modifications and reduced by the
amount  of  any  permitted  addition  to  the  non-qualifying  reserve.    See
"Taxation-Federal  Taxation."

     Effective  January  1,  1996, the Bank is unable to make additions to its
tax  bad debt reserve, is permitted to deduct bad debts only as they occur and
is  additionally be required to recapture (i.e. take into taxable income) over
a  six  year  period,  the excess of the balance of its bad debt reserve as of
December  31,  1995 over the balance of such reserve as of December 31, 1987. 
Such  recapture  requirements  can  be  suspended  for  each of two successive
taxable  years  beginning  January  1,  1996,  in  which the Bank originates a
minimum  amount  of  certain  residential  loans based upon the average of the
principal  amounts of such loans made by the Bank during its six taxable years
preceding 1996.  At December 31, 1996, the Bank had approximately $4.0 million
of  post-1987  tax  bad  debt  reserves,  for  which  deferred taxes have been
provided.

     REGULATORY  CAPITAL  REQUIREMENTS.  The FDIA requires the Federal banking
agencies to revise their risk-based capital guidelines to, among other things,
take  adequate  account  of  interest rate risk.  The Federal banking agencies
continue  to  consider  modification of the capital requirements applicable to
banking  organizations.   In August 1995, the Federal banking agencies amended
their  risk-based capital guidelines to provide that the banking agencies will
include in their evaluations of a bank's capital adequacy an assessment of the
bank's exposure to declines in the economic value of the bank's capital due to
changes  in  interest  rates.    The  agencies  also  issued a proposed policy
statement that describes the process that the agencies will use to measure and
assess  the  exposure  of  a bank's capital to changes in interest rates.  The
agencies  stated  that  after  they  and  the banking industry gain sufficient
experience  with  the  measurement  process, the agencies would issue proposed
regulations  for  establishing explicit charges against capital to account for
interest  rate  risk.

     The FDIA also requires the FDIC and the other Federal banking agencies to
revise  their risk-based capital standards, with appropriate transition rules,
to  ensure  that  they  take into account concentration of credit risk and the
risks  of non-traditional activities and to ensure that such standards reflect
the  "actual  performance and expected risk of loss of multifamily mortgages,"
of  which  the  Bank had $139.5 million at December 31, 1996.  See "Business -
Lending Activities."  In December 1995, the FDIC and the other Federal banking
agencies  promulgated  final amendments to their respective risk-based capital
requirements  which would explicitly identify concentration of credit risk and
certain  risks  arising  from nontraditional activities, and the management of
such  risks  as  important  factors  to consider in assessing an institution's
overall  capital  adequacy.  The  FDIC  may now require higher minimum capital
ratios  based  on  certain  circumstances, including where the institution has
significant  risks  from concentration of credit or certain risks arising from
non-traditional  activities.

     The Federal banking agencies have agreed to adopt for regulatory purposes
Statement  115,  which,  among  other  things, generally adds a new element to
stockholders'  equity  under  generally  accepted  accounting  principles  by
including  net unrealized gains and losses on certain securities.  In December
1994,  the FDIC issued final amendments to its regulatory capital requirements
which  would  require  that  the  net  amount  of  unrealized  losses  from
available-for-sale  equity securities with readily determinable fair values be
deducted  for purposes of calculating the Tier 1 capital ratio.  All other net
unrealized  holding  gains  (losses)  on  available-for-sale  securities  are
excluded  from  the  definition  of Tier 1 capital.  At December 31, 1996, the
Bank had $185.4 million of securities  available-for-sale with $4.8 million of
aggregate  net  unrealized  losses  thereon.

     SAFETY  AND  SOUNDNESS STANDARDS. Each Federal banking agency is required
to  prescribe,  for  all  insured  depository  institutions  and their holding
companies,  standards  relating  to internal controls, information systems and
internal audit systems, loan documentation, credit underwriting, interest rate
exposure,  asset  growth,  compensation,  fees  and  benefits  and  such other
operational  and  managerial  standards  as the agency deems appropriate.  The
compensation  standards  would  prohibit  employment  contracts  or  other
compensatory  arrangements  that provide excess compensation, fees or benefits
or  could  lead  to  material financial loss to the institution.  In addition,
each  Federal  banking  agency  also  is  required  to  adopt  for all insured
depository institutions and their holding companies standards that specify (i)
a  maximum  ratio  of  classified  assets  to  capital,  (ii) minimum earnings
sufficient  to  absorb  losses  without impairing capital, (iii) to the extent
feasible,  a  minimum  ratio of market value to book value for publicly-traded
shares  of  the  institution or holding company, and (iv) such other standards
relating  to  asset  quality,  earnings  and  valuation  as  the  agency deems
appropriate.    On  July 10, 1995, the Federal banking agencies, including the
FDIC,  adopted  final  rules  and  proposed  guidelines  concerning safety and
soundness  required  to be prescribed by regulations pursuant to Section 39 of
the  FDIA.    In  general,  the standards relate to operational and managerial
matters,  asset  quality  and  earnings and compensation.  The operational and
managerial standards cover internal controls and information systems, internal
audit  systems,  loan  documentation,  credit  underwriting,  interest  rate
exposure,  asset growth, and compensation, fees and benefits.  Under the asset
quality  and  earnings  standards,  which  were adopted by the Federal Banking
agencies in October 1996, the Bank would be required to establish and maintain
systems  to  identify problem assets and prevent deterioration in those assets
and  evaluate  and  monitor earnings to ensure that earnings are sufficient to
maintain  adequate  capital reserves.  If an insured institution fails to meet
any of the standards promulgated by the regulators, then such institution will
be  required  to submit a plan within 30 days to the FDIC specifying the steps
that  it  will  take  to correct the deficiency.  In the event that an insured
institution  fails  to  submit or fails in any material respect to implement a
compliance  plan  within  the time allowed by the FDIC, Section 39 of the FDIA
provides  that  the  FDIC must order the institution to correct the deficiency
and may restrict asset growth, require the savings institution to increase its
ratio  of  tangible  equity to assets, restrict the rates of interest that the
institution  may  pay or take any other action that would better carry out the
purpose  of  prompt corrective action.  The Bank believes that it has been and
will continue to be in compliance with each of the standards as they have been
adopted  by  the  FDIC.

     Finally,  each  Federal banking agency is required to prescribe standards
for  the employment contracts and other compensation arrangements of executive
officers,  employees,  directors  and  principal  stockholders  of  insured
depository  institutions  that  would  prohibit  compensation and benefits and
arrangements  that  are  excessive  or that could lead to a material financial
loss  for  the  institution.    In  February  1996,  the  FDIC  adopted  final
regulations  regarding  the  payment  of  severance  and  indemnification  to
management officials and other affiliates of insured institutions (institution
affiliated  parties  or  "IAPs").    The  limitations  on severance or "golden
parachute"  payments apply to "troubled" institutions which seek to enter into
contracts with IAPs.  A golden parachute payment is generally considered to be
any  payment to an IAP which is contingent on the termination of that person's
employment  and  is  received  when  the  insured institution is in a troubled
condition.    The  definition  of  golden  parachute  payment does not include
payment  pursuant  to  qualified  retirement  plans,  non-qualified  bona fide
deferred  compensation  plans,  nondiscriminatory  severance  pay plans, other
types  of  common  benefit  plans, state statutes and death benefits.  Certain
limited  exceptions  to  the golden parachute payment prohibition are provided
for  in cases involving the hiring of an outside executive, unassisted changes
of  control  and  where  the  FDIC  provides  written  permission to make such
payment.    The  limitations  on indemnification payments apply to all insured
institutions, their subsidiaries and affiliated holding companies.  Generally,
this  provision  prohibits  such  entities  from  indemnifying an IAP for that
portion  of  the  costs  sustained  with  regard  to a civil or administrative
enforcement  action commenced by any Federal banking agency which results in a
final  order  or  settlement  pursuant  to  which  the IAP is assessed a civil
monetary  penalty,  removed  from office, prohibited from participating in the
affairs  of an insured institution or required to cease and desist from taking
certain  affirmative actions.  Nevertheless, institutions or holding companies
may purchase commercial insurance to cover such expenses (except for judgments
or  penalties)  and  the  institutions  or  holding  company may advance legal
expenses  to the IAP if its board of directors makes certain specific findings
and the IAP agrees in writing to reimburse the institution if it is ultimately
determined  that  the  IAP violated a law, regulation or other fiduciary duty.

     ACTIVITIES  AND  INVESTMENTS  OF  INSURED  STATE-CHARTERED  BANKS.  The
activities  and  equity investments of FDIC-insured, state-chartered banks are
limited  by  Federal law to those that are permissible for national banks.  An
insured  state  bank generally may not acquire or retain any equity investment
of  a  type, or in an amount, that is not permissible for a national bank.  An
insured  state  bank is not prohibited from, among other things, (i) acquiring
or  retaining a majority interest in a subsidiary, (ii) investing as a limited
partner  in  a  partnership  the  sole  purpose of which is direct or indirect
investment  in  the  acquisition,  rehabilitation  or  new  construction  of a
qualified  housing project, provided that such limited partnership investments
may  not  exceed  2%  of  the  bank's assets, (iii) acquiring up to 10% of the
voting  stock  of  a  company that solely provides or reinsures directors' and
officers'  liability  insurance,  and  (iv)  acquiring or retaining the voting
shares  of  a  depository  institution  if  certain  requirements  are  met.

     COMMUNITY  REINVESTMENT  ACT.    Under  the  Community  Reinvestment  Act
("CRA"),  as  implemented  by  FDIC  regulations,  a savings institution has a
continuing  and  affirmative  obligation  consistent  with  its safe and sound
operation to help meet the credit needs of its entire community, including low
and  moderate  income  neighborhoods.    The  CRA  does not establish specific
lending  requirements or programs for financial institutions nor does it limit
an institution's discretion to develop the types of products and services that
it  believes  are best suited to its particular community, consistent with the
CRA.  The  CRA  requires  the  FDIC,  in  connection with its examination of a
savings  institution, to assess the institution's record of meeting the credit
needs  of its community and to take such record into account in its evaluation
of  certain  applications  by  such  institution.   As of the date of its most
recent  regulatory examination, the Bank was rated "satisfactory" with respect
to  its  CRA  compliance.

     In  May  1995,  the  FDIC  and other Federal banking agencies promulgated
final  revisions  to  their  regulations  concerning  the  CRA.    The revised
regulations  generally  are  intended to provide clearer guidance to financial
institutions  on  the nature and extent of their obligations under the CRA and
the  methods  by  which  the obligations will be assessed and enforced.  Among
other things, the revised regulations substitute for the current process-based
assessment  factors a new evaluation system that would rate institutions based
on their actual performance in meeting community credit needs.  In particular,
the  revised  system  will  evaluate  the  degree  to  which an institution is
performing  under  tests  and  standards  judged in the context of information
about  the  institution,  its  community,  its  competitors and its peers with
respect  to  (i)  lending,  (ii)  service delivery systems and (iii) community
development.    The revised regulations also specify that an institution's CRA
performance will be considered in an institution's expansion (e.g., branching)
proposals  and  may  be  the  basis for approving, denying or conditioning the
approval  of  an  application.   Management of the Bank currently is unable to
predict  the  effects  of  the  regulations under the CRA as recently adopted.

     QUALIFIED  THRIFT  LENDER  TEST.  All savings institutions, including the
Bank,  are  required  to  meet a QTL test set forth under Section 10(m) of the
Home  Owners  Loan  Act, as amended, ("HOLA") to avoid certain restrictions on
their  operations.    Under Section 2303 of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, a savings institution can comply with the QTL
test  set forth in the HOLA and implementing regulations or by qualifying as a
domestic  building  and  loan association as defined in Section 7701(a)(19) of
the  Code.    The  QTL  test  set  forth  in  HOLA  requires that a depository
institution  must  have at least 65% of its portfolio assets (which consist of
total  assets  less  intangibles,  properties  used  to  conduct  the  savings
institution's business and liquid assets not exceeding 20% of total assets) in
qualified  thrift  investments  on a monthly average basis in nine of every 12
months.   Loans and mortgage-backed securities secured by domestic residential
housing,  as well as certain obligations of the FDIC and certain other related
entities  may  be  included  in  qualifying  thrift investments without limit.
Certain  other  housing-related  and  non-residential  real  estate  loans and
investments, including loans to develop churches, nursing homes, hospitals and
schools,  and  consumer  loans  and  investments  in  subsidiaries  engaged in
housing-related activities may also be included. Qualifying assets for the QTL
test  include  investments  related  to  domestic  residential  real estate or
manufactured housing, the book value of property used by an institution or its
subsidiaries  for  the  conduct  of  its  business,  an  amount of residential
mortgage loans that the institution or its subsidiaries sold within 90 days of
origination,  shares of stock issued by any FHLB and shares of stock issued by
the  FHLMC  or  the  FNMA.  The Bank was in compliance with the QTL test as of
December  31,  1996,  with  91.4%  of  its assets invested in qualified thrift
investments.

     RESTRICTIONS  ON  CAPITAL DISTRIBUTIONS.  The Bank is required to provide
to  the  OTS not less than 30 days' advance notice of the proposed declaration
by  its  board of directors of any dividend on its capital stock.  The OTS may
object  to  the  payment of the dividend on safety and soundness grounds.  The
FDIA  prohibits an insured depository institution from paying dividends on its
capital stock or interest on its capital notes or debentures (if such interest
is  required  to  be  paid  only out of net profits) or distribute any  of its
capital  assets  while  it remains in default in the payment of any assessment
due  the  FDIC.  Texas law permits the Bank to pay dividends out of current or
retained  income  in  cash  or  additional  stock.

     LEGISLATIVE  AND  REGULATORY PROPOSALS.  Proposals to change the laws and
regulations  governing  the  operations and taxation of, and federal insurance
premiums paid by, savings banks and other financial institutions and companies
that  control  such  institutions  are  frequently  raised  in Congress, state
legislatures  and  before the FDIC and other bank regulatory authorities.  The
likelihood  of  any  major  changes  in the future and the impact such changes
might  have  on the Bank are impossible to determine.  Similarly, proposals to
change  the  accounting  treatment  applicable  to  savings  banks  and  other
depository  institutions  are  frequently raised by the SEC, the FDIC, the IRS
and other appropriate authorities, including, among others, proposals relating
to fair market value accounting for certain classes of assets and liabilities.
 The  likelihood  and  impact of any additional future accounting rule changes
and  the  impact  such  changes  might  have  on  the  Bank  are impossible to
determine.

     FEDERAL  HOME  LOAN  BANK  SYSTEM.    The Bank is a member of the FHLB of
Dallas,  which is one of 12 regional FHLBs that administers the home financing
credit  function  of  savings  institutions  and  commercial banks.  Each FHLB
serves  as  a source of liquidity for its members within its assigned region. 
It  is  funded  primarily  from proceeds derived from the sale of consolidated
obligations of the FHLB System.  It makes loans to members (i.e., advances) in
accordance with policies and procedures established by its Board of Directors.
 As of December 31, 1996, the Bank's advances from the FHLB of Dallas amounted
to  $409.7  million  or  14.2%  of  its  total  assets.

     As  a  member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to the greater of 1% of its aggregate unpaid
residential  mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of total advances.  At December 31, 1996, the
Bank  had  $26.0  million  in  FHLB  stock,  which was in compliance with this
requirement.

     The  FHLBs  are  required to provide funds for the resolution of troubled
savings  associations and to contribute to affordable housing programs through
direct  loans  or  interest  subsidies  on  advances  targeted  for  community
investment  and low- and moderate-income housing projects. These contributions
have adversely affected the level of FHLB dividends paid and could continue to
do so in the future.  These contributions also could have an adverse effect on
the  value of FHLB stock in the future.  For the year ended December 31, 1996,
dividends  paid  by  the  FHLB  of  Dallas  to  the Bank totaled $1.3 million.

     FEDERAL  RESERVE  SYSTEM.    The  Federal  Reserve  Board  requires  all
depository  institutions  to  maintain  reserves  against  their  transaction
accounts (primarily NOW and Super NOW checking accounts) and non-personal time
deposits.    At  December  31,  1996,  the  Bank  was  in compliance with such
requirements.

     The  balances  maintained to meet the reserve requirements imposed by the
Federal  Reserve  Board  may  be  used  to  satisfy  applicable  liquidity
requirements.    Because  required  reserves must be maintained in the form of
vault  cash  or  a  noninterest-bearing account at a Federal Reserve Bank, the
effect  of this reserve requirement is to reduce a bank's earning assets.  The
amount  of  funds necessary to satisfy this requirement has not had a material
affect  on  the  Bank's  operations.

     TEXAS  SAVINGS  BANK LAW.  As a Texas chartered savings bank, the Bank is
subject  to  regulation and supervision by the Department under the TSBA.  The
TSBA  contains  provisions  governing  the  incorporation  and  organization,
location  of  offices,  rights and responsibilities of directors, officers and
members  as  well  as  the  corporate  powers,  savings,  lending, capital and
investment  requirements  and  other  aspects of the Bank and its affairs.  In
addition,  the  Department  is  given  extensive  rulemaking  power  and
administrative  discretion  under  the  TSBA, including authority to enact and
enforce  rules  and  regulations.

     The  Bank  is  required  under  the  TSBA  to comply with certain capital
requirements  established  by  the  Department.    The TSBA also restricts the
amount  the Bank can lend to one borrower to that permitted to national banks,
which  is  generally  not  more  than 15% of the Bank's unimpaired capital and
unimpaired  surplus and, if such loans are fully secured by readily marketable
collateral,  an  additional 10% of unimpaired capital and unimpaired surplus. 
The  Department  generally  examines  the Bank once every year and the current
practice  is for the Department to conduct a joint examination with the FDIC. 
The  Department monitors the extraordinary activities of the Bank by requiring
that  the Bank seek the Department's approval for certain transactions such as
the  establishment of additional offices, a reorganization, merger or purchase
and  assumption  transaction,  changes  of control, or the issuance of capital
obligations.  The Department may intervene in the affairs of a savings bank if
the savings bank, or its director, officer or agent has:  engaged in an unsafe
and  unsound  practice, violated the savings bank's articles of incorporation,
violated  a  statute  or  regulation,  filed  materially  false  or misleading
information, committed a criminal act or a breach of fiduciary duty, or if the
savings  bank  is,  or  is  in  imminent  danger  of  becoming,  insolvent.

TAXATION

     FEDERAL  TAXATION.    The  Company,  the Bank and its subsidiaries file a
consolidated  Federal  income  tax  return  on a calendar year basis using the
accrual  method.    Savings  banks  are  subject to provisions of the Internal
Revenue  Code  ("Code")  in  the  same  general manner as other corporations. 
However,  prior  to  1996,  institutions  such  as  the Bank which met certain
definitional tests and other conditions prescribed by the Code, benefited from
certain  favorable  provisions  regarding their deductions from taxable income
for  annual  additions to their bad debt reserve.  In years prior to 1996, the
Bank  was permitted under the Code to deduct an annual addition to the reserve
for  bad debts in determining taxable income based on the experience method or
the percentage of taxable income method.  Due to recently enacted legislation,
the  Bank  will  no longer be able to utilize a reserve method for determining
the bad debt deduction, but will be allowed to deduct actual net charge-offs. 
Further,  the legislation requires the Bank to recapture, into taxable income,
over  a  six year period, the excess of the balance of its bad debt reserve as
of December 31, 1995 over the balance of such reserve as of December 31, 1987.
 Such  recapture  requirements  can be deferred for up to two years if certain
residential  loan  requirements  are  met.  At December 31, 1996, the Bank had
approximately  $4.0  million  of  post-1987  tax  bad debt reserves, for which
deferred  taxes  have  been  provided.

     The  Bank is not required to provide deferred taxes on its pre-1988 (base
year)  tax  bad  debt  reserve of approximately $900,000.  This reserve may be
included  in taxable income in future years if the Bank makes distributions to
stockholders  (including  distributions  in  redemption,  dissolution  or
liquidation) that are considered to result in withdrawals from that excess bad
debt  reserve,  then  the amounts considered withdrawn will be included in the
savings bank's taxable income.  The amount that would be deemed withdrawn from
such reserves upon such distribution and which would be subject to taxation at
the  savings  bank  level  at the normal corporate tax rate would be an amount
that,  after taxes on such amount, would equal the amount actually distributed
plus  the  amount  necessary  to  pay the tax with respect to the withdrawal. 
Dividends  paid  out  of  a savings bank's current or accumulated earnings and
profits  as  calculated  for Federal income tax purposes, however, will not be
considered  to  result in withdrawals from its bad debt reserves to the extent
of  such  earnings  and  profits,  but  shall  be  regarded as taken from such
reserves  only  upon exhaustion of the earnings and profits accounts; however,
distributions in redemption of stock, and distributions in partial or complete
liquidation  of  a savings bank will be considered to come first from its loss
reserve.    The Bank has not conducted a study to determine with certainty the
amount  of  its  accumulated  earnings  and  profits  for  Federal  income tax
purposes.

     In  addition  to  regular  income  taxes,  corporations are subject to an
alternative minimum tax which is generally equal to 20% of alternative minimum
taxable income (taxable income, increased by tax preference items and adjusted
for  certain regular tax items).  The preference items generally applicable to
savings  banks  include  (i)  prior  to  1996, 100% of the excess of a savings
bank's  bad debt deduction computed under the percentage of income method over
the amount that would have been allowable under the experience method and (ii)
an  amount  equal  to  75%  of  the  amount by which a savings bank's adjusted
current  earnings  (alternative minimum taxable income computed without regard
to  this  preference,  adjusted  for  certain  items)  exceeds its alternative
minimum  taxable  income  without  regard  to  this  preference.   The amounts
received by the Bank pursuant to the Assistance Agreement were included in its
adjusted  current  earnings.  Payment of alternative minimum tax gives rise to
alternative  minimum  tax  credit  carryovers  which  may  be  carried forward
indefinitely.    These  credits  may  be  used  to  offset  future regular tax
liability  to  the extent the regular tax liability exceeds future alternative
minimum  tax.

     In  connection  with  the Assistance Agreement, an instrumentality of the
Federal government was obligated to provide the Bank with financial assistance
in connection with various matters that arose under the Assistance Agreement. 
Payments to the Bank pursuant to the Assistance Agreement were taxed under the
applicable  provisions  of  the  Code  which  were  in  effect in 1988.  These
provisions  of  the  Code  provide  generally  that  payments  from  such
instrumentality  to  the  Bank  pursuant  to the Assistance Agreement were not
included  in  the  Bank's  income  and the Bank was not required to reduce its
basis  in  the  Guaranteed  Assets by the amount of such financial assistance.
Accordingly,  the  Bank  was  not  required  to  pay Federal income taxes with
respect  to  any amount of the assistance payments it received pursuant to the
Assistance  Agreement.

     The  Assistance  Agreement  did, however, require the Bank, in effect, to
pay  to such instrumentality 100% of the Federal and state "net tax benefits,"
as  defined, which are realized by the Bank from excluding from its income the
payments  received  pursuant to the Assistance Agreement on a tax-free basis. 
The  amount  of assistance payments from that governmental instrumentality was
reduced  by  the  amount  of  tax  benefit  realized  by the Bank by excluding
assistance  payments  from  its  taxable  income.    Accordingly, the Bank, in
effect,  was  passing back to that governmental instrumentality the entire tax
benefit  derived  from the tax exemption provided by the Code provisions which
were  in  effect  in  1988.

     Further,  the  tax  laws  in  1988  which  applied  to the Southwest Plan
Acquisition  provided  that generally applicable limitations on the ability of
an  acquiring corporation to utilize the net operating loss carryforwards, and
built-in  losses, as defined, of acquired financial institutions did not apply
in  the  case  of  the  acquisition  of assets from insolvent savings and loan
associations.   The generally applicable rules limit the rate at which the net
operating  loss  carryforwards  and  built-in  (i.e., previously unrecognized)
losses  of an acquired corporation may be used by a corporation which acquires
"control"  of  the  corporation  which  generated  the  loss. Pursuant to this
exception  which  existed in 1988 to the generally applicable law, the Bank is
allowed  to  use  the  net  operating losses and built-in losses of all of the
Acquired  Associations  except  for one without limitation.  The net operating
loss  of  one  association  is  not  available  to  the  Bank  because  such
association's  deposits  at  the  time of its acquisition did not represent at
least  20%  of  the  Bank's  total  deposits  and  equity  as  required by the
applicable  provisions  of  the  Code  in  1988.

     The  Assistance  Agreement  required  that the tax benefit derived by the
Bank  from  utilizing  net operating loss carryforwards acquired from three of
the  four  Acquired  Associations  also  be  applied  to  reduce the amount of
assistance  payments  payable  to the Bank by the government instrumentality. 
The  Bank's  Consolidated  Statements  of  Operations,  therefore,  includes a
provision  for  Federal  income  taxes which includes amounts credited to that
governmental  instrumentality  in  lieu  of  Federal  income taxes paid to the
Internal  Revenue  Service with certain adjustments.  Although the termination
of  the  Assistance  Agreement was effective March 31, 1994, that governmental
instrumentality  will  continue  to  receive  the  future  federal  income tax
benefits  of  the  net operating loss carryforwards acquired from the Acquired
Associations.

     The Company's Federal income tax returns have not yet been audited by the
United  States  Internal Revenue Service.  The tax returns of the Company (and
the  Acquired  Associations)  since 1988 are subject to review by the Internal
Revenue  Service.

STATE  TAXATION

     The  Company  pays  an annual franchise tax equal to the greater of $2.50
per  $1,000  of taxable capital apportioned to Texas, or $4.50 per $100 of net
taxable  earned  surplus  apportioned  to Texas. Taxable earned surplus is the
Company's  Federal  taxable  income  with  certain  modifications, such as the
exclusion  of  interest  earned  on  Federal  obligations.
ITEM  2.          PROPERTIES

     The  Company's  business  is  conducted  from  37  offices in Texas.  The
following table sets forth the location of the offices of the Company, as well
as certain additional information relating to these offices as of December 31,
1996.

<TABLE>
<CAPTION>



                                                   Net Book Value of 
                           Owned/Leased             Property or 
                           Owned/Leased              Leasehold 
Location               (with Lease Expiration Date)   Improvements

                                                 (Dollars in thousands)
<S>                            <C>                            <C>

BRANCH OFFICES:
-----------------         
1329 North Virginia            Owned
Port Lavaca, Texas  77979                                    $200
8 Greenway Plaza, Suite 100    Leased;
Houston, Texas  77046          June 30, 1997                  --
8 Braeswood Square             Leased;
Houston, Texas  77096          December 31, 2006              394
408 Walnut                     Owned
Columbus, Texas  78934                                        349
870 S. Mason, #100             Leased;
Katy, Texas  77450             August 31, 2003                 70
602 Lyons                      Owned
Schulenburg, Texas  78956                                     101
325 Meyer Street               Owned
Sealy, Texas  77474                                           569
116 E. Post Office             Owned
Weimar, Texas  78962                                           49
323 Boling Road                Owned
Wharton, Texas  77488                                         151
1621 Pine Drive                Leased;
Dickinson, Texas  77539        September 30, 1998               1
295 West Highway 77            Owned
San Benito, Texas  78586                                      248
1260 Blalock, Suite 100        Leased;
Houston, Texas  77055          January 20, 1999                92
620 W. Main                    Owned
Tomball, Texas  77375                                         150
915-H North Shepherd           Leased;
Houston, Texas  77008          October 31, 2001               218
6810 FM 1960 West              Leased;
Houston, Texas  77069          September 30, 1997              --
7602 N. Navarro                Owned
Victoria, Texas  77904                                        210
2308 So. 77 Sunshine Strip     Leased;
Harlingen, Texas   78550       February 28, 1997               26
4900 N. 10th St., G-1          Leased;
McAllen, Texas   78504         August 14, 2001                200
10838 Leopard Street, Suite B  Leased;
Corpus Christi, Texas   78410  December 31, 1998                2
4060 Weber Road                Leased;
Corpus Christi, Texas   78411  April 30, 1999                   7






                                                             Percent of Total
Location                                        Deposits          Deposits
<S>                                               <C>                 <C>

BRANCH OFFICES:
-----------------------------                                         
1329 North Virginia
Port Lavaca, Texas  77979      $                   29,324        2.24%
8 Greenway Plaza, Suite 100
Houston, Texas  77046                              22,157        1.69 
8 Braeswood Square
Houston, Texas  77096                              62,831        4.79 
408 Walnut
Columbus, Texas  78934                             58,968        4.50 
870 S. Mason, #100
Katy, Texas  77450                                 23,051        1.76 
602 Lyons
Schulenburg, Texas  78956                          32,735        2.50 
325 Meyer Street
Sealy, Texas  77474                                41,180        3.14 
116 E. Post Office
Weimar, Texas  78962                               26,242        2.00 
323 Boling Road
Wharton, Texas  77488                              46,673        3.56 
1621 Pine Drive
Dickinson, Texas  77539                            43,652        3.30 
295 West Highway 77
San Benito, Texas  78586                           21,571        1.66 
1260 Blalock, Suite 100
Houston, Texas  77055                              58,715        4.48 
620 W. Main
Tomball, Texas  77375                              25,442        1.94 
915-H North Shepherd
Houston, Texas  77008                              32,300        2.46 
6810 FM 1960 West
Houston, Texas  77069                              28,241        2.15 
7602 N. Navarro
Victoria, Texas  77904                             74,889        5.71 
2308 So. 77 Sunshine Strip
Harlingen, Texas   78550                           20,389        1.56 
4900 N. 10th St., G-1
McAllen, Texas   78504                             15,798        1.21 
10838 Leopard Street, Suite B
Corpus Christi, Texas   78410                      44,111        3.37 
4060 Weber Road
Corpus Christi, Texas   78411                      64,429        4.92 

                                                           (continued)
</TABLE>



<PAGE>
<TABLE>

<CAPTION>

                                              Net Book Value of 
                       Owned/Leased             Property or     Deposits     Percent of
                       Owned/Leased              Leasehold                  Total Deposits
Location         (with Lease Expiration Date)   Improvements     

                                                 (Dollars in thousands)


(continued from previous page)
<S>                             <C>                 <C>     <C>         <C>

301 E. Main Street         Owned
Brenham, Texas   77833                         $  206  $   64,391    4.91%
1192 W. Dallas             Leased;
Conroe, Texas   77301      December 31, 1999        3      51,677    3.94 
2353 Town Center Dr.       Owned
Sugar Land, Texas   77478                       1,136      16,764    1.28 
1629 S. Voss               Owned
Houston, Texas   77057                          1,491      18,323    1.40 
531-A Highway 1431         Leased;
Kingsland, Texas   78639   December 31, 1999       --      13,313    1.02 
209 W. Moreland            Owned
Mason, Texas   76856                               56      17,349    1.32 
904 Highway 281 North      Owned
Marble Falls, Texas 78654                         187      11,344    0.87 
101 East Polk              Owned
Burnet, Texas   78611                             103      17,221    1.31 
Highway 29 West            Owned
Buchanan Dam, Texas 78609                         117       8,392    0.64 
907 Ford                   Owned
Llano, Texas   78643                              186      15,210    1.16 
708 East Austin            Owned
Giddings, Texas   78942                           303      22,963    1.75 
5718 Westheimer, Suite 100 Leased;
Houston, Texas 77057       March 14, 2004         165      36,012    2.76 
7909 Parkwood Circle Drive Leased;
Houston, Texas 77036       August 31, 1999        949      12,560    0.96 
1250 Pin Oak Road          Owned
Katy, Texas 77494                                 483      16,960    1.29 
2120 Thompson Highway      Owned
Richmond, Texas 77469                             510      36,825    2.81 
7200 North Mopac           Leased;
Austin, Texas 77469        December 31, 1997       --      32,254    2.46 
1112 Seventh Street        Leased;
Bay City, Texas 77414      April 30, 1997          17      77,911    5.94 
MORTGAGE BANKING OFFICE:
---------------------------                                                
CBS Mortgage Corp.
6161 Savoy, Suite 600      Leased;
Houston, Texas  77036      September 30, 1997      18          --      -- 
ADMINISTRATIVE OFFICE(1)
---------------------------                                                 
Coastal Banc Tower         Leased;
8 Greenway Plaza, Suite 1500 June 30, 1997        108      68,668    5.24 
Houston, Texas 77046
RECORDS & RETENTION  OFFICE:
------------------------------                                             
227 Meyer St.               Owned
Sealy, Texas   77474                               65          --       - 
     Total                                     $9,140  $1,310,835  100.00%
                                               ======  ==========  =======
</TABLE>


______________________

1Includes  location  of  executive  offices.
     The  net book value of the Company's investment in premises and equipment
totaled  $15.0  million  at  December 31, 1996.  At December 31, 1996, the net
book  value  of  the  Company's  electronic  data  processing equipment, which
includes  its  in-house  computer  system,  local  area  network  and fourteen
automatic  teller  machines,  was  $3.0  million.

ITEM  3.          LEGAL  PROCEEDINGS

     The  Company  is  involved  in routine legal proceedings occurring in the
ordinary  course  of  business  which,  in  the  aggregate,  are  believed  by
management  to  be  immaterial  to  the  financial  condition  of the Company.


ITEM  4.          SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY HOLDERS

     Not  applicable.

PART  II

ITEM  5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     The information required herein is incorporated by reference from page 53
of  the  Company's  printed  Annual  Report  to  Stockholders  for fiscal 1996
("Annual  Report"),  which  is  included  herein  as  Exhibit  13.

ITEM  6.          SELECTED  FINANCIAL  DATA

     The information required herein is incorporated by reference from pages 6
through  9  of  the  Annual  Report.

ITEM  7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  information  required herein is incorporated by reference on pages 9
through  21  of  the  Annual  Report.

ITEM  8.          FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

     The  financial  statements  and  supplementary  data  required herein are
incorporated  by  reference  from  pages  23  through 52 of the Annual Report.

ITEM  9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL  DISCLOSURE

     Not  applicable.


<PAGE>
PART  III

ITEM  10.          DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

     The  information  required  herein  is incorporated by reference from the
definitive  proxy  statement  to  be  filed  with  the Securities and Exchange
Commission.    Otherwise, the requirements of this Item 10 are not applicable.

ITEM  11.          EXECUTIVE  COMPENSATION

     The  information  required  herein  is incorporated by reference from the
definitive  proxy  statement  to  be  filed  with  the Securities and Exchange
Commission.

ITEM  12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  herein  is incorporated by reference from the
definitive  proxy  statement  to  be  filed  with  the Securities and Exchange
Commission.

ITEM  13.          CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     The  information  required  herein  is incorporated by reference from the
definitive  proxy  statement  to  be  filed  with  the Securities and Exchange
Commission.

PART  IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)(1)      The following financial statements are incorporated herein by
reference  from  pages  23  through  52  of  the  Annual  Report.

     Report  of  Independent  Certified  Public  Accountants.

     Consolidated  Statements  of  Financial Condition as of December 31, 1996
and  1995.

     Consolidated  Statements  of  Operations  for  each  of  the years in the
three-year  period  ended  December  31,  1996.

     Consolidated  Statements of Stockholders' Equity for each of the years in
the  three-year  period  ended  December  31,  1996.

     Consolidated  Statements  of  Cash  Flows  for  each  of the years in the
three-year  period  ended  December  31,  1996.

     Notes  to  Consolidated  Financial  Statements.

     (a)(2)         There are no financial statement schedules filed herewith.

     (a)(3)          The  following exhibits are filed as part of this report.


<TABLE>

<CAPTION>




                                                                       Page in
                                                                   Manually signed
Exhibit No.                                                             report



<C>          <S>                                                           <C>

3.1       Articles of Incorporation of the Company                            *
3.2       Bylaws of Company                                                   *
4         Form of Company common stock certificate                            *
4.1       Form of Indenture dated as of June 30, 1995, 
          with respect to the Company's 10% Notes, due 2002                  **
10.1      1991 Stock Compensation Program                                     *
10.2      1995 Stock Compensation Program                                   ***
10.3      Change-In-Control Severance Agreements                            E-1
12        Ratio of earnings to combined fixed charges and 
          preferred stock dividends (See Exhibit 13)
13        Annual Report to Stockholders                                   E -13
27        Financial Data Schedule (electronically filed)
28        Form of proxy to be mailed to stockholders 
          of the Company                                                  E -73

</TABLE>


__________________
*       Incorporated by reference to the Company's Registration Statement
        on  Form  S-4  (No.  33-75952)  filed  on  March  2,  1994.
**      Incorporated by reference to the Company's Registration Statement
        on  Amendment  No.  6  to  Form  S-1  (No.  33-91206)  filed 
        on June 16, 1995.
***     Incorporated by reference to the Company's Registration Statement
        on  Form  S-1  (No.  33-91206)  filed  on  April  14,  1995.

(b)(1)  Form 8-K filed by the Company on February 14, 1996 concerning
        the  declaration  of  dividends  for  the  fourth  
        quarter  of  1995

(b)(2)  Form 8-K filed by the Company on May 13, 1996 concerning the
        execution  of  definitive agreements to exchange certain 
        branch locations with Compass  Bank  -  San  Antonio.

(b)(3)  Form 8-K filed by the Company on December 2, 1996 concerning
        the  formation  of  Coastal  Banc  Holding Company, Inc. 
        on November 30, 1996.

(b)(4)  Form 8-K filed by the Company on March 18, 1997 concerning the
        execution of a definitive agreement to purchase the Wells Fargo 
        Bank branch in Port  Arthur,  Texas.

(c)     See (a)(3) above for all exhibits filed herewith and Exhibit
        Index.

(d)     All schedules are omitted as the required information is not
        applicable  or  the  information  is  presented  in the 
        consolidated financial statements  or  related  notes.




     SIGNATURES


     Pursuant  to  the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934, the Registrant has duly caused this report to be signed
on  its  behalf  by  the  undersigned,  thereunto  duly  authorized.
 
                               COASTAL  BANCORP,  INC.



Date:    March  26,  1997                 By:  /s/  Manuel  J.  Mehos
                                            Manuel  J.  Mehos,
                                            Chairman  of  the  Board  and  
                                            Chief Executive  Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  is  signed  below by the following persons on behalf of the Registrant
and  in  the  capacities  and  on  the  dates  indicated.



/s/  Manuel  J.  Mehos                        Date:  March  26,  1997
Manuel  J.  Mehos,  Chairman  of  the
  Board  and  Chief  Executive  Officer



/s/  R.  Edwin  Allday                        Date:  March  26,  1997
R.  Edwin  Allday,  Director



/s/  D.  Fort  Flowers,  Jr.                  Date:  March  26,  1997
D.  Fort  Flowers,  Jr.,  Director



/s/  Dennis  S.  Frank                        Date:  March  26,  1997
Dennis  S.  Frank,  Director



/s/  Robert  E.  Johnson,  Jr.                Date:  March  26,  1997
Robert  E.  Johnson,  Jr.,  Director



/s/  James  C.  Niver                         Date:  March  26,  1997
James  C.  Niver,  Director



/s/  Clayton  T.  Stone                       Date:  March  26,  1997
Clayton  T.  Stone,  Director



/s/  Catherine  N.  Wylie                     Date:  March  26,  1997
Catherine  N.  Wylie,  Chief  Financial
  Officer  (principal  financial  and
  accounting  officer)