COASTAL  BANCORP,  INC.
AND  SUBSIDIARIES

FINANCIAL  HIGHLIGHTS
DECEMBER  31,  2002,  2001  AND  2000
<TABLE>

<CAPTION>
                                                                             December 31,
                                                                            --------------
(Dollars in thousands, except per share data)                       2002          2001         2000
                                                               --------------  -----------  -----------
<S>                                                            <C>             <C>          <C>
FOR THE YEAR ENDED
-------------------------------------------------------------
 Net interest income                                           $      74,847   $   86,597   $   84,368
 Provision for loan losses                                             5,800        3,900        5,790
 Noninterest income (1)                                               17,209       11,143       12,024
 Noninterest expense                                                  55,893       58,479       58,195
 Net income                                                           19,716       21,802       19,924
 Diluted earnings per common share before cumulative effect
   of accounting change                                                 2.99         3.19         2.87
 Diluted earnings per common share - reported                           2.99         3.17         2.87
 Diluted earnings per common share - as adjusted (2)                    2.99         3.51         3.25

AT YEAR END
-------------------------------------------------------------
 Total assets (3)                                              $   2,526,144   $2,597,891   $3,091,611
 Loans receivable                                                  1,812,785    1,863,601    1,896,228
 Mortgage-backed securities held-to-maturity (3)                          --           --      885,565
 Mortgage-backed securities available-for-sale (3)                   475,022      514,068       94,673
 Deposits (1)                                                      1,614,368    1,660,386    1,674,981
 Borrowed funds (3)                                                  696,085      690,877    1,150,305
 Company obligated mandatorily redeemable 9.0% trust
   preferred securities of Coastal Capital Trust I (4)                50,000           --           --
 Senior Notes payable (5)                                                 --       43,875       46,900
 Minority interest - preferred stock of Coastal Banc ssb (4)              --       28,750       28,750
 Preferred stockholders' equity                                       27,500       27,500       27,500
 Common stockholders' equity (6)                                     125,385      129,934      110,971
 Book value per common share                                           23.47        21.54        18.89
 Tangible book value per common share                                  19.74        18.15        15.08

SIGNIFICANT RATIOS FOR THE YEAR ENDED
-------------------------------------------------------------
 Return (before minority interest) on average assets                    0.83%        0.81%        0.74%
 Return on average common equity                                       13.71        15.92        16.51
 Net interest margin                                                    3.04         2.97         2.87
 Interest rate spread including noninterest-bearing deposits            2.94         2.81         2.71
 Interest rate spread                                                   2.74         2.56         2.42
 Average common equity to average total assets                          4.92         4.03         3.47
 Noninterest expense to average total assets                            2.19         1.94         1.91

ASSET QUALITY RATIOS AT YEAR END
-------------------------------------------------------------
 Nonperforming assets to total assets                                   0.91%        1.13%        0.82%
 Nonperforming loans to total loans receivable                          1.00         1.33         1.12
 Allowance for loan losses to nonperforming loans                      97.69        62.26        68.32
 Allowance for loan losses to total loans receivable                    1.00         0.83         0.77
</TABLE>


(1)     In  December 2002, Coastal completed the sale of five of its branches in
Central  Texas.  The  sale  included deposits of $75.3 million and resulted in a
gain  of  $4.4  million.
(2)     "As  adjusted" excludes the amortization expense (net of any tax effect)
recognized  in the periods prior to the implementation of Statement of Financial
Accounting  Standards  No.  142  related to the goodwill that is no longer being
amortized.
(3)     In  November  2001,  Coastal  completed  the  sale of approximately $845
million  of  its  mortgage-backed securities.  The transaction was undertaken to
strategically  restructure  a  portion  of  Coastal's  asset base.  Coastal used
approximately  $512  million  of  the  proceeds  to purchase primarily pass-thru
mortgage-backed securities with an overall shorter expected duration and reduced
borrowings  with  the  remainder.  All  of  the  securities  purchased  and  the
remaining  securities  not  sold were placed in the available-for-sale category.
See  further  discussion  in  "Management's Discussion and Analysis of Financial
Condition  and  Results  of  Operations  -  General."
(4)     In June 2002, Coastal issued 2,000,000 trust preferred securities with a
liquidation  preference  of  $25  per  security for a total of $50.0 million.  A
portion  of  the  proceeds was used to repurchase 500,000 shares of common stock
for  $15.0  million from a director of Coastal in June 2002.  In addition, $28.8
million of the proceeds were used in July 2002 to redeem Coastal Banc ssb's 9.0%
Series A Noncumulative Preferred Stock through a capital contribution to Coastal
Banc  ssb.
(5)     Coastal  redeemed all of the Senior Notes payable on February 1, 2002 at
par  plus  accrued  interest.
(6)     During  the  year  ended  December  31,  2002, Coastal repurchased $21.8
million in common stock.  See further discussion in "Management's Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations - General and -
Financial  Condition."

<PAGE>

CORPORATE  PROFILE


Coastal  Bancorp, Inc., a Texas corporation, headquartered in Houston, Texas, is
the  holding company for Coastal Banc Holding Company, Inc. ("HoCo"), a Delaware
unitary  savings  bank  holding  company.  HoCo is the parent company to Coastal
Banc ssb, a Texas-chartered, FDIC-insured, state savings bank.  Coastal Banc ssb
operates  43 branch offices in metropolitan Houston, Austin, Corpus Christi, the
Rio  Grande  Valley  and  small  cities  in the southeast quadrant of Texas.  At
December  31,  2002,  Coastal  Banc  ssb  had $2.5 billion in assets and met the
regulatory requirements to be a "well capitalized" institution according to FDIC
guidelines.



TABLE  OF  CONTENTS

<TABLE>

<CAPTION>



<S>                                                                                    <C>
Letter from the Chairman and Chief Executive Officer

Selected Consolidated Financial and Other Data

Management's Discussion and Analysis of Financial Condition and Results of Operations

Directors and Officers

Independent Auditors' Report

Consolidated Financial Statements

Notes to Consolidated Financial Statements

Stock Prices and Dividends

Stockholder Information

</TABLE>



<PAGE>

CHAIRMAN'S  LETTER

Ferdinand Magellan led a fleet of five ships in 1519 to circumnavigate the globe
and  explore uncharted waters, including the previously unexplored Pacific Ocean
(named  by  Magellan on this trip).  His armada had crude navigation instruments
and  primitive  sailing ships that cruised at a top speed of only four knots and
were  unable  to  tack.

Almost  five  centuries later the banking industry finds itself in interest rate
territory  that  is equally uncharted waters.   During 2002, the fed funds rate,
prime rate, and deposit rates dropped to levels no current American bankers have
experienced  in  their  business  lives.  In  contrast to Magellan's experience,
today's bankers possess extremely sophisticated analytical and navigation tools.
But  those  tools  don't  solve a lot in today's interest rate environment where
deposit  costs  can't  get much lower, but loan yields can.  Instead of worrying
about  whether  borrowers  will pay off loans, bankers now worry about borrowers
paying  off  loans.  And  balance  sheet  management  has  turned upside down as
bankers  tap  their collective ruby slippers chanting, "There's no place like 8%
prime,  there's  no  place  like  5%  CD's,  there's  no  place. . ."

I have been writing to you every year since 1992, Coastal Banc's (Coastal) first
year  as  a  publicly  owned  company.  I  do  not  view my annual letter to the
shareholders  as  a promotional tool; rather I view it as my personal assessment
of Coastal's performance for the year and prospects for our company's future.  I
have  as  large  a  stake  as anyone does in this company.  Therefore, my annual
letter  to you is pretty much a summarized version of what I think about most of
the  day,  every  day.

So  here's what I'm thinking today: At the end of 2002, Coastal's earning assets
were shrinking.  It's neither what we planned nor what we want.  Coastal's total
earning assets as of December 31, 2002 were approximately $2.4 billion, or $68.8
million  less  than  total  earning assets at the end of 2001.  The reduction in
earning  assets  was  primarily  due to today's uncharted waters of low interest
rates.  During  2002,  many  of Coastal's mortgage borrowers and commercial real
estate  borrowers  refinanced  through lenders other than Coastal at lower rates
than  we  were  willing  to  offer.  Loan  payoffs reached a record payoff level
during  2002  of  over  40%  of  the  average  loan  portfolio.

It  was  like running on a treadmill.  It seemed that for every new loan Coastal
made,  an existing loan would refinance somewhere else at an interest rate below
our  acceptable  threshold.   Fortunately, we exceeded our loan production goals
for  2002.  Thus  we  managed  to somewhat mitigate the shrinkage as total loans
only  decreased  by  $50.8  million  or  2.9% for the year.  However, to further
exacerbate  the  dilemma,  Coastal, along with the rest of the banking industry,
experienced  net  interest  margin  compression in the fourth quarter of 2002 as
deposit  costs  crept  closer  to  the  0%  floor.

Now  here's the good news: Coastal had its best year yet for improvements in its
core banking business.  During 2002, we simplified the organization of Coastal's
branches  into  three  regions: Metropolitan Houston, Rio Grande Valley, and the
Community  Banking  Region for our small market branches.  We sold five branches
in  small  markets  that had limited growth potential in order to redirect those
resources  to  existing  and  prospective branches in markets with higher growth
potential.

During  2002,  Coastal achieved record growth levels in transaction accounts and
deposit service charges.  We improved customer penetration for most of Coastal's
consumer  banking  products  and  introduced several new key products, including
free  checking  and  bounce  protection. We also introduced a new Internet-based
treasury  management  system  at  the  end  of  2002  with  the  primary goal of
increasing  the  growth  rate in commercial deposit customers, a key element for
improving  net  interest  margin  and  fee  income  growth.

Thus  during  2002,  when Coastal experienced a decline in net loans, we had our
best  year  for  improving  the  potential  of Coastal's long-term core earnings
growth.  The  reduction  in  loans  during 2002 coupled with the restructure and
reduction of Coastal's securities portfolio in the fourth quarter of 2001 caused
a 13.6% decline in net interest income for 2002.  However, an increase of 26% in
net  service  charges  on deposits and a 4.4% decrease in expenses mitigated the
reduction  in  core  earnings  for  2002.

We  also  made  several  balance  sheet  improvements  in  2002.  Coastal's
non-performing  assets  declined  by  21.6%  while the allowance for loan losses
increased  by  17.8%.  Coastal  redeemed  its  10.0%  senior  notes and its 9.0%
preferred  stock,  issued  $50.0  million  of 9% trust preferred securities, and
repurchased  729,575  shares  of  common  stock.

So  Coastal  begins  2003 with fewer assets and a declining net interest margin,
but  with  a stronger balance sheet and an increasing rate of fee income growth.
As long as we stay on this lending treadmill and deposit costs compress near the
0%  floor,  growth  of  net interest income will be difficult.  However, just as
Magellan's  armada  eventually circled the globe, interest rates will eventually
cycle  back  to  more familiar waters.  Then, the torrid pace of refinancings is
expected  to  recede  and  Coastal's  loan portfolio should resume the levels of
growth  it  has  experienced  in  recent  years.

Until  that  happens, as a major Coastal shareholder two things give me comfort.
First,  Coastal's  core banking business appears to have as much promise as I've
seen  in all my years as a shareholder.  Fee income growth, product penetration,
and  customer  growth  are  all  improving at an increasing rate, mitigating the
adverse  effects of the present interest rate environment.  More importantly, it
means  Coastal  is  moving  faster  than  ever  towards  accomplishing  one  of
management's goals, that fee income represents a significantly larger percentage
of  total  revenue.

Second,  even  though  I'm  a banker, just like you I'm a shareholder first.  So
size doesn't matter to me.  The value of my stock is what matters most.  In this
challenging loan growth environment and this uncertain economy, we will not grow
the  loan portfolio for the sake of growth.  We will strive to improve Coastal's
core banking business and make prudent loans.  If the new loans aren't enough to
provide  net  loan growth, I prefer to increase loans per share and net interest
income  per  share  by  effectively  investing  in Coastal's existing portfolio.

We  do  that  by  repurchasing Coastal's stock.  At times like this, I prefer to
invest  equity  dollars  in a portfolio I know.  That way when we finally circle
the  globe and reach smoother economic sailing, Coastal can be better positioned
for  healthy growth.  The best part is you and I will then own a bigger piece of
that  growth.



/s/     Manuel  J.  Mehos
-------------------------
Manuel  J.  Mehos
Chairman of the Board, President
and Chief Executive Officer



<PAGE>
COASTAL  BANCORP,  INC.  AND  SUBSIDIARIES
SELECTED  CONSOLIDATED  FINANCIAL  AND  OTHER  DATA


The  following selected consolidated summary financial and other data of Coastal
Bancorp,  Inc.  and subsidiaries ("Coastal") does not purport to be complete and
should  be  read  in  conjunction with, and is qualified in its entirety by, the
more detailed information contained in the Consolidated Financial Statements and
Notes  thereto  included  elsewhere  herein.
<TABLE>

<CAPTION>

                                                                                         At December 31,
(Dollars in thousands, except per share data)                     2002           2001        2000        1999        1998
                                                            ----------------  ----------  ----------  ----------  ----------
<S>                                                         <C>               <C>         <C>         <C>         <C>
Balance Sheet Data:
 Total assets (1)                                           $      2,526,144  $2,597,891  $3,091,611  $2,947,952  $2,982,161
 Loans receivable (2)                                              1,812,785   1,863,601   1,896,228   1,735,081   1,538,149
 Mortgage-backed securities held-to-maturity (1) (2)                      --          --     885,565     917,212   1,154,116
 Mortgage-backed securities available-for-sale (1)                   475,022     514,068      94,673      99,665      96,609
 Deposits (3)                                                      1,614,368   1,660,386   1,674,981   1,624,289   1,705,004
 Advances from the Federal Home Loan Bank of
     Dallas ("FHLB") (1)                                             696,085     690,877   1,150,305   1,096,931     966,720
 Securities sold under agreements to repurchase                           --          --          --          --     100,000
 Company obligated mandatorily redeemable 9.0%
     trust preferred securities of Coastal Capital
     Trust I (4)                                                      50,000          --          --          --          --
 Senior Notes payable (5)                                                 --      43,875      46,900      46,900      50,000
 Minority interest-preferred stock of Coastal Banc
     ssb (4)                                                              --      28,750      28,750      28,750      28,750
 Preferred stockholders' equity                                       27,500      27,500      27,500      27,500          --
 Common stockholders' equity (6)                                     125,385     129,934     110,971     105,956     112,764

</TABLE>

<TABLE>

<CAPTION>

                                                                    For the Year Ended December 31,
                                                            2002       2001      2000       1999         1998
                                                         ---------   --------   -------   --------   ---------
<S>                                                      <C>                    <C>        <C>        <C>
Operating Data:
 Interest income                                        $  137,623   $210,612   $237,273   $202,943   $210,814
 Interest expense                                           62,776    124,015    152,905    125,657    143,404
                                                          --------     ------     -----      ------     ------
 Net interest income                                        74,847     86,597     84,368     77,286     67,410
 Provision for loan losses (7)                               5,800      3,900      5,790     10,575      3,100
                                                          --------     ------     -----      ------     ------
 Net interest income after provision for loan loss          69,047     82,697     78,578     66,711     64,310
 Gain on sale of branch offices (3)                          4,395         --         --         --         --
 Gain on sale of mortgage servicing rights                      --         --      2,172         --         --
 Writedown of purchased mortgage loan premium                   --         --         --         --       (709)
 Gain on sales of mortgage-backed securities
   available-for-sale, net                                      --        169         --         --          1
 Loss on derivative instruments                                (12)      (422)        --         --         --
 Other noninterest income                                    12,826     11,396      9,852     10,372     7,580
 Other noninterest expense                                  (55,893)   (58,479)   (58,195)   (57,810)  (48,383)
                                                          ---------    -------    -------    --------  -------
 Income before provision for Federal income taxes,
   minority interest and cumulative effect of
   accounting change                                         30,363     35,361     32,407     19,273    22,799
 Provision for Federal income taxes (8)                      (9,140)   (10,867)    (9,895)    (5,659)   (3,543)
 Minority interest - preferred stock dividends
   of Coastal Banc ssb                                       (1,507)    (2,588)    (2,588)    (2,588)   (2,588)
 Cumulative effect of change in accounting for
   derivative instruments, net of tax (9)                        --       (104)        --         --        --
                                                          ---------    -------    -------    -------  --------
 Net income                                              $   19,716   $ 21,802   $ 19,924   $ 11,026  $ 16,668
                                                          =========   ========   ========   ========  ========
 Net income available to common stockholders             $   17,208   $ 19,294   $ 17,416   $  9,442  $ 16,668
                                                          =========   ========   ========   ========  ========
 Basic earnings per common share before cumulative
   effect of accounting change  (9)                      $     3.13   $   3.36   $   2.94   $   1.45  $   2.24
                                                          =========   ========   ========   ========  ========
 Basic earnings per common share - reported (10) (11)    $     3.13   $   3.34   $   2.94   $   1.45  $   2.24
                                                          =========   ========   ========   ========  ========
 Basic earnings per share - as adjusted (11)             $     3.13   $   3.69   $   3.32   $   1.80  $   2.48
                                                          =========   ========   ========   ========  ========
 Diluted earnings per common share before cumulative
   effect of accounting change (9)                       $     2.99   $   3.19   $   2.87   $   1.42  $   2.18
                                                          =========   ========   ========   ========  ========
 Diluted earnings per common share - reported (10) (11)  $     2.99   $   3.17   $   2.87   $   1.42  $   2.18
                                                          =========   ========   ========   ========  ========
 Diluted earnings per share - as adjusted (11)           $     2.99   $   3.51   $   3.25   $   1.76  $   2.41
                                                          =========   ========   ========   ========  ========

</TABLE>

                                                  (Footnotes appear on page 13)

<PAGE>
COASTAL  BANCORP,  INC.  AND  SUBSIDIARIES
SELECTED  CONSOLIDATED  FINANCIAL  AND  OTHER  DATA
<TABLE>

<CAPTION>

                                                                                  At or For the Year Ended December 31,
                                                                                          2002       2001       2000
                                                                                      -------------  -------  -------
<S>                                                                                    <C>               <C>      <C>
Selected Ratios:
Performance Ratios (12):
 Return (before minority interest) on average assets                                          0.83%    0.81%    0.74%
 Return on average common equity                                                             13.71    15.92    16.51
 Dividend payout ratio                                                                       15.39    13.80    12.23
 Average common equity to average total assets                                                4.92     4.03     3.47
 Net interest margin (13)                                                                     3.04     2.97     2.87
 Interest rate spread including noninterest-bearing deposits (13)                             2.94     2.81     2.71
 Interest rate spread (13)                                                                    2.74     2.56     2.42
 Noninterest expense to average total assets                                                  2.19     1.94     1.91
 Average interest-earning assets to average interest-bearing
   liabilities                                                                              112.21   109.63   108.52
 Ratio of earnings to combined fixed charges and preferred
   stock dividends:
   Excluding interest on deposits                                                             1.94x    1.50x    1.32x
   Including interest on deposits                                                             1.39     1.23     1.17
Asset Quality Ratios:
 Nonperforming assets to total assets (14)                                                    0.91%    1.13%    0.82%
 Nonperforming loans to total loans receivable and loans
   receivable held for sale                                                                   1.00     1.33     1.12
 Allowance for loan losses to nonperforming loans                                            97.69    62.26    68.32
 Allowance for loan losses to total loans receivable                                          1.00     0.83     0.77
Bank Regulatory Capital Ratios (15):
 Tier 1 capital to total assets                                                               6.88     7.27     6.22
 Tier 1 risk-based capital to risk-weighted assets                                           10.32    11.90     9.94
 Total risk-based capital to risk-weighted assets                                            11.38    12.79    10.72
Other Data:
 Full-time employee equivalents                                                                626      681      661
 Number of full service offices                                                                 43       50       50




                                                                    1999     1998
                                                                   -------  -------
<S>                                                                <C>      <C>
Selected Ratios:
Performance Ratios (12):
 Return (before minority interest) on average assets                 0.47%    0.64%
 Return on average common equity                                     8.83    14.96
 Dividend payout ratio                                              22.11    14.35
 Average common equity to average total assets                       3.66     3.71
 Net interest margin (13)                                            2.75     2.31
 Interest rate spread including noninterest-bearing deposits (13)    2.65     2.17
 Interest rate spread (13)                                           2.39     1.96
 Noninterest expense to average total assets                         1.98     1.61
 Average interest-earning assets to average interest-bearing
   liabilities                                                     108.22   107.33
 Ratio of earnings to combined fixed charges and preferred
   stock dividends:
   Excluding interest on deposits                                   1.23x    1.25x
   Including interest on deposits                                    1.11     1.14
Asset Quality Ratios:
 Nonperforming assets to total assets (14)                           0.73%    0.99%
 Nonperforming loans to total loans receivable and loans
   receivable held for sale                                          0.99     1.60
 Allowance for loan losses to nonperforming loans                   61.30    46.28
 Allowance for loan losses to total loans receivable                 0.60     0.74
Bank Regulatory Capital Ratios (15):
 Tier 1 capital to total assets                                      5.76     5.25
 Tier 1 risk-based capital to risk-weighted assets                   9.68     9.54
 Total risk-based capital to risk-weighted assets                   10.29    10.23
Other Data:
 Full-time employee equivalents                                       666      653
 Number of full service offices                                        50       49
</TABLE>


                                                  (Footnotes appear on page 13)

<PAGE>

Footnotes  for  pages  10  through  12:

(1)     In  November  2001,  Coastal  completed  the  sale of approximately $845
million  of  its  mortgage-backed securities.  The transaction was undertaken to
strategically  restructure  a  portion  of  Coastal's  asset base.  Coastal used
approximately  $512  million  of  the  proceeds  to purchase primarily pass-thru
mortgage-backed securities with an overall shorter expected duration and reduced
borrowings  with  the  remainder.  All  of  the  securities  purchased  and  the
remaining  securities  not  sold were placed in the available-for-sale category.
See  further  discussion  in  "Management's Discussion and Analysis of Financial
Condition  and  Results  of  Operations  -  General."

(2)     Loans  receivable  are  net  of  loans  in process, premiums, discounts,
unearned  interest  and  loan  fees  and  the  allowance  for  loan  losses.
Mortgage-backed  securities  held-to-maturity are net of premiums and discounts.

(3)     In  December 2002, Coastal completed the sale of five of its branches in
Central  Texas.  The  sale  included deposits of $75.3 million and resulted in a
gain  of  $4.4  million.

(4)     In June 2002, Coastal issued 2,000,000 trust preferred securities with a
liquidation  preference  of  $25  per  security for a total of $50.0 million.  A
portion  of  the  proceeds was used to repurchase 500,000 shares of common stock
for  $15.0  million from a director of Coastal in June 2002.  In addition, $28.8
million of the proceeds were used in July 2002 to redeem Coastal Banc ssb's 9.0%
Series A Noncumulative Preferred Stock through a capital contribution to Coastal
Banc  ssb.

(5)     Coastal  redeemed all of the Senior Notes payable on February 1, 2002 at
par  plus  accrued  interest.

(6)     During  the  years ended December 31, 2002, 2000, 1999 and 1998, Coastal
repurchased  $21.8  million,  $10.9  million,  $12.7  million  and $7.8 million,
respectively,  in  common  stock.

(7)     During  1999,  Coastal recorded a $6.8 million provision for loan losses
specific  to  one  loan.

(8)     During  1998,  Coastal  successfully resolved an outstanding tax benefit
issue  with  the  FDIC.  The  resolution of the issue resulted in a $3.7 million
reversal  of  accrued  income  taxes  during  1998.

(9)     Effective  January  1,  2001,  Coastal  adopted  Statement  of Financial
Accounting  Standards  No.  133,  "Accounting for Derivative Instruments and for
Hedging  Activities"  ("Statement 133").  On January 1, 2001, Coastal recorded a
transition  adjustment  loss  of $160,000, or $104,000 net of the tax effect, to
record  its  derivative  instruments  at  fair  value.

(10)     On  April 23, 1998, Coastal declared a 3:2 stock split that was paid on
June 15, 1998 to stockholders of record on May 15, 1998.  All common stock share
data  has  been  adjusted  to  include  the  effect  of  the  stock  split.

(11)     The  "as  adjusted"  data excludes the amortization expense (net of the
tax  effect)  recognized  in the periods prior to 2002 and the implementation of
Statement of Financial Accounting Standards No. 142 related to the goodwill that
is  no  longer  being  amortized.  See  further  discussion  in  "Management's
Discussion  and  Analysis  of  Financial  Condition  and Results of Operations -
General."

(12)     Ratio,  yield and rate information is based on average balances for the
year.

(13)     Net  interest  margin represents net interest income as a percentage of
average  interest-earning  assets.  Interest  rate  spread  including
noninterest-bearing  deposits  represents  the  difference  between the weighted
average  yield  on  interest-earning  assets  and  the  weighted average rate on
interest-bearing  liabilities  and  noninterest-bearing deposits.  Interest rate
spread  represents  the  difference  between  the  weighted  average  yield  on
interest-earning  assets  and  the  weighted  average  rate  on interest-bearing
liabilities.

(14)     Nonperforming assets consist of nonaccrual loans, loans greater than 90
days  delinquent  and  still  accruing,  real estate acquired by foreclosure and
repossessed  assets.

(15)     Current  capital  adequacy FDIC regulations require Coastal Banc ssb to
maintain  Tier  1  capital  equal  to  at  least  4.0%  of  total assets, Tier 1
risk-based  capital  equal  to  at  least 4.0% of risk-weighted assets and total
risk-based  capital  equal  to  at  least  8.0%  of  risk-weighted  assets.

<PAGE>
COASTAL  BANCORP,  INC.  AND  SUBSIDIARIES
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS

GENERAL
     Coastal  Bancorp,  Inc.  ("Bancorp")  through  its wholly-owned subsidiary,
HoCo,  owns  100 percent of the voting stock of Coastal Banc ssb (the "Bank"), a
Texas-chartered,  FDIC  insured, state savings bank.  The consolidated financial
statements  included  herein include the accounts of Bancorp, HoCo, the Bank and
subsidiaries  of  both  HoCo  and  the  Bank  (collectively known as "Coastal").
     In  late November 2001, to strategically restructure a portion of its asset
base  to  make  it less vulnerable to market interest rate fluctuations, Coastal
completed  the  sale  of  approximately  $845  million  of  its  mortgage-backed
securities  and  recorded  a gain of $169,000.  Coastal decided to undertake the
sale as the then current market environment presented an opportunity for Coastal
to  sell  its  large  mortgage-backed securities portfolio.  The majority of the
securities  sold  were  Collateralized Mortgage Obligations ("CMOs") tied to the
FHLB  11th  District  Cost  of Funds Index ("COFI") and, due to their relatively
long  maturities,  contained  extension  risk  which  caused, on average, higher
levels  of  price  volatility.  Also in November 2001, Coastal used a portion of
the  proceeds  of  the  sale to purchase approximately $512 million of primarily
pass-thru  mortgage-backed securities with an overall shorter expected duration.
Coastal  reduced  borrowings  with  the remainder of the proceeds from the sale.
All  the  securities purchased and the remaining securities not sold were placed
in  the available-for-sale category.  A consequence of this 2001 securities sale
is  that  any  securities  purchased  by Coastal for approximately two years are
required  to  be  placed  in  either the available-for-sale or trading category.
     Statement  of  Financial  Accounting  Standards  No.  141,  "Business
Combinations"  ("Statement 141") and Statement of Financial Accounting Standards
No.  142, "Goodwill and Other Intangible Assets ("Statement 142") were issued in
July  2001.  Statement  141  required,  effective  January 1, 2002, that Coastal
evaluate  its  existing  intangible  assets  and goodwill and make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition  apart  from  goodwill.  Statement  141  also  required that Coastal
reclassify  amounts  originally  recorded  as  goodwill pursuant to Statement of
Financial  Accounting  Standards No. 72, "Accounting for Certain Acquisitions of
Banking  or Thrift Institutions" ("Statement 72") to other intangible assets, as
those  amounts,  under  Statement  142, were not subject to the non-amortization
provisions.  As  of  January  1, 2002, Coastal had unamortized goodwill that was
subject  to  the  non-amortization  provisions of Statements 141 and 142 of $5.5
million.  As  of  that  same  date,  Coastal reclassified $16.3 million to other
intangible  assets  and  continued  to  amortize  these  amounts  in  2002.
     On  October  1,  2002,  Statement  of  Accounting  Standards  No.  147,
"Acquisitions  of  Certain Financial Institutions" ("Statement 147") was issued.
Statement  147 amended Statement 72, to exclude from its scope, the acquisitions
of  financial  institutions  (other than transactions between two or more mutual
enterprises)  and  provide certain transition provisions for existing intangible
assets.  Under Statement 147 transition provisions, if the transaction that gave
rise  to  an  unidentifiable  other  intangible  asset was considered a business
combination,  the  carrying amount of that asset amount would be reclassified to
goodwill  and  be subject to the non-amortization provisions as of the effective
date of the implementation of Statement 142, which in Coastal's case was January
1, 2002.  Based on the implementation of Statement 147, Coastal has reclassified
as of January 1, 2002, the $16.3 million mentioned above to goodwill and removed
the  amortization  expense  recorded  in  2002,  through restatement of its 2002
financial  statements  as  required by Statement 147.  Coastal implemented these
statements  effective  January  1,  2002.
     In  connection  with  the  adoption of these statements, Coastal tested for
impairment  in  accordance with the provisions of Statement 142 during the first
quarter  of 2002 and did not recognize any transitional impairment losses as the
cumulative  effect  of  a  change  in  accounting  principle  during the period.
     On  February  1,  2002,  Coastal redeemed all of the remaining Senior Notes
payable  outstanding  ($43.9  million)  at  par  plus  accrued  interest  to the
redemption  date.
     On  June 18, 2002, Coastal, through Coastal Capital Trust I (a consolidated
trust  subsidiary)  (the  "Trust"),  issued 2,000,000 trust preferred securities
("Trust  Preferred  Securities")  with  a  liquidation  preference  of  $25  per
security.  The  Trust  Preferred  Securities  represent an interest in Bancorp's
junior  subordinated  debentures, which were purchased by the Trust.  The junior
subordinated  debentures  are the only assets of the Trust and interest payments
from  the  debentures  finance  the  distributions  paid  on the Trust Preferred
Securities.  Distributions on the securities are payable quarterly at the annual
rate of 9.0% and are included in interest expense in the consolidated statements
of  income.  The  Trust Preferred Securities are subject to mandatory redemption
at the liquidation preference, in whole or in part, upon repayment of the junior
subordinated  debentures  at  maturity  or their earlier redemption.  The junior
subordinated  debentures  are  redeemable prior to the maturity date of June 30,
2032,  at  the option of Bancorp on or after June 30, 2007, in whole at any time
or  in  part  from  time  to  time.  The junior subordinated debentures are also
redeemable  at  any  time,  in  whole,  but  not in part, upon the occurrence of
specific  events  defined within the trust indenture.  Bancorp has the option to
defer  distributions on the junior subordinated debentures from time to time for
a  period  not  to  exceed  20  consecutive  quarters.
     A  portion  of  the  proceeds  from  the  issuance  of  the Trust Preferred
Securities  were  used  to  repurchase  500,000 shares of common stock for $15.0
million  from a director of Coastal in June 2002.  In addition, $28.8 million of
the  proceeds  were  used  on  July 15, 2002, to redeem the Bank's 9.0% Series A
Noncumulative  Preferred  Stock (Nasdaq:CBSAP) through a capital contribution to
Coastal  Banc  ssb.
     On  August  27, 1998, December 21, 1998, February 25, 1999, April 27, 2000,
July 27, 2000 and April 25, 2002, the Board of Directors authorized six separate
repurchase  plans  for  up  to  500,000 shares each of the outstanding shares of
common  stock through an open market repurchase program and privately negotiated
repurchases,  if  any.  As of December 31, 2002, a total of 2,729,575 shares had
been  repurchased  under  all  of  the  authorized  repurchase  plans.
     As  of  December  31,  2002,  2,726,019  shares were held in treasury at an
average  repurchase price of $19.45 per share for a total cost of $53.0 million.

FINANCIAL  CONDITION
     During  the  fourth  quarter  of 2002, Coastal sold five of its branches in
Central  Texas  (located  in  Llano,  Burnet, Mason, Kingsland and Marble Falls,
Texas) to First State Bank Central Texas.  The sale included deposit accounts of
$75.3  million  and  resulted  in a gain of $4.4 million.  The branches sold had
limited  growth  potential for Coastal.  Coastal continually monitors the market
and  performance  of  its  branch network and opens, purchases or sells branches
based  on  this  analysis.
     During  2002, Coastal's management made the decision to liquidate a portion
of  its  loan  receivable portfolio through sales to third party investors.  The
first sale was in March 2002 when Coastal sold $10.8 million of under-performing
mortgage loans.  Prior to the sale, Coastal wrote those loans down to fair value
and  recorded  a  charge-off  to  the allowance for loan losses of $761,000.  In
addition,  as  of  March  31,  2002,  Coastal  wrote  down  to  fair  value  and
reclassified $9.1 million of other under-performing single-family mortgage loans
to the held for sale category.  The loans that were reclassified to the held for
sale  category  were  written  down to fair value as of March 31, 2002 through a
charge-off  to  the  allowance  for  loan losses of $691,000.  During the second
quarter  of  2002,  a total of $3.1 million of these under-performing loans held
for  sale  were sold to the same third party investor.  As of December 31, 2002,
Coastal had reclassified the remaining $3.0 million of these loans held for sale
back  to  the  loans  receivable  portfolio  at  their  current  carrying value.
     The second sale was in the fourth quarter of 2002 when Coastal entered into
an  agreement  with  a  third  party  to  sell  approximately  $77.0  million of
single-family  mortgage  loans.  As of December 31, 2002, $74.4 million of these
loans  had  been  sold,  $70.1 million of which were sold servicing retained and
$4.3  million  (which  were  considered nonperforming loans) were sold servicing
released.  The remaining $2.6 million, which are under a contract for sale, were
reclassified  to the held for sale category at December 31, 2002.  In connection
with  this  sale and the reclassification of the remaining loans to the held for
sale category, the loans were written down to fair value through a charge-off to
the allowance for loan losses of $309,000.  In addition, Coastal recorded a gain
of  $359,000  on  the  sale  of these loans as a result of Coastal recording the
estimated  fair  value  of  the  mortgage  servicing  rights  retained.
     Overall  during  2002,  total assets decreased $71.7 million, or 2.8%, when
comparing  December  31, 2001 to December 31, 2002.  This decrease was primarily
comprised  of  a  $50.8  million  decrease  in loans receivable, a $39.0 million
decrease  in  mortgage-backed  securities available-for-sale and a $41.0 million
decrease  in  other securities available-for-sale.  A primary contributor to the
decrease  in  both  loans  receivable  and  mortgage-backed  securities
available-for-sale  was  the  continuing higher than expected principal paydowns
received  as  a consequence of the extraordinary high levels of refinancings due
to  the low interest rate environment during 2002.  In addition to the principal
paydowns,  the  decrease  in loans receivable was due to the loan sales totaling
$85.2  million  mentioned  previously, offset by single-family loan purchases of
$421.4 million during 2002.  The decrease in other securities available-for-sale
was  due  to the maturity of one security during the year.  These decreases were
somewhat  offset  by  an  increase  in  loans  receivable held for sale of $49.9
million.  This  was  due to one loan package purchased in November 2002 with the
intent  to sell the package to third party investors by the end of January 2003.
There  were  smaller  changes  in  other  asset categories as follows:  an $11.0
million  increase  in  Federal  funds  sold,  a $2.8 million increase in prepaid
expenses  and  other  assets  and  a $1.2 million increase in stock in the FHLB,
offset  by  a $1.8 million decrease in cash and cash equivalents, a $3.5 million
decrease  in  accrued  interest  receivable, a $120,000 decrease in property and
equipment  and a $382,000 decrease in goodwill.     The decrease in goodwill was
related  to  the  sale  of the five Central Texas branches mentioned previously.
     Deposits  decreased  by  2.8%,  or $46.0 million, from December 31, 2001 to
December  31,  2002 and advances from the FHLB increased 0.75%, or $5.2 million.
The  decrease  in  deposits  was  due  to  the  branch  sale in December 2002 as
discussed  previously,  offset by deposit inflows resulting from Coastal's focus
on  increasing  transaction  accounts  and other changes in deposits. Also noted
previously  was  the  redemption  of the $43.9 million of Coastal's 10.0% Senior
Notes  payable  in  February  2002,  the  issuance  of  the  $50.0 million Trust
Preferred Securities in June 2002 and the $28.8 million redemption of the Bank's
9.0%  Series  A  Noncumulative  Preferred  Stock  in July 2002. Other changes in
liabilities  included  a  $1.9  million  decrease in advances from borrowers for
taxes and insurance and a $1.9 million decrease in other liabilities and accrued
expenses.
     Stockholders'  equity  decreased  2.9%,  or $4.5 million, from December 31,
2001  to  December  31,  2002  as  a  result  of  $21.8  million in common stock
repurchased  during  2002,  common stock dividends of $2.6 million and preferred
stock  dividends  of  $2.5  million, somewhat offset by 2002 net income of $19.7
million,  common  stock  issued of $326,000 due to the exercise of stock options
and  a  $2.2  million  change  in  accumulated  other comprehensive gain (loss).

RESULTS  OF  OPERATIONS  FOR  THE  THREE  YEARS  ENDED  DECEMBER  31,  2002
     The  results  of operations of Coastal depend primarily on its net interest
income,  which  is  the  difference  between interest income on interest-earning
assets  and  interest  expense  on  interest-bearing  liabilities.  Coastal's
interest-earning assets consist principally of loans receivable, mortgage-backed
securities  and  other investments.  Coastal's interest-bearing liabilities have
consisted  primarily  of deposits, advances from the FHLB, securities sold under
agreements  to  repurchase,  federal funds purchased, Trust Preferred Securities
and  its  Senior  Notes  payable.  Coastal's  net income is also affected by the
level  of  the  provision for loan losses, noninterest income, including service
charges on deposit accounts, loan fees, loan servicing income and gains on sales
of  assets,  as  well  as by its noninterest expense, including compensation and
benefits  and  occupancy  costs.
     The following table sets forth, for the periods and at the dates indicated,
information  regarding  Coastal's  average  consolidated statements of financial
condition.  Ratio,  yield  and rate information is based on average balances for
the  year.

<PAGE>

<TABLE>
<CAPTION>

<S>                                                     <C>                     <C>                            <C>        <C>
                                                                  At                      Year Ended December 31, 2002
                                                          December 31, 2002               Average                  Yield/
                                                              Yield/Rate                  Balance      Interest     Rate
                                                        ----------------------         -------------  ---------   -------
                                                                                         (Dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivable (1)                                                     5.52%     $       1,931,931  $ 118,970    6.16%
Mortgage-backed securities                                               3.37                467,744     17,114    3.66
Other securities                                                         2.29                  8,242        172    2.09
Federal funds sold                                                       1.13                  9,337        151    1.62
FHLB stock (2)                                                           2.75                 40,491      1,188    2.93
Other                                                                    1.27                  1,776         28    1.58
                                                                        ------        --------------   --------   ------
   Total interest-earning assets                                         4.99              2,459,521    137,623    5.60
Noninterest-earning assets (3)                                          -----                 90,900   --------   ------
                                                                                           ---------
   Total assets                                                                    $       2,550,421
                                                                                           =========

LIABILITIES AND  STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits                                                2.39%     $       1,477,648  $  39,825    2.70%
Advances from the FHLB                                                   2.71                683,454     20,173    2.95
Securities sold under agreements to repurchase
 and federal funds purchased                                               --                     --         --      --
Trust Preferred Securities of Coastal Capital Trust I                    9.00                 26,986      2,400    9.00
Senior Notes payable                                                       --                  3,726        378   10.00
                                                                        ------        --------------   --------   -----
   Total interest-bearing liabilities                                    2.64              2,191,814     62,776    2.86
Noninterest-bearing liabilities                                         ------               190,260   --------   -----
                                                                                            --------
   Total liabilities                                                                       2,382,074
                                                                                         -----------
Minority interest - preferred stock of Coastal
 Banc ssb                                                                                     15,359
Preferred stockholders' equity                                                                27,500
Common stockholders' equity                                                                  125,488
                                                                                            --------
   Total liabilities and stockholders' equity                                     $        2,550,421
                                                                                           =========
Net interest income; interest rate spread                                2.35%                        $  74,847   2.74%
Net interest-earning assets; net interest yield on                      ======                        =========   =====
 interest-earning assets                                                          $          267,707              3.04%
Ratio of average interest-earning assets to average                                        =========              =====
 interest-bearing liabilities                                                                  1.12x
                                                                                           =========
</TABLE>
_______________

(1)     Nonaccruing  loans  are  included  in  total  loans, but are immaterial.
(2)     In 2000, includes a $1.1 million special dividend received.  See further
discussion  in  "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations  -  Net  Income."
(3)     Includes  goodwill, accrued interest receivable, property and equipment,
cash,  prepaid  expenses  and  other  assets.

<PAGE>

<TABLE>
<CAPTION>

<S>                                                     <C>                             <C>        <C>
                                                                       Year Ended December 31, 2001
                                                                     Average                       Yield/
                                                                     Balance            Interest    Rate
                                                        ------------------------------  ---------  -------
                                                                        (Dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivable (1)                                    $                    1,942,701  $ 155,214    7.99%
Mortgage-backed securities                                                     905,441     52,873    5.84
Other securities                                                                 6,690        176    2.63
Federal funds sold                                                               7,776        266    3.42
FHLB stock (2)                                                                  45,700      1,960    4.29
Other                                                                            3,017        123    4.08
                                                        ------------------------------    -------    -----
   Total interest-earning assets                                             2,911,325    210,612    7.23
Noninterest-earning assets (3)                                                  98,487    -------    -----
                                                        ------------------------------
   Total assets                                         $                    3,009,812
                                                        ==============================

LIABILITIES AND  STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits                               $                    1,531,004  $  69,828    4.56%
Advances from the FHLB                                                         795,009     38,917    4.90
Securities sold under agreements to repurchase
 and federal funds purchased                                                   283,622     10,682    3.77
Trust Preferred Securities of Coastal Capital Trust I                               --         --      --
Senior Notes payable                                                            45,868      4,588   10.00
                                                        ------------------------------    -------   -----
   Total interest-bearing liabilities                                        2,655,503    124,015    4.67
Noninterest-bearing liabilities                                                176,861    -------   -----
                                                        ------------------------------
   Total liabilities                                                         2,832,364
Minority interest - preferred stock of Coastal
 Banc ssb                                                                       28,750
Preferred stockholders' equity                                                  27,500
Common stockholders' equity                                                    121,198
                                                        ------------------------------
   Total liabilities and stockholders' equity           $                    3,009,812
                                                        ==============================
Net interest income; interest rate spread                                               $  86,597    2.56%
Net interest-earning assets; net interest yield on                                       ========    =====
 interest-earning assets                                $                      255,822               2.97%
                                                        ==============================               =====
Ratio of average interest-earning assets to average
 interest-bearing liabilities                                                    1.10x
                                                        ==============================
</TABLE>
_______________

(1)     Nonaccruing  loans  are  included  in  total  loans, but are immaterial.
(2)     In 2000, includes a $1.1 million special dividend received.  See further
discussion  in  "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations  -  Net  Income."
(3)     Includes  goodwill, accrued interest receivable, property and equipment,
cash,  prepaid  expenses  and  other  assets.

<PAGE>

<TABLE>
<CAPTION>

<S>                                                     <C>                             <C>        <C>
                                                                        Year Ended December 31, 2000
                                                                   Average                          Yield/
                                                                   Balance               Interest    Rate
                                                        ------------------------------  ---------  -------
                                                                         (Dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivable (1)                                    $                    1,881,124  $ 168,105    8.94%
Mortgage-backed securities                                                   1,002,055     64,246    6.41
Other securities                                                                 1,000         63    6.30
Federal funds sold                                                               3,042        194    6.38
FHLB stock (2)                                                                  55,810      4,612    8.26
Other                                                                              895         53    5.92
                                                        ------------------------------    -------    -----
   Total interest-earning assets                                             2,943,926    237,273    8.06
Noninterest-earning assets (3)                                                 100,626    -------    -----
                                                        ------------------------------
   Total assets                                         $                    3,044,552
                                                        ==============================

LIABILITIES AND  STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits                               $                    1,489,479  $  73,216    4.92%
Advances from the FHLB                                                         926,659     58,328    6.29
Securities sold under agreements to repurchase
    and federal funds purchased                                                249,673     16,671    6.68
Trust Preferred Securities of Coastal Capital Trust I                               --         --      --
Senior Notes payable                                                            46,900      4,690   10.00
                                                        ------------------------------    -------    -----
   Total interest-bearing liabilities                                        2,712,711    152,905    5.64
Noninterest-bearing liabilities                                                170,083    -------    -----
                                                        ------------------------------
   Total liabilities                                                         2,882,794
Minority interest - preferred stock of Coastal
 Banc ssb                                                                       28,750
Preferred stockholders' equity                                                  27,500
Common stockholders' equity                                                    105,508
                                                        ------------------------------
   Total liabilities and stockholders' equity           $                    3,044,552
                                                        ==============================
Net interest income; interest rate spread                                               $  84,368    2.42%
                                                                                         ========    =====
Net interest-earning assets; net interest yield on
 interest-earning assets                                $                      231,215               2.87%
                                                        ==============================               =====
Ratio of average interest-earning assets to average
 interest-bearing liabilities                                                    1.09x
                                                        ==============================
</TABLE>
_______________

(1)     Nonaccruing  loans  are  included  in  total  loans, but are immaterial.
(2)     In 2000, includes a $1.1 million special dividend received.  See further
discussion  in  "Management's Discussion and Analysis of Financial Condition and
Results  of  Operations  -  Net  Income."
(3)     Includes  goodwill, accrued interest receivable, property and equipment,
cash,  prepaid  expenses  and  other  assets.


<PAGE>
     The following table analyzes net interest income in terms of changes in the
volume  of  interest-earning assets and interest-bearing liabilities and changes
in  yields  and  rates.  The  table  reflects  the  extent  to  which changes in
Coastal's  interest  income  and interest expense are attributable to changes in
volume  (change  in  volume  multiplied  by prior year rate) and changes in rate
(changes  in rate multiplied by prior year volume).  Changes attributable to the
combined  impact  of  volume  and  rate  have  been allocated proportionately to
changes  due  to  volume  and  changes  due  to  rate.

<TABLE>

<CAPTION>

                                                                     Year  Ended  December  31,
                                                ------------------------------------------------------------------
                                                        2002  vs  2001                     2001  vs  2000
                                                 Increase  (Decrease)  Due  To     Increase  (Decrease)  Due  To
                                                ------------------------------     -------------------------------
                                                    Volume       Rate         Net      Volume      Rate       Net
                                                 -----------   --------   ---------  ---------  --------  --------
                                                                           (In  thousands)
<S>                                                <C>        <C>        <C>        <C>        <C>          <C>
INTEREST INCOME
 Loans receivable                                   $   (857)  $(35,387)  $(36,244)  $ 5,381   $(18,272)  $(12,891)
 Mortgage-backed securities                          (20,177)   (15,582)   (35,759)   (5,916)    (5,457)   (11,373)
 Other securities                                         36        (40)        (4)      169        (56)       113
 Federal funds sold                                       45       (160)      (115)      194       (122)        72
 FHLB stock (1)                                         (204)      (568)      (772)     (726)    (1,926)    (2,652)
 Other                                                   (38)       (57)       (95)      102        (32)        70
                                                    ---------  ---------  ---------  --------  ---------  --------
     Total                                           (21,195)   (51,794)   (72,989)     (796)   (25,865)   (26,661)
                                                    ---------  ---------  ---------  --------  ---------  ---------

INTEREST EXPENSE
 Interest-bearing deposits                            (2,362)   (27,641)   (30,003)    2,024     (5,412)    (3,388)
 Securities sold under agreements to
  repurchase and federal funds
  purchased                                           (5,341)    (5,341)   (10,682)    2,032     (8,021)    (5,989)
 Advances from the FHLB                               (4,886)   (13,858)   (18,744)   (7,596)   (11,815)   (19,411)
 Trust Preferred Securities
  of Coastal Capital Trust I                           1,200      1,200      2,400        --         --         --
 Senior Notes payable                                 (4,210)        --     (4,210)     (102)        --       (102)
                                                    ---------  ---------  ---------  --------  ---------   --------
     Total                                           (15,599)   (45,640)   (61,239)   (3,642)   (25,248)   (28,890)
                                                    ---------  ---------  ---------  --------  ---------   --------
 Net change in net interest income                  $ (5,596)  $ (6,154)  $(11,750)  $ 2,846   $   (617) $   2,229
                                                    =========  =========  =========  ========  =========   ========

</TABLE>
_______________

(1)      In  2000,  includes  a  $1.1  million  special  dividend received.  See
further  discussion  in  "Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations  -  Net  Income."

<PAGE>
NET  INCOME
     Coastal  reported  net  income of $19.7 million for the year ended December
31,  2002,  $21.8 million for the year ended December 31, 2001 and $19.9 million
for  the  year  ended  December 31, 2000.  When comparing net income for 2002 to
2001,  the  primary  contributor to the decrease in net income was decreased net
interest income.  Net interest income decreased $11.8 million from 2001 to 2002,
as  a  result  of Coastal's smaller asset size as compared to 2001, lower market
interest  rates  and  record  high  principal  paydowns  received  on  Coastal's
mortgage-backed  securities  and  mortgage  loan portfolios.  In addition to the
decreased  net  interest  income,  the  provision for loan losses increased $1.9
million  due  to  management's  reevaluation  of  the overall allowance for loan
losses  given  the  changes  that have occurred within the mix of Coastal's loan
portfolio,  current  economic  conditions and the decision in 2002 to sell loans
which  resulted  in charge-offs totaling $1.8 million to writedown such loans to
fair  value,  in addition to specific loans in the portfolio that have warranted
greater  attention  and  specific  allocations of the allowance for loan losses.
These  decreases  to  net  income  were  only  somewhat offset by a $6.1 million
increase  in noninterest income, a $2.6 million decrease in noninterest expense,
a  $1.7  million  decrease  in the provision for Federal income taxes and a $1.1
million decrease in the expense for minority interest (preferred stock dividends
of  Coastal  Banc ssb) due to the redemption of the preferred stock during 2002.
The increase in noninterest income was primarily due to the $4.4 million gain on
the sale of the five Central Texas branches and the $359,000 gain on the sale of
the  group  of  loans  with  servicing  rights  retained during the period.  The
increase  is  also  due to a $2.1 million increase in service charges on deposit
accounts  and the $422,000 fair value loss on derivative instruments recorded in
2001  (compared  to a $12,000 fair value loss recorded during 2002), offset by a
$702,000  decrease  in  the  gain  on  the sale of real estate owned and various
smaller  changes  in  other  categories  of noninterest income.  The decrease in
noninterest  expense  was  primarily  due  to  the  $2.8 million decrease in the
amortization of goodwill as discussed earlier.  In addition, Coastal experienced
decreases  of $869,000 and $1.3 million in office occupancy and data processing,
respectively.  These  decreases  were  partially  offset  by an increase of $1.1
million  in  compensation, payroll taxes and other benefits, a $519,000 increase
in  advertising expense, a $153,000 increase in postage and delivery expense and
a $599,000 increase in other noninterest expense.  The decrease in the provision
for  Federal  income taxes was due to the decreased income before Federal income
taxes,  minority  interest  and  cumulative  effect  of  accounting  change.

     When  comparing  net income for 2001 to 2000, the increase was comprised of
the  following:  a  $2.2 million increase in net interest income, a $1.9 million
decrease  in  the  provision  for  loan  losses,  somewhat  offset by a $881,000
decrease in noninterest income, a $284,000 increase in noninterest expense and a
$972,000  increase  in  the provision for Federal income taxes.  The increase in
net  interest income was due primarily to the increase in net interest margin to
2.97% for the year ended December 31, 2001 from 2.87% for 2000, which included a
FHLB  special  dividend of $1.1 million in 2000.  Net interest margin, excluding
the  FHLB special dividend, was 2.83% for the year ended December 31, 2000.  The
decrease in the provision for loan losses when comparing 2001 to 2000 was due to
management's  quarterly  evaluation  of the allowance for loan losses throughout
2001  and  a  belief  that  the  allowance  at  December  31,  2001 was adequate
considering  the  composition  of  the  loans receivable portfolio, the existing
nonperforming  loans,  historical  and  peer  group loss experience, delinquency
trends  and current economic conditions.  The decrease in noninterest income was
primarily  due  to  the  $2.2  million  gain  recorded  on the sale of Coastal's
mortgage  servicing  rights  in  2000,  offset by a $838,000 increase in service
charges on deposit accounts, a $621,000 increase in the gain on the sale of real
estate  owned, in addition to smaller changes in other categories of noninterest
income.  The  increase in noninterest expense was due to a $1.6 million increase
in  compensation,  payroll  taxes  and  other  benefits,  partially  offset by a
decrease of $84,000 in office occupancy, a $317,000 decrease in data processing,
a  $225,000  decrease in the amortization of goodwill and a decrease of $688,000
in  other noninterest expense.  The increase in the provision for Federal income
taxes  was  due  to  the  increased income before Federal income taxes, minority
interest  and  cumulative  effect  of  accounting  change.


NET  INTEREST  INCOME
     Net interest income amounted to $74.8 million in 2002, an $11.8 million, or
13.6% decrease from 2001.  The decrease in net interest income was primarily due
to Coastal's smaller average asset size, the loan sales mentioned previously and
continuing  higher  than  expected  principal  payments  received  on  Coastal's
mortgage-backed securities and mortgage loan portfolios.  When comparing 2002 to
2001,  average  interest-earning assets decreased $451.8 million, $437.7 million
of  which  was  the  decrease in mortgage-backed securities primarily due to the
2001  restructuring  mentioned previously.  In addition, during 2002, due to the
extraordinary  levels  of  prepayments  due  to  refinancings of home mortgages,
Coastal  experienced  higher  principal  paydowns  totaling  approximately  $152
million  on  its  mortgage-backed  securities  portfolio and $342 million on its
mortgage  loan  portfolio  during  the  year.

     Net  interest  margin  increased  to  3.04%  in  2002  from  2.97% in 2001.
Interest  rate spread, defined to exclude noninterest-bearing deposits increased
to  2.74% in 2002 from 2.56% in 2001.  Management also calculates an alternative
interest  rate  spread  which includes noninterest-bearing deposits.  Under this
calculation,  the  interest rate spreads for 2002 and 2001 were 2.94% and 2.81%,
respectively.  Net  interest margin and interest rate spread are affected by the
changes  in  the  amount  and  composition  of  interest-earning  assets  and
interest-bearing  liabilities, in addition to changes in the applicable interest
rates  on  those  assets  and  liabilities.

     Net  interest  income amounted to $86.6 million in 2001, a $2.2 million, or
2.6%, increase over 2000.  The increase in net interest income was primarily due
to  the  increase in net interest margin to 2.97% in 2001 from 2.87% in 2000 and
an  increase  in  interest  rate  spread, defined to exclude noninterest-bearing
deposits,  to  2.56%  in  2001  from  2.42%  in  2000.  In  addition,  net
interest-earning  assets  increased  by  $24.6  million  in  2001  from  2000.
Management  also  calculates  an alternative interest rate spread which includes
noninterest-bearing deposits.  Under this calculation, the interest rate spreads
for  2001  and 2000 were 2.81% and 2.71%, respectively.  Net interest margin and
interest  rate  spread are affected by the changes in the amount and composition
of  interest-earning  assets  and  interest-bearing  liabilities, in addition to
changes  in  the applicable interest rates on those assets and liabilities.  The
overall  increase  in  net  interest  margin and spread was primarily due to the
0.97%  decrease  in  the average rate paid on interest-bearing liabilities, only
partially  offset  by  a  0.83%  decrease  in  the  average  rate  received  on
interest-earning  assets.

     Total  interest  income  amounted  to  $137.6  million during 2002, a $73.0
million,  or 34.7% decrease from 2001.  This decrease was due to the decrease in
average  interest-earning assets of $451.8 million and a decrease in the average
yield  on  those  assets  of  1.63%.  As  discussed  previously, the decrease in
average  interest-earning  assets  was  due to the restructuring in 2001 and the
high  levels  of  principal  paydowns  received  on  Coastal's  mortgage-backed
securities  and mortgage loans during the year.  When comparing the two periods,
the  average  balance of mortgage-backed securities decreased $437.7 million and
the  average  balance  of loans receivable decreased $10.8 million.  The average
yield  on  loans  receivable  decreased  1.83%  and  the  average  yield  on
mortgage-backed securities decreased 2.18%.  The decrease in the overall average
yield  on  interest-earning  assets was due to continuing declining market rates
throughout  2002.

     Total  interest  income  amounted  to  $210.6  million during 2001, a $26.7
million,  or  11.2%,  decrease  from  2000 (which includes the $1.1 million FHLB
special  dividend  received  in  2000).  The  decrease  was due to a decrease in
average  interest-earning  assets of $32.6 million and a decrease in the average
yield  of  0.83%.  The  decrease  in average interest-earning assets was due, in
part,  to  the decrease in Coastal's asset size as a result of the restructuring
of  Coastal's  asset  base  in late November 2001 as previously described.  When
comparing  the  two  periods,  the average balance of mortgage-backed securities
decreased $96.6 million due to the restructuring and principal payments received
throughout 2001.  In addition, the average balance of FHLB stock decreased $10.1
million  due  to  the  decreased  amounts required to be maintained based on the
decreased  level  of  FHLB advances outstanding.  These decreases were partially
offset  by  a  $61.6 million increase in the average balance of loans receivable
and  smaller  increases in other interest-earning asset categories.  The average
yield  on  loans  receivable  decreased  0.95%  and  the  average  yield  on
mortgage-backed  securities  decreased  0.57%  when  comparing  the  year  ended
December  31,  2001  to  December 31, 2000.  The decrease in the overall average
yield  was  due  to  the  declining  market  rates  during  2001.

     Total  interest expense amounted to $62.8 million in 2002, a $61.2 million,
or  49.4%  decrease  from 2001.  The decrease in interest expense was due to the
$463.7  million  decrease in the average balance of interest-bearing liabilities
and  a  1.81%  decrease  in  the  average  rate paid on those liabilities.  When
comparing  2002  to 2001, average securities sold under agreements to repurchase
decreased  $283.6  million,  average  FHLB advances decreased $111.6 million and
average  interest-bearing deposits decreased $53.4 million.  The average balance
of  Senior  Notes  payable  decreased  $42.1  million due to their repurchase on
February 1, 2002 and the average balance of Trust Preferred Securities increased
$27.0  million  due to their issuance on June 18, 2002.  The overall decrease in
the  average  rate paid on interest-bearing liabilities was due to the continued
declining  wholesale  funding and deposit costs because of the decline in market
interest  rates  throughout  2002.

     Total interest expense amounted to $124.0 million in 2001, a $28.9 million,
or  18.9%,  decrease  from  2000.  The  decrease  in  interest  expense  was due
primarily  to  a  0.97%  decrease  in  the average rate paid on interest-bearing
liabilities  and  a  slight decrease in the average balance of those liabilities
during  2001  when  compared  to 2000.  The overall decrease in the average rate
paid  on  interest-bearing  liabilities  was  due to lower wholesale funding and
deposit costs because of the decline in market interest rates during 2001.  When
comparing  2001 to 2000, average FHLB advances decreased $131.7 million with the
average  rate  decreasing  by 1.39%, average interest-bearing deposits increased
$41.5  million  and  the  average  rate on those deposits decreased by 0.36% and
average  securities  sold  under  agreements  to  repurchase  and  federal funds
purchased  increased  $34.0 million with the average rate decreasing 2.91%.  The
decrease in interest expense on Senior Notes payable was due to the $1.0 million
decrease  in  the  average  balance  as  a  result  of  repurchases.

PROVISION  FOR  LOAN  LOSSES  AND  THE  ALLOWANCE  FOR  LOAN  LOSSES  - CRITICAL
ACCOUNTING  POLICY
     Management  analyzes  the  loan  portfolio to determine the adequacy of the
allowance  for loan losses and the appropriate provision required to maintain an
adequate  allowance.  Estimating  the  allowance  for  loan losses is a critical
accounting  policy.  It  is subjective in nature and requires material estimates
that  may  be  subject  to  revision  as  facts  and  circumstances warrant.  In
assessing  the  adequacy  of  the  allowance, management reviews the type, size,
quality  and  risk  of  loans  in  the  portfolio  and considers such factors as
specific  known  risks,  historical  and  peer  group  experience,  the existing
nonperforming  loans and the underlying collateral value on those loans, general
economic  conditions, particularly as they relate to Coastal's lending areas and
other  factors related to the collectibility of Coastal's loan portfolio.  Based
on  the ongoing assessment by management, provisions for loan losses are charged
to  earnings  to  bring  the  total  allowance for loan losses to a level deemed
appropriate by management based on probable losses in the loan portfolio.  While
management  uses  the  best  information available to recognize losses on loans,
there  can  be  no  assurance that future additions to the allowance will not be
necessary.

     For  the  years  ended  December 31, 2002, 2001 and 2000, the provision for
loan  losses was $5.8 million, $3.9 million and $5.8 million, respectively.  The
changes in the provision for loan losses, when comparing the periods, are due to
management's  continuing  evaluation  of  the overall allowance for loan losses.
The  increase in the provision for loan losses in 2002 (in the fourth quarter of
2002)  was  due  to  management's  reevaluation of the allowance for loan losses
given the changes that have occurred within the mix of Coastal's loan portfolio,
current  economic  conditions  and  the  decision  in  2002  to sell loans which
resulted  in  charge-offs  totaling $1.8 million to writedown such loans to fair
value,  in  addition  to  certain  specific  loans  in  the  portfolio that have
warranted  greater  attention and specific allocations of the allowance for loan
losses.  While  management  believes  that  it  has adequately provided for loan
losses  and that the allowance for loan losses is adequate at December 31, 2002,
it  will  continue  to  monitor  the  loan portfolio and make adjustments to its
allowance  for  loan  losses  as  it  considers  necessary.

     Nonperforming  loans  are those loans on nonaccrual status as well as those
loans  greater than ninety (90) days delinquent and still accruing interest.  At
December  31,  2002,  Coastal's  nonperforming loans decreased, when compared to
December  31, 2001, by $6.2 million or 25.0%, to $18.5 million.  The decrease in
nonperforming  loans  is mainly due to Coastal's decision to liquidate a portion
of its single-family mortgage loan portfolio during 2002 through two loan sales.
As  discussed  previously,  the  first loan sale was in March  2002 when Coastal
sold  $10.8 million of its under-performing loans (some of which were considered
nonperforming)  to a third party investor.  The second sale was in December 2002
when  Coastal  sold  $4.3 million of nonperforming loans.  At December 31, 2002,
2001  and  2000,  Coastal  had  nonperforming  loans  as  follows:

<PAGE>

<TABLE>

<CAPTION>



<S>                                              <C>              <C>      <C>
                                                               December 31,
                                                              ---------------
                                                         2002      2001     2000
                                                 ---------------  -------  -------
                                                             (In thousands)
Nonaccrual loans receivable:
 First lien residential                          $         9,184  $21,744  $16,062
 Residential construction                                     49      218      390
 Multifamily real estate                                      --       82       --
 Commercial real estate                                    1,323    1,174    1,134
 Acquisition and development                               5,485        6       --
 Commercial, financial and industrial                      1,609      499    1,152
 Consumer and other                                          128      141      496
                                                ----------------  -------  -------
                                                          17,778   23,864   19,234
                                                ----------------  -------  -------
Loans greater than 90 days delinquent and still
 accruing interest:
 First lien residential                                       --       62      475
 Residential construction                                     83      755       --
 Multifamily real estate                                     282       --       --
 Commercial real estate                                      302       --      736
 Acquisition and development                                  59       --       --
 Commercial, financial and industrial                         43       31      634
 Consumer and other                                           --        1      153
                                                ----------------  -------  -------
                                                             769      849    1,998
                                                ----------------  -------  -------
 Total nonperforming loans                       $        18,547  $24,713  $21,232
                                                ================  =======  =======
</TABLE>


     Coastal's  asset  quality  ratios  are  as  follows:
<TABLE>

<CAPTION>
<S>                                                  <C>            <C>     <C>
                                                                 December 31,
                                                              -------------
                                                            2002     2001    2000
                                                          -------   ------  ------
Nonperforming loans to total loans receivable and
 loans receivable held for sale                              1.00%   1.33%   1.12%

Allowance for loan losses to nonperforming loans            97.69   62.26   68.32

Allowance for loan losses to total loans receivable          1.00    0.83    0.77
</TABLE>



NONINTEREST  INCOME
     Total noninterest income increased $6.1 million, or 54.4%, to $17.2 million
in 2002, compared to $11.1 million for 2001.  This increase was primarily due to
Coastal's  sale  in  December 2002 of five of its branches in Central Texas that
resulted  in  a  gain  of $4.4 million.  In addition, service charges on deposit
accounts  increased  $2.1 million due to Coastal's continued focus on increasing
transaction  accounts  and  the related fee income, including Coastal's new Free
Checking  and  Bounce Protection features on retail checking accounts introduced
during  August  2002.  Other  increases  in  noninterest  income  were  due to a
$359,000  gain on the sale of loans recorded in 2002 and the $422,000 fair value
loss  on  derivative  instruments  recorded  in 2001 (compared to a $12,000 fair
value loss recorded during 2002).  These increases were only partially offset by
a $100,000 decrease in loan fees, a $702,000 decrease in the gain on the sale of
real  estate  owned,  a  $169,000  decrease  in  the  gain  on  the  sale  of
mortgage-backed securities mentioned previously and a $218,000 decrease in other
noninterest  income.  The  decrease in the gain on the sale of real estate owned
was  primarily  due  to  the gain of $603,000 recorded in 2001 on one commercial
real  estate  owned  property.  The  decrease  in  other  noninterest income was
primarily  due  to  $300,000  in  insurance  proceeds  received  in  2001  for
reimbursement  of  certain  deposit  losses  in  prior  years.

     Total  noninterest  income decreased $881,000, or 7.3%, to $11.1 million in
2001,  compared  to  $12.0 million for 2000.  The decrease in noninterest income
was  primarily  due  to  the $2.2 million gain recorded on the sale of Coastal's
mortgage  servicing  rights  during the first quarter of 2000 and the fair value
loss  on  derivative  instruments  of  $422,000 recorded in 2001 pursuant to the
adoption  of  Statement 133 on January 1, 2001.  The net fair value loss for the
year  ended  December  31, 2001 was primarily attributable to Coastal's interest
rate  swap  positions,  which  were liquidated in June 2001.  These decreases in
noninterest  income,  when  comparing  2001 to 2000, were somewhat offset by the
$169,000  gain  that  Coastal recorded on the sale of mortgage-backed securities
mentioned  previously.  In addition, there were increases of $838,000 in service
charges  on  deposit accounts, $621,000 in the gain on sale of real estate owned
and  $84,000  in other noninterest income, comparing 2001 to 2000.  The increase
in  service charges on deposit accounts was due to Coastal's continuing focus on
increasing transaction accounts and the related fee income.  The increase in the
gain  on  the  sale of real estate owned was primarily due to a $603,000 gain on
the  sale  of one real estate owned commercial property during the third quarter
of 2001.  The increase in other noninterest income was primarily due to $300,000
in  insurance  proceeds  received  in  2001 for reimbursement of certain deposit
account  losses  incurred  in prior years, offset by a $244,000 decrease in loan
servicing  income  due  to the 2000 sale of Coastal's mortgage servicing rights.


NONINTEREST  EXPENSE
     Total noninterest expense amounted to $55.9 million during 2002, a decrease
of  $2.6  million,  or 4.4%, over 2001.  The decrease in noninterest expense was
primarily  due  to the $2.8 million decrease in the amortization of goodwill due
to  the  implementation  of  Statements  142  and 147 as of January 1, 2002.  In
addition,  Coastal  experienced decreases of $869,000 and $1.3 million in office
occupancy  and  data processing, respectively.  The decrease in office occupancy
was  primarily  due to certain assets becoming fully depreciated during 2001 and
2002.  The  decrease in data processing expense was due to the conversion of the
Rio  Grande  Valley  Region  branches to Coastal's primary deposit and loan data
processing  system and the item processing functions brought in-house during the
third  quarter of 2001.  These decreases were partially offset by an increase of
$1.1  million  in  compensation,  payroll  taxes  and other benefits, a $519,000
increase  in  advertising  expense,  a $153,000 increase in postage and delivery
expense  and  a $599,000 increase in other noninterest expense.  The increase in
compensation,  payroll taxes and other benefits was due to the increase in staff
needed  to bring the item processing functions in-house during the third quarter
of  2001,  normal  merit  increases  for existing staff and additional personnel
needed  to  continue Coastal's focus on commercial banking products, lending and
providing  other  services  to  commercial  business customers.  The increase in
advertising  and  postage  and delivery expenses were primarily due to Coastal's
continued  focus  on  increasing  transaction deposit accounts.  The increase in
other  noninterest  expense  was  primarily  due  to the $401,000 reversal of an
accrued  franchise  tax  liability during the 2001 period and smaller changes in
various  other  categories.

     Total  noninterest  expense  amounted  to  $58.5  million  during  2001, an
increase  of  $284,000,  or 0.5%, over 2000. The increase in noninterest expense
was  due to a $1.6 million, or 5.5%, increase in compensation, payroll taxes and
other  benefits,  a  $119,000 increase in advertising and a $133,000 increase in
postage  and  delivery,  partially  offset  by  a  decrease of $84,000 in office
occupancy,  a  $317,000  decrease in data processing, a $225,000 decrease in the
amortization  of  goodwill  and  a  decrease  of  $940,000  in other noninterest
expense.  The  increase  in  compensation,  payroll taxes and other benefits was
primarily  due  to normal merit increases for existing staff, in addition to the
staff  increases  for  the item processing functions brought in-house during the
third  quarter  of  2001  and  additional personnel needed to continue Coastal's
focus  on  commercial business products and lending. The increase in advertising
and  postage  and  delivery  expenses were primarily due to Coastal's efforts to
increase  transaction  deposit accounts. The decrease in data processing expense
was  due  to the conversion to a new mortgage loan data processing system in the
second  quarter of 2001, the conversion of the branches in the Rio Grande Valley
to  Coastal's  primary  deposit and loan data processing system during the third
quarter  of  2001  and the item processing functions brought in-house during the
third  quarter  of 2001. The decrease in the amortization of goodwill was due to
certain  goodwill  amounts becoming fully amortized during 2001. The decrease in
other  noninterest expense was due to a $428,000 decrease of debt issuance costs
relating  to  the  Senior Notes payable becoming fully amortized in 2001 and the
$401,000  reversal  of  an  accrued franchise tax liability determined not to be
payable,  offset  by  other  smaller  changes  in  various  categories.

PROVISION  FOR  FEDERAL  INCOME  TAXES
     Coastal  incurred  no  regular  Federal  income taxes in 2002, 2001 or 2000
primarily  due  to the utilization of the net operating loss carryovers acquired
in  May  1988 from the savings and loan associations obtained in connection with
the  Federal  Savings  and  Loan  Insurance  Corporation's  Southwest  Plan (the
"Southwest  Plan  Acquisition")  and because payments to Coastal pursuant to the
related assistance agreement in prior years were excludable from taxable income,
which resulted in Coastal reporting losses each year for tax purposes.  However,
pursuant  to  the  terms of the Southwest Plan Acquisition assistance agreement,
the  FSLIC Resolution Fund ("FRF") retained all of the future tax benefits to be
derived  from  the  Federal  income  tax  treatment  of  the assistance payments
received  from  the  FRF  and  from  the  utilization  of the net operating loss
carryovers  acquired.  The  amount  of tax benefit to Coastal during these years
(which  corresponds to the amount of Federal taxes which Coastal would have paid
in these years but for the tax-exempt nature of the assistance payments from the
FRF  and  the  utilization  of the net operating loss carryovers) is recorded in
Coastal's  Consolidated Statements of Income as its provision for Federal income
taxes,  which  also  includes  alternative  minimum taxes paid.  The alternative
minimum  taxes recorded during these years are available as credit carryforwards
to  reduce  future  regular  Federal  income  taxes  over  an indefinite period.
Beginning  in 2000, these alternative minimum tax credit carryforwards were used
to  offset  regular  income  taxes.

     The  provisions  for  Federal income taxes were $9.1 million in 2002, $10.9
million  in  2001  and  $9.9  million in 2000 with the effective tax rates being
30.1%,  30.7%,  and  30.5%,  respectively.  Although  the  termination  of  the
agreement  with  the  FRF was effective March 31, 1994, the FRF will continue to
receive  the  future  Federal  income  tax  benefits  of  the net operating loss
carryforwards  acquired,  which  are  expected  to  continue  through  2003.

ASSET  AND  LIABILITY  MANAGEMENT
     During 2001, as previously mentioned, Coastal entered into a transaction to
strategically restructure a portion of its asset base to make it less vulnerable
to  market interest rate fluctuations.  In late November 2001, Coastal completed
the  sale  of approximately $845 million of its mortgage-backed securities.  The
majority  of  the securities sold were CMOs tied to the COFI index and contained
extension  risk  which  caused,  on  average, higher levels of price volatility.
Coastal  replaced  approximately $512 million of these securities with primarily
pass-thru  securities  with  an  overall  shorter  expected  duration.  This
restructuring  was  undertaken  to  decrease  the price volatility of the Bank's
investments  and  to  improve  the  stability  of  future  earnings.

     Coastal's asset and liability management process is utilized to measure and
manage  its interest rate risk exposure, which is Coastal's primary market risk.
Interest  rate  risk  can  be  defined as the exposure of Coastal's net interest
income to adverse movements in interest rates.  The principal determinant of the
exposure  of  Coastal's  earnings to interest rate risk is the timing difference
between  the  repricing or maturity of Coastal's interest-earning assets and the
repricing or maturity of its interest-bearing liabilities.  In order to minimize
interest  rate  risk  and  achieve  an  acceptable  interest rate spread between
interest-earning  assets  and interest-bearing liabilities, Coastal endeavors to
match  the  timing  of  the  repricing  or  maturities as well as the basis (for
example,  the  London Interbank Offered Rate ("LIBOR") or cost of funds rate) of
its  interest-earning  assets to its interest-bearing liabilities.  Coastal also
may  use  interest rate swap and cap agreements to aid in minimizing exposure to
interest  rate  fluctuations.

     Coastal's  asset  and  liability  management  strategy  is  formulated  and
monitored by the Asset/Liability Committee of the Board of Directors of the Bank
(the  "Board").  The  Board's written policies and procedures are implemented by
the  Asset/Liability  Subcommittee  (the  "Subcommittee"),  a management-staffed
committee  composed  of  the Chief Executive Officer, Chief Banking Officer, the
Senior Vice President of Retail Banking and the Treasury Manager, in addition to
members  of the Bank's Portfolio Control Center.  The Subcommittee meets monthly
to  review,  among  other  things,  the  sensitivity  of  Coastal's  assets  and
liabilities  to interest rate changes, including those transactions attributable
to  altering  the  interest  rate  risk,  the  purchase  and  sale  activity and
maturities  of  investments  and  borrowings.  In  accordance  therewith,  the
Subcommittee  reviews  Coastal's  liquidity,  cash  flow  needs,  maturities  of
investments,  deposits  and  borrowings,  interest  rate  matching, core deposit
activity,  current  market  conditions  and  interest  rates on both a local and
national  level.

     To  effectively  measure and manage interest rate risk, the Asset/Liability
Committee  of the Board and the Subcommittee regularly review interest rate risk
by  forecasting the impact of alternative interest rate scenarios on net income,
net  interest income and on Coastal's economic value of equity ("EVE"), which is
defined  as the difference between the market value of Coastal's existing assets
and  liabilities, including the effects of off-balance sheet instruments, and by
evaluating  such  impact  against  the  guidelines  established by the Board for
allowable  changes  in  net  interest  income  and  EVE.  Coastal  utilizes  the
market-value  analysis  to  address  the change in the equity value of Coastal's
balance  sheet  arising  from  movements  in interest rates by computing the net
present  value  of  Coastal's  assets,  liabilities  and  off-balance  sheet
instruments.  The  extent  to which assets have gained or lost value in relation
to  the  gains  or  losses  of  liabilities  determines  the  appreciation  or
depreciation  in  equity  on  a  market-value basis.  Economic value analysis is
intended  to  evaluate the impact of immediate and sustained changes in interest
rates  on  the  market value of the current balance sheet.  From these analyses,
interest  rate  risk is quantified and appropriate strategies are formulated and
implemented  on  an  ongoing  basis.

     The  following  table  presents an analysis of the sensitivity in Coastal's
annual  net  interest  income and EVE based on the indicated changes in interest
rates  at  December 31, 2002 and 2001.  The interest rate scenarios presented in
the  table include interest rates at December 31, 2002 and 2001 and, for the net
interest  income  calculation,  interest  rates  are  adjusted  by the indicated
changes  over  a four-quarter period with net interest income being measured for
the  following  calendar  year,  and  for the EVE calculation, the interest rate
adjustments  consist  of  instantaneous and parallel changes in the yield curve.
Each  rate  scenario  reflects  assumptions  relating to the estimated effect of
prepayments  and  repricing  of  applicable  assets  and  liabilities.

<TABLE>
<CAPTION>

                                      Estimated  Change  In
                        Net  Interest  Income                EVE
                        ---------------------       --------------------
     Change                 December  31,               December  31,
In  Interest  Rates      ---------------------       --------------------
(in  basis  points)       2002       2001           2002           2001
---------------          ------     --------       -------       -------
<S>                      <C>         <C>         <C>              <C>
+200                      3.78%        (6.20)%       2.91%        (0.74)%
+100                      1.87         (3.11)        3.88          0.89
   0                        --            --           --            --
-100                     (0.33)        (0.70)       (3.85)        (3.90)
-200                     (2.61)        (2.51)       (4.97)        (6.42)
</TABLE>



     There  are  limitations  inherent  in  any methodology used to estimate the
exposure  to  changes  in interest rates.  It is not possible to fully model the
market  risk  in  instruments  with  leverage,  option  or  prepayment  risks.
Therefore,  this  analysis is not intended to be a forecast of the actual effect
of  a  change in interest rates on Coastal.  Management of Coastal believes that
all  of  the  assumptions used in this analysis to evaluate the vulnerability of
Coastal's  operations  to changes in interest rates take into account historical
experience and considers them reasonable; however, the interest rate sensitivity
of  Coastal's  assets  and  liabilities  and the estimated effects of changes in
interest  rates  on Coastal's net interest income and EVE indicated in the above
analysis  could  vary  substantially  if  different  assumptions were used or if
actual  experience  differs  from  the  historical  experience.
     The  EVE  is  significantly  impacted by the estimated effect of prepayment
risk  on  the value of mortgage-backed securities and loans receivable as market
interest  rates  change.  Prepayment risk arises due to the possibility that the
cash  flow  experience  of  an  asset may change as interest rates change.  When
interest  rates  increase, mortgage-related assets will generally not be prepaid
and conversely, when interest rates decrease, prepayments increase.  Prepayments
affect  Coastal's  net  spread  and  the  duration  match  of  its  assets  and
liabilities.  Coastal  has prepayment risk on its mortgage-backed securities and
loans  receivable held at a premium due to the fact that the amortization of the
capitalized  premiums  on those assets will accelerate when the underlying loans
are  prepaid.  Coastal  attempts  to  anticipate  its  prepayment  risk  by
extrapolation  from  past  prepayment  behavior  after  adjusting  for  expected
interest  rate  levels and other economic factors and utilizes these assumptions
when  analyzing  its  risk  exposure.  There is also a risk of an inverted yield
curve.  In  this situation, assuming the rates under one year would be inverted,
Coastal's  net  interest  income  would  be  negatively  affected.  As  assets,
primarily the one-year treasury securities and whole loans, reprice at the lower
one-year  rate,  the  one-month borrowings would reprice at the higher one-month
LIBOR rate causing a decline in net interest income.  The magnitude of this risk
depends  on  the steepness of the inversion, which part of the curve inverts and
the  duration  of  the  inverted  curve.
     A  more  conventional  but  limited  asset  and  liability  monitoring tool
involves analyzing the extent to which assets and liabilities are "interest rate
sensitive"  and  measuring  an  institution's  interest  rate sensitivity "gap."
While  this conventional gap measure may be useful, it is limited in its ability
to  predict  trends  in  future  earnings  and to predict the effect of changing
interest rates.  It makes no assumptions about changes in prepayment tendencies,
deposit  or  loan  maturity preferences or repricing time lags that may occur in
response to a change in the interest rate environment.  An asset or liability is
said  to  be  interest  rate  sensitive within a specific time period if it will
mature  or reprice within that time period.  The interest rate sensitivity "gap"
is  defined  as  the  difference  between  interest-earning  assets  and
interest-bearing  liabilities  maturing or repricing within a given time period.
A  gap  is considered positive when the amount of interest rate sensitive assets
exceeds  the amount of interest rate sensitive liabilities.  A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets.  During a period of rising interest rates, a negative gap
would  tend  to adversely affect net interest income, while a positive gap would
tend  to  result  in  an  increase  in  net interest income.  During a period of
falling  interest  rates,  a  negative  gap  would tend to increase net interest
income, while a positive gap would tend to adversely affect net interest income.
Given  Coastal's  current  position  based  on  this  "gap"  analysis,  however,
Coastal's net interest spread would benefit over time from a gradual increase in
interest  rates,  in  which  its  assets may be redeployed at higher yields.  If
interest  rates  were  to  fall,  yields  earned  on  interest  rate  sensitive
investments  would  be reduced, while longer term fixed liability costs, such as
Coastal's  certificates  of  deposit,  would not immediately change.  While this
analysis  takes into account repricing and maturities of assets and liabilities,
it  fails  to  consider  all  the interest rate sensitivities of those asset and
liability  accounts.
     The  following  table  summarizes  the  contractual maturities or repricing
characteristics  of  Coastal's  interest-earning  assets  and  interest-bearing
liabilities  at  December  31,  2002.  The  principal balance of adjustable rate
assets  is included in the period in which they are first scheduled to adjust or
could  be  adjusted  rather  than in the period in which they mature.  Coastal's
one-year  cumulative  gap  position  at  December  31,  2002 was positive $199.3
million or 7.89% of total assets.  This is a snapshot of the position as of such
date.  The  position  changes  frequently and may not be indicative of Coastal's
position  at  any  other  time.  Other material assumptions are set forth in the
footnotes  to  the  table.


<PAGE>
<TABLE>

<CAPTION>

                                                                                  As  of  December  31,  2002
<S>                                                      <C>                      <C>             <C>            <C>
                                                                                     More than       More than      More than
                                                                 Three months       three months    one year to   three years to
                                                                    or less         to one year     three years     five years
                                                         -----------------------  --------------  -------------  ----------------
                                                                                         (Dollars in thousands)
INTEREST-SENSITIVE ASSETS
 Loans, net (1)(2):
   First lien mortgage-single family fixed rate          $                2,455   $       5,553   $     30,927   $        25,394
   First lien mortgage-single family adjustable
     rate                                                                58,799         528,248        118,101             3,366
   First lien mortgage-multifamily fixed rate                                --             178          1,310             1,388
   First lien mortgage-multifamily variable rate                        110,502             121             --                --
   Construction and acquisition and
     development, net of loans in process                               342,471           4,532            518               374
   Commercial real estate                                               264,826           3,563         14,265             6,687
   Commercial                                                           111,385           3,545         17,236             3,471
   Consumer and other                                                     5,073           5,464         10,958             8,400
 Mortgage-backed securities available-for-sale(1)(2)                    420,488          41,172             --                --
 Other securities available-for-sale                                         --              --          1,543                --
 Other interest-earning assets (3)                                       69,987              --             --                --
                                                         -----------------------  --------------  -------------  ----------------
     Total interest-sensitive assets                                  1,385,986         592,376        194,858            49,080
                                                         -----------------------  --------------  -------------  ----------------
 Noninterest-sensitive assets
     Total assets


INTEREST-SENSITIVE LIABILITIES:
 Interest-bearing deposits (4):
   Interest-bearing checking accounts                    $               14,353   $          --   $         --   $            --
   Savings accounts                                                      44,603              --             --                --
   Money market demand accounts                                         399,398              --             --                --
   Certificate accounts                                                 233,773         534,634        167,477            37,815
 Advances from the FHLB                                                 456,573          95,742        107,976            11,131
 Trust Preferred Securities                                                  --              --             --                --
                                                         -----------------------  --------------  -------------  ----------------
     Total interest-sensitive liabilities                             1,148,700         630,376        275,453            48,946
                                                         -----------------------  --------------  -------------  ----------------
 Noninterest-sensitive liabilities
     Total liabilities

 Stockholders' equity
     Total liabilities and stockholders' equity


Gap during the period                                    $              237,286   $     (38,000)  $    (80,595)  $           134
Cumulative gap                                           $              237,286   $     199,286   $    118,691   $       118,825

Interest-sensitive assets as a % of interest-sensitive
 liabilities (cumulative)                                                120.66%         111.20%        105.78%           105.65%
Interest-sensitive assets as a % of total
 assets (cumulative)                                                      54.87           78.32          86.03             87.97
Ratio of gap to total assets                                               9.39           (1.50)         (3.19)             0.01
Ratio of cumulative gap to  total assets                                   9.39            7.89           4.70              4.70



<S>                                                      <C>              <C>             <C>             <C>
                                                              More than        More than
                                                            five years to     ten years to       Over
                                                             ten years        twenty years    twenty years    Totals
                                                         ---------------  --------------  --------------  ----------
INTEREST-SENSITIVE ASSETS
 Loans, net (1)(2):
   First lien mortgage-single family fixed rate          $       20,826   $      57,911   $      48,483   $  191,549
   First lien mortgage-single family adjustable
     Rate                                                         4,639              --              --      713,153
   First lien mortgage-multifamily fixed rate                        --           1,899              --        4,775
   First lien mortgage-multifamily variable rate                     --              --              --      110,623
   Construction and acquisition and
     development, net of loans in process                         1,278           1,394              --      350,567
   Commercial real estate                                        13,321          10,042              --      312,704
   Commercial                                                       818              --              --      136,455
   Consumer and other                                             5,992           6,884              74       42,845
 Mortgage-backed securities available-for-sale(1)(2)                 --          12,484             878      475,022
 Other securities available-for-sale                                 --              --             245        1,788
 Other interest-earning assets (3)                                   --              --              --       69,987
                                                         ---------------  --------------  --------------  ----------
     Total interest-sensitive assets                             46,874          90,614          49,680    2,409,468
                                                         ---------------  --------------  --------------
 Noninterest-sensitive assets                                                                                116,676
                                                                                                          ----------
     Total assets                                                                                         $2,526,144
                                                                                                          ==========

INTEREST-SENSITIVE LIABILITIES:
 Interest-bearing deposits (4):
   Interest-bearing checking accounts                    $           --   $          --   $          --   $   14,353
   Savings accounts                                                  --              --              --       44,603
   Money market demand accounts                                      --              --              --      399,398
   Certificate accounts                                              25              --              --      973,724
 Advances from the FHLB                                           8,407          16,256              --      696,085
 Trust Preferred Securities                                          --              --          50,000       50,000
                                                         ---------------  --------------  --------------  ----------
     Total interest-sensitive liabilities                         8,432          16,256          50,000    2,178,163
                                                         ---------------  --------------  --------------  ----------
 Noninterest-sensitive liabilities                                                                           195,096
                                                                                                          ----------
     Total liabilities                                                                                     2,373,259
 Stockholders' equity                                                                                        152,885
                                                                                                          ----------
     Total liabilities and stockholders' equity                                                           $2,526,144
                                                                                                          ==========

Gap during the period                                    $       38,442   $      74,358   $        (320)
Cumulative gap                                           $      157,267   $     231,625   $     231,305

Interest-sensitive assets as a % of interest-sensitive
 liabilities (cumulative)                                        107.45%         110.88%         110.62%
Interest-sensitive assets as a % of total
 assets (cumulative)                                              89.83           93.41           95.38
Ratio of gap to total assets                                       1.52            2.94           (0.01)
Ratio of cumulative gap to  total assets                           6.23            9.17            9.16
</TABLE>



(1)     Fixed-rate  mortgage loans, consumer loans and fixed-rate securities are
based  on  contractual  maturities  (assuming  no  periodic  amortization).
(2)     Variable  and  adjustable  rate  mortgage  loans  and  adjustable  rate
mortgage-backed  securities  are  included  in  the  period  in which they first
reprice  (assuming  no  periodic  amortization).
(3)     Includes  FHLB  stock,  federal  funds  sold  and other interest-earning
investments.
(4)     Includes  checking  accounts, savings accounts and money market accounts
that  are  interest-bearing.  Effective  January  1, 1998, Coastal implemented a
program  whereby  a  portion  of  the  balances  in  noninterest-bearing  and
interest-bearing  checking  accounts  is  reclassified  to  money  market demand
accounts  under  Federal  Reserve Regulation D.  Fixed-rate certificate accounts
are  based  on  contractual  maturities.

<PAGE>
DERIVATIVE  INSTRUMENTS
     Coastal  is  a  party  to  derivative  instruments  in the normal course of
business  to  reduce  its  exposure  to  fluctuations  in interest rates.  These
derivative instruments have included interest rate swap agreements where Coastal
makes  fixed  interest  payments and receives payments based on a floating index
and,  currently,  interest  rate  cap agreements, as described below.  Effective
January  1,  2001,  Coastal  adopted  Statement 133, which requires companies to
recognize  all  derivatives  as either assets or liabilities in the consolidated
statement of financial condition and measure all derivatives at fair value.  The
interest  rate swap and cap agreements held by Coastal on December 31, 2000 were
determined  to  not qualify for hedge accounting, therefore on implementation of
Statement  133,  Coastal  recorded  a  transition  adjustment  to  record  these
derivative  instruments  at  fair value.  On January 1, 2001, Coastal recorded a
transition  adjustment  loss  of $160,000, or $104,000 net of the tax effect, as
the  cumulative effect of the change in accounting for derivative instruments to
record  the  fair  value of Coastal's derivative instruments in the consolidated
statements of income.  For the year ended December 31, 2001, Coastal recorded an
additional  fair  value  loss  on these derivative instruments of $422,000.  The
fair  value  changes  in  the  derivative instruments during 2001 were primarily
attributable  to  Coastal's  interest  rate  swap agreements, which were totally
liquidated  in  June  2001.  As of December 31, 2002 and 2001, interest rate cap
agreements  were  Coastal's  only  derivative  instruments.

     Coastal  totally  liquidated  its  interest  rate swap positions in June of
2001.  The interest rate swap agreements previously held by Coastal provided for
Coastal to make fixed interest payments and receive payments based on a floating
LIBOR  index, as defined in each agreement.  The net effect of the interest rate
swaps  to Coastal was to increase interest expense by $35,000 for the year ended
December  31,  2001 and decrease interest expense by $212,000 for the year ended
December  31,  2000.  See  Note  16  of  the  Notes  to  Consolidated  Financial
Statements.

     Coastal  has  interest  rate  cap  agreements with third parties, primarily
sophisticated  investment  banking  firms.  The agreements provide for the third
parties  to  make  payments  to Coastal whenever a defined floating rate exceeds
rates  ranging  from  8.0% to 9.0%, depending on the agreement.  Payments on the
interest  rate  cap agreements are based on the notional principal amount of the
agreements; no funds were actually borrowed or are to be repaid.  The fair value
of the interest rate cap agreements was zero at December 31, 2002 and $37,000 at
December 31, 2001, which are the recorded book values of such agreements at such
dates  due  to  the  implementation  of  Statement  133.  The  interest rate cap
agreements  are  used  to  alter  the  interest rate sensitivity of a portion of
Coastal's  mortgage-backed  securities  and  loans  receivable.  As  such,  the
amortization  of  the  purchase price and interest income from the interest rate
cap agreements are recorded in "interest income on mortgage-backed securities or
loans  receivable,"  as appropriate, in the accompanying consolidated statements
of income.  The net decrease in interest income related to the interest rate cap
agreements  was  approximately  $25,000 for each of the years ended December 31,
2002,  2001, and 2000.  No payments were made to Coastal under the interest rate
cap  agreements  during  the  years  ended  December  31,  2002,  2001  or 2000.

LIQUIDITY  AND  CAPITAL  RESOURCES
     Coastal's  total  assets  were  $2.5  billion at December 31, 2002 and $2.6
billion  at December 31, 2001.  Preferred stockholders' equity amounted to $27.5
million and common stockholders' equity was $125.4 million at December 31, 2002.
The  regulatory  capital  of  Coastal  Banc ssb exceeded all three of the Bank's
regulatory  capital adequacy requirements at December 31, 2002.  At December 31,
2002,  the  Bank's  core  capital  amounted  to  6.88% of adjusted total assets,
compared  to  the requirement of 4.0%, its Tier 1 risk-based capital amounted to
10.32%  of  risk-adjusted  assets as compared to the requirement of 4.0% and its
total risk-based capital amounted to 11.38% of risk-adjusted assets, compared to
a  requirement  of  8.0%.

     Coastal's primary sources of funds consist of deposits bearing market rates
of  interest,  advances  from  the  FHLB,  securities  sold  under agreements to
repurchase  and  principal  and  interest  payments  on  loans  receivable  and
mortgage-backed  securities.  Coastal  uses its funding resources principally to
meet  its ongoing commitments to fund maturing deposits and deposit withdrawals,
repay borrowings, purchase loans receivable and mortgage-backed securities, fund
existing and continuing loan commitments, maintain its liquidity, meet operating
expenses  and  fund stock purchases and acquisitions of other banks and thrifts,
either  on  a  branch  office  or whole bank acquisition basis.  At December 31,
2002,  Coastal  had  binding commitments to originate or purchase loans totaling
approximately  $26.5  million  and  had  $147.8  million of undisbursed loans in
process.  In addition, at December 31, 2002, Coastal had commitments under lines
of credit to originate loans, primarily construction and other, of approximately
$146.1  million  and  letters of credit outstanding of $14.2 million.  Scheduled
maturities  of  certificates  of  deposit  during  the  twelve  months following
December  31, 2002 totaled $768.4 million.  Management believes that Coastal has
adequate  resources  to  fund  all  its  commitments.

INFLATION  AND  CHANGING  PRICES
     The  Consolidated  Financial  Statements  and related data presented herein
have  been  prepared in accordance with accounting principles generally accepted
in  the  United  States  of  America, which require the measurement of financial
position  and  operating  results,  without  considering changes in the relative
purchasing  power  of  money over time due to inflation.  Unlike most commercial
companies,  substantially  all  of  the  assets  and  liabilities of Coastal are
monetary  in nature.  As a result, interest rates have a more significant impact
on  Coastal's  performance  than  the  effects  of  general levels of inflation.
Interest  rates  do  not necessarily move in the same direction or with the same
magnitude  as  the  prices  of  goods  and  services.

RECENT  ACCOUNTING  STANDARDS
     Statement  of  Financial  Accounting Standards ("SFAS") No. 140 ("Statement
140"),  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
Extinguishments  of  Liabilities,"  replaced  SFAS  No.  125  ("Statement 125"),
"Accounting  for Transfers and Servicing of Financial Assets and Extinguishments
of  Liabilities,"  but  carried  over most of Statement 125's provisions without
change.  Statement  140  elaborates  on  the  qualifications  necessary  for  a
special-purpose  entity,  clarifies  sales  accounting  criteria  in  certain
circumstances,  refines  accounting  for  collateral  and  adds  disclosures for
collateral,  securitizations  and  retained  interests  in  securitized  assets.
Statement  140  was  effective  for transactions occurring after March 31, 2001.
The  adoption  of  Statement  140  did  not  have  a material impact on Coastal.

          In  August  2001,  SFAS  No.  144,  "Accounting  for the Impairment or
Disposal  of  Long-Lived  Assets"  ("Statement  144") was issued.  Statement 144
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived  assets.  Statement  144  requires that long-lived assets be reviewed
for  impairment  whenever  events  or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be  held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.  If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is  recognized  by  the amount by which the carrying amount of the asset exceeds
the  fair  value  of  the asset.  Statement 144 requires companies to separately
report  discontinued  operations and extends that reporting to a component of an
entity  that  either  has  been  disposed  of  (by  sale,  abandonment,  or in a
distribution  to  owners)  or  is  classified  as  held  for sale.  Assets to be
disposed  of are reported at the lower of the carrying amount or fair value less
costs  to sell.  Statement 144 was adopted by Coastal as of January 1, 2002, and
did  not  have a material effect on Coastal's Consolidated Financial Statements.

          SFAS  Statement  No. 148 ("Statement 148") "Accounting for Stock-Based
Compensation  -  Transition  and  Disclosure"  was  issued  in  December  2002.
Statement  148  amends  SFAS Statement No. 123 to provide alternative methods of
transition  for  a voluntary change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition, Statement 148 amends the
disclosure  requirements  to  require  prominent  disclosures in both annual and
interim  financial  statements  about  the  method of accounting for stock-based
employee  compensation  and  the  effect of the method used on reported results.
Coastal  has  adopted the disclosure provisions included in Statement 148 in the
notes  to  Coastal's  Consolidated  Financial  Statements  for  the  years ended
December  31,  2002,  2001  and  2000.

          In January 2003, the Financial Accounting Standards Board directed its
staff  to  prepare  a ballot draft of Statement No. 149, "Accounting for Certain
Financial  Instruments  with  Characteristics  of  Liabilities  and  Equity"
("Statement  149").  When  issued,  Statement  149  will establish standards for
issuers'  classification  as liabilities in the statement of financial condition
certain  financial instruments that have characteristics of both liabilities and
equity.  The  final  Statement 149 is expected to be issued in the first quarter
of  2003  and  will  be  effective  upon  issuance  for all contracts created or
modified  after  the date the statement is issued and otherwise effective at the
beginning  of the first interim period beginning after June 15, 2003.  Statement
149  will  be  effected  by  reporting  the  cumulative  effect  of  a change in
accounting  principle  for  contracts created before the issuance date and still
existing at the beginning of that interim period.  The adoption of Statement 149
when  issued is not expected to have a material effect on Coastal's Consolidated
Financial  Statements.

FORWARD-LOOKING  INFORMATION
     "Safe  Harbor" Statement under the Private Securities Litigation Reform Act
of  1995:  The  statements contained in this Annual Report to stockholders which
are  not  historical  facts  contain forward looking information with respect to
plans,  projections  or  future  performance of Coastal, the occurrence of which
involve  certain  risks and uncertainties detailed in Coastal's filings with the
Securities  and  Exchange  Commission  ("SEC").
     The  above  discussion  should  be read in conjunction with the information
contained  in  the Consolidated Financial Statements and the Notes thereto.  The
above  information  contains  "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and are
subject  to  the  safe  harbor created by the Reform Act.  The words "estimate,"
"project,"  "anticipate,"  "expect,"  "intend,"  "believe," "plans," and similar
expressions  are  intended to identify forward-looking statements.  Because such
forward-looking  statements involve risks and uncertainties, there are important
factors  that  could  cause  actual  results  to  differ  materially  from those
expressed  or implied by such forward-looking statements.  Factors, all of which
are  difficult  to  predict and many of which are beyond the control of Coastal,
that  could  cause  actual  results  to  differ  materially include, but are not
limited  to:  risks  related  to changes in market rates of interest, changes in
our  loan  portfolio,  including  the  risks associated with our non-traditional
lending  (loans  other  than  single-family  residential  mortgage loans such as
multifamily,  real  estate  acquisition and development, commercial real estate,
commercial  business  and  commercial  construction loans), the possibility that
Coastal's  allowance  for loan losses proves to be inadequate, Coastal's ability
to attract core deposits, the concentration of Coastal's loan portfolio in Texas
and  California  to  the  extent  that  the economies of those states experience
problems,  Coastal's acquisition strategy, including risks of adversely changing
results  of  operations  and  factors  affecting Coastal's ability to consummate
further  acquisitions;  risks  involved  in  Coastal's  ability  to  quickly and
efficiently integrate the operations of acquired entities with those of Coastal;
changes  in business strategies, changes in general market rates of interest and
in  economic  and  business  conditions, and changes in the laws and regulations
applicable  to  Coastal;  and  other  factors  as  discussed  herein.

<PAGE>

<PAGE>
Coastal  Bancorp,  Inc.  and  Subsidiaries
DIRECTORS  AND  OFFICERS


BOARD  OF  DIRECTORS OF COASTAL BANCORP, INC., COASTAL BANC SSB AND SUBSIDIARIES
(AS  NOTED)

MANUEL  J.  MEHOS
Chairman of the Board, President and Chief Executive Officer of Coastal Bancorp,
Inc.;  Chairman  of  the Board, President and Chief Executive Officer of Coastal
Banc Holding Company, Inc.; Chairman of the Board of Coastal Banc Capital Corp.,
a wholly-owned subsidiary of Coastal Banc Holding Company, Inc.; Chairman of the
Board,  President  and  Chief  Executive  Officer  of  the  Bank, a wholly-owned
subsidiary  of  Coastal  Banc  Holding  Company, Inc.; Chairman of the Board and
Chief  Executive  Officer  of  Coastal  Banc  Mortgage  Corp.,  a  wholly-owned
subsidiary of Coastal Banc Holding Company, Inc.; and Chief Executive Officer of
CoastalBanc  Financial  Corp.,  a  wholly-owned subsidiary of the Bank, Houston,
Texas

R.  EDWIN  ALLDAY
Self  employed  consultant  who  provides  management  consulting  services  to
non-profit  organizations,  Houston,  Texas

D.  FORT  FLOWERS,  JR.
President  of  Sentinel  Trust  Company,  a  Texas  Limited Banking Association,
providing  fiduciary  and  investment  management services to affluent families,
their  closely  held  corporations and foundations, Houston, Texas, and Director
and  Vice  Chairman of the Board of New Covenant Trust Company, a National Trust
Company

DENNIS  S.  FRANK
Chief  Executive  Officer  and  President  of  Silvergate Capital Corporation, a
financial  institution  holding  company  controlling Silvergate Bank, La Jolla,
California  and President and Chief Executive Officer of DSF Management Corp., a
private  investment  company,  Houston,  Texas

ROBERT  E.  JOHNSON,  JR.
Partner,  law  firm  of  Johnson  &  Johnson,  Austin,  Texas

CLAYTON  T.  STONE
Executive  Vice  President of Hines Interests Limited Partnership, a real estate
developer,  Houston,  Texas


CORPORATE  OFFICERS  OF  COASTAL  BANCORP,  INC.

MANUEL  J.  MEHOS
Chairman  of  the  Board,  President  and  Chief  Executive  Officer

CATHERINE  N.  WYLIE
Senior  Executive  Vice  President,  Chief  Financial  Officer, Chief Operations
Officer  and  Treasurer

LINDA  B.  FRAZIER
Senior  Vice  President,  Secretary  and  General  Counsel



CORPORATE  OFFICERS  OF  COASTAL  BANC  HOLDING  COMPANY,  INC.

MANUEL  J.  MEHOS
Chairman  of  the  Board,  President  and  Chief  Executive  Officer

CATHERINE  N.  WYLIE
Director,  Senior  Executive  Vice  President,  Chief  Financial  Officer, Chief
Operations  Officer  and  Treasurer

LINDA  B.  FRAZIER
Director,  Senior  Vice  President  and  Secretary

LINDA  S.  BUBACZ
Director,  Assistant  Treasurer  and  Assistant  Secretary


<PAGE>

CORPORATE  OFFICERS  OF  COASTAL  BANC  SSB

MANUEL  J.  MEHOS
President  and  Chief  Executive  Officer

CATHERINE  N.  WYLIE
Senior  Executive  Vice President - Chief Financial Officer and Chief Operations
Officer

ROBERT  V.  NEW
Executive  Vice  President  -  Chief  Banking  Officer

DAVID  R.  GRAHAM
Executive  Vice  President  -  Commercial  Real  Estate  Lending

WALTER  A.  PAWKETT
Executive  Vice  President  -  Commercial  Lending  -  Rio  Grande  Valley

H.  EDWARD  SELKE,  JR.
Executive  Vice  President  -  Chief  Credit  Officer

MICHAEL  TURNER
Executive  Vice  President  -  Commercial  Lending


<PAGE>
                                     COASTAL

                            A HISTORICAL PERSPECTIVE

     Coastal  was  acquired  by  an  investor group in 1986 as a vehicle to take
advantage  of  the  failures  and  consolidation in the Texas banking and thrift
industries.  At February 28, 1986 (the date of the change in ownership), Coastal
had  one  full  service  office and total assets of approximately $10.7 million.

     In May 1988, Coastal became the first acquirer of failed or failing savings
institutions  under  the  Federal  government's  "Southwest  Plan."  In  this
transaction,  Coastal  acquired  from  the  Federal  Savings  and Loan Insurance
Corporation,  as receiver for four insolvent savings associations, 14 additional
branch  offices  and  approximately  $543.4 million of assets and assumed $543.4
million  in  deposits  and other liabilities.  Since completion of the Southwest
Plan  acquisition  and  through  2002,  Coastal  entered  into  seven  branch
acquisitions and one whole bank acquisition:  two with an instrumentality of the
Federal  government  and  six  with  private institutions.  In each transaction,
Coastal  agreed  to acquire certain assets in consideration of the assumption of
certain deposit liabilities.  In 1996, Coastal also exchanged three branches for
one  resulting in a net deposit increase of $26.0 million and sold one branch in
separate  transactions.  In  2002, Coastal sold five branches with $75.3 million
in  deposits.  All  of these transactions resulted in the net assumption of $1.8
billion  of  deposits and the net acquisition of 53 branch offices.  Coastal has
also  opened  seven  de novo branches since inception.  Coastal has been able to
achieve operating economies and improve efficiency by closing an aggregate of 18
branch  offices  and  transferring  the deposits to other offices located in the
same  market  area.

     At  December  31,  2002,  Coastal  had  total  assets of approximately $2.5
billion  and total deposits of approximately $1.6 billion with 43 branch offices
in metropolitan Houston, Austin, Corpus Christi, the Rio Grande Valley and small
cities  in  the  southeast  quadrant  of  Texas.

<PAGE>














                          Independent Auditors' Report
                          ----------------------------


The  Board  of  Directors
Coastal  Bancorp,  Inc.:


     We  have  audited  the  accompanying  consolidated  statements of financial
condition  of Coastal Bancorp, Inc. and subsidiaries as of December 31, 2002 and
2001  and  the  related consolidated statements of income, comprehensive income,
stockholders'  equity  and  cash  flows  for each of the years in the three-year
period ended December 31, 2002.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  consolidated  financial  statements  based  on  our  audits.

     We  conducted  our  audits  in accordance with auditing standards generally
accepted  in the United States of America.  Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial  statements are free of material misstatement.  An audit
includes  examining,  on  a  test  basis,  evidence  supporting  the amounts and
disclosures  in  the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

     In  our  opinion,  the  consolidated financial statements referred to above
present  fairly,  in  all  material respects, the financial condition of Coastal
Bancorp,  Inc. and subsidiaries at December 31, 2002 and 2001 and the results of
their  operations  and  their cash flows for each of the years in the three-year
period  ended  December  31,  2002  in  conformity  with  accounting  principles
generally  accepted  in  the  United  States  of  America.

     As discussed in notes 2 and 8 to the consolidated financial statements, the
Company  changed  its method of accounting for goodwill and other intangibles in
2002.




/s/  KPMG  LLP
--------------
January  24,  2003
Houston,  Texas

<PAGE>

<TABLE>

<CAPTION>

                        COASTAL BANCORP, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                              DECEMBER 31, 2002 AND 2001
                          (IN THOUSANDS, EXCEPT SHARE DATA)



ASSETS                                                            2002        2001
-------------------------------------------------------------  ----------  ----------
<S>                                                            <C>         <C>

Cash and cash equivalents                                      $   39,766  $   41,537
Federal funds sold (Note 4)                                        27,755      16,710
Loans receivable held for sale (Note 6)                            49,886          --
Loans receivable, net (Notes 6 and 12)                          1,812,785   1,863,601
Mortgage-backed securities available-for-sale, at fair value
 (Notes 5, 12, 13, and 16)                                        475,022     514,068
Other securities available-for-sale, at fair value                  1,788      42,827
Accrued interest receivable (Note 7)                                9,781      13,243
Property and equipment (net of accumulated depreciation and
 amortization of $26,050 in 2002 and $23,779 in 2001)              27,341      27,461
Stock in the Federal Home Loan Bank of Dallas ("FHLB")             41,221      40,032
Goodwill  (Note 8)                                                 21,429      21,811
Prepaid expenses and other assets (Notes 9, 10, 16 and 18)         19,370      16,601
                                                               ----------  ----------
   Total assets                                                $2,526,144  $2,597,891
                                                               ==========  ==========
</TABLE>


<TABLE>

<CAPTION>

     LIABILITIES  AND  STOCKHOLDERS'  EQUITY
     ---------------------------------------


<S>                                                                      <C>          <C>
Liabilities:
 Deposits (Note 11)                                                      $1,614,368   $1,660,386
 Advances from the FHLB (Note 12)                                           696,085      690,877
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I (Note 14)                           50,000           --
 Senior Notes payable (Note 15)                                                  --       43,875
 Advances from borrowers for taxes and insurance                              2,407        4,259
 Other liabilities and accrued expenses                                      10,399       12,310
                                                                          ---------    ----------
   Total liabilities                                                      2,373,259    2,411,707
                                                                          ---------    ----------
Minority interest - 9.0% noncumulative preferred stock of Coastal Banc
 ssb (Note 21)                                                                   --       28,750

Commitments and contingencies (Notes 6, 16, 19 and 24)

Stockholders' equity (Notes 5, 21, 22 and 23):
 Preferred Stock, no par value; authorized shares 5,000,000;
   9.12% Cumulative, Series A, 1,100,000 shares issued and
   outstanding                                                               27,500       27,500
 Common Stock, $.01 par value; authorized shares 30,000,000;
   7,867,029 shares issued and 5,141,010 shares outstanding at
   December 31, 2002; 7,835,178 shares issued and 5,835,178 shares
   outstanding at December 31, 2001                                              79           78
 Additional paid-in capital                                                  35,736       35,366
 Retained earnings                                                          141,986      127,425
 Accumulated other comprehensive income (loss) -
   net unrealized gain (loss) on securities available-for-sale                  619       (1,590)
 Treasury stock at cost (2,726,019 shares in 2002 and 2,000,000
   shares in 2001)                                                          (53,035)     (31,345)
                                                                         -----------  -----------
   Total stockholders' equity                                               152,885      157,434
                                                                         -----------  -----------
   Total liabilities and stockholders' equity                            $2,526,144   $2,597,891
                                                                         ==========   ==========
</TABLE>


See  accompanying  notes  to  Consolidated  Financial  Statements.

<PAGE>
<TABLE>

<CAPTION>

                                 COASTAL BANCORP, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF INCOME
                              YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)


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

                                                                             2002       2001       2000
                                                                         ---------  ---------  --------
Interest income:
 Loans receivable                                                        $118,970   $155,214   $168,105
 Mortgage-backed securities                                                17,114     52,873     64,246
 FHLB stock, federal funds sold and other interest-earning assets           1,539      2,525      4,922
                                                                         ---------  ---------  --------
                                                                          137,623    210,612    237,273
                                                                         ---------  ---------  --------
Interest expense:
 Deposits                                                                  39,825     69,828     73,216
 Advances from the FHLB                                                    20,173     38,917     58,328
 Other borrowed money                                                          --     10,682     16,671
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I                                    2,400         --         --
 Senior Notes payable                                                         378      4,588      4,690
                                                                         ---------  ---------  --------
                                                                           62,776    124,015    152,905
                                                                         ---------  ---------  --------

   Net interest income                                                     74,847     86,597     84,368
Provision for loan losses (Note 6)                                          5,800      3,900      5,790
                                                                         ---------  ---------  --------
   Net interest income after provision for loan losses                     69,047     82,697     78,578
                                                                         ---------  ---------  --------
Noninterest income:
 Service charges on deposit accounts                                        9,894      7,803      6,965
 Loan fees                                                                  1,148      1,248      1,247
 Gain on sale of branch offices (Note 3)                                    4,395         --         --
 Gain on sale of loans receivable                                             359         --         --
 Gain on sale of mortgage servicing rights                                     --         --      2,172
 Gain on sale of mortgage-backed securities available-for-sale                 --        169         --
 Loss on derivative instruments                                               (12)      (422)        --
 Gain on sale of real estate owned, net                                       117        819        198
 Other                                                                      1,308      1,526      1,442
                                                                         ---------  ---------  --------
                                                                           17,209     11,143     12,024
                                                                         ---------  ---------  --------
Noninterest expense:
 Compensation, payroll taxes and other benefits                            31,914     30,785     29,187
 Office occupancy                                                          10,044     10,913     10,997
 Data processing                                                            1,691      3,008      3,325
 Amortization of goodwill (Note 8)                                             --      2,800      3,025
 Advertising                                                                1,953      1,434      1,315
 Postage and delivery                                                       1,654      1,501      1,368
 Other                                                                      8,637      8,038      8,978
                                                                         ---------  ---------  --------
                                                                           55,893     58,479     58,195
                                                                         ---------  ---------  --------
     Income before provision for Federal income taxes, minority
       interest and cumulative effect of accounting change                 30,363     35,361     32,407
Provision for Federal income taxes (Note 18)                                9,140     10,867      9,895
                                                                         ---------  ---------  --------
     Income before minority interest and cumulative effect of
       accounting change                                                   21,223     24,494     22,512
Minority interest - preferred stock dividends of Coastal Banc ssb
 (Note 21)                                                                  1,507      2,588      2,588
                                                                         ---------  ---------  --------
     Income before cumulative effect of accounting change                  19,716     21,906     19,924
Cumulative effect of accounting for derivative instruments
 (Note 16)                                                                     --       (104)        --
                                                                         ---------  ---------  --------
     Net income                                                          $ 19,716   $ 21,802   $ 19,924
                                                                         =========  =========  ========
     Net income available to common stockholders                         $ 17,208   $ 19,294   $ 17,416
                                                                         =========  =========  ========
Basic earnings per common share before cumulative effect of accounting
 change                                                                  $   3.13   $   3.36   $   2.94
                                                                         =========  =========  ========
Basic earnings per common share (Notes 8 and 23)                         $   3.13   $   3.34   $   2.94
                                                                         =========  =========  ========
Diluted earnings per common share before cumulative effect of
 accounting change                                                       $   2.99   $   3.19   $   2.87
                                                                         =========  =========  ========
Diluted earnings per common share (Notes 8 and 23)                       $   2.99   $   3.17   $   2.87
                                                                         =========  =========  ========
</TABLE>
See  accompanying  notes  to  Consolidated  Financial  Statements.

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

<S>                                                                     <C>      <C>      <C>
                                                                          2002     2001     2000
                                                                        -------  -------  --------
Net income                                                              $19,716  $21,802  $19,924
Other comprehensive income (loss), net of tax:
 Change in net unrealized gains (losses) on securities available-for-
   sale, net of reclassification adjustment and tax effects (Note 5)      2,209      277      (19)
                                                                        -------  -------  --------
Comprehensive income                                                    $21,925  $22,079  $19,905
                                                                        =======  =======  ========
</TABLE>

See  accompanying  notes  to  Consolidated  Financial  Statements.

<PAGE>

<TABLE>

<CAPTION>

                                                   COASTAL BANCORP, INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                 YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                                              (IN THOUSANDS)
<S>                                   <C>         <C>      <C>          <C>         <C>              <C>         <C>
                                                                                       Accumulated
                                                           Additional                    other
                                       Preferred   Common   paid-in      Retained     comprehensive    Treasury
                                         Stock     Stock    capital      earnings     income (loss)      stock     Total
                                       ----------  -------  -----------  ----------  ---------------  ----------  ---------

Balance - December 31, 1999             $ 27,500  $    76   $   32,683  $  95,508   $       (1,848)  $ (20,463)    $133,456
Dividends on Preferred Stock (Note 22)       --        --           --     (2,508)              --          --       (2,508)
Dividends on Common Stock (Note 22)          --        --           --     (2,130)              --          --       (2,130)
Exercise of stock options (Note 19)          --         1          629         --               --          --          630
Purchase of treasury stock at cost
  (Note 22)                                  --        --           --         --               --     (10,882)     (10,882)
Change in net unrealized gain (loss) on
 securities available-for-sale (Note 5)      --        --           --         --              (19)         --          (19)
Net income for 2000                          --        --           --     19,924               --          --       19,924
                                         ------      ----      ------     -------          -------     -------      --------
Balance - December 31, 2000              27,500        77       33,312    110,794           (1,867)    (31,345)     138,471

Dividends on Preferred Stock (Note 22)       --        --           --     (2,508)              --          --       (2,508)
Dividends on Common Stock (Note 22)          --        --           --     (2,663)              --          --       (2,663)
Exercise of stock options (Note 19)          --         1        2,054         --               --          --        2,055
Change in net unrealized gain (loss)
  on securities available-for-sale,
  net of reclassification adjustment
  and tax effects (Note 5)                   --        --           --         --              277          --          277
Net income for 2001                          --        --           --     21,802               --          --       21,802
                                         ------      ----       ------    -------          -------     -------      --------
Balance - December 31, 2001              27,500        78       35,366    127,425           (1,590)    (31,345)     157,434
Dividends on Preferred Stock (Note 22)       --        --           --     (2,508)              --          --       (2,508)
Dividends on Common Stock (Note 22)          --        --           --     (2,647)              --          --       (2,647)
Exercise of stock options (Note 19)          --         1          325         --               --          --          326
Purchase of treasury stock at cost
  (Note 22)                                  --        --           --         --               --     (21,753)     (21,753)
Issuance of treasury shares                  --        --           45         --               --          63          108
Change in net unrealized gain (loss
  on securities available-for-sale
  (Note 5)                                   --        --           --         --            2,209          --        2,209
Net income for 2002                          --        --           --     19,716               --          --       19,716
                                         ------       ----      ------    -------          -------     -------      --------
Balance - December 31, 2002            $ 27,500  $     79   $   35,736  $ 141,986    $         619   $ (53,035)    $152,885
                                        =======       ====     =======    =======          =======     ========     ========


See  accompanying  notes  to  Consolidated  Financial  Statements.





<PAGE>
                               COASTAL BANCORP, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                           (IN THOUSANDS)



<S>                                                              <C>         <C>         <C>
                                                                     2002        2001        2000
                                                                 ----------  ----------  ----------
Cash flows from operating activities:
 Net income                                                      $  19,716   $  21,802   $  19,924
 Adjustments to reconcile net income to net cash provided
   by operating activities:
 Depreciation and amortization of property and equipment,
   mortgage servicing rights and prepaid expenses
   and other assets                                                  8,714       8,325       9,601
 Net premium amortization (discount accretion)                       4,583      (3,115)        349
 Provision for loan losses                                           5,800       3,900       5,790
 Amortization of goodwill                                               --       2,800       3,025
 Originations and purchases of loans receivable held for sale      (67,300)    (20,550)    (25,461)
 Sales of loans receivable held for sale                            22,858      20,723      25,618
 Gain on sale of branch offices                                     (4,395)         --          --
 Gain on sale of loans receivable                                     (359)         --          --
 Gain on sale of mortgage servicing rights                              --          --      (2,172)
 Loss on derivative instruments                                         12         582          --
 Gain on sale of mortgage-backed securities available-for-sale          --        (169)         --
 Decrease (increase) in:
   Accrued interest receivable                                       3,462       5,529      (2,622)
   Other, net                                                       (1,088)    (37,242)     32,212
 Stock dividends from the FHLB                                      (1,189)     (1,973)     (4,603)
                                                                 ----------   ---------   ---------
   Net cash provided by (used in) operating activities              (9,186)        612      61,661
                                                                 ----------   ---------   ---------
Cash flows from investing activities:
 Net change in federal funds sold                                  (11,045)    (15,841)       (869)
 Purchases of mortgage-backed securities held-to-maturity               --          --      (4,815)
 Purchase of mortgage-backed securities available-for-sale        (112,579)   (512,267)         --
 Purchase of U.S. Treasury securities held-to-maturity                  --          --      (1,493)
 Purchase of other securities available-for-sale                    (1,786)    (43,064)         --
 Principal repayments on mortgage-backed securities
   held-to-maturity                                                     --      73,725      36,326
 Principal repayments on mortgage-backed securities
   available-for-sale                                              151,880      59,986       4,940
 Proceeds from maturity of U.S. Treasury securities
   held-to-maturity                                                     --       1,500         300
 Proceeds from maturity of other securities
   available-for-sale                                               42,500          --          --
 Proceeds from sales of mortgage-backed securities
   available-for-sale                                                   --     844,918          --
 Purchases of loans receivable                                    (421,371)   (250,945)   (236,970)
 Sale of loans receivable                                           84,241          --          --
 Other changes in loans receivable                                 367,971     277,918      66,032
 Purchases of property and equipment, net                           (3,908)     (3,781)     (2,340)
 Purchase of FHLB stock                                                 --     (28,485)    (35,649)
 Proceeds from sales of FHLB stock                                      --      48,431      39,000
 Proceeds from sale of mortgage servicing rights                        --          --       5,001
 Sale of branch offices                                            (70,127)         --          --
                                                                 ----------   ---------   ---------
   Net cash provided by (used in) investing activities              25,776     452,095    (130,537)
                                                                 ----------   ---------   ---------
</TABLE>




<PAGE>
<TABLE>

<CAPTION>

                                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                                 (IN THOUSANDS)



<S>                                                                    <C>            <C>           <C>
                                                                             2002          2001          2000
                                                                       -------------  ------------  ------------
Cash flows from financing activities:
 Net change in deposits                                                $     29,257   $   (14,540)  $    50,826
 Advances from the FHLB                                                  22,097,904     8,031,619     9,567,857
 Principal payments on advances from the FHLB                           (22,092,696)   (8,491,047)   (9,514,483)
 Proceeds from securities sold under agreements to repurchase
   and federal funds purchased                                                   --     3,591,744     2,418,869
 Repayments of securities sold under agreements to repurchase
   and federal funds purchased                                                   --    (3,591,744)   (2,418,869)
 Proceeds from issuance of 9.0% Trust Preferred Securities                   48,125            --            --
 Redemption or repurchase of Senior Notes payable                           (43,875)       (3,025)           --
 Redemption of Coastal Banc ssb 9.0% Noncumulative Preferred
   Stock                                                                    (28,750)           --            --
 Net increase (decrease) in advances from borrowers for taxes
   and insurance                                                             (1,852)         (791)        1,198
 Exercise of stock options for purchase of Common Stock                         326         2,055           630
 Purchase of treasury stock                                                 (21,753)           --       (10,882)
 Issuance of treasury shares                                                    108            --            --
 Dividends paid                                                              (5,155)       (5,171)       (4,638)
                                                                         ----------      ---------     ---------
   Net cash provided by (used in) financing activities                      (18,361)     (480,900)       90,508
                                                                         ----------      ---------     ---------
   Net increase (decrease) in cash and cash equivalents                      (1,771)      (28,193)       21,632
 Cash and cash equivalents at beginning of year                              41,537        69,730        48,098
                                                                         ----------      ---------     ---------
 Cash and cash equivalents at end of year                              $     39,766   $    41,537   $    69,730
                                                                        ===========    ==========    ===========

 Supplemental schedule of cash flows:
   Interest paid                                                       $     64,400   $   126,730   $   153,413
   Income taxes paid                                                         12,977        13,113         5,392

 Supplemental schedule of noncash investing and financing activities:
   Net transfer of loans to held for sale category                     $      8,749   $        --   $        --
   Real estate owned acquired through foreclosure of loans
     receivable                                                               6,260         5,450         3,672
   Net transfer of mortgage-backed securities to available-for-sale
     category                                                                    --       811,748            --

</TABLE>


See  accompanying  notes  to  Consolidated  Financial  Statements.
<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2002 and 2001


(1)     ORGANIZATION  AND  BACKGROUND
Coastal Banc Savings Association (the "Association") was acquired by an investor
group  in  1986 as a vehicle to take advantage of the failures and consolidation
in  the  Texas banking and thrift industries.  The Association acquired deposits
in  transactions with the federal government and other private institutions as a
base  for  developing an ongoing thrift and banking business.  The Association's
first  acquisition  was  in  1988  under  the Federal Savings and Loan Insurance
Corporation's ("FSLIC") Southwest Plan, whereby the FSLIC provided financial and
other  forms  of  assistance  in  connection  with  the acquisition of insolvent
FSLIC-insured  institutions  (the  "Acquired  Associations").

Coastal  Bancorp,  Inc.  ("Bancorp")  was  incorporated  on  March  8, 1994 as a
first-tier  subsidiary  of  the  Association  in  connection  with  the proposed
reorganization of the Association into the holding company form of organization.
The  reorganization  of  the  Association  into  the  holding  company  form  of
organization  occurred  on July 29, 1994.  In addition, effective July 29, 1994,
the  Association  converted  to  a Texas-chartered savings bank known as 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, Coastal Banc ssb became a subsidiary of
HoCo  and  HoCo  became  a  wholly-owned  subsidiary  of  Bancorp.

The  reorganizations  were  accounted  for  in  a  manner  similar  to  that  in
pooling-of-interests  accounting  and  all  financial  statements  issued  after
consummation of the reorganization reflect the consolidated operations as if the
reorganization had taken place prior to the periods covered by such consolidated
financial  statements.

Coastal  Banc  ssb is a financial services provider to consumers and businesses.
At  December  31,  2002,  Coastal  Banc  ssb  operated  43  branch  offices  in
metropolitan  Houston,  Austin,  Corpus Christi, the Rio Grande Valley and small
cities  in  the  southeast  quadrant  of  Texas.

(2)  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  AND  BASIS  OF PRESENTATION
The  following  significant  accounting  policies, together with those disclosed
elsewhere  in  the  Consolidated  Financial  Statements  or  notes  thereto, are
followed  by  Coastal Bancorp, Inc. and subsidiaries in preparing and presenting
the  consol-idated  financial  statements.

BASIS  OF  CONSOLIDATED  FINANCIAL  STATEMENTS
The  consolidated  financial statements include the accounts of Coastal Bancorp,
Inc.,  its  wholly-owned  subsidiaries, HoCo, its wholly-owned subsidiaries, and
Coastal  Capital  Trust  I  (collectively,  "Coastal").  HoCo's  wholly-owned
subsidiaries  are  Coastal Banc ssb, Coastal Banc Capital Corp. and Coastal Banc
Mortgage  Corp.  Coastal  Banc  ssb's  wholly-owned subsidiaries are CoastalBanc
Financial  Corp.  and  Coastal  Banc  Insurance  Agency, Inc. (collectively, the
"Bank").  All  significant  intercompany  balances  and  transactions  have been
eliminated  in  consolidation.

Certain  amounts  within  the accompanying consolidated financial statements and
the  related  notes  have  been  reclassified  to  conform  to  the current year
presentation.  Such  reclassifications  had  no  effect  on  net income or total
stockholders'  equity  as  previously  reported.

<PAGE>

USE  OF  ESTIMATES
The  preparation  of  the  consolidated  financial statements in conformity with
accounting  principles  generally  accepted  in  the  United  States  of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and  liabilities  and  disclosure  of contingent assets and
liabilities  at  the  date  of  the  consolidated  financial  statements and the
reported  amounts  of  income  and expenses during the reporting period.  Actual
results  may  differ  from  those  estimates.

CASH  AND  CASH  EQUIVALENTS
Cash  and  cash  equivalents  are  comprised  primarily  of  cash  on  hand  and
interest-earning  and  noninterest-earning deposits in other banks with original
maturities  of  three  months  or  less.

LOANS  RECEIVABLE
Loans  receivable  are  stated at the principal balance outstanding adjusted for
loans in process, the allowance for loan losses, unearned interest and loan fees
and  the  premium on purchased loans.  Interest on loans receivable is primarily
computed  on the outstanding principal balance at appropriate rates of interest.
The  net  premium  or discount on purchased loans is being amortized or accreted
using  the  level  yield  method,  adjusted  for  prepayments.

Periodically, loans receivable may be transferred to the held for sale category.
When  moved,  the loan is recorded in the held for sale category at the lower of
cost  or  market with any writedowns to market value recorded as a charge-off to
the  allowance  for  loan  losses.  If  a  loan  is moved from the held for sale
category  to  the  loans  receivable portfolio, the loan is moved at the current
carrying  value  of  the  loan.

It  is  the general policy of Coastal to stop accruing interest income and place
the  recognition of interest on a cash basis when any loan is past due more than
90  days  as  to  principal  and  interest.  However,  other  factors  may cause
management  to continue to accrue interest on such loans.  When a loan is placed
on  nonaccrual,  any  interest  previously accrued but not collected is reversed
against  current  interest  income.

Coastal considers a loan to be impaired when, based upon current information and
events,  it  is  probable that Coastal will be unable to collect all amounts due
according  to  the  contractual  terms  of  the  loan agreement.  In determining
impairment,  Coastal  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.  Coastal  bases  the
measurements  of  collateral-dependent  impaired loans on the fair value of that
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.

Larger  groups  of  smaller balance homogeneous loans are collectively evaluated
for  impairment.  Accordingly,  Coastal  does not separately identify individual
consumer  and  residential  loans  for  impairment  disclosures.

ALLOWANCE  FOR  LOAN  LOSSES
The allowance for loan losses is maintained at a level determined to be adequate
by  management  to  absorb probable losses on loans receivable.  The adequacy of
the allowance is based on management's evaluation of the type, size, quality and
risks  of  the  loans in the loans receivable portfolio and its consideration of
such  factors  as  historical  and peer group loss experience, identification of
adverse  situations  which  may  affect  the  ability  of  borrowers  to  repay,
assessment  of  current  and  future  economic  conditions and the estimated net
realizable  value  of  the underlying collateral.  This evaluation is inherently
subjective,  as  it  requires  material  estimates  that  are  susceptible  to
significant  change.  While  management  uses  available information to estimate
losses  on  loans receivable, future additions to the allowance may be necessary
based  on  changes  in  economic  conditions.  In  addition,  various regulatory
agencies,  as an integral part of their examination process, periodically review
Coastal's  allowance  for  loan  losses.  Such  agencies  may require Coastal to
recognize  additions to the allowance based on their judgments about information
available  to  them  at  the  time  of  their  examination.

SALES  OF  LOANS  RECEIVABLE
Loans  are  sold  periodically  to  institutional  and  private investors.  When
Coastal  sells  whole  mortgage  loans,  it  may retain the right to service the
loans.  Gains  or  losses  on  such sales are recognized at the time of sale and
depend,  in  part, on the previous carrying amount of the assets involved in the
sale,  allocated  between  the  assets  sold and the retained interests based on
their  relative  fair  value  at  the  date  of  transfer.

LOANS  RECEIVABLE  HELD  FOR  SALE
Loans  receivable  held  for  sale are carried at the lower of cost or market as
determined  by outstanding commitments from investors or current investor market
yield  requirements  calculated  on  the  aggregate  loan  basis.

LOAN FEES
Loan origination and commitment fees, as well as certain direct loan origination
and  commitment  costs, are deferred and amortized into income over the lives of
the related loans using a method that approximates the level yield method.  When
the  loans  receivable  are  paid  off  or  sold,  the  remaining  loan fees are
recognized  as  income  in  that  period.

MORTGAGE-BACKED  AND  OTHER  SECURITIES
Coastal  classifies  securities  as  held-to-maturity,  available-for-sale  or
trading.  Securities  are  classified  as  held-to-maturity when Coastal has the
positive  intent  and  ability  to hold such securities to maturity.  Securities
held-to-maturity  are recorded at amortized cost.  Securities available-for-sale
are  securities other than those held-to-maturity or trading and are recorded at
fair value, with unrealized gains and losses excluded from earnings and recorded
net  of  tax  as other comprehensive income (loss) in stockholders' equity until
realized.  Realized  gains  and  losses  on  securities  classified  as
available-for-sale  are  recorded  in  earnings in the year of sale based on the
specific identification of each individual security sold. Trading securities are
carried at fair value with any realized or unrealized gains or losses recognized
in current earnings.  Coastal held no trading account securities at December 31,
2002  or  2001.

Coastal  records  mortgage-backed  and  other  securities transactions as of the
settlement  date.  There were no pending transactions as of December 31, 2002 or
2001.

Premiums  and discounts on mortgage-backed and other 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.

PROPERTY  AND  EQUIPMENT
Property  and  equipment  are recorded at cost less accumulated depreciation and
amortization.  Coastal  computes  depreciation  and  amortization  on  a
straight-line  basis  over the estimated useful lives (15-30 years for buildings
and 2-10 years for furniture and equipment) of the respective assets.  Leasehold
improvements are amortized on a straight-line basis over the lesser of the terms
of  the  respective  lease  or the estimated useful lives of the related assets.

STOCK  IN  THE  FEDERAL  HOME  LOAN  BANK  OF  DALLAS
As  a  member  of  the FHLB System, Coastal is required to purchase and maintain
stock  in  the  FHLB  in  an  amount equal to the greater of 1% of the aggregate
unpaid balance of loans and securities secured by single family and multi-family
properties,  0.3%  of total assets, or 5% of total FHLB advances.  FHLB stock is
redeemable  at  par  value  at  the  discretion  of  the  FHLB.

GOODWILL
On  January 1, 2002, Coastal adopted Statement of Financial Accounting Standards
No.  141,  "Business  Combinations" ("Statement 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("Statement
142").  Statement  141  eliminated the pooling of interests method of accounting
for business combinations and requires that the purchase method of accounting be
used  for  all  business  combinations.  Statement  141 also required, effective
January  1,  2002,  that  Coastal  evaluate  its  existing intangible assets and
goodwill  that  were  acquired in prior purchase business combinations, and make
any  necessary  reclassifications  in  order to conform with the new criteria in
Statement  141  for  recognition apart from goodwill.  Statement 142 changed the
accounting  for  goodwill  from  an  amortization  method  to an impairment-only
approach.  Statement  141  required  that  Coastal reclassify amounts originally
recorded  as goodwill pursuant to Statement of Financial Accounting Standard No.
72,  "Accounting  for  Certain  Acquisitions  of Banking or Thrift Institutions"
("Statement  72")  to other intangible assets, as those amounts, under Statement
142,  were  not  subject  to  non-amortization  provisions.

On  October 1, 2002, Statement of Accounting Standards No. 147, "Acquisitions of
Certain  Financial  Institutions"  ("Statement  147") was issued.  Statement 147
amended  Statement  72, to exclude from its scope, the acquisitions of financial
institutions  (other  than  transactions between two or more mutual enterprises)
and provide certain transition provisions for existing intangible assets.  Under
Statement  147  transition  provisions,  if the transaction that gave rise to an
unidentifiable other intangible asset was considered a business combination, the
carrying  amount  of  that asset amount would be reclassified to goodwill and be
subject  to  the  non-amortization  provisions  as  of the effective date of the
implementation  of  Statement  142, which in Coastal's case was January 1, 2002.

In  connection  with  the  adoption  of  these  statements,  Coastal  tested for
impairment  in  accordance with the provisions of Statement 142 during the first
quarter  of 2002 and did not recognize any transitional impairment losses as the
cumulative  effect  of  a  change  in  accounting  principle.

In years 2001 and prior, goodwill resulting from acquisitions was amortized on a
straight-line  basis over the estimated period of benefit, not to exceed fifteen
years.  During  these years, Coastal evaluated the recorded goodwill amounts for
impairment  to  determine  whether  events  and  circumstances  had developed to
warrant  revision  of  the  estimated  benefit  periods.

MORTGAGE  SERVICING  RIGHTS
The  amount  capitalized as mortgage servicing rights is amortized in proportion
to,  and  over  the  period  of,  estimated  net  servicing  revenues.  Coastal
periodically  evaluates  the carrying value of the mortgage servicing rights for
impairment  based on the fair value of those rights.  The fair value of mortgage
servicing rights is determined by discounting the present value of the estimated
future  net servicing revenues using a discount rate commensurate with the risks
involved  based  on  management's  best  estimate of remaining loan lives.  This
method  of valuation incorporates assumptions that market participants would use
in  their estimate of future servicing income and expense, including assumptions
about  prepayments,  defaults  and  interest  rates.  For  purposes of measuring
impairment, the loans underlying the mortgage servicing rights are stratified on
the  basis  of  interest  rate  and  type  (fixed or adjustable).  The amount of
impairment  is  the  amount  by  which  the  mortgage  servicing  rights, net of
accumulated  amortization,  exceed  their  fair value by strata.  Impairment, if
any,  is  recognized  through  a  valuation  allowance  and  a charge to current
operations.

REAL ESTATE  OWNED
Real  estate  owned  represents  real estate acquired through foreclosure and is
initially  recorded  at  the  lower of unpaid principal balance adjusted for any
acquisition  premiums  or  discounts  remaining  less  any  applicable valuation
allowance  or  estimated fair value less estimated selling costs.  Subsequent to
foreclosure,  real estate owned is carried at the lower of the new cost basis or
fair  value,  with  any  further  declines  in fair value charged to operations.

<PAGE>

FEDERAL  INCOME  TAXES
Coastal  files  a  consolidated  federal  income  tax  return  with  all  of its
subsidiaries.  Federal  income taxes are allocated on the basis of each entity's
contribution  to  consolidated  taxable  income.

Income  taxes  are accounted for under the asset and liability method.  Deferred
tax  assets  and  liabilities  are  recognized  for  the future tax consequences
attributable  to differences between the financial statement carrying amounts of
existing  assets  and  liabilities and their respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred tax assets and liabilities of a
change  in  tax  rates  is  recognized in income in the period that includes the
enactment  date.

DERIVATIVE  INSTRUMENTS  USED  FOR  INTEREST  RATE  RISK  MANAGEMENT
Coastal is a party to derivative instruments in the normal course of business to
reduce  its  exposure  to  fluctuations  in  interest  rates.  These  derivative
instruments  have  included  interest rate swap agreements and interest rate cap
agreements.

Effective  January  1,  2001,  Coastal adopted Statement of Financial Accounting
Standards  No.  133,  "Accounting  for  Derivative  Instruments  and for Hedging
Activities"  ("Statement  133").  Statement  133 requires companies to recognize
all  derivatives  as  either assets or liabilities in the statement of financial
condition and measure all derivatives at fair value.  The interest rate swap and
cap  agreements  held  by  Coastal  on  December 31, 2000 were determined to not
qualify  for  hedge  accounting,  therefore  on implementation of Statement 133,
Coastal  recorded a transition adjustment to record these derivative instruments
at  fair  value.  See Note 16.  Prior to the adoption of Statement 133 (in years
2000  and  prior),  the  fair  values  of  any  derivative  instruments were not
recognized  in  the  consolidated  financial  statements.

STOCK  OPTIONS
Statement  of  Financial  Accounting  Standards  No.  148  ("Statement  148")
"Accounting for Stock-Based Compensation - Transition and Disclosure" was issued
in  December  2002.  Statement  148  amends Financial Accounting Standards Board
Statement No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") to
provide  alternative  methods  of  transition for a voluntary change to the fair
value  based  method  of  accounting  for stock-based employee compensation.  In
addition,  Statement  148 amends the disclosure requirements of Statement 123 to
require  prominent  disclosures  in both annual and interim financial statements
about  the  method  of  accounting for stock-based employee compensation and the
effect  of  the  method  used  on  reported  results.  Coastal  has  adopted the
disclosure provisions included in Statement 148 in the notes to the consolidated
financial  statements  for  the  years  ended  December  31, 2002, 2001 and 2000
contained  herein.

As  provided  by  Statement  123,  Coastal  accounts  for its stock compensation
programs  in  accordance  with  the  provisions  of  Accounting Principles Board
("APB")  Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.  Under  this  method,  no  stock-based  compensation expense is
reflected  in  net income, as all options granted had an exercise price equal to
the  market  value  of  the  underlying  common stock on the date of grant.  The
following  table  illustrates the effect on net income and earnings per share as
if Coastal had applied the fair value recognition provisions of Statement 123 as
amended  by  Statement  148.

<PAGE>

<TABLE>
<CAPTION>



<S>                                                         <C>                                     <C>       <C>
                                                                               Year Ended December 31,
                                                                              2002      2001      2000
                                                                          ----------  -------   --------
                                                                        (In thousands, except per share data)
Net income available to common stockholders, as reported                  $  17,208   $19,294   $17,416
Deduct:  Total stock-based compensation expense determined
 under the fair value based method for all awards, net of
 related tax effects                                                           (425)     (463)     (626)
                                                                          ----------  --------  --------
Proforma net income available to common stockholders                      $  16,783   $18,831   $16,790
                                                                          ==========  ========  ========
Earnings per common share:
Basic - as reported                                                       $    3.13   $  3.34   $  2.94
                                                                          ==========  ========  ========
Basic - proforma                                                          $    3.06   $  3.26   $  2.84
                                                                          ==========  ========  ========
Diluted - as reported                                                     $    2.99   $  3.17   $  2.87
                                                                          ==========  ========  ========
Diluted - proforma                                                        $    2.92   $  3.10   $  2.77
                                                                          ==========  ========  ========

</TABLE>



EARNINGS  PER  COMMON  SHARE
Basic  earnings  per  common  share ("EPS") is calculated by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding  during  the  period.  The  computation  of  diluted EPS assumes the
issuance  of  common shares for all dilutive-potential common shares outstanding
during the reporting period.  The dilutive effect of stock options is considered
in earnings per common share calculations, if dilutive, using the treasury stock
method.

CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash and
amounts  due  from  depository  institutions  with  original maturities of three
months  or  less.

RECENT  ACCOUNTING  PRONOUNCEMENTS
Statement  of  Financial  Accounting  Standards  No.  140  ("Statement  140"),
"Accounting  for Transfers and Servicing of Financial Assets and Extinguishments
of  Liabilities,"  replaced  Statement of Financial Accounting Standards No. 125
("Statement  125"),  "Accounting for Transfers and Servicing of Financial Assets
and  Extinguishments  of  Liabilities," but carried over most of Statement 125's
provisions  without  change.  Statement  140  elaborates  on  the qualifications
necessary  for  a special-purpose entity, clarifies sales accounting criteria in
certain  circumstances,  refines  accounting for collateral and adds disclosures
for  collateral,  securitizations  and retained interests in securitized assets.
Statement  140  was  effective  for transactions occurring after March 31, 2001.
The  adoption  of  Statement  140  did  not  have  a material impact on Coastal.

In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for  the  Impairment  or  Disposal  of  Long-Lived Assets" ("Statement 144") was
issued.  Statement  144  addresses  financial  accounting  and reporting for the
impairment  or  disposal  of  long-lived  assets.  Statement  144  requires that
long-lived  assets  be  reviewed  for  impairment  whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of  an  asset  may  not be
recoverable.  Recoverability  of  assets  to  be  held and used is measured by a
comparison  of the carrying amount of an asset to future net cash flows expected
to  be  generated  by  the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which  the  carrying  amount  of  the asset exceeds the fair value of the asset.
Statement  144  requires  companies to separately report discontinued operations
and  extends  t  hat  reporting to a component of an entity that either has been
disposed  of  (by  sale,  abandonment,  or  in  a  distribution to owners) or is
classified  as held for sale. Assets to be disposed of are reported at the lower
of  the  carrying  amount  or  fair  value less costs to sell. Statement 144 was
adopted  by Coastal as of January 1, 2002, and did not have a material effect on
Coastal's  Consolidated  Financial  Statements.

Coastal  adopted Statements 141, 142 and 147 effective January 1, 2002. See Note
8.

Statement  148  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure"  was  issued in December 2002. Statement 148 amends Statement 123 to
provide  alternative  methods  of  transition for a voluntary change to the fair
value  based  method  of  accounting  for  stock-based employee compensation. In
addition,  Statement  148 amends the disclosure requirements of Statement 123 to
require  prominent  disclosures  in both annual and interim financial statements
about  the  method  of  accounting for stock-based employee compensation and the
effect  of  the  method  used  on  reported  results.  Coastal  has  adopted the
disclosure provisions included in Statement 148 in the notes to the consolidated
financial  statements  for  the  years  ended  December  31, 2002, 2001 and 2000
contained  herein.

In  January 2003, the Financial Accounting Standards Board directed its staff to
prepare  a  ballot draft of Statement No. 149, "Accounting for Certain Financial
Instruments  with  Characteristics of Liabilities and Equity" ("Statement 149").
When  issued, Statement 149 will establish standards for issuers' classification
as  liabilities  in  the  statement  of  financial  condition  certain financial
instruments  that have characteristics of both liabilities and equity. The final
Statement  149 is expected to be issued in the first quarter of 2003 and will be
effective upon issuance for all contracts created or modified after the date the
statement  is  issued  and  otherwise  effective  at  the beginning of the first
interim  period beginning after June 15, 2003. Statement 149 will be effected by
reporting  the  cumulative  effect  of  a  change  in  accounting  principle for
contracts  created  before the issuance date and still existing at the beginning
of  that  interim  period.  The  adoption  of  Statement  149 when issued is not
expected  to  have  a  material  effect  on  Coastal's  Consolidated  Financial
Statements.

(3)     SALE  OF  BRANCH  OFFICES
On  December  12,  2002, Coastal consummated the sale of five of its branches in
Central  Texas  (located  in  Llano,  Burnet, Mason, Kingsland and Marble Falls,
Texas)  to  First  State  Bank Central Texas.  As a result of this sale, Coastal
recorded  a  $4.4 million gain before applicable income taxes.  Coastal acquired
these  locations  in  the 1994 acquisition of Texas Trust Savings Bank, FSB.  In
connection with the sale of these branch offices, Coastal recorded the following
reductions  of  assets  and  liabilities  (in  thousands):

                    Deposits  sold                       $75,275
                    Accrued  interest  payable  sold         128
                    Property  and  equipment  sold           443
                    Reduction  of  goodwill                  382
                    Other  assets  sold                      368

(4)  FEDERAL  FUNDS  SOLD
An  analysis  of  federal funds sold for the years ended December 31, 2002, 2001
and  2000  is  as  follows  (dollars  in  thousands):
<TABLE>
<CAPTION>

<S>                                     <C>       <C>       <C>
                                           2002      2001      2000
                                        --------  --------  --------
Federal funds sold:
  Balance outstanding at December 31,   $27,755   $16,710   $   869
  Maximum outstanding at any month-end   38,980    17,011    10,000
  Average balance outstanding             9,337     7,776     3,042
  Average interest rate                    1.62%     3.42%     6.38%
</TABLE>


<PAGE>

(5)  MORTGAGE-BACKED  SECURITIES  AVAILABLE-FOR-SALE
Mortgage-backed  securities  available-for-sale  at  December  31,  2002  are as
follows  (dollars  in  thousands):

<TABLE>
<CAPTION>
<S>                    <C>         <C>          <C>           <C>
                                       Gross       Gross
                        Amortized   Unrealized   Unrealized     Fair
                           Cost        Gains       Losses       Value
                       ----------  -----------  ------------  --------

Agency securities      $  387,636  $     1,983  $      (470)  $389,149
CMOs - Non-agency          84,376           67         (644)    83,799
Non-agency securities       2,060           14           --      2,074
                       ----------  -----------  ------------  --------
                       $  474,072  $     2,064  $    (1,114)  $475,022
                       ==========  ===========  ============  ========
</TABLE>



Mortgage-backed  securities  available-for-sale  at  December  31,  2001  are as
follows  (in  thousands):

<TABLE>
<CAPTION>

<S>                    <C>         <C>          <C>           <C>
                                      Gross        Gross
                       Amortized    Unrealized   Unrealized     Fair
                         Cost         Gains        Losses       Value
                       ----------  -----------  ------------  --------

Agency securities      $  406,437  $       319  $    (2,455)  $404,301
CMOs - Non-agency         107,488           82         (418)   107,152
Non-agency securities       2,590           34           (9)     2,615
                       ----------  -----------  ------------  --------
                       $  516,515  $       435  $    (2,882)  $514,068
                       ==========  ===========  ============  ========
</TABLE>



Effective  September  30,  2001,  Coastal transferred all of its mortgage-backed
securities  held-to-maturity to the available-for-sale category. This was due to
management's  intent  to  restructure  a  portion  of  the asset base to be less
vulnerable  to market interest rate fluctuations. In late November 2001, Coastal
entered  into  a  transaction  and  sold  $845  million  of  its mortgage-backed
securities. Also in November, Coastal used a portion of the proceeds of the sale
to  purchase  approximately  $512 million of primarily pass-thru mortgage-backed
securities.  All  of  the  securities purchased and the remaining securities not
sold  were  placed  in  the  available-for-sale  category.

Proceeds from sales of mortgage-backed securities available-for-sale during 2001
were  $844.9  million.  Gross  gains  of  $2.5  million and gross losses of $2.3
million  were  realized  on  those  sales  in  2001.  There  were  no  sales  of
mortgage-backed  securities  available-for-sale  during  2002  or  2000.

A  portion  of  Coastal's  mortgage-backed  securities  portfolio  is pledged as
collateral  to  secure  advances  from  the  FHLB.  See  Note  12.

<PAGE>

(6)  LOANS  RECEIVABLE
     Loans  receivable  at December 31, 2002 and 2001 are as follows (dollars in
     thousands):

<TABLE>
<CAPTION>

<S>                                                <C>          <C>
                                                       2002         2001
                                                   -----------  -----------
Real estate mortgage loans:
 First lien mortgage, primarily residential        $  855,633   $  880,624
 Commercial                                           317,692      319,377
 Multifamily                                          116,020      124,616
 Residential construction                             123,085      136,035
 Acquisition and development                          143,463      140,009
 Commercial construction                              241,128      222,026
Commercial loans, secured by residential mortgage
 loans held for sale                                       --       11,508
Commercial, financial and industrial                  135,209      116,029
Loans secured by deposits                              14,465       21,238
Consumer and other loans                               33,430       43,384
                                                   -----------  -----------
                                                    1,980,125    2,014,846
                                                   -----------  -----------

Loans in process                                     (147,769)    (131,064)
Allowance for loan losses                             (18,118)     (15,385)
Unearned interest and loan fees                        (2,910)      (2,959)
Premium (discount) on purchased loans, net              1,457       (1,837)
                                                   -----------  -----------
                                                   $1,812,785   $1,863,601
                                                   ==========   ===========
Weighted average yield                                   5.52%        6.90%
                                                   ==========   ===========
</TABLE>



In  the  normal  course  of  business,  Coastal enters into various transactions
which, in accordance with accounting principles generally accepted in the United
States  of  America, are not included on the balance sheets.  These transactions
are  referred  to as "off-balance sheet commitments."  Coastal enters into these
transactions  to  meet the financing needs of its customers.  These transactions
include  commitments  to  extend credit which involve elements of credit risk in
excess  of  the amounts recognized in the balance sheets.  Coastal minimizes its
exposure  to  loss under these commitments by subjecting them to credit approval
and  monitoring  procedures.

Coastal  enters  into  contractual  commitments  to extend credit, normally with
fixed  expiration  dates  or  termination  clauses,  at  specified rates and for
specific  purposes.  Customers  use credit commitments to ensure that funds will
be  available  for  working  capital  purposes,  for capital expenditures and to
ensure  access to funds under specified terms and conditions.  Substantially all
of  Coastal's  commitments  to  extend  credit  are  contingent  upon  customers
maintaining  specific  credit standards at the time of loan funding.  Management
assesses the credit risk associated with certain commitments to extend credit in
determining  the  level  of  the  allowance  for  loan  losses.

At  December  31,  2002,  Coastal  had  outstanding  commitments to originate or
purchase  approximately $26.5 million of first lien mortgage and other loans and
had  commitments  under  lines of credit to originate primarily construction and
other loans of approximately $146.1 million.  In addition, at December 31, 2002,
Coastal  had  letters  of  credit  of  approximately  $14.2 million outstanding.

A  portion  of  Coastal's  first lien and multifamily mortgage loan portfolio is
pledged  as  collateral  to  secure  advances  from  the  FHLB.  See  Note  12.

Included  in  loans  receivable at December 31, 2002 and 2001 are loans totaling
approximately  $17.8  million  and  $23.9  million,  respectively,  which are on
nonaccrual  (loans  which  are  90  days  or  more  delinquent  or  on which the
collection of interest is considered doubtful).  During the years ended December
31,  2002, 2001 and 2000, Coastal recognized interest income on these nonaccrual
loans (outstanding as of the period end) of approximately $632,000, $811,000 and
$706,000,  respectively,  whereas  approximately $745,000, $1.4 million and $1.2
million, respectively, in additional interest income would have been recorded if
such  loans  had  been  performing  in  accordance  with  their  original terms.

At  December  31,  2002  and  2001,  the  carrying  value  of impaired loans was
approximately  $8.5  million  and  $3.8  million,  respectively, and the related
allowance  for  loan  losses  on  those  impaired loans totaled $2.4 million and
$554,000,  respectively.  Of  the impaired loans outstanding, eight loans with a
balance  of  $551,000  at December 31, 2002 and nineteen loans with a balance of
$1.3  million  at  December  31,  2001  did  not  have  specific portions of the
allowance  for  loan  losses  allocated  to  them  at each respective date.  The
average  recorded  investment  in impaired loans during the years ended December
31,  2002,  2001  and 2000 was approximately $3.8 million, $4.4 million and $3.5
million,  respectively.  For  the  years ended December 31, 2002, 2001 and 2000,
Coastal  did  not  recognize  interest  income  on  loans  considered  impaired.

An  analysis  of  activity  in  the  allowance for loan losses is as follows (in
thousands):

<TABLE>
<CAPTION>

                               Years ended December 31,
                            ----------------------------
<S>                         <C>       <C>       <C>
                              2002      2001      2000
                            --------  --------  --------
Balance, beginning of year  $15,385   $14,507   $10,493
Provision for loan losses     5,800     3,900     5,790
Charge-offs                  (3,878)   (4,073)   (2,174)
Recoveries                      811     1,051       398
                            -------   -------   -------
Balance, end of year        $18,118   $15,385   $14,507
                            =======   =======   =======
</TABLE>



During  the  first  quarter of 2002, management made the decision to liquidate a
portion  of  its  under-performing  single-family  mortgage loans.  On March 22,
2002,  Coastal  sold  $10.8  million  of these under-performing loans to a third
party investor.  Prior to the sale, Coastal wrote these loans down to fair value
and  recorded  a  charge-off  to  the allowance for loan losses of $761,000.  In
addition,  as  of  March  31,  2002,  Coastal  wrote  down  to  fair  value  and
reclassified $9.1 million of other under-performing single-family mortgage loans
to the held for sale category.  The loans that were reclassified to the held for
sale  category  were  written  down to fair value as of March 31, 2002 through a
charge-off  to  the  allowance  for  loan losses of $691,000.  During the second
quarter  of  2002,  a total of $3.1 million of these under-performing loans held
for  sale  were sold to the same third party investor.  As of December 31, 2002,
Coastal had reclassified the remaining $3.0 million of these loans held for sale
back  to  the  loans  receivable  portfolio  at  their  current  carrying value.

During  the  fourth  quarter of 2002, management decided to liquidate a group of
loans  that  were  acquired  in  three separate transactions.  In December 2002,
Coastal  sold  $74.4  million  of these loans to a third party investor (some of
these  loans  were  sold  servicing retained).  Prior to the sale, Coastal wrote
these  loans  down  to fair value and recorded a charge-off to the allowance for
loan  losses of $277,000.  In connection with this sale, Coastal recorded a gain
of  $359,000  on  the sale of these loans as a result of Coastal recognizing the
estimated fair value of the mortgage servicing rights retained.  In addition, as
of  December  31,  2002,  Coastal wrote down to fair value and reclassified $2.6
million  of  additional  loans, which are under a contract for sale, to the held
for  sale  category.  The  loans  that  were  reclassified  to the held for sale
category  were  written  down  to  fair  value as of December 31, 2002 through a
charge-off  to  the  allowance  for  loan  losses  of  $32,000.


<PAGE>

(7)  ACCRUED  INTEREST  RECEIVABLE
Accrued  interest  receivable  at  December  31, 2002 and 2001 is as follows (in
thousands):

<TABLE>
<CAPTION>

<S>                                       <C>     <C>
                                            2002     2001
                                          ------  -------
Loans receivable                          $7,946  $ 9,894
Mortgage-backed securities                 1,807    2,474
FHLB stock, federal funds sold and other
   interest-earning assets                    28      875
                                          ------  -------
                                          $9,781  $13,243
                                          ======  =======
</TABLE>



(8)  GOODWILL
On  January 1, 2002, Coastal adopted Statement 141. Statement 141 eliminated the
pooling of interests method of accounting for business combinations and requires
that  the  purchase  method of accounting be used for all business combinations.
Statement  141  also  required, effective January 1, 2002, that Coastal evaluate
its existing intangible assets and goodwill that were acquired in prior purchase
business  combinations,  and  make  any  necessary reclassifications in order to
conform  with  the  new  criteria  in  Statement  141 for recognition apart from
goodwill.  Statement  142  changed  the  accounting  for  goodwill  from  an
amortization  method  to  an  impairment-only  approach.

Statement  141  required  that Coastal reclassify amounts originally recorded as
goodwill  pursuant to Statement 72 to other intangible assets, as those amounts,
under Statement 142, were not subject to the non-amortization provisions.  As of
January  1,  2002,  Coastal  had  unamortized  goodwill  that was subject to the
non-amortization  provision  of  Statements  141 and 142 of $5.5 million.  As of
that  same  date,  Coastal reclassified $16.3 million to other intangible assets
and  continued  to  amortize  these  amounts  in  2002.

On  October  1, 2002, Statement 147 was issued.  Statement 147 amended Statement
72, to exclude from its scope, the acquisitions of financial institutions (other
than  transactions  between  two or more mutual enterprises) and provide certain
transition  provisions  for  existing  intangible  assets.  Under  Statement 147
transition  provisions,  if  the transaction that gave rise to an unidentifiable
other  intangible  asset  was  considered  a  business combination, the carrying
amount of that asset amount would now be reclassified to goodwill and be subject
to  the  non-amortization  provisions  as  of  the  effective  date  of  the
implementation  of  Statement  142, which in Coastal's case was January 1, 2002.
Based on the implementation of Statement 147, Coastal has reclassified the $16.3
million  mentioned  above  to  goodwill  and  removed  the  amortization expense
recorded  in  2002,  through  restatement  of  its  2002 financial statements as
required  by  Statement  147.

In  connection  with  the  adoption  of  these  statements,  Coastal  tested for
impairment  in  accordance with the provisions of Statement 142 during the first
quarter  of 2002 and did not recognize any transitional impairment losses as the
cumulative  effect  of  a  change  in  accounting  principle.

Pursuant  to  the transition provisions of Statement 142, presented below are as
adjusted  net  income and earnings per share amounts to exclude the amortization
expense  (net  of  any  tax  effect)  recognized  in  the  periods  prior to the
implementation  related  to  the  goodwill that is no longer being amortized (in
thousands,  except  per  share  data).

<PAGE>

<TABLE>
<CAPTION>



<S>                                           <C>            <C>      <C>
                                                          Years Ended
                                                          December 31,
                                              -------------------------------
                                                      2002     2001     2000
                                              -------------  -------  -------
Net income:
As reported                                   $      19,716  $21,802  $19,924
Add back:  goodwill amortization, net of tax             --    2,036    2,248
                                              -------------  -------  -------
As adjusted                                   $      19,716  $23,838  $22,172
                                              =============  =======  =======

Basic earnings per share:
As reported                                   $        3.13  $  3.34  $  2.94
Add back:  goodwill amortization, net of tax             --     0.35     0.38
                                              -------------  -------  -------
As adjusted                                   $        3.13  $  3.69  $  3.32
                                              =============  =======  =======

Diluted earnings per share:
As reported                                   $        2.99  $  3.17  $  2.87
Add back:  goodwill amortization, net of tax             --     0.34     0.37
                                              -------------  -------  -------
As adjusted                                   $        2.99  $  3.51  $  3.25
                                              =============  =======  =======

</TABLE>



(9)  MORTGAGE  SERVICING  RIGHTS
Effective  March  31, 2000, Coastal sold its mortgage servicing rights portfolio
and  recorded  a  nonrecurring gain of $2.2 million.  Pursuant to a purchase and
sale  agreement, Coastal sold its rights to service approximately $389.1 million
of  mortgage  loans  for  third party investors.  In December 2002, Coastal sold
$70.1  million  of  mortgage  loans  with  servicing retained and recognized the
estimated  fair  value  of those servicing rights retained of $359,000, which is
included in prepaid expenses and other assets.  As of December 31, 2002, Coastal
services  for  others  approximately  $68.8  million of such loans which are not
included  in  the  consolidated  financial  statements.

An  analysis  of  the  activity of mortgage servicing rights for the years ended
December  31,  2002  and  2000  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>

<S>                         <C>    <C>
                             2002     2000
                            -----  --------
Balance, beginning of year  $  --  $ 3,035
Additions                     359       --
Amortization                   --     (167)
Sales of servicing rights      --   (2,868)
                            -----  --------
Balance, end of year        $ 359  $    --
                            =====  ========
</TABLE>


(10) REAL  ESTATE  OWNED
Included  in  prepaid expenses and other assets is real estate owned at December
31,  2002 and 2001 of approximately $4.1 million and $4.4 million, respectively.

<PAGE>

(11) DEPOSITS
Deposits,  their stated rates and the related weighted average interest rates at
December  31,  2002  and  2001  are  summarized  below  (dollars  in thousands).
Effective  January  1,  1998, Coastal implemented a program whereby a portion of
the  balance  of  noninterest-bearing  and interest-bearing checking accounts is
reclassified to money market demand accounts under Federal Reserve Regulation D.
The  amount  of  such  reclassification,  reflected  in the following table, was
approximately $250.9 million ($131.3 million from noninterest-bearing and $119.6
million  from  interest-bearing) at December 31, 2002 and $243.3 million ($113.0
million  from  noninterest-bearing  and $130.3 million from interest-bearing) at
December  31,  2001.

<TABLE>
<CAPTION>
                                                                      2002                           2001
                                                            --------------------------    ----------------------------
                                                            Stated Rate      Amount       Stated Rate        Amount
                                                           --------------   ----------     ------------  ------------
<S>                                                           <C>              <C>          <C>               <C>
Noninterest-bearing checking                                         0.00%  $   51,029             0.00%  $   47,712
Interest-bearing checking                                     0.50 - 1.00       14,353      0.50 - 1.00       15,894
Savings accounts                                              0.50 - 1.24       44,603      0.50 - 1.24       45,234
Money market demand accounts
(including amounts reclassified from noninterest
and interest-bearing checking)                                0.00 - 2.13      530,659      0.00 - 2.23      505,789
                                                                           -----------                   -----------
                                                                               640,644                       614,629
                                                                           -----------                   -----------

Certificate accounts                                       Less than 2.00      104,358   Less than 2.00       29,707
                                                            2.00  -  2.99      558,337    2.00  -  2.99      171,523
                                                            3.00  -  3.99      206,645    3.00  -  3.99      263,006
                                                            4.00  -  4.99       63,234    4.00  -  4.99      356,314
                                                            5.00  -  5.99       34,447    5.00  -  5.99      155,949
                                                            6.00  -  6.99        6,524    6.00  -  6.99       68,979
                                                            7.00  -  7.99          106    7.00  -  7.99          209
                                                            8.00  -  8.99           73    8.00  -  8.99           70
                                                                           -----------                   -----------
                                                                               973,724                     1,045,757
                                                                           -----------                   -----------
                                                                            $1,614,368                   $1,660,386
                                                                           ===========                   ===========
Weighted average rate                                                             2.12%                        3.02%
                                                                           ===========                   ===========



</TABLE>



Prior  to  the reclassification as discussed above, noninterest-bearing checking
accounts,  interest-bearing  checking  accounts and money market demand accounts
were  as  follows  at  December  31,  2002  and  2001  (in  thousands):
<TABLE>
<CAPTION>

                              December 31, 2002   December 31, 2001
                              ------------------  ------------------
<S>                           <C>                 <C>
Noninterest-bearing checking  $          182,290  $          160,738
Interest-bearing checking                134,034             146,144
Money market demand accounts             279,717             262,513
</TABLE>

<PAGE>

The  scheduled  maturities  of  certificate accounts outstanding at December 31,
2002  were  as  follows  (in  thousands):
<TABLE>
<CAPTION>

Year Ending December 31,
------------------------
<S>                       <C>
 2003                     $768,407
 2004                      131,792
 2005                       35,685
 2006                        4,513
 2007                       33,302
 Subsequent years               25
                          --------
                          $973,724
                          ========
</TABLE>

The  aggregate  amount of certificate accounts with balances of $100,000 or more
was  approximately  $237.0  million  and $248.0 million at December 31, 2002 and
2001,  respectively.

(12) ADVANCES  FROM  THE  FEDERAL  HOME  LOAN  BANK  OF  DALLAS
Advances  from the FHLB for the years ended December 31, 2002, 2001 and 2000 are
summarized  as  follows  (dollars  in  thousands):
<TABLE>
<CAPTION>
<S>                                    <C>        <C>          <C>
                                          2002         2001         2000
                                       ---------  -----------  -----------
Balance outstanding at end of year     $696,085   $  690,877   $1,150,305
Average balance outstanding             683,454      795,009      926,659
Maximum outstanding at any month-end    760,139    1,218,145    1,275,541
Average interest rate during the year      2.95%        4.90%        6.29%
Average interest rate at end of year       2.71%        3.46%        6.48%
</TABLE>



The scheduled maturities and related weighted average interest rates on advances
from  the  FHLB  at  December  31,  2002  are  summarized as follows (dollars in
thousands):

<TABLE>
<CAPTION>


Due during the year  Weighted Average
ending December 31,    Interest Rate     Amount
-------------------  -----------------  --------
<S>                  <C>                <C>
2003                             2.49%  $302,315
2004                             2.56    139,608
2005                             2.62    218,368
2006                             4.95      9,980
2007                             6.67      1,151
2008                             5.35      2,378
2009                             8.01      3,502
2010                             6.73        987
2011                             6.54      1,248
2012                             5.76        292
2013                             5.64      8,259
2014                             5.45      2,907
2015                             6.66      1,647
2017                             5.43      1,993
2018                             5.05      1,450
                                        --------

                                 2.71%  $696,085
                     =================  ========
</TABLE>



The  FHLB  advances  are  secured by certain first lien and multifamily mortgage
loans  and  mortgage-backed  securities  with  an  aggregate  carrying  value of
approximately  $700.0  million  at  December  31,  2002.

(13) SECURITIES  SOLD UNDER AGREEMENTS TO REPURCHASE AND FEDERAL FUNDS PURCHASED
Coastal enters into sales of securities under agreements to repurchase ("reverse
repurchase  agreements"). Fixed coupon reverse repurchase agreements are treated
as financing arrangements, and the obligations to repurchase securities sold are
reflected  as a liability in the consolidated statements of financial condition.
The  dollar  amounts of securities underlying the agreements are recorded in the
respective  asset  accounts.

Coastal  did  not  have  any  securities  sold under agreements to repurchase at
December  31,  2002  or  2001.  However,  securities  sold  under  agreements to
repurchase  averaged approximately $283.6 million and $249.7 million during 2001
and  2000,  respectively,  and  the maximum outstanding amounts at any month-end
during  2001  and  2000  were  approximately  $493.0 million and $605.2 million,
respectively.

Federal  funds  purchased  averaged  approximately $18,000 during the year ended
December  31,  2000.  There  were  no Federal funds purchased outstanding at any
time  during  2002  or  2001.

(14) COMPANY  OBLIGATED  MANDATORILY  REDEEMABLE 9.0% TRUST PREFERRED SECURITIES
On June 18, 2002, Coastal, through Coastal Capital Trust I (a consolidated trust
subsidiary)  (the  "Trust"), issued 2,000,000 trust preferred securities ("Trust
Preferred  Securities")  with a liquidation preference of $25 per security.  The
Trust  Preferred  Securities  represent  an  interest  in  Bancorp's  junior
subordinated  debentures,  which  were  purchased  by  the  Trust.  The  junior
subordinated  debentures  are the only assets of the Trust and interest payments
from  the  debentures  finance  the  distributions  paid  on the Trust Preferred
Securities.  Distribution  on the securities are payable quarterly at the annual
rate of 9.0% and are included in interest expense in the consolidated statements
of  income.

The  Trust  Preferred  Securities  are  subject  to  mandatory redemption at the
liquidation  preference,  in  whole  or  in  part,  upon repayment of the junior
subordinated  debentures  at  maturity  or their earlier redemption.  The junior
subordinated  debentures  are  redeemable prior to the maturity date of June 30,
2032,  at  the option of Bancorp on or after June 30, 2007, in whole at any time
or  in  part  from  time  to  time.  The junior subordinated debentures are also
redeemable  at  any  time,  in  whole,  but  not in part, upon the occurrence of
specific  events  defined within the trust indenture.  Bancorp has the option to
defer distribution on the junior subordinated debentures from time to time for a
period  not  to  exceed  20  consecutive  quarters.

A  portion  of  the proceeds from the issuance of the Trust Preferred Securities
were  used to repurchase 500,000 shares of common stock for $15.0 million from a
director  of  Bancorp  in June 2002.  In addition, $28.8 million of the proceeds
were  used  on  July  15, 2002, to redeem the Bank's 9.0% Series A Noncumulative
Preferred  Stock  (Nasdaq:CBSAP)  through a capital contribution to Coastal Banc
ssb.

(15)  SENIOR  NOTES  PAYABLE
On  June  30,  1995, Coastal issued $50.0 million of 10.0% Senior Notes due June
30,  2002.  The Senior Notes were redeemable at Coastal's option, in whole or in
part, on or after June 30, 2000, at par, plus accrued interest to the redemption
date.  Interest on the Senior Notes was payable quarterly.  On January 28, 1999,
the  Board  of  Directors authorized the repurchase, on an unsolicited basis, of
the  Senior  Notes  in  an  amount  and  on such terms considered appropriate by
management.  During  2001  and  1999, Coastal repurchased $3.0 and $3.1 million,
respectively,  of  the  Senior  Notes  outstanding  at  par.

On  February 1, 2002, (the "Redemption Date"), Coastal redeemed all of its 10.0%
Senior  Notes  outstanding  ($43.9  million).  The redemption price was par plus
accrued  interest  to  the  Redemption  Date.

<PAGE>

(16)  DERIVATIVE  INSTRUMENTS
Coastal is a party to derivative instruments in the normal course of business to
reduce  its  exposure  to  fluctuations  in  interest  rates.  These  derivative
instruments  have  included  interest  rate  swap agreements where Coastal makes
fixed  interest  payments  and  receives  payments based on a floating index and
interest  rate  cap  agreements, as described below.  Effective January 1, 2001,
Coastal  adopted  Statement  133 as discussed in Note 2.  Statement 133 requires
companies  to  recognize  all derivatives as either assets or liabilities in the
consolidated  statement  of  financial  condition and measure all derivatives at
fair  value.  The  interest  rate  swap  and  cap  agreements held by Coastal on
December 31, 2000 were determined to not qualify for hedge accounting, therefore
on  implementation of Statement 133, Coastal recorded a transition adjustment to
record  these derivative instruments at fair value.  On January 1, 2001, Coastal
recorded  a  transition  adjustment loss of $160,000, or $104,000 net of the tax
effect,  as  the  cumulative  effect  of the change in accounting for derivative
instruments  to record the fair value of Coastal's derivative instruments in the
consolidated  statements  of  income.  For  the  year  ended  December 31, 2001,
Coastal  recorded  an additional fair value loss on these derivative instruments
of  $422,000.  The  fair value changes in the derivative instruments during 2001
were  primarily  attributable  to Coastal's interest rate swap agreements, which
were  totally  liquidated  in June 2001.  As of December 31, 2002, interest rate
cap  agreements  were Coastal's only derivative instruments and were recorded at
fair  value  pursuant  to  Statement  133.

As  of  December  31,  2002, Coastal has interest rate cap agreements with third
parties  with  notional amounts totaling $107.6 million.  The current agreements
provide  for  the  third  parties to make payments to Coastal whenever a defined
floating  rate  exceeds  rates  ranging  from  8.0%  to  9.0%,  depending on the
agreement.  All of Coastal's current agreements expire in 2003.  Payments on the
interest  rate  cap agreements are based on the notional principal amount of the
agreements; no funds were actually borrowed or are to be repaid.  The fair value
of the interest rate cap agreements was zero at December 31, 2002 and $37,000 at
December  31,  2001,  which is the recorded book value of the agreements at such
dates  due  to  the  implementation  of  Statement  133.  The  interest rate cap
agreements  are  used  to  alter  the  interest rate sensitivity of a portion of
Coastal's  mortgage-backed  securities  and  loans  receivable.  As  such,  the
amortization  of  the  purchase price and interest income from the interest rate
cap agreements are recorded in "interest income on mortgage-backed securities or
loans  receivable"  as appropriate.  The net decrease in interest income related
to  interest rate cap agreements was approximately $25,000 for each of the years
ended  December 31, 2002, 2001 and 2000.  No payments were made to Coastal under
the  interest rate cap agreements during the years ended December 31, 2002, 2001
or  2000.

Coastal  totally  liquidated  its  interest rate swap positions in June of 2001.
The  interest  rate  swap  agreements  previously  held  by Coastal provided for
Coastal to make fixed interest payments and receive payments based on a floating
LIBOR  index,  as defined in each agreement.  The weighted average interest rate
of  payments  received  on  all  of  the  interest  rate  swap  agreements  was
approximately  4.84%  in  2001 and 6.50% in 2000.  The weighted average interest
rate  of  payments  made  on  all  of  the  interest  rate  swap  agreements was
approximately  5.21%  in  2001 and 5.94% in 2000.  Payments on the interest rate
swap  agreements  were based on the notional principal amount of the agreements;
no  funds  were  actually  borrowed  or  are  to be repaid. Coastal recorded net
interest  expense  or  income  related to these agreements on a monthly basis in
interest expense in the accompanying consolidated statements of income.  The net
interest  income  increase  or  (decrease)  related  to  these  agreements  was
approximately  ($35,000)  and $212,000 for the years ended December 31, 2001 and
2000,  respectively.

Market  risk,  or  the risk of loss due to movement in market prices or rates is
quantified by Coastal through a risk monitoring process of marking to market the
portfolio to expected market level changes in an instantaneous shock of plus and
minus 200 basis points on a quarterly basis.  This process discloses the effects
on  market  values  of  the assets and liabilities, unrealized gains and losses,
including  off-balance sheet items, as well as potential changes in net interest
income.

Coastal  is  exposed  to  credit  loss  in  the  event  of nonperformance by the
counterparty to the swap or cap and controls this risk through credit monitoring
procedures.  The notional principal amount does not represent Coastal's exposure
to  credit  loss.

(17) FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS
Statement  of  Financial  Accounting  Standards No. 107, "Disclosures about Fair
Value  of  Financial Instruments," requires that Coastal disclose estimated fair
values for its financial instruments.  The fair value estimates presented herein
are  based  on  relevant  information available to management as of December 31,
2002  and  2001.  Because  the  reporting requirements exclude certain financial
instruments  and  all nonfinancial instruments, the aggregate fair value amounts
presented  herein do not represent management's estimate of the underlying value
of  Coastal.  The  fair  value  estimates,  methods and assumptions used are set
forth  below  for  Coastal's  financial  instruments  (in  thousands):

<TABLE>
<CAPTION>



                                                             At                                 At
                                                       December 31, 2002                December 31, 2001
                                           -------------------------------------  -------------------------------
                                               Carrying              Fair          Carrying          Fair
                                                Value               Value           Value            Value
                                          ------------------  ------------------  ----------  -------------------
<S>                                       <C>                <C>                   <C>          <C>
Financial assets:
 Cash and cash equivalents                $           39,766  $           39,766  $   41,537  $           41,537
 Federal funds sold                                   27,755              27,755      16,710              16,710
 Loans receivable held for sale                       49,886              49,886          --                  --
 Loans receivable                                  1,812,785           1,837,157   1,863,601           1,892,609
 Mortgage-backed securities
   available-for-sale                                475,022             475,022     514,068             514,068
 Other securities available-for-sale                   1,788               1,788      42,827              42,827
 Stock in the FHLB                                    41,221              41,221      40,032              40,032
 Interest rate cap agreements                             --                  --          37                  37
 Accrued interest receivable                           9,781               9,781      13,243              13,243
Financial liabilities:
 Deposits                                          1,614,368           1,625,659   1,660,386           1,671,265
 Advances from the FHLB                              696,085             702,067     690,877             693,654
 Company obligated mandatorily
   redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I              50,000              51,300          --                  --
 Senior Notes payable                                     --                  --      43,875              43,875
 Accrued interest payable                              4,298               4,298       6,050               6,050
Off-balance sheet instruments:
 Commitments to extend credit                             --             320,379          --             255,301
</TABLE>



CASH AND  CASH  EQUIVALENTS
Carrying  value  approximates  fair value because of the short maturity of these
instruments  and  absence  of  any  anticipated  credit  concerns.

FEDERAL  FUNDS  SOLD
Carrying  value  approximates  fair value because of the short maturity of these
instruments  and  absence  of  any  anticipated  credit  concerns.

LOANS  RECEIVABLE  HELD  FOR  SALE  AND  LOANS  RECEIVABLE
The  fair  values  of loans receivable are estimated for segregated groupings of
loans  with  similar  financial  characteristics.  Loans are segregated by type,
such  as  residential  mortgage,  commercial and consumer.  Residential mortgage
loans  are  further  subdivided  into  fixed and adjustable rate loans including
single  family,  multifamily  and  construction.

The  fair value of single family residential loans is estimated based on current
investor  market  prices  and yields for mortgage-backed securities with similar
maturities,  interest  rate  indexes  and  prepayment characteristics.  The fair
value  of  multifamily  residential, construction, commercial and consumer loans
are  estimated  using  factors that reflect the credit and interest rate risk in
these  loans.

SECURITIES  AVAILABLE-FOR-SALE
The  fair  values of mortgage-backed and other securities are estimated based on
published  market prices or market prices from investment dealers and companies.
If  a quoted market price is not available, fair value is estimated using quoted
market  prices  for  similar  securities.

STOCK  IN  THE  FHLB
The  carrying amount of the stock in the FHLB approximates fair value because it
is  redeemable  at  its  par  value.

INTEREST  RATE  CAP  AGREEMENTS
The  fair  values  of  interest  rate cap agreements are based on the discounted
value  of  the differences between contractual interest rates and current market
rates  for  similar  agreements.

ACCRUED  INTEREST  RECEIVABLE
Carrying  value  approximates  fair  value.

DEPOSITS
The  fair  value  of  deposits  with  short-term  or no stated maturity, such as
noninterest-bearing  checking,  interest-bearing  checking, savings accounts and
money  market demand accounts is equal to the amounts payable as of December 31,
2002  and  2001.  The  fair  value  of  certificate  accounts  is  based  on the
discounted  value  of  contractual  cash  flows.  The discount rate is estimated
using  the rates currently offered for deposits of similar remaining maturities.

ADVANCES  FROM  THE  FHLB
The  fair  value  of  advances from the FHLB is estimated based on quoted market
prices for similar agreements or current rates offered to Coastal for borrowings
with  similar  remaining  maturities.

TRUST  PREFERRED  SECURITIES OF COASTAL CAPITAL TRUST I AND SENIOR NOTES PAYABLE
The  fair  values  of  the  Trust  Preferred  Securities and of the Senior Notes
payable  are  based  on  quoted  market  prices  for  similar  securities.

ACCRUED  INTEREST  PAYABLE
Carrying  value  approximates  fair  value.

COMMITMENTS  TO  EXTEND  CREDIT
The  fair  value  of  commitments  to  extend  credit is estimated using current
interest  rates  and  committed  interest  rates.

(18) FEDERAL  INCOME  TAXES
The acquisition of the Acquired Associations under the FSLIC's Southwest Plan on
May  13,  1988  qualified  for  tax-free  reorganization  status  under  Section
368(a)(3)(D)  of  the  Internal  Revenue  Code  of  1986  as  amended  ("IRC").
Accordingly,  the  tax bases of assets of the Acquired Associations carried over
to  Coastal.  In  connection  with  this  acquisition, the FSLIC Resolution Fund
("FRF")  retained all of the future federal income tax benefits derived from the
federal income tax treatment of certain items, in addition to net operating loss
carryforwards related to the acquisition for which Coastal agreed to pay the FRF
when  actually  realized.  The  provisions for federal income taxes recorded for
the  years  ended  December  31,  2002,  2001  and 2000, represent the gross tax
liability  computed  under  these  tax  sharing  provisions before reduction for
actual  federal taxes paid to the Internal Revenue Service.  Alternative minimum
taxes  paid  with  the  federal  return  in 2002, 2001 and 2000 are available as
credit  carryforwards to reduce regular federal tax liabilities in future years,
over an indefinite period and were partially utilized beginning in 2000.  To the
extent these credits were generated due to the utilization of other tax benefits
retained  by  the FRF, they will also be treated as tax benefit items.  Although
the  termination of the agreement with the FRF was effective March 31, 1994, the
FRF will continue to receive the future federal income tax benefits from the net
operating  loss  carryforwards  acquired  from  the  Acquired  Associations.

The components of the provision for federal income tax expense (benefit) for the
years  ended  December  31,  2002,  2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

             2002      2001      2000
            -------  --------  --------
<S>         <C>      <C>       <C>
Current     $9,349   $13,153   $13,141
Deferred      (209)   (2,286)   (3,246)
            ------   -------   --------
            $9,140   $10,867   $ 9,895
            ======   =======   ========
</TABLE>
A reconciliation of the expected federal income taxes using a corporate tax rate
of  35%  for  the years ended December 31, 2002, 2001 and 2000 is as follows (in
thousands):

<TABLE>
<CAPTION>



                                                 2002      2001      2000
                                               --------  --------  --------
<S>                                            <C>       <C>       <C>
Computed expected tax provision                $10,627   $12,376   $11,343
FDIC tax benefit of preferred stock dividends   (1,405)   (1,784)   (1,784)
Net purchase accounting adjustments                 --       222       282
Other, net                                         (82)       53        54
                                               -------   -------   --------
                                               $ 9,140   $10,867   $ 9,895
                                               =======   =======   ========
</TABLE>

Significant  temporary differences that give rise to the deferred tax assets and
liabilities  as  of  December  31,  2002 and 2001 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                   2002    2001
                                                                  ------  ------
<S>                                                               <C>     <C>
Deferred tax assets:
  Loans receivable, principally due to allowance for loan losses  $6,002  $4,811
  Unrealized loss on securities available-for-sale                    --     855
  Intangible assets                                                  122     841
  Property and equipment                                           2,014   1,683
  Other                                                              106     130
                                                                  ------  ------
                                                                   8,244   8,320
                                                                  ------  ------
Deferred tax liabilities:
  Unrealized gain on securities available-for-sale                $  333  $   --
  FHLB stock                                                       1,147     703
  Other                                                              126      --
                                                                  ------  ------
                                                                   1,606     703
                                                                  ------  ------
Net deferred tax asset                                            $6,638  $7,617
                                                                  ======  ======
</TABLE>

No valuation allowance on deferred tax assets has been established as management
believes  that it is more likely than not that the existing deductible temporary
differences  will  reverse during periods in which Coastal generates net taxable
income.

In  years prior to 1996, Coastal was permitted under the IRC to deduct an annual
addition  to  a  reserve  for  bad  debts  in  determining taxable income.  This
addition  differs  from  the  provision  for loan losses for financial reporting
purposes.  Due  to  enacted  legislation, Coastal is no longer able to utilize a
reserve  method  for determining the bad debt deduction but is allowed to deduct
actual  charge-offs.  Further,  Coastal's post-1987 tax bad debt reserve will be
recaptured into income.  The reserve is being recaptured over a six-year period.
At  December 31, 2002, Coastal had approximately $664,000 post-1987 tax bad debt
reserves,  for  which  deferred  taxes  have  been  provided.

Coastal  is  not  required to provide deferred taxes on its pre-1988 (base year)
tax  bad  debt  reserve  of  $928,000.  This  reserve may be included in taxable
income  in  future years if the Bank pays dividends in excess of its accumulated
earnings  and  profits (as defined in the IRC) or in the event of a distribution
in  partial  or  complete  liquidation  of  the  Bank.

(19) STOCK  COMPENSATION  PROGRAMS
In  December  1991,  the  Board of Directors adopted the 1991 Stock Compensation
Program  (the "1991 Program") for the benefit of officers and other selected key
employees of Coastal.  The 1991 Program was approved by stockholders in December
1991.  Four  kinds of rights, evidenced by four plans, are contained in the 1991
Program  and  are  available  for  grant:  incentive stock options, compensatory
stock  options,  stock  appreciation  rights  and performance share awards.  The
maximum  aggregate  number  of  shares of Common Stock available pursuant to the
1991  Program  was  equal  to  10% of Coastal's issued and outstanding shares of
Common  Stock at the date of adoption of the 1991 Program.  Coastal reserved the
shares  for  future  issuance  under  the  1991 Program.  The stock options were
granted at a price not less than the fair market value on the date of the grant,
are  exercisable  ratably  over  a four-year period and may be outstanding for a
period  up  to ten years from the date of grant.  Generally, no stock option may
be  exercised  until  the  employee has remained in the continuous employment of
Coastal  for  six  months  after  the  option  was  granted.

On  March  23,  1995 and March 25, 1999, the Board of Directors adopted the 1995
and  1999  Stock Compensation Programs, respectively, (the "New Programs").  The
New  Programs are substantially similar to the 1991 Program and were approved by
stockholders in April 1995 and April 1999, respectively.  The Board of Directors
reserved  382,891 and 340,000, respectively, shares of Common Stock for issuance
under  the  New  Programs.

The  fair value of each option grant is estimated on the date of grant using the
Black-Scholes  option-pricing  model  with  the  following  weighted  average
assumptions  used  for  grants  in  2002,  2001  and  2000:

<TABLE>
<CAPTION>

                                 2002          2001          2000
                             ------------  ------------  ------------
<S>                          <C>           <C>           <C>
Assumptions:
  Expected annual dividends   $0.48/share   $0.48/share   $0.36/share
  Expected volatility              26.99%        37.20%        37.21%
  Risk-free interest rate           1.61%         4.30%         6.40%
  Expected life in years               10            10            10
</TABLE>

<PAGE>
A  summary  of the status of the stock options as of December 31, 2002, 2001 and
2000  and  changes  during  the  years  then  ended  is  as  follows:

<TABLE>
<CAPTION>

                                                2002                    2001                      2000
                                        ---------------------  ----------------------  --------------------------
                                                    Weighted-               Weighted-                  Weighted
                                         Number     Average      Number     Average     Number         Average
                                           of       Exercise       Of       Exercise      of           Exercise
                                         Shares      Price       Shares      Price      Shares          Price
                                        ---------  ----------  ----------  ----------  ---------  ---------------
<S>                                     <C>        <C>         <C>         <C>         <C>        <C>

Outstanding at beginning of year         604,899   $   14.516    766,979   $   14.047   722,412   $        13.726
Granted                                   36,031       30.863     10,000       28.900   132,000            14.750
Exercised                                (34,776)      11.915   (157,556)      13.048   (61,395)           10.253
Forfeited/cancelled                       (1,500)      14.854    (14,524)      15.579   (26,038)           17.653
                                        --------               ---------               ---------
Outstanding at end
 of year                                 604,654   $   15.639    604,899   $   14.516   766,979   $        14.047
                                        ========               =========               ========
Options exercisable at
 end of year                             543,631                 502,337                578,340
                                        =========              ==========              =========
Weighted-average fair
 value of options
 granted during the year (per share)    $  8.771               $  12.622               $  6.356
                                        =========              ==========              =========
</TABLE>



The  following  table  summarizes information about stock options outstanding at
December  31,  2002:
<TABLE>

<CAPTION>
<S>                        <C>                  <C>                  <C>                <C>          <C>
                                               Options outstanding                           Options exercisable
                          -----------------------------------------------------------  ------------------------------
                                                    Weighted-Average
                                 Number                Remaining       Weighted-Average    Number     Weighted-Average
Range of Exercise Prices       Outstanding          Contractual Life    Exercise Price   Exercisable   Exercise Price
-------------------------  -------------------  -------------------  -----------------  -----------  -----------------

$8.583 to $12.500                     201,208            2.3 years  $          10.679      201,208  $          10.679
$14.750 to $20.333                    325,165            6.1 years  $          15.673      298,665  $          15.755
$25.125 to $30.960                     78,281            7.8 years  $          28.248       43,758  $          26.522
                           ------------------                                           ----------
                                      604,654            5.1 years  $          15.639      543,631  $          14.742
                           ==================                                          ===========
</TABLE>



(20) EMPLOYEE  BENEFITS
Coastal maintains a 401(k) profit sharing plan.  Coastal's contributions to this
plan  were  approximately  $563,000,  $566,000  and $518,000 for the years ended
December  31,  2002,  2001  and  2000,  respectively.  Pursuant  to  this  plan,
employees  can  contribute  up  to 15% of their qualifying compensation into the
plan.  Beginning  January  1,  1990,  Coastal  matched  25%  of  the  employee
contributions  up  to  15%  of their qualifying compensation.  Beginning July 1,
1998,  Coastal  has  matched 50% of the employee contributions up to 6% of their
qualifying  compensation and 25% of the employee contributions from 7% to 15% of
their  qualifying  compensation.

(21) COASTAL  BANC  SSB  PREFERRED  STOCK
On  October  21,  1993,  the  Bank issued 1,150,000 shares of 9.0% Noncumulative
Preferred  Stock,  no  par  Series A, at a price of $25 per share to the public.
Dividends  on  this preferred stock were payable quarterly at the annual rate of
$2.25 per share, when, as and if declared by the Board of Directors of the Bank.
At  any  time  on  or  after  December  15,  1998, this preferred stock could be
redeemed  in  whole  or  in part only at the Bank's option at $25 per share plus
unpaid  dividends  (whether  or  not  earned  or  declared) for the then current
dividend  period  to  the  date  fixed  for  redemption.   With a portion of the
proceeds  from the issuance of the Trust Preferred Securities, the Bank redeemed
from  the  stockholders  of  record  all  of  the  outstanding  9.0%  Series  A
Noncumulative  Preferred  Stock  on July 15, 2002 (see note 14).  The redemption
price was $25.185 per share, which represented the stated value of the Preferred
Stock,  plus  accrued  and  unpaid  dividends  to  the  date  of  redemption.

(22) STOCKHOLDERS'  EQUITY

COASTAL  BANCORP,  INC.  PREFERRED  STOCK
On  May  11,  1999, Bancorp issued 1,100,000 shares of 9.12% Series A Cumulative
Preferred  Stock,  no  par  value,  to  the  public  at a price of $25 per share
("Bancorp  Preferred  Stock").  Dividends  on  the  preferred  stock are payable
quarterly  at  the  annual  rate  of  $2.28  per  share.  The preferred stock is
callable on May 15, 2003 at Bancorp's option.  Pursuant to Coastal's tax benefit
agreement  with  the  FRF,  Coastal receives a tax benefit for dividends on this
preferred  stock.  The ongoing quarterly benefit will be approximately $219,000,
or  4  cents  per  diluted  share  (as of December 31, 2002), and is expected to
continue  through  2003.

COMMON  STOCK  DIVIDENDS
On  January  24,  April  25,  July  25  and October 24, 2002, Coastal declared a
dividend  of $0.12 per share of Common Stock outstanding for the stockholders of
record  as  of  February  15,  May  15,  August  15,  and  November  15,  2002,
respectively.

On  January  25,  2001, Coastal declared a dividend of $0.10 per share of Common
Stock  outstanding  for  the stockholders of record as of February 15, 2001.  On
April 26, July 26 and October 25, 2001, Coastal declared a dividend of $0.12 per
share  on Common Stock outstanding for the stockholders of record as of  May 15,
August  15  and  November  15,  2001,  respectively.

On January 28 and April 28, 2000, Coastal declared a dividend of $0.08 per share
of Common Stock outstanding for the stockholders of record as of February 15 and
May 15, 2000, respectively.  On July 28 and October 27, 2000, Coastal declared a
dividend  of $0.10 per share on Common Stock outstanding for the stockholders of
record  as  of  August  15  and  November  15,  2000,  respectively.

TREASURY  STOCK
On  August  27, 1998, December 21, 1998, February 25, 1999, April 27, 2000, July
27,  2000  and  April  25  2002,  the Board of Directors authorized six separate
repurchase  plans  for  up  to  500,000 shares each of the outstanding shares of
common  stock through an open-market repurchase program and privately negotiated
repurchases,  if any.  As of December 31, 2002 and 2001, 2,729,575 and 2,000,000
shares,  respectively,  had  been  repurchased  under  all authorized repurchase
plans.  As  of  December  31, 2002, 2,726,019 shares were held in treasury at an
average  repurchase price of $19.46 per share for a total cost of $53.0 million.

<PAGE>

(23) EARNINGS  PER  COMMON  SHARE
The  following  summarizes  information  related to the computation of basic and
diluted  EPS  for  the  years ended December 31, 2002, 2001 and 2000 (dollars in
thousands,  except  per  share  data):

<TABLE>
<CAPTION>



<S>                                                                                     <C>          <C>          <C>
                                                                                            2002         2001         2000
                                                                                        -----------  -----------  -----------
Net income                                                                              $   19,716   $   21,802   $   19,924
Preferred stock dividends                                                                   (2,508)      (2,508)      (2,508)
                                                                                        -----------  -----------  -----------
Net income available to common
 stockholders                                                                           $   17,208   $   19,294   $   17,416
                                                                                        ==========   ==========   ===========

Weighted average number of common shares
 outstanding used in basic EPS calculation                                               5,491,615    5,773,313    5,917,845
Add assumed exercise of outstanding stock
 options as adjustments for dilutive securities                                            258,916      305,021      140,316
                                                                                        -----------  -----------  -----------
Weighted average number of common shares outstanding used in diluted EPS calculation     5,750,531    6,078,334    6,058,161
                                                                                        ==========   ==========   ===========
Basic EPS before cumulative effect of
 accounting change                                                                      $     3.13   $     3.36   $     2.94
                                                                                        ==========   ==========   ===========
Basic EPS                                                                               $     3.13   $     3.34   $     2.94
                                                                                        ==========   ==========   ===========
Diluted EPS before cumulative effect of
 accounting change                                                                      $     2.99   $     3.19   $     2.87
                                                                                        ==========   ==========   ===========
Diluted EPS                                                                             $     2.99   $     3.17   $     2.87
                                                                                        ==========   ==========   ===========
</TABLE>



(24) COMMITMENTS  AND  CONTINGENCIES
Coastal is involved in various litigation arising from acquired entities as well
as in the normal course of business.  In the opinion of management, the ultimate
liability, if any, from these actions should not be material to the consolidated
financial  statements.

At  December  31,  2002,  the minimum rental commitments under all noncancelable
operating  leases  with initial or remaining terms of more than one year were as
follows  (in  thousands):
<TABLE>
<CAPTION>

Year ending
December 31,         Amount
-------------------  -------
<S>                  <C>
2003                 $ 2,846
2004                   2,505
2005                   2,463
2006                   2,367
2007                   2,100
2008 and thereafter    8,094
</TABLE>


Rent  expense  for  the years ended December 31, 2002, 2001 and 2000 amounted to
approximately  $3.4  million,  $3.2  million  and  $3.0  million,  respectively.

(25) REGULATORY  MATTERS
The  Bank  is subject to various regulatory capital requirements administered by
the  FDIC.  Failure  to  meet  minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators that, if
undertaken,  could  have  a  direct  material  effect  on  the  Bank's financial
statements.  Under  capital adequacy guidelines and the regulatory framework for
prompt  corrective  action,  the Bank must meet specific capital guidelines that
involve  quantitative  measures  of  the Bank's assets, liabilities, and certain
off-balance-sheet  items  as  calculated  under regulatory accounting practices.
The  Bank's  capital  amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.

Quantitative  measures  established  by  regulation  to  ensure capital adequacy
require  the  Bank  to  maintain  minimum  amounts and ratios (as defined in the
applicable  regulations)  of  Tier  1  (core)  capital  to  total assets, Tier 1
risk-based  capital  to  risk  weighted  assets  and total risk-based capital to
risk-weighted  assets.  Management  believes,  as of December 31, 2002, that the
Bank  met  the  capital  adequacy  requirements  to  which  it  is  subject.

As  of December 31, 2002, the most recent notification from the FDIC categorized
the  Bank  as  "well  capitalized"  under  the  regulatory  framework for prompt
corrective action.  To be categorized as well capitalized the Bank must maintain
minimum  Tier  1  (core),  Tier  1 risk-based and total risk-based ratios as set
forth  in  the  table  below.  There  are  no  conditions  or  events since that
notification  that  management believes have changed the institution's category.

The  Bank's  regulatory  capital amounts and ratios, as of December 31, 2002 and
2001,  in  relation  to its existing regulatory capital requirements for capital
adequacy  purposes  as  of  such  dates  are  as follows (dollars in thousands):

<TABLE>

<CAPTION>



                                                      Minimum For Capital     Well-Capitalized
                                    Actual             Adequacy Purposes        Requirements
                           ---------------------  -----------------------  ----------------------
                            Amount      Ratio       Amount        Ratio      Amount        Ratio
                           -------     -------      ---------    --------   -------     ---------
<S>                        <C>       <C>        <C>             <C>     <C>               <C>
As of December 31, 2002:
 Tier 1 (core)             $177,593       6.88%  $    103,315       4.00%    $129,144     5.00%
 Tier 1 risk-based          177,593      10.32         68,816       4.00      103,224     6.00
 Total risk-based           195,711      11.38        137,632       8.00      172,040    10.00

As of December 31, 2001:
 Tier 1 (core)             $205,021       7.27%  $    112,834       4.00%    $141,043     5.00%
 Tier 1 risk-based          205,021      11.90         68,921       4.00      103,381     6.00
 Total risk-based           220,406      12.79        137,841       8.00      172,302    10.00
</TABLE>



<PAGE>

(26)  PARENT  COMPANY  FINANCIAL  INFORMATION
Condensed  financial  information  for  Coastal  Bancorp, Inc. is as follows (in
thousands):


                              Coastal Bancorp, Inc.
                   Condensed Statements of Financial Condition
                   -------------------------------------------
<TABLE>
<CAPTION>


                                                    December 31,
                                                   -------------
                                                   2002         2001
                                               -------------  --------
<S>                                            <C>            <C>
Assets:
  Cash and cash equivalents                    $         139  $  2,751
  Investment in subsidiaries                         200,835   196,156
  Mortgage-backed securities available-for-sale          344       445
  Other assets                                         3,189     2,524
                                               -------------  --------
                                               $     204,507  $201,876
                                              ==============  ========

Liabilities and stockholders' equity:
  Junior subordinated debentures               $      51,546  $     --
  Senior Notes payable                                    --    43,875
  Payable to the Bank                                      5       447
  Other liabilities                                       71       120
                                               -------------  --------
        Total liabilities                             51,622    44,442
        Total stockholders' equity                   152,885   157,434
                                               -------------  --------
                                               $     204,507  $201,876
                                               =============  ========
</TABLE>


                              Coastal Bancorp, Inc.
                         Condensed Statements of Income
                         ------------------------------
<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                         2002      2001     2000
                                                         -------  -------  -------
<S>                                    <C>                        <C>      <C>
Income:
  Dividends from subsidiaries                        $     7,749  $ 7,664  $ 7,132
  Equity in undistributed earnings of
   subsidiaries, net of income tax                        13,158   16,128   15,200
  Interest and other income                                   17      184      507
                                                         -------  -------  -------
                                                          20,924   23,976   22,839
                                                         -------  -------  -------
Expense:
  Interest expense                                         2,873    4,590    4,690
  Noninterest expense                                        286        6      872
                                                         -------  -------  -------
                                                           3,159    4,596    5,562
                                                         -------  -------  -------
  Federal income tax benefit                               1,951    2,422    2,647
                                                         -------  -------  -------
        Net income                                   $    19,716  $21,802  $19,924
                                                         =======  =======  =======
</TABLE>

<PAGE>

                              Coastal Bancorp, Inc.
                       Condensed Statements of Cash Flows
                       ----------------------------------

<TABLE>
<CAPTION>
                                                                                   Years ended December 31,
                                                                                   2002       2001       2000
                                                                                ----------  --------  ----------
<S>                                                                        <C>             <C>        <C>
Cash flows from operating activities:
  Net income                                                                $      19,716   $ 21,802   $ 19,924
  Adjustments to reconcile net income to net
    cash provided by (used in) operating activities:
      Equity in undistributed earnings of subsidiaries                            (13,158)   (16,128)   (15,200)
      Net decrease in other assets and other liabilities                           15,150      2,843      9,547
                                                                                ----------  --------  ----------
          Net cash provided by operating activities                                21,708      8,517     14,271
                                                                                ----------  --------  ----------
Cash flows from investing activities:
  Net decrease in mortgage-backed securities                                          101        346        195
                                                                                ----------  --------  ----------
          Net cash provided by investing activities                                   101        346        195
                                                                                ----------  --------  ----------
Cash flows from financing activities:
  Redemption or repurchase of Senior Notes payable                                (43,875)    (3,025)        --
  Proceeds from issuance of junior subordinated debentures                         45,928         --         --
  Exercise of stock options for purchase of Common Stock                              326      2,055        630
  Purchase of treasury stock                                                      (21,753)        --    (10,882)
  Issuance of treasury shares                                                         108
  Dividends paid                                                                   (5,155)    (5,171)    (4,638)
                                                                                ----------  --------  ----------
        Net cash used in financing activities                                     (24,421)    (6,141)   (14,890)
                                                                                ----------  --------  ----------
          Net increase (decrease) in cash and cash equivalents                     (2,612)     2,722       (424)
Cash and cash equivalents at beginning of year                                      2,751         29        453
                                                                                ----------  --------  ----------
Cash and cash equivalents at end of year                                     $        139   $  2,751   $     29
                                                                                =========   ========   =========
</TABLE>



<PAGE>
(27) SELECTED  QUARTERLY  FINANCIAL  DATA
Selected  quarterly  financial data is presented in the following tables for the
years  ended  December  31, 2002 and 2001 (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                       2002 Quarter Ended (unaudited)
                                                       -------------------------------------------------------
                                                          March 31,    June 30,   September 30,   December 31,
                                                       -------------  ---------  --------------  -------------
<S>                                  <C>                              <C>        <C>             <C>
Interest income                                        $      35,406  $  35,183  $       34,031  $      33,003
Interest expense                                              16,687     15,456          15,672         14,961
                                                       -------------  ---------  --------------  -------------
Net interest income                                           18,719     19,727          18,359         18,042
Provision for loan losses                                        900        900             900          3,100
Noninterest income                                             2,509      2,954           3,054          8,692
Noninterest expense                                           13,716     13,819          13,880         14,478
                                                       -------------  ---------  --------------  -------------
Income before provision
 for Federal income taxes and
 minority interest                                             6,612      7,962           6,633          9,156
Provision for Federal income taxes                             1,884      2,360           2,045          2,851
Minority interest - preferred stock
 dividends of Coastal Banc ssb                                   647        647             213             --
                                                       -------------  ---------  --------------  -------------
Net income                                             $       4,081  $   4,955  $        4,375  $       6,305
                                                       =============  =========  ==============  =============
Basic earnings per common share                        $       0.59   $    0.76  $         0.72  $        1.10
                                                       =============  =========  ==============  =============
Diluted earnings per common share                      $       0.57   $    0.72  $         0.68  $        1.05
                                                       =============  =========  ==============  =============
</TABLE>



The financial data above for the quarters ended March 31, and June 30, 2002 have
been  restated  from  those amounts previously reported as required by Statement
147  which  was  adopted  by  Coastal  effective  January  1,  2002.

<TABLE>
<CAPTION>

                                                                     2001 Quarter Ended (unaudited)
                                                      --------------------------------------------------------
                                                           March 31,   June 30,   September 30,   December 31,
                                                      --------------  ---------  --------------  -------------
<S>                                                    <C>            <C>        <C>             <C>
Interest income                                       $      60,165   $  56,423  $       50,850  $      43,174
Interest expense                                             37,860      34,005          29,341         22,809
                                                      --------------  ---------  --------------  -------------
Net interest income                                          22,305      22,418          21,509         20,365
Provision for loan losses                                       900       1,200             900            900
Noninterest income.                                           1,822       2,984           3,477          2,860
Noninterest expense                                          14,682      14,573          14,904         14,320
                                                      --------------  ---------  --------------  -------------
Income before provision
 for Federal income taxes, minority
 interest and cumulative effect of
 accounting change                                            8,545       9,629           9,182          8,005
Provision for Federal income taxes                            2,614       2,992           2,836          2,425
Minority interest - preferred stock
 dividends of Coastal Banc ssb                                  647         647             647            647
Cumulative effect of change in
    accounting for derivative
    instruments                                                (104)         --              --             --
                                                      --------------  ---------  --------------  -------------
Net income                                             $      5,180   $   5,990  $        5,699  $       4,933
                                                      ==============  =========  ==============  =============
Basic earnings per common share                        $       0.80   $    0.93  $         0.88  $        0.74
                                                      ==============  =========  ==============  =============
Diluted earnings per common share                      $       0.76   $    0.89  $         0.83  $        0.70
                                                      ==============  =========  ==============  =============
</TABLE>

<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
STOCK  PRICES  AND  DIVIDENDS

The  following  table  sets  forth the high and low price range and dividends by
quarter for the two years ended December 31, 2002 of the Common Stock of Bancorp
(Nasdaq:  CBSA),  Preferred  Stock  of  Bancorp (Nasdaq: CBSAO), Trust Preferred
Securities  of the Trust (Nasdaq: CBSAN) and the Series A Preferred Stock of the
Bank  (Nasdaq:  CBSAP)  as  listed  and  quoted  on  The Nasdaq Stock Market(R):


COASTAL  BANCORP,  INC.  COMMON  STOCK  ("CBSA"):
<TABLE>
<CAPTION>
                           2002                           2001
                ---------------------------   ---------------------------
                 High      Low    Dividends    High      Low    Dividends
                -------   ------  ----------  -------  -------  ----------
<S>             <C>      <C>      <C>         <C>      <C>      <C>
First Quarter   $34.600  $28.950  $    0.120  $28.063  $23.000  $    0.100
Second Quarter   34.520   29.780       0.120   32.150   26.000       0.120
Third Quarter    32.010   27.550       0.120   39.410   31.890       0.120
Fourth Quarter   32.350   27.269       0.120   37.000   26.600       0.120
</TABLE>


COASTAL  BANCORP,  INC.  CUMULATIVE  PREFERRED  STOCK,  SERIES  A  ("CBSAO"):
<TABLE>
<CAPTION>

                           2002                           2001
                 --------------------------   ----------------------------
                 High      Low    Dividends    High      Low    Dividends
                -------  -------   ----------  -------  -------  ----------
<S>             <C>      <C>      <C>         <C>      <C>      <C>
First Quarter   $25.350  $24.600  $    0.570  $25.125  $21.625  $    0.570
Second Quarter   25.600   25.050       0.570   25.220   24.100       0.570
Third Quarter    25.500   25.000       0.570   25.250   24.850       0.570
Fourth Quarter   25.700   25.060       0.570   25.150   24.400       0.570
</TABLE>


COASTAL  CAPITAL  TRUST  I  TRUST  PREFERRED  SECURITIES  ("CBSAN"):
<TABLE>
<CAPTION>

                               2002
                    ------------------------------
                    High      Low    Distributions
                   -------   ------  -------------
<S>                <C>      <C>      <C>
First Quarter (1)  $    --  $    --  $        --
Second Quarter      25.280   25.000           --
Third Quarter       25.730   25.000        0.638
Fourth Quarter      25.690   24.900        0.563
</TABLE>


COASTAL  BANC  SSB  NONCUMULATIVE  PREFERRED  STOCK,  SERIES  A  ("CBSAP"):
<TABLE>
<CAPTION>

                                2002                         2001
                    ----------------------------  ----------------------------
                     High      Low    Dividends    High      Low    Dividends
                    -------           ----------  -------  -------  ----------
<S>                 <C>      <C>      <C>         <C>      <C>      <C>
First Quarter       $25.350  $24.580  $    0.563  $25.000  $22.000  $    0.563
Second Quarter       25.650   24.900       0.563   25.000   23.850       0.563
Third Quarter        25.200   25.000       0.185   25.250   24.530       0.563
Fourth Quarter (2)       --       --          --   25.150   24.380       0.563
</TABLE>

(1)     These  securities  were  issued  on  June  18,  2002.
(2)     These  securities  were  redeemed  on  July  15,  2002.

<PAGE>



Coastal  Bancorp,  Inc.
STOCKHOLDER  INFORMATION

ANNUAL  MEETING

The  Annual Meeting of Stockholders of Coastal Bancorp, Inc. will be held at the
corporate offices of Coastal Bancorp, Inc. at 5718 Westheimer, Houston, Texas in
the  Coastal  Banc  auditorium,  Suite  1101,  on  April 24, 2003 at 12:00 noon.


TRANSFER  AGENT  AND  REGISTRAR

Mellon  Investor  Services  LLC
Overpeck  Centre
85  Challenger  Road
Ridgefield  Park,  New  Jersey  07660-2104
(800)  851-9677
www.melloninvestor.com


INDEPENDENT  PUBLIC  ACCOUNTANTS

KPMG  LLP
700  Louisiana  Street
Houston,  Texas  77002


SPECIAL  COUNSEL

Elias,  Matz,  Tiernan  &  Herrick  L.L.P.
734  15th  Street,  N.W.
Washington,  D.C.  20005


INQUIRIES,  PUBLICATIONS  AND  FINANCIAL  INFORMATION  (INCLUDING  COPIES OF THE
ANNUAL  REPORT  AND  FORM  10-K  AT  NO  CHARGE  UPON  WRITTEN  REQUEST)

Manuel  J.  Mehos
Chairman  of  the  Board
   and  Chief  Executive  Officer
or
Catherine  N.  Wylie
Senior  Executive  Vice  President
   and  Chief  Financial  Officer

Coastal  Bancorp,  Inc.
Coastal  Banc  Plaza
5718  Westheimer,  Suite  600
Houston,  Texas  77057
(713)  435-5000
www.coastalbanc.com

<PAGE>
STOCK  LISTING  AND  OTHER  INFORMATION

The  common  stock  of Coastal Bancorp, Inc. ("Bancorp") is quoted on The Nasdaq
Stock  Market(R)  under  the  symbol "CBSA." As of February 25, 2003, there were
5,146,130  shares  of  Common  Stock  of  Bancorp issued and outstanding and the
approximate  number  of  registered  stockholders  was  169,  representing
approximately  1,500  beneficial  stockholders  at  such  record  date.

On  March  25, 1992, Coastal Banc Savings Association (the "Association") issued
3,092,076  shares  of  Common  Stock  at  $8.33  per share in its initial public
offering.  As  of  such date, the Common Stock of the Association was registered
under  the  Securities Exchange Act of 1934 (the "Exchange Act") and also became
listed  for  quotation on The Nasdaq Stock Market(R). The Common Stock issued by
the Association became the Common Stock of Bancorp on July 29, 1994, as a result
of  the  holding  company  reorganization  of  the  Association.

On  May  11,  1999, Bancorp issued 1,100,000 shares of 9.12% Series A Cumulative
Preferred  Stock, no par value, at $25 per share. As of such date, the Preferred
Stock  of  Bancorp was registered under the Exchange Act. The preferred stock is
callable  on  May  15,  2003 at Bancorp's option. The Bancorp Preferred Stock is
listed  and quoted on The Nasdaq Stock Market(R) under the symbol "CBSAO". As of
February  25,  2003,  there  were 1,100,000 shares of Preferred Stock issued and
outstanding  and  held by approximately 58 registered stockholders, representing
approximately  1,400  beneficial  stockholders  at  such  record  date.

On  June  18, 2002, the Trust issued 2,000,000 trust preferred securities with a
liquidation preference of $25 per security. As of such date, the Trust Preferred
Securities  were  registered  under  the  Exchange  Act.  The  Trust  Preferred
Securities are subject to mandatory redemption at the liquidation preference, in
whole  or  in  part,  upon  repayment  of  the junior subordinated debentures by
Bancorp  at  maturity  on  June  30, 2032 or their earlier redemption. The Trust
Preferred  Securities are listed and quoted on The Nasdaq Stock Market under the
symbol  "CBSAN."  As  of February 25, 2003, there were 2,000,000 Trust Preferred
Securities  issued  and  outstanding.

Bancorp  declared dividends on the Common Stock payable during 2002. A quarterly
dividend  in  the  amount  of  $0.12  per  share  was paid on March 15, June 15,
September  15 and December 15, 2002. On March 15, 2003, Bancorp paid a quarterly
dividend  in  the  amount  of  $0.12 per share on its Common Stock. Bancorp will
continue  to  review its dividend policy in view of the operating performance of
the  Bank,  and  may declare dividends on the Common Stock in the future if such
payments  are  deemed  appropriate  and  in  compliance  with applicable law and
regulations.  Prior  to  the  declaration  of dividends, Bancorp must notify the
Office  of  Thrift Supervision, the holding company's primary federal regulator,
which  may  object  to  the  dividends  on  the  basis  of safety and soundness.