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

                                    FORM 10-K


  [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1998
                                             -----------------

                                       OR

  [   ]     Transition Report Pursuant to Section 13 or 15 (d) of the Securities
                              Exchange Act of 1934

              For the Transition Period from _________ to _________

                        Commission File Number:  0-24526
                                                 -------

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


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

                           5718 Westheimer, Suite 600
                              Houston, Texas 77057
                              --------------------
                     (Address of principal executive office)

                                 (713) 435-5000
                                 --------------
                         (Registrant's telephone number)

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

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

           Securities registered pursuant to section 12(g) of the Act:
                   Common Stock, $0.00667 par value per share
                   ------------------------------------------
                                (Title of Class)

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

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

As  of  March  10,  1999,  the aggregate market value of the 5,048,421 shares of
Common  Stock  of  the Registrant issued and outstanding on such date, excluding
1,360,943  shares held by all directors and executive officers of the Registrant
as  a group, was $82,983,420.  This figure is based on the closing sale price of
$16.4375  per share of the Company's Common Stock on March 10, 1999, as reported
in  The  Wall  Street  Journal  on  March  11,  1999.

Number  of shares of Common Stock outstanding as of March 10, 1999:    6,409,364

     DOCUMENTS  INCORPORATED  BY  REFERENCE
     List  hereunder  the  following documents incorporated by reference and the
Part  of  Form  10-K  into  which  the  document  is  incorporated:
(1)          Portions  of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1998, are incorporated into Part II, Items 5-8 of
this  Form  10-K.
(2)         Portions of the Registrant's definitive proxy statement for its 1999
Annual  Meeting  of  Stockholders ("Proxy Statement") are incorporated into Part
III,  Items  10-13  of  this  Form  10-K.


PART  I.

ITEM  1.  BUSINESS
------------------

     COASTAL  BANCORP,  INC.

     Coastal  Bancorp, Inc. (the "Company") is engaged primarily in the business
of serving as the parent holding company for Coastal Banc ssb (the "Bank").  The
Company  was incorporated in March 1994 in connection with the reorganization of
Coastal  Banc  Savings  Association,  a  Texas-chartered thrift institution (the
"Association")  into  the  holding  company form of organization.  In connection
with  the  reorganization,  which  was  completed  in July 1994, the Association
concurrently  converted into a Texas-chartered savings bank and took its present
name.    In  November  1996,  in  order  to  minimize state taxes, the Company's
corporate  structure  was  again  reorganized  by  forming  Coastal Banc Holding
Company,  Inc.  ("HoCo")  as  a  Delaware  holding  company.    HoCo  became  a
wholly-owned  subsidiary  of  the  Company  and  the  Bank became a wholly-owned
subsidiary  of  HoCo.  Each of these reorganizations was treated as combinations
similar  to  a  pooling-of-interests.   The financial information and references
presented  herein  have  been  restated  to give effect where appropriate to the
reorganizations  as  if  they  had  occurred at the earliest date presented.  In
October  1997,  the  Company  formed  Coastal  Banc  Capital Corp. ("CBCC") as a
wholly-owned  subsidiary  of  HoCo.  CBCC is a registered broker-dealer, and was
formed  to  trade  packages of whole loan assets, primarily for the Bank and for
other  institutional  investors.

     At  December  31,  1998,  the Company had total consolidated assets of $3.0
billion,  total  deposits  of  $1.7 billion, $28.8 million in Series A Preferred
Stock  of  the  Bank  and  stockholders'  equity  of  $112.8  million.

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

     The  Company's  executive  offices  are located at Coastal Banc Plaza, 5718
Westheimer,  Suite  600, Houston, Texas 77057, and its telephone number is (713)
435-5000.

     COASTAL  BANC  ssb

     The Bank is a Texas-chartered, Federally insured state savings bank.  It is
headquartered  in  Houston,  Texas  and  operates  through  49 branch offices in
metropolitan  Houston,  Austin,  Corpus Christi, the Rio Grande Valley and small
cities  in  the  southeast  quadrant  of  Texas.

     The  Bank,  which was originally organized in 1954, was acquired in 1986 by
an investor group (which includes a majority of the current members of the Board
of  Directors  and  the  present  Chairman  of  the  Board,  President and Chief
Executive Officer of the Company) 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 change in ownership), the Bank had one full service office and
total  assets of approximately $10.7 million.  Since then, the Bank has acquired
deposits  and  branch  offices  in  transactions with the Federal government and
other private institutions, and, in 1995, acquired an independent national bank.
By  December  31,  1998,  the Bank's total assets had increased to $3.0 billion,
total  deposits  were  $1.7  billion  and  stockholders'  equity  totaled $187.9
million.

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

     CORE  DEPOSITS.  The Bank began to implement the first operating principle,
developing  and  expanding  a  core  deposit  base,  in 1988 through a series of
transactions  with  the Federal government and competitively priced transactions
with  private sector financial institutions.  In 1988, the Bank became the first
acquiror  of  failed  or  failing  savings  institutions  under  the  Federal
government's  "Southwest  Plan."    In  this  transaction  (the  "Southwest Plan
Acquisition"),  the  Bank  acquired  from the Federal Savings and Loan Insurance
Corporation  ("FSLIC"), as receiver for four insolvent savings associations (the
"Acquired  Associations"),  approximately  $543.4  million of assets and assumed
approximately  $543.4  million  of  deposits  and  other  liabilities.  The Bank
acquired an aggregate of 14 branch offices from the Acquired Associations in new
and existing markets in southwest Houston, west of Houston along the Houston-San
Antonio  corridor  and  in  the  Rio  Grande  Valley.    See "The Southwest Plan
Acquisition."

     Since  completion  of  the Southwest Plan Acquisition, the Bank has entered
into  nine  branch  office transactions (including two disposition transactions)
acquisitions  and one whole bank acquisition: two with an instrumentality of the
Federal  government (acting as the receiver of insolvent financial institutions)
and  eight  with other private institutions.  All of these transactions resulted
in  the net assumption of $1.9 billion of deposits and the net acquisition of 58
branch  offices.    The Bank has also opened six de novo branches in the Houston
metropolitan  area since its inception.  The Bank will continue to pursue fairly
priced  acquisitions  in Texas as a vehicle for growth, although there can be no
assurance  that  the  Bank  will  be  able  to  continue to do so in the future.

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

     The  Bank attempts to originate and purchase for retention in its portfolio
only  those  loans and investments which provide a positive interest rate spread
over  funding  liabilities matched with similar maturities. Consistent with this
philosophy,  a  significant  portion  of the Bank's assets have been invested in
adjustable-rate  high quality mortgage-backed securities.  At December 31, 1998,
of  the  Company's  $1.3  billion of mortgage-backed securities, $1.1 billion or
89.0%, were adjustable rate mortgage-backed securities.  To a lesser extent, the
Bank  has  purchased  first  lien  mortgages  on  single-family  residences, the
majority  of  which are adjustable rate mortgages.  At December 31, 1998, $511.2
million,  or  33.2% of the Company's loans receivable portfolio was comprised of
adjustable  rate  first  lien  single-family  residential  mortgage  loans.

     CREDIT  RISK.    The  Bank  has  implemented the third operating principle,
minimizing  credit  risk,  while  increasing the emphasis on commercial business
lending,  by  (i) holding a substantial portion of its assets in mortgage-backed
securities,  and  (ii)  taking  a  cautious  approach  to  its  direct  lending
operations,  including  the  development  of  commercial  business  lending.  At
December  31,  1998, of the Company's $3.0 billion in total assets, $1.3 billion
or  41.9%  of total assets consisted of mortgage-backed securities.  At December
31,  1998,  the  Company's  total  loans  receivable  portfolio amounted to $1.5
billion  or  51.6%  of  total  assets, $690.5 million of which were comprised of
first  lien residential mortgage loans.  The Bank's commercial loans represented
16.3%  of  the  Company's total loans receivable portfolio at December 31, 1998.

     NONINTEREST  EXPENSE.    The  Bank  has  implemented  the  fourth operating
principle,  maintaining  a low level of general overhead expense relative to its
peers, by operating an efficiently staffed branch office system which is able to
administer  and  deliver its products and services in an economical manner.  The
Bank  believes  that  it  has significant operating leverage, and that continued
incremental  growth  will  not  cause  its  overhead  expenses  to increase by a
corresponding  amount.    The  growth  achieved from the Bank's acquisitions has
facilitated  reduced  overhead levels as a proportion of assets and a lower cost
of  funds  from  a more meaningful market share of core deposits.  The Company's
ratio  of  noninterest  expense  to average total assets on a consolidated basis
increased  only  0.47%  from December 31, 1994 to December 31, 1998, while total
assets  grew  29.7%  over  the  same  period.

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

LENDING  ACTIVITIES

     GENERAL.    Since  1995,  the  Bank  has  attempted to re-align its lending
products  to  compete  with  commercial  banks  in an effort to increase its net
interest  margin  while  at  the  same time minimizing credit risk.  In order to
avoid  incurring undue credit risk, the Bank historically invested a significant
percentage  of  its  assets  in  alternative financial instruments, particularly
mortgage-backed  securities, most of which have certain repayments guaranteed by
the  United States government or Government Sponsored Enterprises ("GSEs").  See
"Mortgage-Backed  Securities."    In  addition,  the  Bank  has  originated  and
purchased  for  retention  in  its  portfolio  only  those  loans  determined by
management  to  have  an  acceptable  credit  risk  and which provide a positive
interest  rate  spread over funding liabilities matched with similar maturities.
This strategy is designed to achieve an acceptable risk adjusted rate of return,
as  determined  and  continuously  evaluated  by  the  Board  of  Directors  and
management.

     The Bank has taken a cautious approach to the development and growth of its
direct  lending  operations in order to minimize credit risk.  In November 1995,
the  Bank  acquired  its  first  commercial bank, Texas Capital Bancshares, Inc.
("Texas  Capital").    The  $103.3  million in loans acquired from Texas Capital
included  first  lien  residential,  multifamily  and  commercial  real  estate,
residential  construction,  real estate acquisition and development, commercial,
financial  and industrial and consumer loans.  In 1998, the Bank acquired twelve
commercial  bank  branches and established them as the foundation for the Bank's
Business  Banking  Centers,  which  focus  on  the  Bank's  commercial  banking
customers.    In  an  effort  to  enhance  its ability to service its commercial
customers, during the fourth quarter of 1997, the Bank implemented a new process
for  originating,  underwriting  and approving all loans over $1.0 million.  The
staff of the Portfolio Control Center ("PCC"), manages this process, and applies
Internet  and  network  computer  technology  to take a loan from application to
closing  in  less  time and incorporating more comprehensive credit information.
The  PCC  is  also responsible for monitoring and managing the Bank's assets and
liabilities.

     The  following  table  sets forth information concerning the composition of
the  Bank's  net  loans  receivable  portfolio  by  type  of  loan  at the dates
indicated.
<TABLE>
<CAPTION>

                                                                                 At  December  31,

<S>                                                     <C>        <C>            <C>        <C>          <C>         <C>   
                                                             1998                       1997                   1996 
                                                     ---------------------     ----------------------   -------------------- 
                                                      Amount      Percent         Amount     Percent     Amount      Percent
                                                     --------    --------       ---------   --------   ---------    --------
                                                                            (Dollars in thousands)
Real-estate mortgage loans:
 First lien residential                         $     690,510     41.87%     $   689,767     52.33%  $   791,337     61.96%
 Multifamily                                          119,447      7.24          131,454      9.97       139,486     10.92 
 Residential construction                             115,714      7.02           83,359      6.33        77,146      6.04 
 Acquisition and development                           75,932      4.61           31,619      2.40        26,132      2.05 
 Commercial                                           257,723     15.63          181,315     13.76       119,004      9.32 
 Commercial construction                               40,344      2.45           14,506      1.10         3,963      0.31 
Commercial secured by residential
 mortgage loans held for sale
 ("Warehouse")                                        173,124     10.50           98,679      7.49        53,573      4.19 
Commercial secured by mortgage
 servicing rights ("MSR")                               3,867      0.23           32,685      2.48        21,380      1.67 
Commercial, financial and industrial                   92,218      5.59           30,877      2.34        21,965      1.72 
Loans secured by savings deposits                      13,164      0.80            8,695      0.66         8,849      0.69 
Consumer and other                                     66,989      4.06           15,030      1.14        14,400      1.13 
                                              ----------------  --------     ------------  --------  ------------  --------

 Total loans                                        1,649,032    100.00%       1,317,986    100.00%    1,277,235    100.00%
                                               ---------------  ========     ------------  ========  ------------  ========

Loans in process                                      (99,790)                   (47,893)                (38,742)
Allowance for loan losses                             (11,358)                    (7,412)                 (6,880)
Unearned interest and loan fees                        (3,493)                    (2,926)                 (2,344)
Premium on purchased loans, net                         3,758                      1,680                     479 
                                               ---------------               ------------            ------------   
 Total loans receivable, net                   $    1,538,149                $ 1,261,435             $ 1,229,748 
                                               ===============               ============            ============   
</TABLE>




<PAGE>
     SCHEDULED  MATURITIES.              The  following table sets forth certain
information  at  December  31,  1998  regarding  the  principal  amount of loans
maturing  in  the  Bank's  loans receivable portfolio based on their contractual
terms  to maturity.  Demand loans, loans having no stated schedule of repayments
and  no  stated  maturity  are  reported as due in one year or less.  First lien
residential  mortgage, multifamily mortgage and commercial real estate loans are
based  on  their contractual terms to maturity assuming no periodic amortization
of  principal.
<TABLE>

<CAPTION>

                                                                     AT DECEMBER 31, 1998
                                                                        (In thousands)

<S>                                  <C>        <C>           <C>             <C>             <C>            <C>       <C>
                                               More than     More than       More than       More than      Over
                                   One year   one year to   three years     five years to   ten years to   twenty
                                   or less    three years   to five years   ten years       twenty years   years     Total
                                 ---------  ------------  --------------  --------------  -------------  --------  ----------

First lien residential mortgage  $   7,595  $     13,818  $       33,229  $       32,270  $     184,050  $419,080  $  690,042
Multifamily mortgage                44,726        54,539          16,464           2,364            399        --     118,492
Residential construction            63,216         1,273           1,721             662             --        --      66,872
Real estate acquisition
 and development                     8,929        31,168             586              --          1,310        --      41,993
Commercial real estate              50,105       107,961          37,336          20,104         38,673        --     254,179
Commercial construction              8,077         3,659           5,652             379          3,112        --      20,879
Commercial, other                  220,834        20,468          21,551           3,620            130        --     266,603
Consumer and other                  19,527        14,738          28,795          12,515          3,514        --      79,089
                                 ---------  ------------  --------------  --------------  -------------  --------  ----------

 Total loans                     $ 423,009  $    247,624  $      145,334  $       71,914  $     231,188  $419,080  $1,538,149
                                 =========  ============  ==============  ==============  =============  ========  ==========
</TABLE>



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


<PAGE>
     The  following table sets forth the amount of loans due after one year from
December  31,  1998  by  category  and  which  have  fixed  or adjustable rates.
<TABLE>
<CAPTION>

                                                     Interest-Rate
                                                     -------------

<S>                                           <C>              <C>          <C>
                                            Fixed            Adjustable   Total
                                           ---------------  -----------  ----------
                                                        (In thousands)

First lien residential mortgage              $   174,226  $   508,221  $  682,447

Multifamily mortgage                              10,047       63,719      73,766

Residential construction                           2,440        1,216       3,656

Real estate acquisition and development              377       32,687      33,064

Commercial real estate                            78,953      125,121     204,074

Commercial construction                            6,579        6,223      12,802

Commercial, other                                 17,118       28,651      45,769

Consumer and other                                58,851          711      59,562
                                             -----------  -----------  ----------
 Total                                       $   348,591  $   766,549  $1,115,140
                                             ===========  ===========  ==========
</TABLE>



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

<TABLE>
<CAPTION>

                                                                  Year  Ended  December  31,

<S>                                                            <C>              <C>          <C>
                                                                   1998         1997         1996 
                                                          ---------------  -----------  -----------
                                                                         (In thousands)
First lien mortgage loan originations:
 Adjustable rate                                         $          725   $    1,458   $    3,542 
 Fixed rate                                                      15,470        4,849        5,471 
 Adjustable rate by correspondent lenders                         1,426       26,220       67,461 
 Fixed rate by correspondent lenders                                 --          686        4,058 
 Home equity                                                      7,022           --           -- 
Residential construction and   acquisition
 and development loan originations                              189,686      145,727      154,182 
Warehouse loan originations                                   1,642,445    1,174,639      887,252 
MSR loan originations                                             7,554       55,259       69,172 
Multifamily loan originations                                   228,553       81,148       67,657 
Commercial real estate loan originations                        126,916      171,497       41,170 
Commercial construction originations                             15,543       12,222        3,806 
Commercial, financial and industrial loan originations          107,890       43,497       30,080 
Consumer loan originations                                       38,002       18,679       22,256 
                                                         ---------------  -----------  -----------
   Total loan originations                                    2,381,232    1,735,881    1,356,107 
Purchase of residential mortgage loans
 (net of repurchases by investors)                              293,023      108,226      115,928 
Loans acquired (net of loans sold) in connection
 with acquisition and disposition transactions                  176,158           --        1,018 
Purchase of multifamily and commercial
 real estate loans                                                   --           --        4,604 
Purchase of automobile loans                                     34,609           70           -- 
                                                         ---------------  -----------  -----------
   Total loan originations and purchases                      2,885,022    1,844,177    1,477,657 
                                                         ---------------  -----------  -----------
Foreclosures                                                      4,178        4,226        4,363 
Principal repayments and reductions to
 principal balance                                            2,587,252    1,790,790    1,339,691 
Residential loans sold                                           10,663       12,855           -- 
                                                         ---------------  -----------  -----------
Total foreclosures, repayments and sales of loans             2,602,093    1,807,871    1,344,054 
                                                         ---------------  -----------  -----------
Amortization of premiums, discounts and fees on loans            (3,115)      (2,819)        (485)
Provision for loan losses                                        (3,100)      (1,800)      (1,925)
                                                         ---------------  -----------  -----------
   Net increase in loans receivable                      $      276,714   $   31,687   $  131,193 
                                                         ===============  ===========  ===========
</TABLE>



<PAGE>
     FIRST  LIEN  MORTGAGE  LOAN  ORIGINATIONS,  PURCHASES  AND SALES.  The Bank
originates  and  purchases  for  its  own  portfolio loans secured by first lien
mortgages  on  completed  single  family  residences.  The Bank originates these
loans  primarily  in  the  Houston  metropolitan  area  and  in geographic areas
surrounding  the  Bank's branch locations.  During 1998, 1997 and 1996, the Bank
originated  residential  real estate loans for portfolio totaling $16.2 million,
$6.3  million  and  $9.0  million,  respectively.    The  majority of the Bank's
residential  loans  have been acquired through bulk purchases in the traditional
secondary  market.    During  1998,  1997  and  1996,  the Bank purchased $293.6
million,  $107.9  million  and  $112.4  million  of  such  loans,  respectively.

     The  Bank  offers,  but  does  not  actively solicit, a variety of mortgage
products  designed  to  respond  to  consumer  needs  and  competitive  factors.
Conventional  conforming  loans  that  are  secured  by first liens on completed
residential  real  estate  are generally originated for amounts up to 95% of the
appraised  value  or selling price of the mortgaged property, whichever is less.
All  loans  with  loan-to-value  ratios  in  excess of 80% generally require the
borrower  to  purchase  private  mortgage  insurance  from  approved third party
insurers.    The Bank also originates conventional non-conforming mortgage loans
(i.e.,  loans  for single family homes with an original balance in excess of the
maximum  loan  balance  amount  set by the Federal National Mortgage Association
("FNMA")  or  the  Federal  Home  Loan  Mortgage Corporation ("FHLMC"), which is
presently $240,000, or loans that do not otherwise meet the criteria established
by  FNMA  or FHLMC).  Such loans are originated based on underwriting guidelines
or  standards  required  by  the Secondary Market Investors ("SMI") to whom such
loans  are  intended  to  be  sold.  During 1998, fewer than 10% of the mortgage
loans  originated  by  the  Bank  were  non-conforming  mortgage  loans.

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

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

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

     The  Bank has also acquired residential real estate loans for its portfolio
through purchases from correspondent lenders and through bulk purchases when the
prices  of  these  purchases  are  considered  to  be  favorable.

     Beginning  in  1994,  the Bank began originating residential mortgage loans
through selected correspondent lenders who would originate then immediately sell
the  loans to the Bank.  All such loans were underwritten in accordance with the
Bank's policies and procedures.  During 1998, 1997 and 1996, the Bank originated
$1.4  million,  $26.9  million  and  $71.5  million, respectively, through these
correspondent  lenders.    The  use  of  correspondent  lenders  was essentially
discontinued  during  1997,  with  the  focus of acquiring loans turning to bulk
purchases.

     The  acquisition  of  residential  real  estate  loans  has  primarily been
accomplished  through  bulk  purchases in the traditional secondary market (from
mortgage  companies, financial institutions, investment banks and CBCC beginning
in  1997).    Bulk  purchases  allow  the Bank to obtain residential real estate
mortgage  loans  without the cost of origination activities.  Personnel from the
Bank generally analyze loan bid packages, as they become available from CBCC and
from  third parties, and the PCC reviews the information in the loan packages to
determine  whether  to bid (or make an offer) on a package and the price of such
bid  (or offer).  The bid price with respect to such loan packages is based on a
number  of factors, including the ability to create spread income with a funding
source  of  comparable  maturity,  the  pricing  of  alternative  investments,
particularly  mortgage-backed  securities, which offer little or no credit risk,
and  the credit risk profile of the portfolio offered.  The Bank analyzes credit
risk  in  a whole loan package through its due diligence investigation, which is
designed  to provide management with basic underwriting information on each loan
or group of loans, including loan-to-value, payment history, insurance and other
documentation. Because the Bank is purchasing loans in bulk, the Bank prices the
loan  packages  to  take into consideration, among other things, delinquency and
foreclosure  assumptions based on the risk characteristics of the loan packages.
The  Bank  intends  to continue to make competitive bids on loan portfolios that
meet  the  Bank's  purchase  criteria.

     The Bank sells mortgage loans and mortgage loan servicing from time to time
in  order  to replace the loans and servicing with instruments which have higher
credit  quality  and  less  interest  rate  risk.  During 1998, the Bank did not
originate  or  purchase  any loans with the intent to sell them to SMIs, but did
sell $10.7 million of single family residential loans to SMIs.  During the years
ended  1997  and  1996, the Bank originated or purchased with the intent to sell
$4.1  million  and  $11.2  million,  respectively,  of single family residential
mortgage  loans  and  sold $4.4 million and $11.7 million, respectively, of such
loans  to  SMIs.

     While  the  Bank  has the general authority to originate and purchase loans
secured  by  real  estate  located  anywhere  in  the United States, the largest
concentration  of  its  residential  first  lien  mortgage and construction loan
portfolios  is  secured  by  realty  located  in  Texas.

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

     The  builders with whom the Bank does business generally apply for either a
non-binding  short-term  line of credit or for an annual line of credit (subject
to  covenants) from the Bank for a maximum amount of borrowing to be outstanding
at  any one time.  Upon approval of the line of credit, the Bank issues a letter
which  indicates to the builder the maximum amount which will be available under
the  line,  the  term  of  the line of credit (which is generally 90 days to one
year),  the  interest  rate  of the loans to be offered under the line (which is
generally set at a rate above The Wall Street Journal prime rate or LIBOR on the
outstanding  monthly  loan balance) and the loan fees payable.  When the builder
desires  to  draw  upon a short-term line of credit, a separate loan application
must  be  made  under the line for a specific loan amount.  Each loan commitment
under  a short-term line of credit is separately underwritten and approved after
the  builder's  master  file  is  updated  and  reviewed.

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

     The  loan-to-value  ratio  (applied  to  the  underlying  property  that
collateralizes the loan) of any residential construction loan may not exceed the
lesser  of  85%  of  appraised value or 100% of the actual cost.  All individual
loans  are  limited  in  dollar  amount  based  upon the project proposed by the
builder.   Draws for lot purchases are generally limited to the contracted sales
price  of  the  lot  (to  include  escalations)  not to exceed 100% of the lot's
appraised  value.    Other  special  conditions  which  the Bank attaches to its
construction  loans  include  a  requirement  that  limits the number and dollar
amount  of  loans  which  may be made based upon unsold inventory.  The Bank may
also,  in  its  sole  discretion,  discontinue  making  any further loans if the
builder's  unsold  inventory exceeds a certain level from all lending sources or
if  the builder fails to pay its suppliers or subcontractors in a timely manner.

     The  Bank  provides  construction  financing  for  homes that generally are
priced below $450,000, with most homes priced between $125,000 and $300,000.  In
this  price  range,  the Bank has experienced the shortest duration of term, the
highest  annualized  yield  and  the least likelihood of defaults because of the
generally  high  number  of  pre-completion  sales.    The  Bank  will also make
individual  construction  loans  to builders or individuals on single homes or a
panel  of  homes on substantially the same terms and conditions as loans granted
under  the  Bank's  line  of  credit  program.

     At December 31, 1998, the Bank had $67.5 million in outstanding residential
construction  loans (net of loans in process of $48.2 million) of which $192,000
were  on nonaccrual status.  At the present time, the Bank has approved builders
domiciled  in  the  Houston,  Dallas,  and  Austin  metropolitan  areas  and  is
selectively  soliciting  new  builders  for its residential construction lending
program.  Of the approved builders, two of the builders domiciled in Houston are
authorized  for  the  funding of loans outside the state of Texas.   At December
31,  1998, there were loans totaling $519,000 for these builders in the state of
Arizona.    The  Bank  intends  to  continue  to  do business with the companies
involved  in  its  line  of credit program and believes that it will continue to
have  construction  loan  demand from the builders with whom it currently has an
established  lending  relationship.

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

     COMMERCIAL  REAL  ESTATE  AND  MULTIFAMILY  MORTGAGE  LENDING.    The  Bank
initiated  a  program  in  1993  to actively seek loans secured by commercial or
multifamily  properties.   Commercial real estate and multifamily mortgage loans
typically  involve higher principal amounts and repayment of the loans generally
depends,  in  large  part,  on  sufficient  cash  flow  being  generated  by the
underlying  properties  to cover operating expenses and loan repayments.  Market
values may vary as a result of economic events or governmental regulations which
are  outside  the  control  of  the  borrower or lender and which can affect the
future cash flow of the properties.  The loans are for a short to medium term of
between  one  to  seven years, and have floating rates or fixed rates based on a
spread  over  similarly fixed borrowings from the FHLB.  The properties securing
the  loans  originated  by  the  Bank  are primarily located in Texas.  The Bank
attempts  to  limit  its risk exposure by, among other things: lending to proven
developers/owners,  only  considering  properties  with  existing  operating
performance  which can be analyzed, requiring conservative debt coverage ratios,
and  continually  monitoring  the  operation  and  physical  condition  of  the
collateral.   At December 31, 1998, commercial real estate loans totaling $257.7
million  and  multifamily mortgage loans of $119.4 million were outstanding.  At
December  31,  1998,  the  Bank  had  commercial  real  estate  loans  totaling
approximately  $149,000  that  were  on  nonaccrual  status  and  no multifamily
mortgage  loans  on  nonaccrual  status.

     The  Bank  began  originating  commercial  real  estate  and  multifamily
construction  loans  in 1996.  The Bank generally underwrites these loans in the
same  way  it  underwrites its multifamily mortgage loans and attempts to manage
the risk of such loans by requiring that the builders provide more equity in the
project  than  is  required  in  refinancings,  lending  to builders with strong
financial  statements  and requiring that borrowers purchase, if required by the
movement  of  general market interest rates, interest rate caps for their loans.
At  December  31,  1998,  commercial and multifamily construction loans totaling
$21.3  million (net of loans in process of $19.0 million) were outstanding, none
of  which  were  on  nonaccrual  status.

     WAREHOUSE  LENDING.    Since 1992, the Bank has provided or participated in
lines  of credit to mortgage companies generally for their origination of single
family  residential  loans  which  are  generally sold no more than 90 days from
origination  to  FNMA,  FHLMC,  the  Government  National  Mortgage  Association
("GNMA")  or  to  private investors. The lines of credit are generally renewable
annually.    Borrowers  pay  interest  on  funds  drawn  at a floating rate.  In
addition,  the  Bank  usually  receives a fee for each loan file processed.  The
Bank  (or  the  lead lender in a participation) holds the original mortgage loan
notes and other documentation as collateral until repayment of the related lines
of  credit,  except  when  a  third party bank is acting as the lead bank in the
lending  relationship.

     Warehouse  loans  are  underwritten  in  accordance  with Bank policies and
procedures.    Interested  loan  originators who contact or are contacted by the
Bank are asked to prepare a loan application which seeks detailed information on
the  originator's  business.  After evaluating the application and independently
verifying  the  applicant's  credit  history,  if the originator appears to be a
likely  candidate  for  approval,  Bank  personnel will visit the originator and
review,  among  other  things,  its  business  organization, management, quality
control,  funding  sources,  risk  management,  loan  volume  and  historical
delinquency  rate,  financial  condition,  contingent obligations and regulatory
compliance.    The  originator pays a fee for this review to offset a portion of
the Bank's expense; this amount is deducted from the origination fee if the line
of  credit  is  approved.  If the originator meets the established criteria, its
application  is  submitted  for approval.  It is the policy of the Bank to apply
substantially  the  same  underwriting  standards  to loan participations as are
applied  to  loans with similar characteristics originated directly by the Bank.

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

     During  1998,  the  Bank originated $1.6 billion of Warehouse loans and had
Warehouse loans outstanding of $173.1 million at December 31, 1998.  At December
31,  1998, there were two Warehouse loans, totaling $10.0 million, on nonaccrual
status,  one  of  which  is  described  below.

     On  August  11,  1998,  the  Bank  approved the purchase of a $10.0 million
participation  in  a  warehouse  loan aggregating $25.0 million to MCA Financial
Corp.,  and certain of its affiliates, of Southfield, Michigan (collectively the
"Mortgage Banker").  The lead lender ("Lead Lender") in this facility is a major
commercial  bank and the loan is secured by subprime residential loans.  In late
January  1999, due to a lack of liquidity, the Mortgage Banker ceased operations
and  shortly  thereafter  was  seized  by  the  Michigan  Bureau  of  Financial
Institutions.    A  conservator  was  appointed  to take control of the Mortgage
Banker's  books and records, marshal that company's assets and continue its loan
servicing  operations.    A  voluntary  petition  under  Chapter  11 of the U.S.
Bankruptcy  Code was filed in the U.S. Bankruptcy Court for the Eastern District
of  Michigan  for  the  Mortgage  Banker  on  or about February 11, 1999, by the
conservator,  who  has  been  appointed the "debtor-in-possession", to allow the
conservator time to develop a plan of reorganization while protecting the assets
of  the  Mortgage  Banker.

     The  Bank  has  hired  special  bankruptcy  counsel to represent it in this
situation  and  has  been involved in discussions with the Lead Lender regarding
the  status of the loan.  Although the Bank has been informed by the Lead Lender
that the Bank's loan is collateralized by residential loans, the Bank, as of the
date  hereof,  has  been unable to verify the extent to which the collateral, if
any,  is  sufficient  to  prevent  the  Bank  from  incurring a loss.  Effective
December  31,  1998, the Bank put this loan on nonaccrual and has allocated $1.5
million  of the general reserve to this loan.  The Bank is continuing to monitor
this  situation and will make additions to the overall allowance for loan losses
as considered necessary based on its existing policy.  At this time, the Bank is
unable  to  determine  the  timing, probability, or the amount of any loss which
might  result  from  the  default  by  the  Mortgage  Banker.

     MSR  LENDING.   Since 1992, the Bank has loaned funds to mortgage companies
for  their  purchase  of  mortgage  servicing  rights or to finance the mortgage
companies'  ongoing  operations to originate and retain mortgage servicing.  The
mortgage  companies  receive  fees  for  servicing  mortgage loans which include
collecting and remitting loan payments to FNMA, FHLMC and other investors. Loans
of  this  nature  generally  have  terms of one to five years, and are generally
limited to 70.0% of the price paid by the mortgage company for servicing rights,
or  of  the  value of the originated servicing rights (subject to the regulatory
maximum  for  loans to one borrower).  MSR loans are made at adjustable rates of
interest  tied  to  LIBOR  or  the  Bank's  borrowing  rate  plus a spread and a
commitment  fee.    MSR  loans  are  collateralized  by  purchased or originated
mortgage  servicing  rights  to  the  remaining  cash  flows after remittance of
payments  to  FNMA,  FHLMC  or  other investors on the servicing portfolio.  MSR
loans  are  underwritten  in  substantially  the same manner as Warehouse loans.
Bank  personnel  closely monitor MSR borrowers by, among other things, reviewing
the  borrower's financial condition and operations in the same manner as they do
for  Warehouse  loans and by examining the value of the borrower's MSR portfolio
(through  evaluation  of  the estimated future net cash flows from the servicing
rights)  in  order  to ensure that the loan-to-value ratio does not exceed 75.0%
during the life of the loan.  If the continuing loan-to-value ratio exceeds that
amount,  the  borrower  is  asked to repay a portion of the principal balance to
maintain  the  ratio  limit.  At December 31, 1998, the Bank had $3.9 million in
outstanding  MSR  loans and had discontinued soliciting MSR financing during the
year.    At  December  31,  1998,  there were no MSR loans on nonaccrual status.

     REAL ESTATE ACQUISITION AND DEVELOPMENT LENDING.  The Bank originates loans
to  residential  real  estate builders and developers for the acquisition and/or
development  of  vacant  land.  The  proceeds of the loans are generally used to
acquire  the  land  and make the site improvements necessary to develop the land
into saleable lots.  The Bank generally lends only to major developers with good
track  records and strong financial capacity and on property where substantially
all  of  the  lots  to  be  developed  are pre-sold.  The term of the loans have
generally  been  from  18  to 24 months at a spread over the prime rate, plus an
origination  fee.  Repayment on the loans is generally made as the lots are sold
to  builders.    Land acquisition and development loans involve additional risks
when  compared  to  loans  on  existing  residential  properties.    These loans
typically  involve  relatively  large loan balances to single borrowers, and the
repayment  experience  is  dependent upon the successful development of the land
and the resale of the lots.  These risks can be significantly impacted by supply
and  demand  conditions  and the general economic conditions in the local market
area.  At December 31, 1998, the Bank had $43.3 million (net of loans in process
of  $32.6 million) of real estate acquisition and development loans outstanding.
At  December  31,  1998,  there  were no real estate acquisition and development
loans  on  nonaccrual  status.

     COMMERCIAL  BUSINESS LENDING.  Development of a commercial business lending
program  is  a strategic goal of Bank management.  The Texas Capital acquisition
provided  the  Bank  with  an established commercial business lending program to
small  and  medium  sized  companies  primarily  in  the  Houston  and  Austin
metropolitan  areas.  In  1997  and  1998,  management  continued to develop the
infrastructure  for  commercial  business  lending  in  most of the Bank's major
markets  by  developing  the  PCC and adding business banking loan officers.  In
1998,  the  Bank  acquired  twelve  commercial  bank  branches and significantly
increased  the  Bank's  commercial  business  loan  origination  capacity.   The
commercial,  financial  and  industrial  loans ("Commercial Business loans") are
generally  made  to  provide  working  capital  financing  or  asset acquisition
financing  to  businesses  and  are  generally secured by the borrower's working
capital  assets (i.e., accounts receivable, inventory, etc.) or assets purchased
by  the  borrower (i.e., operating assets, equipment, etc.). Commercial Business
loans  generally  have  shorter terms (one to five years) at a spread over prime
rate  or LIBOR and are of greater risk than real estate secured loans because of
the  type  and  nature of the collateral.  In addition, Commercial Business loan
collections  are  more  dependent  on  the continuing financial stability of the
borrower.    The  Bank  intends  to  continue  to expand the acquired commercial
business  lending  program,  while  managing  the  associated  credit  risk  by
continually  monitoring  borrowers' financial position and underlying collateral
securing the loans.  At December 31, 1998, Commercial Business loans outstanding
totaled  $92.2  million,  of  which  $496,000  of  such loans were on nonaccrual
status.


<PAGE>
     CONSUMER  LENDING.    The  Bank makes available traditional consumer loans,
such  as home improvement, home equity, new and used car financing, new and used
boat and recreational vehicle financing and loans secured by savings deposits to
consumers  in  the  markets  served  by its retail branches and business banking
centers.    The  interest rate on loans secured by savings deposits is typically
set  at a rate above that paid on the underlying account and adjusts if the rate
on  the  account  changes.   At December 31, 1998, the Bank had $67.0 million in
consumer  and  other  loans  outstanding  and  $13.2 million in loans secured by
savings  deposits.

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

     The  Bank has a lending agreement to purchase loans through a correspondent
to  refinance new and used automobiles.  During 1998, the Bank purchased a total
of  $34.6 million automobile loans under this agreement, of which $29.6 million,
included  in  total  consumer  and other loans, were outstanding at December 31,
1998.    At  December 31, 1998, $75,000 of these loans were on nonaccrual status
and  as  of December 31, 1998, only $160,000 of these loans had been repossessed
or  charged  off.

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

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

     It  is  the Bank's general policy not to recognize interest income on loans
past  due  90  days  or  more.    When  a  loan  is placed on nonaccrual status,
previously  accrued  but  unpaid  interest  is reversed against current interest
income.    On  a  loan-by-loan  basis,  Bank  management  may continue to accrue
interest  on  loans  that  are  past  due  more  than  90  days, particularly if
management believes that the individual loan is in the process of collection and
the  interest  is  fully  collectible.

     The  following  table  sets  forth  information  regarding  the  Bank's
nonperforming  assets  of  the  dates  shown.

<TABLE>
<CAPTION>

<S>                                    <C>              <C>                      <C>       <C>
                                                                              At December 31,
                                                                          1998      1997      1996 
                                                                    -----------  --------  --------
                                                                         (Dollars in thousands)
Nonaccrual loans:
 First lien single family mortgage                                  $   11,883   $15,591   $12,238 
 Residential construction                                                  192        --        -- 
 Commercial real estate                                                    149       322        32 
 Commercial construction                                                    --       900        -- 
 Commercial, Warehouse                                                  10,042        --        -- 
 Commercial, financial and industrial                                      496       485       496 
 Consumer and other                                                         75        53        73 
                                                                    -----------  --------  --------
 Total nonaccrual loans                                                 22,837    17,351    12,839 
                                                                    -----------  --------  --------
Loans greater than 90 days delinquent
 and still accruing:
 First lien single family mortgage                                         189        --       106 
 Multifamily mortgage                                                      190        --        -- 
 Residential construction                                                   --        79        52 
 Commercial real estate                                                    293        91       881 
 Commercial, financial and industrial                                      808       120        14 
 Consumer and other                                                        224        50       142 
   Total loans greater than 90 days
     delinquent and still accruing                                       1,704       340     1,195 
                                                                    -----------  --------  --------
Total nonperforming loans                                               24,541    17,691    14,034 
                                                                    -----------  --------  --------

Total REO and repossessed assets                                         4,927     3,198     3,161 
                                                                    -----------  --------  --------
Total nonperforming assets                                          $   29,468   $20,889   $17,195 
                                                                    ===========  =======    =======

Ratio of nonperforming
 assets to total assets                                                   0.99%     0.72%     0.60%
                                                                    ===========  =======    =======
Ratio of nonaccrual loans to total
 loans receivable                                                         1.48%     1.38%     1.04%
                                                                    ===========  ========  ========
Ratio of nonperforming loans to total
 loans receivable                                                         1.60%     1.40%     1.14%
                                                                    ===========  ========  ========
</TABLE>




<PAGE>
     At  December 31, 1998, approximately $835,000 in additional interest income
would have been recorded in the year then ended on the above loans accounted for
on  a  nonaccrual  basis if such loans had been current in accordance with their
original  terms  and  had  been  outstanding  throughout  the  period  or  since
origination  if  held  for  part of the period.  For the year ended December 31,
1998,  $480,000  in  interest  income  was included in net income for these same
loans  prior  to  the  time  they  were  placed  on  nonaccrual  status.

     At December 31, 1998, the Bank had 173 first lien single family residential
mortgage  loans on nonaccrual status, aggregating $11.9 million, with an average
balance  of  approximately  $69,000.    A  total  of 151 of these loans, with an
aggregate balance of $9.7 million, were acquired through bulk loan purchases and
7  of  these  loans,  with  an  aggregate  balance of $294,000, were acquired in
acquisitions.  Of  the  151  residential  mortgage  loans  acquired through bulk
purchases,  at  December  31,  1998, 30 of such loans totaling $1.5 million were
being  serviced  by  other  institutions,  which  constituted 1.0% of the $154.6
million  of  aggregate  loans  serviced  by  others.

     At December 31, 1998, the Bank had 2 warehouse loans totaling $10.0 million
on  nonaccrual  status.    See  "Warehouse  Lending."

     At  December  31, 1998, nonperforming assets included REO with an aggregate
book  value of $4.9 million and repossessed assets of $2,000.  At such date, the
Bank's  REO  consisted  of 24 single family residential properties totaling $2.1
million,  11  commercial  properties  totaling  $2.7  million  and 2 residential
construction  properties  totaling  $104,000.

     At  December  31,  1998, in addition to the loans on nonaccrual status, the
Bank  had $9.7 million in loans classified as substandard, $83,000 classified as
doubtful,  $9,000  classified  as  loss  and $9.7 million of loans designated as
"special  mention"  for  regulatory  purposes.    Loans  designated  as "special
mention" are not currently required to be classified for regulatory purposes but
have  potential  weaknesses  or risk characteristics that could result in future
problems.

     The  Bank  considers  a  loan  to  be  impaired  when,  based  upon current
information  and  events, it is probable that the Bank will be unable to collect
all  amounts  due  according  to the contractual terms of the loan agreement. In
determining  impairment,  the  Bank  considers,  among  other  things,  large
non-homogeneous  loans  which  may  include  nonaccrual  loans  or troubled debt
restructurings, and performing loans which exhibit, among other characteristics,
high  loan-to-value  ratios,  low  debt coverage ratios, or indications that the
borrowers  are  experiencing increased levels of financial difficulty.  The Bank
bases  the measurements of collateral-dependent impaired loans on the fair value
of  their  collateral.   The amount by which the recorded investment in the loan
exceeds  the  measure  of  the fair value of the collateral securing the loan is
recognized  by  recording  a  valuation  allowance.    At December 31, 1998, the
carrying  value  of  impaired  loans  totaled approximately $1.7 million and the
related  allowance for loan losses on those impaired loans totaled $880,000. The
average  balance  of  impaired loans during the year ended December 31, 1998 was
approximately  $1.7 million.  For the year ended December 31, 1998, the Bank did
not  recognize  interest  income  on  loans  considered  impaired.

     The  Bank  had  loaned  $115.7  million  at  December  31,  1998, under its
residential  construction  lending program to multiple borrowers who are engaged
in  similar activities.  These borrowers could be similarly impacted by economic
conditions  in  the  Houston  metropolitan  area.  See "Residential Construction
Lending."    Except  for concentrations in its Warehouse lending lines, the Bank
had  no  other  loan  concentrations.  At December 31, 1998, the Bank had $173.1
million  of  Warehouse  loans  outstanding.    See  "Warehouse  Lending."

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

<TABLE>
<CAPTION>

                                                                     Year  Ended  December  31,


<S>                                   <C>                     <C>        <C>       <C>      <C>      <C>
                                                                  1998      1997     1996     1995     1994 
                                                              ---------  --------  -------  -------  -------
                                                                           (Dollars in thousands)
Balance at beginning of year                                  $  7,412   $ 6,880   $5,703   $2,158   $1,527 
Charge-offs(1)                                                  (1,693)   (1,416)    (851)    (404)    (329)
Recoveries                                                         282       148      103       17       26 
Provision for loan losses                                        3,100     1,800    1,925    1,664      934 
Allowance of acquired entities(2)                                2,257        --       --    2,268       -- 
                                                              ---------  --------  -------  -------  -------
Balance at end of the year                                    $ 11,358   $ 7,412   $6,880   $5,703   $2,158 
                                                              =========  ========  =======  =======  =======
Ratio of net charge-offs during the
period to average net loans
outstanding during the period                                     0.10%     0.10%    0.06%    0.05%    0.06%
                                                              =========  ========  =======  =======  =======
</TABLE>


________________________

(1)In  1998,  $544,000  of  the  charge-offs  were attributable to single family
residential  loans,  $648,000 to Commercial Business loans, $477,000 to consumer
and  other loans and $24,000 to commercial real estate loans.  In 1997, $591,000
of  the  charge-offs  were  attributable  to  single  family  residential loans,
$472,000  to Commercial Business loans, $349,000 to consumer and other loans and
$4,000  to  commercial  real estate loans.  In 1996, $651,000 of the charge-offs
were  attributable  to single family residential loans, $142,000 to consumer and
other  loans and $58,000 to Commercial Business loans.  In 1995, $359,000 of the
charge-offs  were attributable to single family residential loans and $45,000 to
consumer  and  other  loans. In 1994, the charge-offs were fully attributable to
single  family  residential  loans.

(2)The  allowance of acquired entities in 1998 represents the allowance for loan
losses  recorded  in  connection  with  the  loans  acquired  in the 1998 branch
acquisition.    The  amount  in  1995  represents  the allowance for loan losses
recorded  in connection with (i) a bulk loan package acquired and (ii) the loans
acquired  in  the  Texas  Capital  acquisition.


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

<TABLE>
<CAPTION>



<S>                                      <C>               <C>       <C>      <C>      <C>      <C>
                                                                            At December 31,
                                                               1998     1997     1996     1995     1994
                                                           --------  -------  -------  -------  -------
                                                                            (In thousands)
First lien residential mortgage                            $  3,238  $ 2,566  $ 2,217  $ 2,992  $ 1,191
Multifamily mortgage                                            383      511      369      249      188
Residential construction                                        343      251      223      307      278
Real estate acquisition and development                         759      316      261      130      142
Commercial real estate                                        2,112    1,468    1,151    1,072      152
Commercial construction                                         225      203       20       --       --
Commercial, Warehouse and MSR                                 1,722      494      361      230       98
Commercial, financial and industrial                          1,750    1,008      985      395       --
Consumer and other                                              826      233      374      177      109
Unallocated                                                      --      362      919      151       --
                                                           --------  -------  -------  -------  -------
 $                                                         $ 11,358  $ 7,412  $ 6,880  $ 5,703  $ 2,158
                                                           ========  =======  =======  =======  =======
</TABLE>



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



<S>                                         <C>         <C>       <C>       <C>       <C>       <C>
                                                                 Year Ended December 31,
                                                    1998      1997      1996      1995    1994 
                                                  --------  --------  --------  --------  ------
                                                   (In thousands)
First lien residential mortgage                   $ 1,142   $   908   $  (180)  $ 1,032   $ 743 
Multifamily mortgage                                 (184)      142       120        23      60 
Residential construction                               55        28       (84)      (67)   (174)
Real estate acquisition and development               443        55       131       (25)    106 
Commercial real estate                                 82       321        79       479     128 
Commercial construction                               (36)      183        20        --      -- 
Commercial, Warehouse and MSR                       1,228       133       131       132     (49)
Commercial, financial and industrial                  240       416       618        --      -- 
Consumer and other                                    846       171       322        90     120 
Unallocated                                          (716)     (557)      768        --      -- 
                                                  --------  --------  -------   -------   ------
                                                  $ 3,100   $ 1,800   $ 1,925   $ 1,664   $ 934 
                                                  ========  ========  ========  ========  ======
</TABLE>



     Provisions  for  loan  losses  are  charged  to earnings to bring the total
allowance  to  a level deemed appropriate by management based on such factors as
historical  loss  experience,  the  volume  and type of lending conducted by the
Bank,  identification  of  adverse  situations  which  may affect the ability of
borrowers  to  repay,  the  amount  of nonperforming assets, industry standards,
regulatory  policies, generally accepted accounting principles, general economic
conditions,  particularly  as  they relate to the Bank's lending area, and other
factors  related to the collectibility of the Bank's loan portfolio.  During the
year  ended  December  31,  1998,  the  increased  provision for loan losses was
recorded due to the continuing change in the composition of the loans receivable
portfolio from more traditional residential real estate type loans to commercial
type  loans.    At  December  31,  1998,  single family mortgage and residential
construction  loans  made up approximately 49% of the loans receivable portfolio
as  compared  to  58%  at  December  31,  1997,  a  decrease of 9%.  This change
occurred,  and  is  expected  to  continue to occur, as a result of management's
emphasis  on  commercial  business  lending  and  the  loans  acquired  in 1998.

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

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

     As  noted previously, on August 11, 1998, the Bank approved the purchase of
a $10.0 million participation in a warehouse loan.  In late January 1999, due to
a  lack  of  liquidity,  the  Mortgage  Banker  ceased  operations  and  shortly
thereafter  was  seized  by  the  Michigan  Bureau of Financial Institutions.  A
conservator  was  appointed  to take control of the Mortgage Banker's operations
and  has  also  been appointed "debtor-in-possession" under a voluntary petition
under  Chapter  11  of  the  U.S.  Bankruptcy  Code.

     The  Bank  has  hired  special  bankruptcy  counsel to represent it in this
situation  and  has  been involved in discussions with the Lead Lender regarding
the  status of the loan.  Although the Bank has been informed by the Lead Lender
that the Bank's loan is collateralized by residential loans, the Bank, as of the
date  hereof,  has  been unable to verify the extent to which the collateral, if
any,  is  sufficient  to  prevent  the  Bank  from  incurring a loss.  Effective
December  31,  1998, the Bank put this loan on nonaccrual and has allocated $1.5
million  of the general reserve to this loan.  The Bank is continuing to monitor
this  situation and will make additions to the overall allowance for loan losses
as considered necessary based on its existing policy.  At this time, the Bank is
unable  to  determine  the  timing, probability, or the amount of any loss which
might  result  from  a  default  by  the  Mortgage  Banker.

     MORTGAGE  LOAN  SERVICING.  The Bank services residential real estate loans
for  its  own  portfolio  as well as for others, including FNMA, FHLMC and other
private  mortgage  investors  through CBS Mortgage, a division of the Bank ("CBS
Mortgage").    Loan  servicing  includes collecting and remitting loan payments,
accounting  for  principal  and  interest,  making  advances to cover delinquent
payments,  making  inspections  as  required  of  mortgaged premises, contacting
delinquent mortgagors, supervising foreclosures and property dispositions in the
event  of unremedied defaults and generally administering the loans.  Funds that
have  been  escrowed  by borrowers for the payment of mortgage related expenses,
such  as  property  taxes  and  hazard  and  mortgage  insurance  premiums,  are
maintained  in  non-interest-bearing accounts at the Bank. At December 31, 1998,
the  Bank  had  $5.0  million  deposited  in  such  escrow  accounts.

     CBS  Mortgage  receives  fees for servicing mortgage loans, which generally
range  from  0.250%  to  0.375%  per annum on the declining principal balance of
fixed  rate  mortgage loans and from 0.375% to 0.500% per annum on the declining
principal  balance  of  adjustable  rate  mortgage  loans.    Such fees serve to
compensate  CBS  Mortgage  for  the  costs of performing the servicing function.
Other  sources  of  loan  servicing  revenues  include  late  charges  and other
ancillary  fees.    For the years ended 1998, 1997 and 1996, CBS Mortgage earned
$642,000,  $1.4  million and $1.6 million, respectively, in conjunction with its
loan  servicing.  Servicing  fees  are  collected  out  of  the monthly mortgage
payments made by borrowers and are net of the amortization of mortgage servicing
rights.

     CBS  Mortgage's  servicing  portfolio  is  subject  to  reduction by normal
amortization, by prepayment or by foreclosure of outstanding loans.  At December
31,  1998, 1997 and 1996, CBS Mortgage had an aggregate loan servicing portfolio
of  $1.2 billion, $1.6 billion and $1.7 billion, respectively.  Of these amounts
at  such  respective dates, CBS Mortgage serviced loans for the Bank's portfolio
aggregating $707.0 million, $890.3 million and $958.4 million and serviced loans
for  others  aggregating  $519.2 million, $675.7 million and $776.7 million.  At
December  31,  1998,  57.7%  of  the dollar value of loans being serviced by CBS
Mortgage was for the Bank's portfolio, 13.6% was being serviced for FHLMC, 27.0%
was  being  serviced  for  FNMA  and  1.7%  was  being  serviced  for  others.

     No  servicing  rights were purchased by CBS Mortgage in 1998, 1997 or 1996.
As  of  December 31, 1998, an aggregate of $519.2 million of CBS Mortgage's $1.2
billion  servicing  portfolio,  or  42.3%,  was  loans  serviced for others.  At
December  31,  1998,  CBS  Mortgage  had no commitments for further purchases of
mortgage  servicing  rights.

     The amount, if any, by which purchased mortgage servicing rights exceed the
lower  of  90%  of  determinable  fair  market value, 90% of origination cost or
current  amortized  book  value  must  be  deducted  from capital in calculating
regulatory  capital.    See  "Regulation - Regulatory Capital Requirements."  At
December  31,  1998,  there  were  no  deductions  from  the  Bank's capital for
purchased  mortgage  servicing  rights  valuation  adjustments.

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

<TABLE>
<CAPTION>

                                                    Year  Ended  December  31,

<S>                                    <C>             <C>          <C>          <C>
                                                      1998         1997         1996
                                               -----------  -----------  -----------
                                                           (In thousands)
Beginning servicing portfolio                  $ 1,566,004  $ 1,735,089  $ 1,725,400
                                               -----------  -----------  -----------
Bank loan originations                             127,620      140,673      104,023
Bank whole loans acquired                           93,170      126,864      185,176
                                               -----------  -----------  -----------
 Total servicing originated
 and acquired                                      220,790      267,537      289,199
                                               -----------  -----------  -----------
Loans sold servicing released                          764           --           47
Amortization and payoffs                           554,603      430,373      273,219
Foreclosures                                         5,189        6,249        6,244
                                               -----------  -----------  -----------
 Total servicing reductions                        560,556      436,622      279,510
                                               -----------   ----------  -----------
Ending servicing portfolio                     $ 1,226,238  $ 1,566,004  $ 1,735,089
                                               ===========  ===========  ===========
</TABLE>



MORTGAGE-BACKED  SECURITIES

     The Bank maintains a significant portfolio of mortgage-backed securities as
a  means  of investing in housing-related mortgage instruments without the costs
associated with originating mortgage loans for portfolio retention.  At December
31,  1998,  the  Company's mortgage-backed securities portfolio (including $96.6
million  of  mortgage-backed  securities available-for-sale), net of unamortized
premiums  and  unearned  discounts, amounted to $1.3 billion, or 41.9%, of total
assets.    When  investing  in  mortgage-backed  securities, management seeks to
achieve  a  positive  spread  over  the  cost  of  funds  used to purchase these
securities.   At December 31, 1998, the Company's net mortgage-backed securities
had  an  aggregate  market  value  of  $1.2  billion.

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

<TABLE>
<CAPTION>

                                                        At  December  31,

<S>                            <C>           <C>            <C>        <C>          <C>          <C>  
                                       1998                      1997                     1996 
                            -----------------------     ----------------------   -----------------------
                                Amount     Percent         Amount     Percent      Amount       Percent
                            ------------  --------      ----------   --------    ----------    ---------
(Dollars in thousands)
Held-to-maturity:
 REMICS                     $ 1,059,924     91.82%     $ 1,232,219     91.59%    $ 1,213,849     90.25%
 FNMA certificates               61,590      5.34           69,906      5.20          77,324      5.75 
 GNMA certificates               21,235      1.84           28,701      2.13          33,900      2.52 
 Non-agency certificates         11,530      1.00           14,586      1.08          19,826      1.48 
 Interest-only securities             1        --               20        --              38        -- 
                            ------------  --------     ------------  --------    ------------  --------
                              1,154,280    100.00%       1,345,432    100.00%      1,344,937    100.00%
                                          ========                   ========                  ========
 Unamortized premium              2,100                      2,831                     3,153 
 Unearned discount               (2,264)                    (3,173)                   (3,503)
                            -----------                ------------              ------------
Total held-to-maturity      $ 1,154,116                $ 1,345,090               $ 1,344,587 
                            ============               ============              ============          

Available-for-sale:
 REMICS                     $    98,892                $   173,717               $   185,651 
 Unamortized premium                  8                         25                        33 
 Unearned discount                 (168)                      (247)                     (255)
 Net unrealized loss             (2,123)                    (3,498)                   (4,773)
                            -----------                ------------              ------------
Total available-for-sale    $    96,609                $   169,997               $   180,656 
                            ============               ============              ============          

Total mortgage-backed
 securities                 $ 1,250,725                $ 1,515,087               $ 1,525,243 
                            ============               ============              ============          
</TABLE>



     The  mortgage-backed  securities  which the Bank purchases and maintains in
portfolio  can  include  FNMA,  FHLMC  and  GNMA certificates, certain privately
issued, credit-enhanced mortgage-backed securities which are rated "A" or better
by  the  national  securities  rating  agencies, certain types of collateralized
mortgage  obligations  ("CMOs")  and  interest-only ("IO") certificates.  The IO
securities  held at December 31, 1998 were purchased in 1990 and have a net book
value  of  only $1,000.  The Company has not purchased IO securities since 1990.
The  FNMA, FHLMC and GNMA certificates are modified pass-through mortgage-backed
securities,  which  represent  undivided  interests  in  underlying  pools  of
fixed-rate,  or  certain  types  of  adjustable  rate, single family residential
mortgages issued by these quasi-governmental (GNMA) and private (FNMA and FHLMC)
corporations.    FNMA  and  GNMA  provide  to the certificate holder a guarantee
(which is backed by the full faith and credit of the U.S. government in the case
of  GNMA  certificates)  of  timely payments of interest and scheduled principal
payments,  whether  or not they have been collected. FHLMC guarantees the timely
payment  of  interest  and  the  full (though not necessarily timely) payment of
principal.    The  guarantees of FNMA and FHLMC are not backed by the full faith
and  credit  of the U.S. government.  The mortgage-backed securities acquired by
the  Bank  that  have  been  pooled and sold by private issuers, generally large
investment  banking  firms,  provide  for  the  timely payments of principal and
interest  either through insurance issued by a reputable insurer or the right to
receive  certain  payments  thereunder  is  subordinated  in  a  manner which is
sufficient  to  have  such  mortgage-backed  securities  generally earn a credit
rating  of  "A"  or  better  from  one or more of the national securities rating
agencies.

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

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

     The FDIC has issued a statement of policy which states, among other things,
that mortgage derivative products (including CMOs and CMO residuals and stripped
mortgage-backed  securities  such  as  IOs)  which possess average life or price
volatility  in  excess  of  a  benchmark  fixed  rate  30  year  mortgage-backed
pass-through  security  are  "high-risk  mortgage  securities," are not suitable
investments  for  depository  institutions,  and  if  considered  "high risk" at
purchase  must be carried in the institution's trading account or as assets held
for  sale,  and  must be marked to market on a regular basis.  In addition, if a
security  was  not  considered "high risk" at purchase but was later found to be
"high  risk" based on the tests, the security may remain in the held-to-maturity
portfolio  as  long  as  the  institution  has  the  positive intent to hold the
security  to  maturity  and  has a documented plan in place to manage the higher
risk.   At December 31, 1998, the Bank had mortgage-backed securities considered
"high  risk"  with a recorded booked value of approximately $9.9 million.  These
securities  were not considered "high risk" at purchase, but were later found to
be  "high  risk"  based  on the results of the required tests.  The Bank has the
positive  intent  to  hold  these  securities to maturity and has documented the
Bank's  plan  to manage the higher risk of these securities.  If the Bank should
elect  to consider a new type of security for its portfolio, the Bank intends to
ascertain  in advance that the security does not fail any of the tests that will
qualify  it  as a "high risk mortgage security."  The Bank will not purchase any
security  that  fails  such  tests  unless  it has in place a documented plan to
manage  the  higher  risk  of  that  security and has approval from the Board of
Directors.


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

<TABLE>
<CAPTION>

                                                Year  Ended  December  31,

<S>                                <C>             <C>         <C>        <C>
                                                  1998       1997       1996 
                                              ----------  ---------  ---------
                                                      (In thousands)
Mortgage-backed securities
 held-to-maturity purchased                   $   8,203   $ 56,136   $     -- 

Mortgage-backed securities
 available-for-sale sold                        (48,550)   (11,308)      (864)

Amortization of premiums,
 net of discount accretion                         (132)       (83)      (552)

Change in unrealized loss on
 mortgage-backed securities
 available-for-sale                               1,375      1,275     (4,013)

Principal repayments on
 mortgage-backed securities                    (225,258)   (56,176)   (51,495)
                                              ----------  ---------  ---------
Net decrease in
 mortgage-backed securities                   $(264,362)  $(10,156)  $(56,924)
                                              ==========  =========  =========
</TABLE>



     The  Company  classifies  securities  as  either  held-to-maturity  or
available-for-sale.    Securities  are  classified  as held-to-maturity when the
Company has the positive intent and ability to hold such securities to maturity.
Securities  held-to-maturity are recorded at amortized cost.  Permanent declines
in  the  value  of  held-to-maturity  securities  are charged to earnings in the
periods in which the declines are determined.  Securities available-for-sale are
securities  other  than  those  held-to-maturity or for trading purposes and are
recorded  at fair value, with unrealized gains and losses excluded from earnings
and  recorded  net  of tax as other comprehensive income (loss) in stockholders'
equity  until realized.  Realized gains and losses on securities are recorded in
earnings  in  the  year  of  sale  based  on the specific identification of each
individual  security sold.  Premiums and discounts on mortgage-backed securities
are  amortized or accreted as a yield adjustment over the life of the securities
using  the  interest  method,  with the amortization or accretion being adjusted
when  the  prepayments  are  received.

INVESTMENT  ACTIVITIES

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

SOURCES  OF  FUNDS

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

     DEPOSITS.    The  Bank  attracts  a majority of its deposits through its 49
branch  offices  in metropolitan Houston, Austin, Corpus Christi, the Rio Grande
Valley  and  small  cities  in  the  southeast quadrant of Texas.  The Bank also
obtains  deposits through acquisitions.  In 1998, the Bank assumed approximately
$355.4 million in deposits in an acquisition of twelve commercial bank branches.
The  Bank  offers  a  variety  of  traditional  deposit products which currently
includes interest-bearing checking, noninterest-bearing checking, savings, money
market  demand  accounts  and  certificates  of deposit which generally range in
terms  from  three  to  60  months.    Included among these deposit products are
individual  retirement  account  certificates.    Beginning  in  1995  with  the
acquisition  of  Texas Capital, the Bank's management has pursued its commercial
banking  strategy  related  to  deposits designed to increase the level of lower
cost  transaction  and  commercial  deposit  accounts.  During 1996 and early in
1997,  the  Bank  began  to  offer a range of products for commercial businesses
including Small Business Checking, Business Interest Checking, Analysis Checking
and  Commercial  Money  Market Accounts.  The acquisitions and marketing efforts
have  resulted in the outstanding balances of demand deposit accounts increasing
to 32.1% of total deposits at December 31, 1998 from 26.4% at December 31, 1997.


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

<TABLE>
<CAPTION>

                                                                      At  December  31,
                                                                      -----------------
<S>                                       <C>       <C>              <C>      <C>             <C>           <C> 
                                               1998(1)                  1997(2)                   1996(3)

                                                   Percent                    Percent                     Percent
                                                      of                         of                          of
                                        Amount     Deposits        Amount     Deposits        Amount      Deposits
                                   ------------   ---------     -----------  ---------     -----------    ---------
                                                                (Dollars in Thousands)
Demand deposit accounts:
 Noninterest-bearing checking(4)   $     95,398       5.60%     $  101,782       7.40%     $   85,259       6.50%
 Interest-bearing checking(4)            63,067       3.70          69,972       5.09          56,862       4.34 
 Savings                                 48,571       2.85          25,555       1.86          22,135       1.69 
 Money market demand(4)                 339,481      19.91         165,986      12.07         151,046      11.52 
                                   ------------  ---------     -----------  ---------     -----------  ---------
   Total demand deposit accounts        546,517      32.06         363,295      26.42         315,302      24.05 
                                   ------------  ---------     -----------  ---------     -----------  ---------
Certificate accounts:
 Within 1 year                          965,443      56.64         781,455      56.83         772,690      58.94 
 1-2 years                              148,049       8.69         186,734      13.58         158,583      12.10 
 2-3 years                               22,347       1.31          30,028       2.18          40,961       3.12 
 3-4 years                               11,833       0.69           7,292       0.53          18,268       1.39 
 4-5 years                               10,176       0.60           6,153       0.45           5,064       0.39 
 Over 5 years                               240       0.01             178       0.01             165       0.01 
                                   ------------  ---------     -----------  ---------     -----------   ---------
     Total certificate accounts       1,158,088      67.94       1,011,840      73.58         995,731      75.95 
                                   ------------  ---------      -----------  ---------     -----------  -------- 
                                      1,704,605     100.00%      1,375,135     100.00%      1,311,033     100.00%
                                                 ==========                  =========                  =========
 Premium (discount) on purchased
   savings deposits, net                    399                        (75)                      (198)
                                   ------------                 -----------                -----------           
     Total                         $  1,705,004                  $1,375,060                 $1,310,835 
                                   ============                 ===========                ===========           
</TABLE>

________________________

(1)In 1998, the Bank assumed approximately $355.4 in deposits in connection with
the  acquisition  of  twelve  branches  of  another  financial  institution.
(2)In  1997,  the  Bank  assumed  approximately  $54.6  million  in  deposits in
connection  with  the  acquisition  of  one  branch  office of another financial
institution.
(3)In  1996,  the  Bank  assumed  approximately $11.1 million in net deposits in
connection  with  the  exchange  of three branch offices for one and the sale of
another  branch  office.
(4)Effective  January  1,  1998,  the  Bank implemented a software program which
performs  calculations  and  reclassifies  a  portion  of  the  balances  in
noninterest-bearing  and  interest-bearing  checking  accounts  to  money market
demand  accounts  pursuant  to deposit types under Federal Reserve Regulation D.
The  amount  of  such  reclassification  was approximately $126.0 million ($55.8
million  from  noninterest-bearing  checking  and  $70.2  million  from
interest-bearing  checking)  at  December  31,  1998.


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

<TABLE>
<CAPTION>

                                                      Year  Ended  December  31,

<S>                             <C>          <C>         <C>          <C>         <C>          <C>
                                          1998                      1997                    1996
                                -----------------------   -----------------------  ----------------------
                                                           (Dollars in Thousands)
                                   Average    Average       Average    Average        Average    Average
                                   Balance   Rate Paid      Balance   Rate Paid      Balance    Rate Paid
                                -----------  ----------  -----------  ----------  -----------  ----------
Demand deposit accounts:
 Noninterest-bearing checking   $    51,612         --%  $    91,293         --%  $    85,469         --%
 Interest-bearing checking           20,628       2.18        61,392       1.78        49,181       2.07 
 Savings                             35,162       2.20        23,912       2.29        22,104       2.32 
 Money market demand(1)             315,141       2.37       158,993       3.63       157,933       3.64 
Certificate accounts              1,063,277       5.40     1,008,845       5.50       970,433       5.42 
                                -----------  ----------  -----------  ----------  -----------  ----------
 Total deposits                 $ 1,485,820       4.45%  $ 1,344,435       4.68%  $ 1,285,120       4.66%
                                ===========  ==========  ===========  ==========  ===========  ==========
</TABLE>

________________________

(1)Includes  amounts  reclassified from noninterest-bearing and interest-bearing
checking  accounts  pursuant  to  the  Bank's  program  under  Federal  Reserve
Regulation  D  as  follows:

     Noninterest-bearing  checking          $    63,130
     Interest-bearing  checking                  67,778
                                             ----------
                                               $130,908
                                             ==========

     The  following  table  presents  by  various  interest  rate categories the
amounts  of  certificate  accounts  at  the  dates  indicated and the amounts of
certificate  accounts  at  December  31,  1998,  which mature during the periods
indicated.

<TABLE>
<CAPTION>

                                                          Amounts  at  December  31,  1998  Maturing
                                                                   (In  thousands)


                                                         One Year                              Greater than
                          Amounts at December 31,        or Less       Two Years   Three Years   Three Years
                         -----------------------        ----------    ---------  ------------  ------------ 
<S>                         <C>              <C>             <C>          <C>          <C>           <C>
                           1998             1997
                        ----------     ------------  
Certificate accounts:
2.00% to 3.99%           $   45,152    $      7,905       $ 43,174      $  1,674      $    28     $   276
4.00% to 5.99%            1,019,910         899,205        860,538       118,799       20,636      19,937
6.00 to 7.99%                92,004         102,029         60,916        27,567        1,584       1,937
8.00 to 9.99%                 1,004           2,701            806            --           99          99
over 10.00%                      18              --              9             9           --          --
                         ----------    ------------       --------      --------      -------     -------
Total                    $1,158,088    $  1,011,840       $965,443      $148,049      $22,347     $22,249
                         ==========    ============       ========      ========      =======     =======

</TABLE>



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

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

                                                            Year  Ended  December  31,

<S>                                                           <C>        <C>       <C>
                                                              1998      1997      1996 
                                                         -----------  --------  ---------
                                                                  (In thousands)
Net increase (decrease) before interest credited(1)      $   264,148  $  2,383  $(34,707)

Interest credited                                             65,796    61,842    58,458 
                                                         -----------  --------  ---------
Net deposit increase                                     $   329,944  $ 64,225  $ 23,751 
                                                         ===========  ========  =========
</TABLE>

________________________

(1)For  the years ended December 31, 1998, 1997 and 1996, reflects the effect of
the assumption of $355.4 million, $54.6 million and $11.1 million of net deposit
liabilities  acquired  in  connection  with  branch  office transactions in each
respective  year.    The  net  deposit  outflow  in  each  year (net of acquired
deposits)  was  primarily due to financial disintermediation as described below.

     The  following  table  sets  forth the amount of the Bank's certificates of
deposits which are $100,000 or more by time remaining until maturity at December
31,  1998.

<TABLE>
<CAPTION>

                                              At  December  31,  1998


<S>                                              <C>                 <C>        <C>
                                          Number of accounts                   Deposit Amount
                                          ------------------                   ---------------
                                                                            (Dollars in thousands)
Three months or less                             784                          $   58,172

Over three through six months                    440                              49,140

Over six through twelve   months                 578                              63,534

Over twelve months                               261                              28,153
                                           ----------------                 ---------------

   Total                                       2,063                     $       198,999
                                           ================                 ===============
</TABLE>



     The  Bank's  deposits  are  obtained  primarily  from residents of Houston,
Austin,  Corpus Christi, the Rio Grande Valley and small cities in the southeast
quadrant of Texas.  Currently, the principal methods used by the Bank to attract
and  retain  deposit  accounts include competitive interest rates, having branch
locations  in  under-served  markets  and offering a variety of services for the
Bank's  customers.  The  Bank  uses traditional marketing methods to attract new
customers  and savings deposits, including newspaper advertising.  Through 1998,
except  as noted below, the Bank has not solicited brokered deposit accounts and
generally  has  not  negotiated  rates  on  larger  denomination  (i.e.,  jumbo)
certificates  of  deposit.    In  early 1997, the Bank began the solicitation of
deposit  accounts  through a "money desk."  Money desk rates are only offered to
institutions  (primarily  credit unions and municipal utility districts) and are
generally  up  to  50 basis points higher than on regular certificate of deposit
accounts.


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

     The  Bank  also  provides  its  customers with the opportunity to invest in
noninsured  mutual  funds,  including  government bond funds, tax-free municipal
bond  funds,  growth funds, income growth funds, and sector funds specific to an
industry,  which  are  provided  through  a third party arrangement with another
company, which maintains representatives at the Bank's branch offices.  The Bank
earns  a  fee  after  the payment of all expenses, which was not material to the
Bank's  results  of  operations  for  the years ended December 31, 1998, 1997 or
1996.    See  "Subsidiaries  of  the  Bank  -  CoastalBanc  Financial  Corp".


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

<TABLE>
<CAPTION>

                                                      At  or  For  the  Year
                                                       Ended  December  31,
<S>                                                <C>            <C>          <C>
                                                    1998         1997         1996 
                                               -----------  -----------  -----------

                                                    (Dollars in thousands)
FHLB advances:

 Average balance outstanding                   $  713,197   $  368,896   $  387,296 

 Maximum amount outstanding
   at any month-end during the
   period                                         969,036      540,475      491,930 

 Balance outstanding at end of
   period                                         966,720      540,475      409,720 

 Average interest rate during the
   period                                            5.55%        5.78%        5.62%

 Average interest rate at end of
   period                                            5.24%        5.95%        5.61%

Securities sold under agreements
 to repurchase:

 Average balance outstanding                   $  579,561   $  974,136   $  930,706 

 Maximum amount outstanding
   at any month-end during the
   period                                         874,784    1,035,576    1,022,085 

 Balance outstanding at end of
   period                                         100,000      791,760      966,987 

 Average interest rate during the
   period                                            5.49%        5.66%        5.52%

 Average interest rate at end of
   period                                            4.93%        6.00%        5.55%
</TABLE>



     Federal funds purchased averaged approximately $149,000 and $161,000 during
the  years  ended  December  31,  1998  and  1997,  respectively with an average
interest  rate  during the periods of 5.33% and 5.59%, respectively.  There were
no  federal funds purchased outstanding at any month-end during 1998 or 1997 and
there were no federal funds purchased outstanding during the year ended December
31,  1996.

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

     Advances  from  the  FHLB  are  made  pursuant  to several different credit
programs,  each of which has its own interest rate and range of maturities.  The
programs  of  the  FHLB  currently  utilized by the Bank include a $50.0 million
variable  rate  line of credit, various short-term, fixed rate advances and long
term,  fixed  and  variable-rate  advances.   At December 31, 1998, the Bank had
total  FHLB  advances  of  $966.7 million at a weighted average interest rate of
5.24%.    Of  the advances outstanding at December 31, 1998, $389.2 million were
short-term  advances  with  an  original  maturity  of  less  than  60  days.

     The  Bank  also  obtains  funds  from the sales of securities to investment
dealers  under agreements to repurchase ("reverse repurchase agreements").  In a
reverse  repurchase  agreement  transaction,  the  Bank  will  generally  sell a
mortgage-backed security agreeing to repurchase the same security on a specified
later  date  at an agreed upon price.  The mortgage-backed securities underlying
the  agreements  are delivered to the dealers who arrange the transactions.  The
dealers may loan the Bank's securities in the normal course of their operations;
however,  such  dealers or third party custodians safe-keep the securities which
are  to  be specifically repurchased by the Bank.  Reverse repurchase agreements
represent  a  competitive cost funding source for the Bank; however, the Bank is
subject  to  the risk that the lender may default at maturity and not return the
collateral.  In  order to minimize this potential risk, the Bank only deals with
large,  established  investment  brokerage  firms  when  entering  into  these
transactions.    At December 31, 1998, the Bank had $100.0 million in borrowings
under  reverse  repurchase  agreements  at  a  weighted average interest rate of
4.93%.    At December 31, 1998, the Bank had amounts of securities at risk under
securities sold under agreements to repurchase with one individual counterparty.
The  amount  at  risk  with  Salomon  Smith Barney Inc. was $16.0 million with a
maturity  of  3,295  days  at  December  31,  1998.

     To  a lesser extent, beginning in 1997, the Bank has utilized federal funds
purchased  from  a  correspondent  bank  for  overnight  borrowing  purposes.

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

SUBSIDIARIES  OF  THE  BANK

     GENERAL.  The Bank is permitted to invest in the capital stock, obligations
and  other  securities of its service corporations in an aggregate amount not to
exceed  10%  of  the  Bank's  assets.  In addition, the Bank may make conforming
loans in an amount not exceeding 50% of the Bank's regulatory capital to service
corporations of which the Bank owns more than 10% of the stock.  At December 31,
1998,  the  Bank  was  authorized  to have a maximum investment of approximately
$298.0  million  in  its  subsidiaries.

     At  December 31, 1998, the Bank had one active wholly-owned subsidiary, the
activity  of  which  is  described  below.    At  December  31, 1998, the Bank's
aggregate  equity  investment  in its subsidiary was $131,000 and the Bank had a
receivable  from  such  subsidiary  totaling  $26,000.

     On  December 30, 1998, CBS Mortgage Corp., a former subsidiary of the Bank,
was  dissolved  and  merged into the Bank.  The former CBS Mortgage Corp. is now
operated  as  CBS  Mortgage,  a  division  of    the  Bank.

     COASTALBANC  FINANCIAL  CORP.    CoastalBanc  Financial  Corp.  ("Financial
Corp.")  was  formed  in  1986  to act as an investment advisor to other insured
financial  institutions.    The  Bank is the sole stockholder of Financial Corp.
Over  the  past  four years, Financial Corp. has been inactive in its investment
advisory  capacity.    Financial  Corp. became active during the last quarter of
1992  in  connection  with  the  sale  of  mutual  funds  through  third  party
intermediaries.    Fees  generated  net of expenses, resulted in a net income of
$49,000,  $35,000  and  $40,000  for the years ended December 31, 1998, 1997 and
1996,  respectively.

AFFILIATE  OF  THE  BANK

     COASTAL  BANC  CAPITAL  CORP.    CBCC is a direct subsidiary of HoCo and an
affiliate  of  the  Bank.    CBCC  is  engaged in the business of purchasing and
reselling  packages of whole loan assets on behalf of the Bank and institutional
investors.    The  loan packages acquired by CBCC are offered to the Bank on the
same  terms  and  at  the  same  time that they are offered to other prospective
purchasers.    During  1998,  CBCC  purchased  whole loan assets totaling $316.3
million,  $290.0  million  of  which  were sold to the Bank and $26.3 million of
which  were  sold  to third party investors.  During the year ended December 31,
1998, CBCC recorded gains on the sale of loans to the Bank of $841,000 and gains
on the sale of loans to third party investors of $164,000.  The $841,000 gain on
the sale of loans to the Bank was recorded on the Bank's financial statements as
a  premium  on  purchased  loans  and  is being amortized over the life of those
loans.    All  intercompany  balances  and  transactions have been eliminated in
consolidation.  At December 31, 1998, HoCo's unconsolidated equity investment in
CBCC  was  $351,000.   CBCC had net income (before eliminations) of $275,000 for
the  year ended December 31, 1998 and a net loss of $24,000 for the period ended
December  31,  1997.

     Commissions  received by CBCC from the Bank are calculated at a market rate
and  are  not greater than those paid to non-affiliates in similar transactions.
The  Bank  and  CBCC  have  entered  into  a  mortgage  warehouse revolving loan
agreement  pursuant  to which the Bank has established a $17.0 million revolving
line  of  credit  to  be  drawn  upon  from  time to time by CBCC to finance the
acquisition  of  whole loan assets and the holding of such assets until they are
sold.    The  advances drawn by CBCC are collateralized by such assets purchased
and  held  by CBCC.  There were no amounts outstanding on this line of credit at
December  31,  1998.    All  transactions  between  the Bank and CBCC are within
regulatory  guidelines.

REGULATION

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

THE  COMPANY

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

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

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

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

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

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

REGULATION  OF  THE  BANK

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

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

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

     In  addition,  Sections  22(h)  and  (g)  of  the Federal Reserve Act place
restrictions  on  loans  to  executive  officers,  directors  and  principal
stockholders.    Under  Section 22(h), loans to a director, an executive officer
and  to  a  greater  than 10% stockholder of a savings institution (a "principal
stockholder"), and certain affiliated interests of each of them, may not exceed,
together  with  all  other  outstanding  loans  to  such  person  and affiliated
interests,  the  savings  institution's  loans  to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section 22(h)
also  requires  that  loans  to  directors,  executive  officers  and  principal
stockholders  be  made  on terms substantially the same as offered in comparable
transactions to other persons and also requires prior Board approval for certain
loans.    In addition, the aggregate amount of extensions of credit by a savings
institution  to  all insiders cannot exceed the institution's unimpaired capital
and surplus.  Furthermore, Section 22(g) places additional restrictions on loans
to  executive  officers.   At December 31, 1998, the Bank was in compliance with
the  above  restrictions.

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

     Under  current  FDIC regulations, the Bank is required to comply with three
separate  minimum  capital  requirements:    a  "Tier  1  capital ratio" and two
"risk-based"  capital  requirements.  "Tier 1 capital" generally includes common
stockholders'  equity  (including  retained  earnings), qualifying noncumulative
perpetual preferred stock and any related surplus, and minority interests in the
equity  accounts  of  fully  consolidated subsidiaries, minus intangible assets,
other  than  properly  valued  mortgage  servicing assets, nonmortgage servicing
assets  and  purchased  credit card relationships up to certain specified limits
and  minus  net  deferred  tax assets in excess of certain specified limits.  At
December  31,  1998, the Bank did not have any net deferred tax assets in excess
of  the  specified  limits.

     TIER  1  CAPITAL RATIO.  FDIC regulations establish a minimum 3.0% ratio of
Tier  1  capital  to  total  assets  for  the most highly-rated state-chartered,
FDIC-supervised  banks and for all other state-chartered, FDIC-supervised banks,
the  minimum  Tier  1  capital  ratio  shall  not be less than 4.0%.  Under FDIC
regulations,  highly-rated  banks  are  those  that  the FDIC determines are not
anticipating  or experiencing significant growth and have well diversified risk,
including  no  undue  interest rate risk exposure, excellent asset quality, high
liquidity  and good earnings.  At December 31, 1998, the required Tier 1 capital
ratio  for  the  Bank  was  4.0%  and its actual Tier 1 capital ratio was 5.25%.

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

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

     At  December  31,  1998,  the Bank's Tier 1 capital to risk-weighted assets
ratio  was  9.54% and its total risk-based capital to risk weighted assets ratio
was  10.23%.

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

<TABLE>

<CAPTION>

                                                      At  December  31,

                                       1998                  1997                 1996
                                      -------               -------              -------      

                                Actual   Required     Actual   Required     Actual   Required
                                -------  ---------    -------  ---------    -------  ---------
<S>                             <C>      <C>          <C>      <C>          <C>      <C>
Tier 1 capital to total assets    5.25%      4.00%      5.52%      4.00%      5.35%      4.00%
Tier 1 risk-based capital
 to risk weighted assets          9.54       4.00      11.46       4.00      11.77       4.00 
Total risk-based capital
 risk to risk weighted assets    10.23       8.00      11.98       8.00      12.30       8.00 
</TABLE>




<PAGE>
     The  following  table  sets  forth  a  reconciliation  between  the  Bank's
stockholders'  equity  and  each of its three regulatory capital requirements at
December  31,  1998.

<TABLE>
<CAPTION>


<S>                                       <C>                 <C>           <C>
                                                             Tier 1        Total
                                             Tier 1         Risk-based    Risk-based
                                             Capital         Capital       Capital
                                         --------------  ------------  ------------
                                                    (Dollars in thousands)

Total stockholders' equity                 $   187,919   $   187,919   $   187,919 
Unrealized loss on securities
 available-for-sale                              1,374         1,374         1,374 
Less nonallowable assets:
 Goodwill                                      (30,687)      (30,687)      (30,687)
Plus allowances for loan
 and lease losses                                   --            --        11,358 
                                            -----------  ------------  ------------
Total regulatory capital                       158,606       158,606       169,964 
Minimum required capital                       120,935        66,467       132,935 
                                            -----------  ------------  ------------
Excess regulatory capital                   $   37,671   $    92,139   $    37,029 
                                            ===========  ============  ============

Bank's regulatory capital
 percentage (1)                                   5.25%         9.54%        10.23%

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

Bank's regulatory capital
 percentage in excess of
   requirement                                    1.25%         5.54%         2.23%
                                            ===========  ============  ============
</TABLE>


________________________

(1)Tier  1  capital is computed as a percentage of total assets of $3.0 billion.
Risk-based  capital is computed as a percentage of adjusted risk-weighted assets
of  $1.7  billion.

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

     The  FDIA  also requires the FDIC and the other Federal banking agencies to
revise their risk-based capital standards, with appropriate transition rules, to
ensure that they take into account concentration of credit risk and the risks of
non-traditional activities and to ensure that such standards reflect the "actual
performance  and  expected  risk of loss of multifamily mortgages," of which the
Bank  had  $119.4  million  at  December  31,  1998.    See  "Business - Lending
Activities."   In December 1995, the FDIC and the other Federal banking agencies
promulgated final amendments to their respective risk-based capital requirements
which  would  explicitly identify concentration of credit risk and certain risks
arising  from  nontraditional  activities,  and  the management of such risks as
important  factors  to  consider  in  assessing an institution's overall capital
adequacy.  The  FDIC  may  now  require  higher  minimum capital ratios based on
certain  circumstances,  including  where  the institution has significant risks
from  concentration  of  credit  or  certain  risks arising from non-traditional
activities.

     The  Federal  banking agencies have agreed to adopt for regulatory purposes
Statement  of Financial Accounting Standards No. 115, which, among other things,
generally  adds  a  new element to stockholders' equity under generally accepted
accounting  principles  by  including net unrealized gains and losses on certain
securities.    In  December  1994,  the  FDIC  issued  final  amendments  to its
regulatory  capital  requirements  which  would  require  that the net amount of
unrealized  losses  from  available-for-sale  equity  securities  with  readily
determinable  fair  values  be  deducted  for purposes of calculating the Tier 1
capital  ratio.    All  other  net  unrealized  holding  gains  (losses)  on
available-for-sale  securities  are  excluded  from  the  definition  of  Tier 1
capital.    At  December  31,  1998,  the  Bank  had $98.6 million of securities
available-for-sale with $2.1 million of aggregate net unrealized losses thereon.

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

     The  Bank  currently pays deposit insurance premiums to the FDIC based on a
risk-based  assessment  system  established  by  the  FDIC  for  all SAIF-member
institutions.    In  addition,  the  Bank has acquired deposits of approximately
$291.6  million  for  which deposit insurance premiums are calculated at the BIF
premium rate.  Under applicable regulations, institutions are assigned to one of
three  capital  groups  based  solely on the level of an institution's capital -
"well  capitalized," "adequately capitalized" and "undercapitalized" - which are
defined in the same manner as the regulations establishing the prompt corrective
action system under Section 38 of the FDIA.  These three groups are then divided
into  three  subgroups which reflect varying levels of supervisory concern, from
those  which are considered to be healthy to those which are considered to be of
substantial  supervisory  concern.    The  matrix  so  created  results  in nine
assessment  risk  classifications,  with  rates,  prior to the FDIA, as amended,
being  signed  into  law,  ranging  from  .23%  for  well  capitalized,  healthy
SAIF-member  institutions  to .31% for undercapitalized SAIF-member institutions
with  substantial supervisory concerns. On November 14, 1995, the FDIC adopted a
new  assessment  rate  schedule  of zero to 27 basis points (subject to a $2,000
minimum)  for  BIF members (or institutions, like the Bank, having BIF deposits)
while  retaining  the  existing  assessment  rate  schedule  for  SAIF-member
institutions.

     On  September  30,  1996, amendments to the FDIA were signed into law.  The
FDIA  and  implementing  regulations  provided that all SAIF-member institutions
would  pay  a  special  one  time  assessment  of  65.7 basis points on the SAIF
assessment  base  as  of  March  31, 1995 to recapitalize the SAIF, which in the
aggregate,  would  be sufficient to bring the reserve ratio in the SAIF to 1.25%
of  insured  deposits.    The Bank's special assessment amounted to $7.5 million
($4.8  million after applicable income taxes) pursuant to the FDIA.  In addition
to  the  recapitalization  provisions,  the FDIA equalized the rate schedule for
SAIF  and  BIF  institutions with the rates ranging from zero to 27 basis points
beginning  October  1,  1996.  At December 31, 1998, the Bank was categorized as
well  capitalized.

     The  FDIA provided for Financing Corporation ("FICO") debt sharing by banks
and  thrifts  with  proration  sharing in the year 2000. Prior to the year 2000,
SAIF  insured  institutions  will  pay  approximately 6.5 basis points for FICO,
while  BIF  insured  institutions  will pay approximately 1.3 basis points.  The
FICO  provisions of the FDIA also prohibit deposit migration strategies to avoid
SAIF  premiums.  Starting in the year 2000, BIF and SAIF institutions will begin
sharing  the  FICO  burden  on  a  pro  rata basis until termination of the FICO
obligation  in  2017.

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

     After  January 1, 1996, the Bank is unable to make additions to its tax bad
debt  reserve,  is  permitted  to  deduct  bad  debts  only as they occur and is
additionally  required  to  recapture (i.e. take into taxable income) over a six
year  period,  beginning  January  1, 1998, the excess of the balance of its bad
debt  reserve  as  of  December  31, 1995 over the balance of such reserve as of
December  31,  1987.    At  December  31,  1998, the Bank had approximately $3.1
million  of  post-1987 tax bad debt reserves, for which deferred taxes have been
provided.

     SAFETY  AND SOUNDNESS STANDARDS. Each Federal banking agency is required to
prescribe,  for all insured depository institutions and their holding companies,
standards  relating to internal controls, information systems and internal audit
systems,  loan documentation, credit underwriting, interest rate exposure, asset
growth,  compensation,  fees  and  benefits  and  such  other  operational  and
managerial  standards  as  the  agency  deems  appropriate.    The  compensation
standards would prohibit employment contracts or other compensatory arrangements
that  provide  excess  compensation,  fees or benefits or could lead to material
financial  loss  to  the  institution.  In addition, each Federal banking agency
also  is  required  to  adopt  for all insured depository institutions and their
holding  companies  standards  that  specify  (i)  a maximum ratio of classified
assets  to  capital,  (ii)  minimum earnings sufficient to absorb losses without
impairing capital, (iii) to the extent feasible, a minimum ratio of market value
to  book value for publicly-traded shares of the institution or holding company,
and  (iv) such other standards relating to asset quality, earnings and valuation
as  the  agency  deems  appropriate.    On  July  10,  1995, the Federal banking
agencies,  including  the  FDIC,  adopted  final  rules  and proposed guidelines
concerning  safety  and  soundness  required  to  be  prescribed  by regulations
pursuant  to  Section  39  of  the  FDIA.    In general, the standards relate to
operational and managerial matters, asset quality and earnings and compensation.
The operational and managerial standards cover internal controls and information
systems,  internal  audit  systems,  loan  documentation,  credit  underwriting,
interest  rate  exposure,  asset  growth,  and  compensation, fees and benefits.
Under  the  asset  quality  and  earnings  standards,  which were adopted by the
Federal  banking agencies in October 1996, the Bank is required to establish and
maintain  systems  to identify problem assets and prevent deterioration in those
assets  and evaluate and monitor earnings to ensure that earnings are sufficient
to  maintain adequate capital reserves.  If an insured institution fails to meet
any  of  the standards promulgated by the regulators, then such institution will
be  required  to  submit  a plan within 30 days to the FDIC specifying the steps
that  it  will  take  to  correct  the deficiency.  In the event that an insured
institution  fails  to  submit  or  fails in any material respect to implement a
compliance  plan  within  the  time  allowed by the FDIC, Section 39 of the FDIA
provides  that the FDIC must order the institution to correct the deficiency and
may restrict asset growth, require the savings institution to increase its ratio
of  tangible  equity  to  assets,  restrict  the  rates  of  interest  that  the
institution  may  pay  or  take any other action that would better carry out the
purpose  of prompt corrective action.  The Bank believes that it has been and at
December 31, 1998 was in compliance with each of the standards as they have been
adopted  by  the  FDIC.

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

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

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

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

     QUALIFIED  THRIFT  LENDER  TEST.    All savings institutions, including the
Bank,  are required to meet a QTL test set forth under Section 10(m) of the Home
Owners  Loan  Act,  as  amended, ("HOLA") to avoid certain restrictions on their
operations.   Under Section 2303 of the Economic Growth and Regulatory Paperwork
Reduction  Act  of  1996, a savings institution can comply with the QTL test set
forth  in  the  HOLA and implementing regulations or by qualifying as a domestic
building  and  loan  association  as defined in Section 7701(a)(19) of the Code.
The  QTL test set forth in HOLA requires that a depository institution must have
at  least  65%  of  its  portfolio  assets  (which  consist of total assets less
intangibles,  properties  used to conduct the savings institution's business and
liquid assets not exceeding 20% of total assets) in qualified thrift investments
on  a  monthly  average  basis  in  nine  of  every  12  months.    Loans  and
mortgage-backed  securities  secured by domestic residential housing, as well as
certain  obligations  of  the  FDIC  and  certain  other related entities may be
included  in  qualifying  thrift  investments  without  limit.  Certain  other
housing-related and non-residential real estate loans and investments, including
loans  to  develop  churches, nursing homes, hospitals and schools, and consumer
loans  and investments in subsidiaries engaged in housing-related activities may
also be included. Qualifying assets for the QTL test include investments related
to  domestic  residential real estate or manufactured housing, the book value of
property  used  by  an  institution  or  its subsidiaries for the conduct of its
business,  an  amount  of residential mortgage loans that the institution or its
subsidiaries  sold  within 90 days of origination, shares of stock issued by any
FHLB  and  shares  of  stock  issued  by the FHLMC or the FNMA.  The Bank was in
compliance  with  the QTL test as of December 31, 1998, with 80.4% of its assets
invested  in  qualified  thrift  investments.

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

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

     FEDERAL HOME LOAN BANK SYSTEM.  The Bank is a member of the FHLB of Dallas,
which  is  one  of  12  regional FHLBs that administer the home financing credit
function  of  savings  institutions and commercial banks.  Each FHLB serves as a
source  of  liquidity  for its members within its assigned region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.    It  makes  loans to members (i.e., advances) in accordance with
policies  and  procedures established by its Board of Directors.  As of December
31, 1998, the Bank's advances from the FHLB of Dallas amounted to $966.7 million
or  32.4%  of  its  total  assets.

     As  a  member,  the  Bank is required to purchase and maintain stock in the
FHLB  of  Dallas in an amount equal to the greater of 1% of its aggregate unpaid
residential  mortgage  loans,  home purchase contracts or similar obligations at
the  beginning  of each year or 5% of total advances.  At December 31, 1998, the
Bank  had  $49.8  million  in  FHLB  stock,  which  was  in compliance with this
requirement.

     The  FHLBs  are  required  to  provide funds for the resolution of troubled
savings  associations  and  to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.  These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in  the  future.    These contributions also could have an adverse effect on the
value  of  FHLB  stock  in  the  future.   For the year ended December 31, 1998,
dividends  paid  by  the  FHLB  of  Dallas  to  the  Bank  totaled $2.2 million.

     FEDERAL  RESERVE SYSTEM.  The Federal Reserve Board requires all depository
institutions  to maintain reserves against their transaction accounts (primarily
checking  accounts)  and  non-personal time deposits.  At December 31, 1998, the
Bank  was  in  compliance  with  such  requirements.

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

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

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

TAXATION

     FEDERAL  TAXATION.    The  Company,  the  Bank  and its subsidiaries file a
consolidated  Federal  income  tax  return  on  a  calendar year basis using the
accrual method.  Savings banks are subject to provisions of the Internal Revenue
Code  ("Code") in the same general manner as other corporations.  However, prior
to  1996, institutions such as the Bank which met certain definitional tests and
other  conditions  prescribed  by  the  Code,  benefited  from certain favorable
provisions  regarding  their deductions from taxable income for annual additions
to their bad debt reserve.  In years prior to 1996, the Bank was permitted under
the  Code  to  deduct  an  annual  addition  to  the  reserve  for  bad debts in
determining  taxable  income based on the experience method or the percentage of
taxable  income  method.  Due to 1996 legislation, the Bank no longer is able to
utilize  a reserve method for determining the bad debt deduction, but is allowed
to  deduct  actual  net charge-offs.  Further, the Bank's post-1987 tax bad debt
reserve  will be recaptured into income over a six year period.  At December 31,
1998,  the  Bank  had  approximately  $3.1  million  of  post-1987  tax bad debt
reserves,  for  which  deferred  taxes  have  been  provided.

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

     In  addition  to  regular  income  taxes,  corporations  are  subject to an
alternative  minimum  tax which is generally equal to 20% of alternative minimum
taxable  income  (taxable income, increased by tax preference items and adjusted
for  certain  regular tax items).  Payment of alternative minimum tax gives rise
to  alternative  minimum  tax  credit  carryovers  which  may be carried forward
indefinitely.   These credits may be used to offset future regular tax liability
to  the extent the regular tax liability exceeds future alternative minimum tax.

     In  connection  with  the  Southwest Plan Acquisition, the FSLIC Resolution
Fund ("FRF") retained all of the future federal income tax benefits (as defined)
derived  from  the federal income tax treatment of certain items, in addition to
net  operating loss carryforwards, related to the Southwest Plan Acquisition for
which the Bank agreed to pay the FRF when actually realized.  The provisions for
federal  income  taxes  recorded for the years ended December 31, 1998, 1997 and
1996,  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
1998,  1997 and 1996 will be available as credit carryforwards to reduce regular
federal  tax  liabilities  in  future  years, over an indefinite period.  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  assistance  agreement  related  to the Southwest Plan
Acquisition  was  effective March 31, 1994, the FRF will continue to receive the
related  future  net  tax  benefits  as  defined.

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

STATE  TAXATION

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

ITEM  2.          PROPERTIES
                  ----------

     The  Company's  business  is  conducted  from  49  offices  in  Texas.  The
following  table  sets forth the location of the offices of the Company, as well
as  certain  additional information relating to these offices as of December 31,
1998.

<TABLE>
<CAPTION>

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

                                                             (Dollars in thousands)
<S>                            <C>                      <C>                      <C>        <C>
BRANCH OFFICES:
-----------------------------                                                                          
1329 North Virginia            Owned
Port Lavaca, Texas  77979                               $      152             $  28,476        1.67%
-----------------------------                                                                          
8 Greenway Plaza, Suite 100    Leased;
Houston, Texas  77046          February 28, 1999                --                17,946        1.05 
-----------------------------                                                                          
8 Braeswood Square             Leased;
Houston, Texas  77096          December 31, 2006               442                60,820        3.57 
-----------------------------                                                                          
408 Walnut                     Owned
Columbus, Texas  78934                                         255                55,041        3.23 
-----------------------------                                                                          
870 S. Mason, #100             Leased;
Katy, Texas  77450             August 31, 2003                  30                25,109        1.47 
-----------------------------                                                                          
602 Lyons                      Owned
Schulenburg, Texas  78956                                       89                30,793        1.81 
-----------------------------                                                                          
325 Meyer Street               Owned
Sealy, Texas  77474                                            557                41,206        2.42 
-----------------------------                                                                          
116 E. Post Office             Owned
Weimar, Texas  78962                                            36                26,476        1.55 
-----------------------------                                                                          
323 Boling Road                Owned
Wharton, Texas  77488                                          121                44,792        2.63 
-----------------------------                                                                          
1621 Pine Drive                Leased;
Dickinson, Texas  77539        September 30, 2000               --                41,425        2.43 
-----------------------------                                                                          
300 S. Cage                    Owned
Pharr, Texas 78577                                             184                16,811        0.99 
-----------------------------                                                                          
295 West Highway 77            Owned
San Benito, Texas  78586                                       226                21,068        1.24 
-----------------------------                                                                          
1260 Blalock, Suite 100        Leased;
Houston, Texas  77055          January 20, 2004                  2                54,880        3.22 
-----------------------------                                                                          
620 W. Main                    Owned
Tomball, Texas  77375                                          117                25,314        1.48 
-----------------------------                                                                          
915-H North Shepherd           Leased;
Houston, Texas  77008          October 31, 2001                135                31,745        1.86 
-----------------------------                                                                          
6810 FM 1960 West              Leased;
Houston, Texas  77069          September 30, 2000               --                27,682        1.62 
-----------------------------                                                                          
7602 N. Navarro                Owned
Victoria, Texas  77904                                         200                77,327        4.54 
-----------------------------                                                                          
2308 So. 77 Sunshine Strip     Leased;
Harlingen, Texas   78550       May 31, 1999                     --                16,743        0.98 
-----------------------------                                                                          
4900 N. 10th St., G-1          Leased;
McAllen, Texas   78504         August 14, 2001                 117                15,016        0.88 
-----------------------------                                                                          
10838 Leopard Street, Suite B  Leased;
Corpus Christi, Texas   78410  December 31, 1999                 1                41,107        2.41 
                                                                                                   (continued)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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

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

4060 Weber Road                     Leased;
Corpus Christi, Texas   78411       April 30, 2004           $         1             $  58,793        3.45%
-----------------------------                                                                          
301 E. Main Street                  Owned
Brenham, Texas   77833                                               157                63,014        3.70 
-----------------------------                                                                          
1192 W. Dallas                      Leased;
Conroe, Texas   77301               December 31, 2003                 --                48,027        2.82 
-----------------------------                                                                          
2353 T own Center Dr.                Owned
Sugar Land, Texas   77478                                          1,087                20,466        1.20 
-----------------------------                                                                          
1629 S. Voss                        Owned
Houston, Texas   77057                                             1,451                22,820        1.34 
-----------------------------                                                                          
531-A Highway 1431                  Leased;
Kingsland, Texas   78639            December 31, 2003                 --                20,200        1.18 
-----------------------------                                                                          
204 Westmoreland                    Owned
Mason, Texas   76856                                                  50                17,431        1.02 
-----------------------------                                                                          
904 Highway 281 North               Owned
Marble Falls, Texas   78654                                          173                11,824        0.69 
-----------------------------                                                                          
101 East Polk                       Owned
Burnet, Texas   78611                                                 96                20,453        1.20 
-----------------------------                                                                          
907 Ford                            Owned
Llano, Texas   78643                                                 168                17,075        1.00 
-----------------------------                                                                          
708 East Austin                     Owned
Giddings, Texas   78942                                              257                23,863        1.40 
-----------------------------                                                                          
5718 Westheimer, Suite 100          Leased;
Houston, Texas 77057                July 31, 2012                    112                54,387        3.19 
-----------------------------                                                                          
8080 Parkwood Circle Drive          Owned
Houston, Texas 77036                                                 283                11,035        0.65 
-----------------------------                                                                          
1250 Pin Oak Road                   Owned
Katy, Texas 77494                                                  1,171                15,823        0.93 
-----------------------------                                                                          
2120 Thompson Highway               Owned
Richmond, Texas 77469                                                469                47,611        2.79 
-----------------------------                                                                          
7200 North Mopac                    Leased;
Austin, Texas 78731                 December 31, 2002                  6                38,352        2.25 
-----------------------------                                                                          
1112 Seventh Street                 Leased;
Bay City, Texas 77414               April 30, 2002                    --                69,347        4.07 
-----------------------------                                                                          
441 Austin Avenue                   Owned
Port Arthur, Texas 77640                                             644                43,449        2.55 
-----------------------------                                                                          
1114  Lost Creek Blvd., Suite 100   Leased;
Austin, Texas 78746                 December 31, 2003                 --                    --          -- 
-----------------------------                                                                          
3302 Boca Chica                     Leased;
Brownsville, Texas 78521            December 14, 1999                 14                 9,606        0.56 
-----------------------------                                                                          
744 S. East Elizabeth               Leased;
Brownsville, Texas 78520            March 31, 2003                   294                20,617        1.21 
-----------------------------                                                                          
1603 Price Road                     Owned
Brownsville, Texas 78521                                             291                12,311        0.72 
-----------------------------                                                                          
700 Padre Blvd., Suite A            Leased;
South Padre Island, Texas 78597     May 31, 2000                       5                 5,894        0.35 
-----------------------------                                                                          
2000 N. Conway                      Owned
Mission, Texas 78572                                               1,254                22,866        1.34 
                                                                                                     (continued)
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

(continued from previous page)
                                                                Net Book
                                                                Value of
                                                                Property
                                     Owned/Leased                  or                         Percent of
                                (with Lease Expiration          Leasehold                        Total
Location                                 Date)                Improvements         Deposits    Deposits
------------------------------  -----------------------  -----------------------  ----------  -----------
                                                              (Dollars in thousands)
<S>                             <C>                      <C>                      <C>         <C>

------------------------------                                                                           
509 South Main                  Leased;
McAllen, Texas 78501            December 22, 2002        $           1           $   43,100        2.53%
------------------------------                                                                           
198 South Sam Houston           Owned
San Benito, Texas 78586                                          1,139               68,168        4.00 
------------------------------                                                                           
502 S. Dixieland Road           Owned
Harlingen, Texas 78552                                             350               19,297        1.13 
------------------------------                                                                           
200 Sugar Road                  Owned
Edinburg, Texas 78539                                              166                8,083        0.47 
------------------------------                                                                           
300 S. Closner                  Owned
Edinburg, Texas 78539                                              887               42,607        2.50 
------------------------------                                                                           
221 East Van Buren              Owned
Harlingen, Texas 78550                                           3,877               88,345        5.18 
------------------------------                                                                           
3207 Westpark Drive             Under Construction
Houston, Texas 77027                                             1,887                  --          -- 
------------------------------                                                                           
1410 Ed Carey                   Under Construction
Harlingen, Texas 78554                                             810                  --          -- 
------------------------------                                                                           
ADMINISTRATIVE OFFICE(1)
------------------------------                                                                           
Coastal Banc Plaza              Leased;
5718 Westheimer, Suite 600      July 31, 2012                    2,917               60,363        3.53 
Houston, Texas 77057
------------------------------                                                                           
RECORDS & RETENTION OFFICE:
------------------------------                                                                           
227 Meyer St.                   Owned
Sealy, Texas   77474                                                62                  --           - 
                                                         -------------          ----------   -----------
     Total                                               $      22,743          $1,705,004       100.00%
                                                         =============          ==========   ===========
</TABLE>


______________________

(1)Includes  location  of administrative, primary lending and mortgage servicing
offices.
The net book value of the Company's investment in premises and equipment totaled
$33.1 million at December 31, 1998.  At December 31, 1998, the net book value of
the  Company's electronic data processing equipment, which includes its in-house
computer  system,  local area network and twenty-five automatic teller machines,
was  $4.2  million.

ITEM  3.          LEGAL  PROCEEDINGS
                  ------------------

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

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

          Not  applicable.

PART  II
--------

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

     The  information  required herein is incorporated by reference from page 51
of  the Company's printed Annual Report to Stockholders for fiscal 1998 ("Annual
Report"),  which  is  included  herein  as  Exhibit  13.

ITEM  6.          SELECTED  FINANCIAL  DATA
                  -------------------------

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

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

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

ITEM  7A.          QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES ABOUT MARKET RISK
                   -------------------------------------------------------------

     The  information required herein is incorporated by reference from pages 16
through  17  of the Annual Report.  The Company's principal market risk exposure
is  to  interest  rates.

ITEM  8.          FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA
                  -----------------------------------------------

     The  financial  statements  and  supplementary  data  required  herein  are
incorporated  by  reference  from  pages  23  through  50  of the Annual Report.


<PAGE>
ITEM  9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                 ---------------------------------------------------------------
FINANCIAL  DISCLOSURE
    -----------------

          Not  applicable.

PART  III
---------

ITEM  10.          DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT
                   --------------------------------------------------------

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

ITEM  11.          EXECUTIVE  COMPENSATION
                   -----------------------

     The  information  required  herein  is  incorporated  by reference from the
definitive  Proxy  Statement  filed with the Securities and Exchange Commission.

ITEM  12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  --------------------------------------------------------------

     The  information  required  herein  is  incorporated  by reference from the
definitive  Proxy  Statement  filed with the Securities and Exchange Commission.

ITEM  13.          CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
                   --------------------------------------------------

     The  information  required  herein  is  incorporated  by reference from the
definitive  Proxy  Statement  filed with the Securities and Exchange Commission.

PART  IV
--------

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

     (a)(1)        The following financial statements are incorporated herein by
reference  from  pages  23  through  50  of  the  Annual  Report.

          Report  of  Independent  Certified  Public  Accountants.

          Consolidated Statements of Financial Condition as of December 31, 1998
and  1997.

          Consolidated  Statements  of  Operations  for each of the years in the
three-year  period  ended  December  31,  1998.

          Consolidated  Statements of Comprehensive Income for each of the years
in  the  three-year  period  ended  December  31,  1998.

          Consolidated  Statements of Stockholders' Equity for each of the years
in  the  three-year  period  ended  December  31,  1998.

          Consolidated  Statements  of  Cash  Flows for each of the years in the
three-year  period  ended  December  31,  1998.

          Notes  to  Consolidated  Financial  Statements.

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

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

<TABLE>
<CAPTION>


                                                                             Page in
                                                                         Manually signed
                                                                             report
Exhibit No.

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


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

     (b)(1)     The Company filed no reports on Form 8-K during the last quarter
of  fiscal  1998.

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

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


     SIGNATURES


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

                              COASTAL  BANCORP,  INC.



Date:    March  23,  1999           By:     /s/ Manuel J. Mehos
                                            -------------------
                                            Manuel  J.  Mehos,
                                            Chairman  of  the  Board  and  Chief
                                            Executive  Officer


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



/s/  Manuel  J.  Mehos                                      Date: March 23, 1999
----------------------
Manuel  J.  Mehos,  Chairman  of  the
  Board  and  Chief  Executive  Officer



/s/  R.  Edwin  Allday                                      Date: March 23, 1999
----------------------
R.  Edwin  Allday,  Director



/s/  D. Fort Flowers, Jr.                                   Date: March 23, 1999
-------------------------
D.  Fort  Flowers,  Jr.,  Director



/s/  Dennis  S.  Frank                                      Date: March 23, 1999
----------------------
Dennis  S.  Frank,  Director



/s/  Robert  E.  Johnson,  Jr.                              Date: March 23, 1999
-----------------------------
Robert  E.  Johnson,  Jr.,  Director



<PAGE>

/s/  James  C.  Niver                                       Date: March 23, 1999
---------------------
James  C.  Niver,  Director



/s/  Paul  W.  Hobby                                        Date: March 23, 1999
--------------------
Paul  W.  Hobby,  Director



/s/  Catherine  N.  Wylie                                   Date: March 23, 1999
-------------------------
Catherine  N.  Wylie,  Chief  Financial
  Officer  (principal  financial  and
  accounting  officer)



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