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, 2002
                                             -----------------

                                       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, $0.01 par value per share
                     ---------------------------------------
                                (Title of Class)

                    9.12% Series A Cumulative Preferred Stock
                    -----------------------------------------
                                (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.  [   ]

Indicate  by  check  mark  whether  the  registrant  is an accelerated filer (as
defined  in  Exchange  Act  Rule  12b-2).  [  X  ]

As  of  March  12,  2003,  the aggregate market value of the 5,146,878 shares of
Common  Stock  of  the Registrant issued and outstanding on such date, excluding
777,034 shares held by all directors and executive officers of the Registrant as
a  group,  was  $127,774,239.  This figure is based on the closing sale price of
$29.24 per share of the Registrant's Common Stock on March 12, 2003, as reported
in  The  Wall  Street  Journal  on  March  13,  2003.

Number  of  shares  of Common Stock outstanding as of March 12, 2003:  5,146,878

                    DOCUMENTS  INCORPORATED  BY  REFERENCE
The  following  documents  are incorporated by reference into the noted Parts of
this  Form  10-K:
(1)     Portions  of  the  Registrant's  Annual  Report  to Stockholders for the
fiscal year ended December 31, 2002, are incorporated into Part II, Items 5-8 of
this  Form  10-K.
(2)     Portions  of  the  Registrant's  definitive proxy statement for its 2003
Annual  Meeting  of  Stockholders ("Proxy Statement") are incorporated into Part
III,  Items  10-13  of  this  Form  10-K.

<PAGE>


PART  I.

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

     COASTAL  BANCORP,  INC.

     In  addition  to  historical  information,  this Annual Report on Form 10-K
includes  certain "forward-looking statements," as defined in the Securities Act
of  1933,  as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), based on current management expectations.
Coastal  Bancorp,  Inc.'s (the "Company") actual results could differ materially
from  those  management  expectations.  Such  forward-looking statements include
statements  regarding  the Company's intentions, beliefs or current expectations
as well as the assumptions on which such statements are based.  Stockholders and
potential  stockholders  are  cautioned that any such forward-looking statements
are  not  guarantees  of future performance and involve risks and uncertainties,
and  that  actual  results may differ materially from those contemplated by such
forward-looking  statements.  Factors  that  could  cause future results to vary
from  current  management  expectations include, but are not limited to, general
economic  conditions,  legislative  and  regulatory changes, monetary and fiscal
policies  of  the  Federal  government,  changes  in  tax  policies,  rates  and
regulations  of  Federal,  state  and local tax authorities, changes in interest
rates,  deposit  flows,  the cost of funds, demand for loan products, demand for
financial  services,  competition,  changes in the quality or composition of the
Company's  loan  and  investment  portfolios,  changes in accounting principles,
policies  or  guidelines,  and  other  economic,  competitive,  governmental and
technological  factors  affecting  the  Company's operations, markets, products,
services  and  fees.  For  a more detailed discussion of these risk factors, see
Exhibit  99.3.  The  Company  undertakes  no  obligation to update or revise any
forward-looking  statements  to  reflect  changed assumptions, the occurrence of
unanticipated  events  or  changes  to  future  operating  results  over  time.

     Coastal  Bancorp,  Inc.  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  subsidiary of HoCo.  Each of these
reorganizations was treated for accounting purposes 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
originally formed to trade packages of whole loan assets, primarily for the Bank
and  for  other  institutional  investors  and  did  so  until  September  2002.
Beginning in 2002, a corporate finance group was formed within CBCC to act as an
intermediary in raising capital for business customers and to provide merger and
acquisition  advisory  services  to  buyers  and  sellers  of small to mid-sized
companies.  In  2003, management of the Company made the decision to discontinue
the  operations  of  CBCC  effective  March 31, 2003 due to the current economic
climate.  In  July 2002, the Company formed Coastal Banc Mortgage Corp. ("CBMC")
as  a wholly-owned subsidiary of HoCo.  CBMC was formed to continue the function
of  trading whole loan assets for the Bank and for other institutional investors
that  had  been  previously  performed  by  CBCC.

     In  June  2000,  the  Company  acquired Coastal Banc Insurance Agency, Inc.
("CBIA")  as a wholly-owned subsidiary of the Bank.  CBIA was a former affiliate
of  the Bank and receives fees related to insurance and investment product sales
to  the  Bank's  deposit  and  loan  customers.

     On  June  18,  2002,  Coastal  Bancorp,  Inc.  ("Bancorp"), through Coastal
Capital  Trust  I  (a  consolidated  trust  subsidiary)  (the  "Trust"),  issued
2,000,000  trust  preferred  securities  ("Trust  Preferred  Securities") with a
liquidation  preference  of  $25  per  security.  The Trust Preferred Securities
represent  an  interest  in Bancorp's junior subordinated debentures, which were
purchased  by the Trust.  The junior subordinated debentures are the only assets
of the Trust and interest payments from the debentures finance the distributions
paid  on  the  Trust  Preferred Securities.  Distributions on the securities are
payable  quarterly  at  the  annual  rate  of  9.0% and are included in interest
expense  in  the  consolidated  statements  of  income.  The  Trust  Preferred
Securities are subject to mandatory redemption at the liquidation preference, in
whole  or  in  part,  upon  repayment  of  the junior subordinated debentures at
maturity  or  their  earlier redemption.  The junior subordinated debentures are
redeemable prior to the maturity date of June 30, 2032, at the option of Bancorp
on  or  after  June 30, 2007, in whole at any time or in part from time to time.
The  junior  subordinated  debentures are also redeemable at any time, in whole,
but  not  in part, upon the occurrence of specific events defined with the trust
indenture.  Bancorp  has  the  option  to  defer  distributions  on  the  junior
subordinated  debentures  from  time  to  time  for  a  period  not to exceed 20
consecutive  quarters.

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

     On  August  27, 1998, December 21, 1998, February 25, 1999, April 27, 2000,
July 27, 2000 and April 25, 2002, the Board of Directors authorized six separate
repurchase  plans  for  up  to  500,000 shares each of the outstanding shares of
common  stock  of  the  Company  through  an  open market repurchase program and
privately  negotiated  repurchases, if any.  As of December 31, 2002, a total of
2,729,575  shares  had  been  repurchased under all of the authorized repurchase
plans.  The  Company  will  continue  its  practice of taking the opportunity to
repurchase  common  stock  with  excess  capital  during  times  of  share price
weakness.

     At  December  31,  2002,  the Company had total consolidated assets of $2.5
billion,  total  deposits  of  $1.6 billion, 9.12% Series A Cumulative Preferred
Stock  of  $27.5  million  and  common  stockholders'  equity of $125.4 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 Bank is subject to examination and regulation by the Federal
Deposit  Insurance  Corporation  ("FDIC")  and  by the Board of Governors of the
Federal  Reserve  System (the "Federal Reserve Board").  The Bank 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.  See "Regulation - Regulation
of  the  Bank."  The  Company  is  also  subject  to various reporting and other
requirements  of  the  Securities  and  Exchange  Commission  (the  "SEC").  See
"Regulation  -  The  Company."

     The  Company's  executive  offices  are located at Coastal Banc Plaza, 5718
Westheimer,  Suite  600,  Houston, Texas 77057-5745, and its telephone number is
(713)  435-5000.  The  Bank  operates a website on the Internet for business and
marketing  purposes  at www.coastalbanc.com.  (The website is not a part of this
                        -------------------
Form  10-K.)


     COASTAL  BANC  SSB

     The Bank is a Texas-chartered, Federally insured state savings bank.  It is
headquartered  in  Houston,  Texas  and  operates  through  43 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, 2002, the Bank had total assets of $2.5 billion, total deposits
of  $1.6  billion  and  stockholders'  equity  of  $199.7  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) controlling 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.

     Since  completion  of  the Southwest Plan Acquisition, the Bank has entered
into  a  series  of  branch  office  transactions  (including  three disposition
transactions)  and  one  whole  bank  acquisition.  All  of  these  transactions
resulted  in the net assumption of $1.8 billion of primarily retail deposits and
58  branch offices (23 of which were subsequently closed or sold).  The Bank has
also  opened  seven  de  novo  branches  since its inception, six in the Houston
metropolitan  area  and  one  in  Austin.  The  Bank  will  continue  to  pursue
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 on an accretive basis
in  the  future,  or  at  all.

     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 the repricing or
expected  terms  of  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
matching  is achieved through management of the composition of the Bank's assets
and liabilities.  The Bank may also use interest rate swap and cap agreements to
aid in minimizing exposure to interest rate and price fluctuations.  In November
2001,  to  strategically restructure a portion of its asset base to make it less
vulnerable to market interest rate and price fluctuations, the Company completed
the  sale  of approximately $845 million of its mortgage-backed securities.  The
majority  of  the  securities  sold  were  Collateralized  Mortgage  Obligations
("CMOs")  tied  to  COFI  and contained extension risk which caused, on average,
high  levels  of price volatility.  Also in November, the Company used a portion
of  the proceeds of the sale to purchase approximately $512 million of primarily
pass  thru mortgage-backed securities with an overall shorter expected duration.
Coastal  reduced  borrowings  with  the remainder of the proceeds from the sale.
See  "Management's Discussion and Analysis of Financial Condition and Results of
Operations  -  Asset  and  Liability  Management"  set  forth  in Item 7 hereof.

     CREDIT  RISK.  The  Bank  has  implemented  the  third operating principle,
controlling credit risk while increasing the emphasis on its commercial business
lending,  by  (i)  taking  a cautious approach to its direct lending operations,
including  the  development  of  commercial business lending, and (ii) holding a
substantial  portion  of  its  assets  in  primarily  adjustable rate first lien
(single  family)  residential  mortgage loans and mortgage-backed securities. At
December  31,  2002,  the  Company's total loans receivable portfolio (excluding
loans  held  for sale) amounted to $1.8 billion or 71.8% of total assets, $855.6
million,  or  47.2%,  of  which  were  comprised  of  first  lien  single family
residential mortgage loans.  At December 31, 2002, of the Company's $2.5 billion
in  total  assets,  $475.0  million  or  18.8%  of  total  assets  consisted  of
mortgage-backed  securities.

     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 operations and branch office system
which  is able to economically administer and deliver its products and services.
The  Company's  ratio  of  noninterest  expense  to  average  total  assets on a
consolidated  basis  was  2.19%  for  the  year  ended  December  31,  2002.

LENDING  ACTIVITIES

     GENERAL.  Coastal  is continuing to expand and diversify its loan portfolio
in  a  manner  consistent  with  the  operating  principles  discussed  above by
emphasizing  the  origination or purchase for retention in its portfolio of 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  and  other  characteristics.  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.

     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.
In  doing  so, the Bank continues to take a cautious approach to the development
and  growth  of  its  direct lending operations in its efforts to control credit
risk.  In November 1995, the Bank acquired its first commercial bank with $103.3
million  in  loans  including 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 (the "1998 Branch Acquisition") and
designated 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")
is  able  to  incorporate  more comprehensive credit information than previously
reviewed  by  the  Bank  by applying Internet and network computer technology to
take  a  loan  from  application  to  closing in less time than before.  The PCC
staff,  as  part of the Bank's Asset/Liability Subcommittee, is also responsible
for  monitoring  and  managing  the  Bank's  assets  and  liabilities  and their
sensitivity  to  interest  rate  changes.

     The  following  table  sets forth information concerning the composition of
the  Company's  net  loans  receivable  portfolio  by  type of loan at the dates
indicated.
<TABLE>
<CAPTION>
                                                                At December 31,
<S>                                      <C>           <C>           <C>           <C>            <C>
                                            2002           2001         2000         1999         1998
                                       ---------------  -----------  -----------  -----------  -----------
                                                                (In thousands)
Real estate mortgage loans:
  First lien residential                  $855,633       $880,624     $908,841     $836,005     $690,510
  Multifamily                              116,020        124,616      224,361      163,059      119,447
  Residential construction                 123,085        136,035      157,950      136,675      115,714
  Acquisition and development              143,463        140,009      133,005      103,357       75,932
  Commercial                               317,692        319,377      347,921      314,292      257,723
  Commercial and multifamily
    construction                           241,128        222,026       90,256       65,934       40,344
Commercial secured by residential
  mortgage loans held for sale
  ("Warehouse")                                 --         11,508        8,518       60,372      173,124
Commercial secured by mortgage
  servicing rights ("MSR")                      --             --           --           --        3,867
Commercial, financial and industrial       135,209        116,029      120,420      100,195       92,218
Loans secured by deposits                   14,465         21,238       13,681       13,094       13,164
Consumer and other                          33,430         43,384       56,522       63,383       66,989
                                       -------------    -----------  -----------  -----------  -----------

  Total loans                            1,980,125      2,014,846    2,061,475    1,856,366    1,649,032
                                       -------------    -----------  -----------  -----------  -----------

Loans in process                          (147,769)      (131,064)    (142,451)    (108,561)     (99,790)
Allowance for loan losses                  (18,118)       (15,385)     (14,507)     (10,493)     (11,358)
Unearned interest and loan fees             (2,910)        (2,959)      (3,864)      (2,947)      (3,493)
Net premium (discount) on
  purchased loans                            1,457         (1,837)      (4,425)         716        3,758
                                       -------------    -----------  -----------  -----------  ----------
  Total loans receivable, net           $1,812,785     $1,863,601   $1,896,228   $1,735,081   $1,538,149
                                       =============   ===========  ===========  ===========  ===========
</TABLE>

<PAGE>
     SCHEDULED  MATURITIES.       The  following  table  sets  forth  certain
information  at  December  31,  2002  regarding  the  principal  amount of loans
maturing  in  the Company's loans receivable portfolio (excluding loans held for
sale)  based  on  their  contractual  terms  to  maturity  assuming  no periodic
amortization  of  principal.  Demand  loans,  loans having no stated schedule of
repayments  and  no  stated  maturity  are  reported as due in one year or less.
<TABLE>
<CAPTION>

                                                                   At December 31, 2002
<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    ten years to   twenty
                                  or less   three years   to five years    to ten years  twenty years     years      Total
                                 ---------  ------------  ---------------  ------------  -------------  --------  ----------
                                                                     (In thousands)

First lien residential mortgage  $   6,116  $     13,045  $        20,662  $     64,229  $     477,754  $273,010  $  854,816
Multifamily mortgage                75,685        35,044            2,869           117          1,683        --     115,398
Residential construction            72,369         2,624              219           367             --        --      75,579
Real estate acquisition
  and development                   33,092        51,582            3,417           297             --        --      88,388
Commercial real estate             102,259        89,940           52,220        28,751         39,534        --     312,704
Commercial  and multifamily
  construction                      43,377       107,966           16,200         4,749         14,308        --     186,600
Commercial, other                   66,512        48,143           12,245         9,394            161        --     136,455
Consumer and other                  10,151        11,025            8,630         6,030          6,935        74      42,845
                                 ---------  ------------  ---------------  ------------  -------------  --------  ----------
  Total loans                    $ 409,561  $    359,369  $       116,462  $    113,934  $     540,375  $273,084  $1,812,785
                                 =========  ============  ===============  ============  =============  ========  ==========
</TABLE>

     The  average  life  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  of 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.

     The  following table sets forth the amount of loans due after one year from
December 31, 2002 by category and which have fixed or adjustable interest rates.
<TABLE>
<CAPTION>

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

First lien residential mortgage          $       189,117  $    659,583  $  848,700
Multifamily mortgage                               3,056        36,657      39,713
Residential construction                             535         2,675       3,210
Real estate acquisition and development              317        54,979      55,296
Commercial real estate                            44,310       166,135     210,445
Commercial and multifamily construction            2,713       140,510     143,223
Commercial, other                                 21,525        48,418      69,943
Consumer and other                                32,275           419      32,694
                                         ---------------  ------------  ----------
  Total                                  $       293,848  $  1,109,376  $1,403,224
                                         ===============  ============  ==========
</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 loans held for sale or of
mortgage  loans serviced for third party investors during the periods presented.
See  "Mortgage  Loan  Servicing."

<TABLE>
<CAPTION>
                                                            Year  Ended  December  31,
<S>                                                 <C>              <C>          <C>
                                                          2002           2001         2000
                                                    ---------------  -----------  -----------
                                                                   (In thousands)
 Loan Originations:
   First lien residential mortgage                  $       22,185   $   49,452   $   40,957
   Home equity                                              14,691        8,799        6,406
   Residential construction and acquisition
     and development                                       245,658      281,253      302,839
   Warehouse                                                65,409      159,595      359,270
   Multifamily mortgage                                      7,319       47,779       86,404
   Commercial real estate                                   99,208      151,016      130,581
   Commercial and multifamily construction                 118,100       70,891       39,724
   Commercial, financial and industrial                    246,359      141,600      138,959
   Consumer and other                                       38,569       44,641       46,057
                                                    ---------------  -----------  -----------
     Total loan originations                               857,498      955,026    1,151,197
 Purchase of residential mortgage loans                    421,371      250,945      236,362
 Purchase of residential construction loans                     --           --          608
                                                    ---------------  -----------  -----------
     Total loan originations and purchases               1,278,869    1,205,971    1,388,167
                                                    ---------------  -----------  -----------
 Sale of residential mortgage loans                         84,241           --           --
 Loans reclassified to held for sale category, net           8,749           --           --
 Foreclosures                                                6,260        5,450        3,672
 Principal repayments and reductions to
   principal balance                                     1,223,520    1,232,944    1,217,229
                                                    ---------------  -----------  -----------
     Total foreclosures, repayments and
       reductions to principal balance                   1,322,770    1,238,394    1,220,901
                                                    ---------------  -----------  -----------
 Amortization of premiums, discounts and fees on
   loans                                                    (1,115)       3,696         (329)
 Provision for loan losses                                  (5,800)      (3,900)      (5,790)
                                                    ---------------  -----------  -----------
     Net increase (decrease) in loans receivable    $      (50,816)  $  (32,627)  $  161,147
                                                    ===============  ===========  ===========
</TABLE>

     FIRST  LIEN  RESIDENTIAL  MORTGAGE  LOAN PURCHASES, SALES AND ORIGINATIONS.
The  Bank  primarily purchases, and also originates, loans secured by first lien
mortgages  on  completed  single  family  residences for its own portfolio.  The
majority  of  the  Bank's  residential mortgage loan portfolio has been acquired
through  bulk  purchases  in  the traditional secondary market and is secured by
real  estate  located throughout the United States.  During 2002, 2001 and 2000,
the  Bank  purchased  $421.4  million, $250.9 million and $236.4 million of such
loans, respectively.  The Bank also originates these types of loans primarily in
the geographic areas surrounding the Bank's branch locations.  During 2002, 2001
and  2000, the Bank originated residential mortgage loans for portfolio totaling
$22.2  million,  $49.5  million  and  $41.0  million,  respectively.

     From  time to time, the Bank also sells residential mortgage loans.  During
2002,  the  Bank's  management  made  the decision to liquidate a portion of its
mortgage  loan portfolio through sales to third party investors.  The first sale
was  in March 2002 when the Bank sold $10.8 million of under-performing mortgage
loans.  Prior  to  the  sale,  the Bank wrote those loans down to fair value and
recorded  a  charge-off  to  the  allowance  for  loan  losses  of $761,000.  In
addition,  as  of  March  31,  2002,  the  Bank  wrote  down  to  fair value and
reclassified $9.1 million of other under-performing single-family mortgage loans
to the held for sale category.  The loans that were reclassified to the held for
sale  category  were  written  down to fair value as of March 31, 2002 through a
charge-off  to  the  allowance  for  loan losses of $691,000.  During the second
quarter  of  2002,  a total of $3.1 million of these under-performing loans held
for  sale  were sold to the same third party investor.  As of December 31, 2002,
the  Bank  had  reclassified  the remaining $3.0 million of these loans held for
sale  back  to  the  loans  receivable  portfolio.

     The  second  sale  was  in the fourth quarter of 2002 when the Bank entered
into  an  agreement  with  a  third party to sell approximately $77.0 million of
single-family  mortgage  loans.  As of December 31, 2002, $74.4 million of these
loans  had  been  sold,  $70.1 million of which were sold servicing retained and
$4.3  million  (which  were  considered nonperforming loans) were sold servicing
released.  The remaining $2.6 million, which are under a contract for sale, were
reclassified  to the held for sale category at December 31, 2002.  In connection
with  this  sale and the reclassification of the remaining loans to the held for
sale category, the loans were written down to fair value through a charge-off to
the  allowance for loan losses of $309,000.  In addition, the Company recorded a
gain  of  $359,000 on the sale of these loans receivable as a result of the Bank
recording  the  estimated  fair value of the mortgage servicing rights retained.
See  "Mortgage  Loan  Servicing."

     The  Bank  acquires first lien residential mortgage loans for its portfolio
through  bulk  purchases when the prices of these purchases are considered to be
favorable.  The  acquisition  of  first lien residential mortgage loans has been
accomplished  primarily  through  bulk  purchases  in  the traditional secondary
market  (from mortgage companies, financial institutions, investment banks, CBCC
and  beginning  in  2002,  from  CBMC).  Bulk purchases allow the Bank to obtain
these  residential  mortgage  loans  without  the  direct  cost  of  origination
activities.  Personnel  from  the  Bank  generally analyze loan bid packages, as
they  become  available  from CBMC, CBCC (through September 2002) and from third
parties,  and  the  members  of  the  PCC, along with the Bank's Chief Executive
Officer, review 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, assumed
prepayment  speeds  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  packages  that  meet  the Bank's purchase criteria.

     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 $322,700, or loans that do not otherwise meet the criteria established
by  FNMA  or  FHLMC).

     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.

     While  the  Bank  has the general authority to originate and purchase loans
secured  by  real  estate  located  anywhere  in  the United States, the largest
concentrations  of  its  first  lien  residential  mortgage  and  residential
construction  loan  portfolios  are secured by real estate located in California
and  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  initially  surveyed  the  members of the residential construction
industry  in  the  Bank's  Houston market area and targeted those companies. The
Bank  now  has  expanded  its  residential construction lending into the Dallas,
Austin  and  Rio  Grande  Valley  markets.    Loans  are  made primarily to fund
residential  construction.  Construction  loans  are  made  on  pre-sold  and
speculative  residential  homes  considered by management to be in well located,
viable  subdivisions  and  planned  unit  developments.

     Most  of  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 indexed to 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  generally  must  be  made  under the line for a specific loan
amount.  Each  loan  commitment  under a short-term line of credit is separately
verified to be in compliance with the terms previously approved with the line of
credit.

     The  terms  of  the Bank's construction loans are typically for one year 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,  at  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
groups  of homes on substantially the same terms and conditions as loans granted
under  the  Bank's  line  of  credit  program.

     At December 31, 2002, the Bank had $76.7 million in outstanding residential
construction  loans  (net of loans in process of $46.4 million) of which $49,000
were  on nonaccrual status.  At the present time, the Bank has approved builders
primarily  domiciled  in  the Houston, Dallas, and Austin metropolitan areas, as
well  as  the Rio Grande Valley area, and is selectively soliciting new builders
for  its  residential  construction  lending  program.  In  addition,  the  Bank
participates  in  the  funding  of  residential  construction  loans  with other
institutions.  Two  of  the  Bank's  approved  builders  are  authorized for the
funding  of loans on properties located outside the state of Texas.  At December
31,  2002,  there  were  loans  totaling  $9.6 million for these builders in the
states  of  Arizona, Florida, New Mexico and Ohio.  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; 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 60%) 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 generally for a short to
medium  term  of  between  one to five years, and have floating rates indexed to
prime  rate  or  LIBOR  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  of the collateral.  At December 31, 2002, commercial
real  estate  loans  totaling  $317.7  million and multifamily mortgage loans of
$116.0  million were outstanding.  At December 31, 2002, the Bank had commercial
real  estate  loans  totaling approximately $1.3 million that were on nonaccrual
status  and  no  multifamily  mortgage  loans  that  were  on nonaccrual status.

     The  Bank  began  originating  commercial  real  estate  and  multifamily
construction  loans  in  1996  primarily  for  the construction or renovation of
income generating facilities.  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 lending to proven developers/owners, requiring that
each  builder  maintain a specified amount of equity in the project, continually
monitoring  the  progress  of  the development through site inspections prior to
loan  disbursement  and by monitoring other financial strength requirements.  At
December 31, 2002, commercial and multifamily construction loans totaling $191.5
million  (net  of  loans  in process of $49.6 million) were outstanding, none of
which  were  on  nonaccrual  status.

     WAREHOUSE  LENDING.  Beginning  in 1992 and through 2002, the Bank provided
or  participated  in  lines  of credit to mortgage companies generally for their
origination  of single family residential loans which are typically 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 were generally
renewable  annually.  Borrowers paid interest on funds drawn at a floating rate.
In  addition, the Bank usually received a fee for each loan file processed under
these lines of credit, the Bank (or the lead lender in a participation) held the
original  mortgage  loan  notes  and  other  documentation  as  collateral until
repayment  of  the related lines of credit, except when a third party lender was
acting  as  the  lead  lender  in  the  lending  relationship.

     Warehouse  loans  were  underwritten  in  accordance with Bank policies and
procedures.  Bank  personnel  attempted 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 by periodically reviewing their financial
statements, loan production delinquency and commitment reports and, on an annual
basis,  by  reviewing their audited financial statements and auditor's letter to
its  board  of  directors.  In  loan participations where a third party bank was
acting  as  the  lead  bank,  the  Bank  relied  on  the  lead  bank  to perform
substantially  the  same  procedures  as  noted  above.

     During  1999, the Bank experienced significant loan losses in Warehouse and
MSR  loans  due  to the default of two borrowers.  The first loss was related to
the  $10.0  million  participation  purchased  in  1998  in  a  Warehouse  loan
aggregating $25.0 million to MCA Financial Corp., and certain of its affiliates,
of  Southfield,  Michigan  (collectively "MCA").  In late January 1999, due to a
lack  of  liquidity,  MCA ceased operations and shortly thereafter was seized by
the  Michigan  Bureau of Financial Institutions.  A conservator was appointed to
take  control  of  MCA's  books and records, marshal its 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  MCA  on  or  about  February  10,  1999,  by the conservator.

     Throughout  1999,  the  Bank worked with the lead lender and the bankruptcy
trustee  to  determine the value of, and sell, the underlying collateral.  As of
December  31, 1999, the Bank had received only $1.1 million in proceeds from the
MCA  loan.  Due to the uncertainty of the value of the remaining collateral, the
Bank  charged-off  the  remaining  $8.9  million  balance  of  this loan in 1999
resulting  in  the  additional  provision for loan losses of $6.8 million during
1999.  The Bank will continue to work with the bankruptcy trustee to recover any
funds, if possible, from the collateral or MCA.  During the years ended December
31,  2002,  2001  and  2000,  Coastal  received $288,000, $267,000 and $180,000,
respectively,  in proceeds from the MCA loan which was recorded as a recovery in
the  allowance  for  loan  losses  in  the  period  received.

     In  the  second  situation,  during  1999, the Bank purchased approximately
$10.1  million  of  the  underlying loans securing a $13.2 million Warehouse and
servicing  rights  line of credit due to default by the borrower.  The remaining
outstanding  balance  of $990,000 on this Warehouse and servicing rights line of
credit  was  charged-off  during  1999.

     In  1999,  the Bank began to decrease its emphasis on Warehouse lending and
as of December 31, 2002 had no warehouse borrowers or loans outstanding.  During
the year ended December 31, 2002, the Bank originated $65.4 million of Warehouse
loans.  At  December  31,  2002,  there  were  no  Warehouse  loans outstanding.

     MSR  LENDING.  Beginning  in 1992 and discontinued in 1999, the Bank 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.  Loans  of  this  nature generally had terms of one to five
years,  and  were  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 were
made  at adjustable rates of interest tied to LIBOR or the Bank's borrowing rate
plus  a spread and a commitment fee.  MSR loans were 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  were  underwritten  in  substantially the same manner as
Warehouse  loans, where Bank personnel closely monitored MSR borrowers by, among
other things, reviewing the borrower's financial condition and operations in the
same  manner  as  they did 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
did  not  exceed  75.0%  during  the  life  of  the loan.  During 1999, the Bank
incurred  a  loss  on  a  Warehouse  and  servicing rights line of credit due to
default  of the borrower as discussed previously.  The Bank did not have any MSR
loans  outstanding  at  December  31,  2002  or  2001.

     REAL ESTATE ACQUISITION AND DEVELOPMENT LENDING.  The Bank originates loans
to  residential  real  estate  builders  and  developers  as  well  as  to major
homebuilders 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 residential lots to be sold to
third  parties  or  used  by the homebuilders.  The Bank generally lends only to
developers with good track records and strong financial capacity and on property
where  a  substantial number of the lots to be developed are pre-sold.  The term
of the loans have generally been from 18 to 36 months at a spread over the prime
rate,  plus an origination fee.  Repayment on the loans is generally made as the
lots  are  sold or used by homebuilders.  Land acquisition and development loans
involve  additional  risks  when  compared  to  loans  on  existing  residential
properties,  however,  when  lending directly to a major homebuilder the risk is
mitigated  by  the  strength  of  the  borrower.  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,
2002,  the  Bank had $91.7 million (net of loans in process of $51.8 million) of
real  estate  acquisition  and  development  loans outstanding.  At December 31,
2002,  there  were  two  real  estate  acquisition  and development loans to one
borrower  totaling  $5.5  million  on  nonaccrual  status.

     COMMERCIAL  BUSINESS LENDING.  Development of a commercial business lending
program  continues  to  be  a strategic goal of Bank management.  The commercial
bank  acquisition  in  1995  provided  the  Bank  with an established commercial
business  lending program directed to small and medium sized companies primarily
in  the  Houston  and  Austin  metropolitan  areas.  Since  that  acquisition,
management  has  continued to develop the infrastructure for commercial business
lending  in  most  of  the Bank's major markets.  In addition, the Bank acquired
twelve commercial bank branches in the 1998 Branch Acquisition and significantly
increased  the  Bank's  commercial  business  loan  origination  capacity.  The
commercial,  financial  and  industrial  loans ("Commercial Business loans") are
typically  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) which are indexed to
prime  rate, LIBOR or are fixed 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  its
commercial  business lending programs, while managing the associated credit risk
by  continually  monitoring  borrowers'  financial  position  and  underlying
collateral  securing the loans.  At December 31, 2002, Commercial Business loans
outstanding  totaled  $135.2  million,  with  $1.6  million  of  such  loans  on
nonaccrual  status.

     CONSUMER  AND OTHER 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, 2002, the Bank had $33.4
million  in consumer and other loans outstanding, with $128,000 of such loans on
nonaccrual  status,  and  $14.5  million  in  loans  secured  by  deposits.

     Consumer  loans  (other  than 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,  changes  in  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.  See  "Regulation  of  the  Bank  -  Community  Reinvestment  Act."


<PAGE>
     LOANS  RECEIVABLE  HELD  FOR  SALE.  From  time to time, the Bank has loans
classified  as  held  for  sale.  These  loans are generally single-family loans
purchased  with  the  original  intent  to  resell  them or loans that have been
reclassified  from  the  loans  receivable portfolio to held for sale due to the
intent  to  sell.  Loans  receivable  held  for sale are carried at the lower of
cost or market value.  At December 31, 2002, the Bank had $49.9 million in loans
receivable  held  for  sale,  $47.3  million  of which was due to a loan package
purchased  in  November  2002 with the intent to sell the package to third party
investors  by  the  end  of January 2003.  The remaining $2.6 million were loans
reclassified  to  the  held  for sale category and are under a contract for sale
which  is  expected  to  close  during  the  first  quarter  of  2003.

     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 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 determines an
appropriate  course  of action including 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,  usually  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.  Subsequent  to  foreclosure,  real  estate  owned is
carried  at  the  lower  of  the  new cost basis or fair value, with any further
declines  in fair value charged to operations.  All costs incurred from the date
of  acquisition  forward  relating to maintaining the property are recorded as a
current  period  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 generally 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 well secured, in the process of
collection  or  renewal  and  the  interest  is  fully  collectible.










                      [THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
     The  following  table  sets  forth  information  regarding  the  Bank's
nonperforming  assets  as  of  the  dates  shown.

<TABLE>
<CAPTION>
<S>                                       <C>                          <C>             <C>       <C>
                                                                                  At December 31,
                                                                             2002      2001      2000
                                                                          --------  --------  --------
                                                                              (Dollars in thousands)
Nonaccrual loans:
 First lien residential mortgage                                          $ 9,184   $21,744   $16,062
 Multifamily real estate                                                       --        82        --
 Residential construction                                                      49       218       390
 Commercial real estate                                                     1,323     1,174     1,134
 Acquisition and development                                                5,485         6        --
 Commercial, financial and industrial                                       1,609       499     1,152
 Consumer and other                                                           128       141       496
                                                                         ---------  --------  --------
   Total nonaccrual loans                                                  17,778    23,864    19,234
                                                                         ---------  --------  --------
Loans greater than 90 days delinquent
 and still accruing interest:
 First lien residential mortgage                                               --        62       475
 Multifamily real estate                                                      282        --        --
 Residential construction                                                      83       755        --
 Commercial real estate                                                       302        --       736
 Acquisition and development                                                   59        --        --
 Commercial, financial and industrial                                          43        31       634
 Consumer and other                                                            --         1       153
                                                                         ---------  --------  --------
   Total loans greater than 90 days
     delinquent and still accruing
     interest                                                                 769       849     1,998
                                                                         ---------  --------  --------
Total nonperforming loans                                                  18,547    24,713    21,232
                                                                         ---------  --------  --------
Total REO and repossessed assets                                            4,433     4,607     4,095
                                                                         ---------  --------  --------
Total nonperforming assets                                                $22,980   $29,320   $25,327
                                                                         =========  ========  ========
Ratio of nonaccrual loans to total loans
 receivable and loans held for sale                                          0.95%     1.28%     1.01%
                                                                         =========   =======   =======
Ratio of nonperforming loans to total
 loans receivable and loans held for
 sale                                                                        1.00%     1.33%     1.12%
                                                                         =========   =======   =======
Ratio of nonperforming
 assets to total assets                                                      0.91%     1.13%     0.82%
                                                                         =========   =======   =======
</TABLE>

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

     At  December  31, 2002, nonperforming assets included REO with an aggregate
book value of $4.1 million and repossessed assets of $288,000. At such date, the
Bank's  REO  consisted  of 49 single family residential properties totaling $2.4
million,  8  commercial  properties  totaling  $1.6  million  and  4 residential
construction  properties  totaling  $145,000.  The Bank actively markets the REO
properties  held.  The Bank has historically incurred minimal losses on the sale
of  single  family  REO  properties.

     For  the year ended December 31, 2002, approximately $745,000 in additional
interest  income  would have been recorded 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.  Net income for 2002 included
$632,000  in  interest  income  for these same loans prior to the time they were
placed  on  nonaccrual  status.

     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, 2002, the
carrying  value  of  impaired  loans  totaled approximately $8.5 million and the
related  allowance for loan losses on those impaired loans totaled $2.4 million.
Of the impaired loans outstanding at December 31, 2002, eight loans with a total
balance  of  $551,000  did not have a specific portion of the allowance for loan
losses  allocated  to  them at such date.  The average balance of impaired loans
during the year ended December 31, 2002 was approximately $3.8 million.  For the
year  ended  December  31,  2002,  the Bank did not recognize interest income on
loans  considered  impaired.

     The  Bank  had  loaned  $123.1  million  at  December  31,  2002, under its
residential  construction  lending program to multiple borrowers who are engaged
in  similar  activities.  Certain of these borrowers could be similarly impacted
by  economic  conditions  in  the  Houston  metropolitan area.  See "Residential
Construction  Lending."  The  Bank  had  no  other  loan  concentrations.


<PAGE>
     ALLOWANCE  FOR  LOAN  LOSSES.  Management  analyzes  the  loan portfolio to
determine  the  adequacy  of  the  allowance  for loan losses in the appropriate
provision  required  to maintain an adequate allowance to absorb probable losses
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>
                                                        2002      2001      2000       1999      1998
                                                      -------   --------   ------   --------    ------
                                                                 (Dollars in thousands)
Balance at beginning of year                         $15,385   $14,507   $10,493   $ 11,358   $ 7,412
Charge-offs                                           (3,878)   (4,073)   (2,174)   (11,830)   (1,693)
Recoveries                                               811     1,051       398        390       282
Provision for loan losses                              5,800     3,900     5,790     10,575     3,100
Allowance of acquired entities(1)                         --        --        --         --     2,257
                                                     -------   -------   -------   --------   --------
Balance at end of year                               $18,118   $15,385   $14,507   $ 10,493   $11,358
                                                     =======   =======   =======   ========   ========
Ratio of net charge-offs during the
 period to average net loans
 outstanding during the period                          0.16%     0.16%     0.09%      0.69%     0.10%
                                                      ======   =======   =======   ========   ========
</TABLE>
________________________

(1)   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  following  table sets forth the charge-offs by type of loan during the
periods  indicated.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                          ---------------------------------------
                                                           2002     2001    2000    1999     1998
                                                          ------   ------  -----  -------  ------
                                                                       (In thousands)
<S>                                                  <C>             <C>     <C>     <C>      <C>
First lien residential mortgage(1)                        $2,120  $  648  $  735  $   331  $  544
Residential construction                                      15      80      --       26      --
Commercial real estate                                       118     339      55       10      24
Commercial, Warehouse and MSR                                 --      --      --    9,924      --
Commercial, financial and industrial                         812     782     763      829     648
Consumer and other(2)                                        813   2,224     621      710     477
                                                           -----  ------  ------  -------  ------
Total charge-offs                                         $3,878  $4,073  $2,174  $11,830  $1,693
                                                           =====  ======  ======  =======  ======
</TABLE>
________________________

(1)  In  2002,  includes charge-offs totaling $1.8 million related to the Bank's
decision to liquidate a portion of the mortgage loan portfolio.  See "First Lien
Residential  Mortgage  Loan  Purchase,  Sales  and  Originations."

(2)  In  2001,  includes the charge-off of an $818,000 commercial overdraft loan
($450,000  of  which  was subsequently recovered through insurance proceeds) and
$754,000  of  charged-off  purchased  automobile  loans,  in  addition  to  the
charge-offs  of  other  consumer  type  loans.

<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>
                                                                             At December 31,
                                                             2002     2001       2000     1999       1998
                                                           -------  -------  ---------  ---------  ---------
                                                                             (In thousands)
First lien residential mortgage                            $ 1,774  $ 2,556  $   2,408  $   2,529  $   3,238
Multifamily mortgage                                           298      330        608        442        383
Residential construction                                       369      411        622        384        343
Real estate acquisition and development                      2,834    1,407      1,330      1,034        759
Commercial real estate                                       3,416    2,701      2,574      2,221      2,112
Commercial construction                                      3,332    2,177      1,480        972        225
Commercial, Warehouse and MSR                                   --       53         45        256      1,722
Commercial, financial and industrial                         2,633    1,891      2,611      1,650      1,750
Consumer and other                                             485      606      1,119        992        826
Unallocated                                                  2,977    3,253      1,710         13         --
                                                           ------   -------  ---------  ---------  ---------
                                                           $18,118  $15,385  $  14,507  $  10,493  $  11,358
                                                           =======  =======  =========  =========  =========
</TABLE>

     The  following  table  sets  forth  the  allocation of the provision or the
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,
                                                                     2002     2001       2000        1999       1998
                                                                   -------  -------  ---------  ----------  ---------
                                                                                    (In thousands)
First lien residential mortgage                                    $1,262   $  746   $    573   $    (446)  $  1,142
Multifamily mortgage                                                  (32)    (278)       166          59       (184)
Residential construction                                              (27)    (131)       238          67         55
Real estate acquisition and development                             1,427       77        296         275        443
Commercial real estate                                                825      464        406         119         82
Commercial construction                                             1,155      697        508         747        (36)
Commercial, Warehouse and MSR                                        (341)    (259)      (397)      8,456      1,228
Commercial, financial and industrial                                1,503      (20)     1,616         561        240
Consumer and other                                                    304    1,061        687         724        846
Unallocated                                                          (276)   1,543      1,697          13       (716)
                                                                   ------   ------   --------   ---------   ---------
                                                                   $5,800  $ 3,900   $  5,790   $  10,575   $  3,100
                                                                   ======   ======   ========   =========   ========
</TABLE>

     Estimating  the  allowance for loan losses is a critical accounting policy.
It  is  subjective in nature and requires material estimates that may be subject
to  revision  as  facts and circumstances warrant.  In assessing the adequacy of
the  allowance,  management  reviews  the size, quality and risk of loans in the
portfolio  and  considers  such  factors as specific known risks, historical and
peer  group  experience,  the  existing  nonperforming  loans and the underlying
collateral  value  on  those loans, general economic conditions, particularly as
they  relate to Coastal's lending areas, industry standards, regulatory policies
and  other  factors  related  to the collectibility of Coastal's loan portfolio.
Based  on  the  ongoing assessment by management, provisions for loan losses are
charged  to  earnings  to  bring  the total allowance for loan losses to a level
deemed appropriate by management based on probable losses in the loan portfolio.
While  management  uses  the  best  information available to recognize losses on
loans, there can be no assurance that future additions to the allowance will not
be  necessary.  When  comparing  2002 and 2001, the changes in the provision for
loan  losses  are  due  to  management's  continuing  evaluation  of the overall
allowance  for  loan  losses.  The  increase in the provision for loan losses in
2002 (in the fourth quarter of 2002) was due to management's reevaluation of the
allowance for loan losses given the current economic conditions, the decision in
2002  to  sell  loans  which  resulted  in  charge-offs totaling $1.8 million to
writedown  such  loans  to fair value, and the changes that have occurred within
the  mix  of  Coastal's loan portfolio, in addition to certain specific loans in
the  portfolio that have warranted greater attention and specific allocations of
the allowance for loan losses.  While management believes that it has adequately
provided  for  loan losses and that the allowance for loan losses is adequate at
December  31,  2002,  it  will  continue  to monitor the loan portfolio and make
adjustments  to  its  allowance  for  loan losses as it considers necessary.  At
December  31,  2002,  the  Bank's  ratio  of  the  allowance  for loan losses to
nonperforming loans was 97.69% and the ratio of the allowance for loan losses to
total  loans  receivable  was  1.00%.

     The  Board  of  Directors  of the Bank reviews its Asset Classification and
Allowance  Policy ("ACAP") at least annually.  The policy provides that the Bank
at  least  annually will 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 policy guidelines.  Management maintains the allowance for
loan losses at a level considered adequate to cover probable losses on the loans
receivable  portfolio.  This  allowance covers all loans, including loans deemed
to be impaired, loans not impaired, and loans excluded from the impairment test.
The  adequacy  of  the allowance is based on management's periodic evaluation of
the  loan  portfolio, which considers, among other things, the size, quality and
risk  of  loans in the portfolio, identification of any adverse situations which
may  affect  the ability of borrowers to repay, assessment of current and future
economic  conditions,  regulatory  policies  and  the  estimated  value  of  the
underlying  collateral,  if  any.

     The  Bank's  management believes that its present allowance for loan losses
is adequate based upon, among other considerations, the factors discussed above,
its  existing  nonperforming  loans and the underlying collateral value on those
loans  and  its historical and peer group 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 allowance for loan
losses.  These  agencies may require the Bank to increase the allowance for loan
losses,  based on their respective judgments of the information available at the
time  of  the  examinations.

     MORTGAGE  LOAN  SERVICING.  Prior  to  the  sale  of  its  entire  mortgage
servicing  rights  portfolio  effective  March  31,  2000,  the  Bank  serviced
residential  real  estate  loans  for  others,  including  FNMA, FHLMC and other
private  investors.  Loan servicing for others included 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.

     Due to the Bank's declining servicing for others portfolio (with an average
remaining  loan  life  of approximately seven years), management decided to sell
its  entire  servicing  rights  portfolio  based  on  the  then  current  market
conditions  for loan servicing rights and the expected declining income benefits
of  that servicing portfolio on an ongoing basis.  Effective March 31, 2000, the
Bank  sold, to a third party, its rights to service approximately $389.1 million
of  mortgage loans for third party investors, primarily FNMA and FHLMC, pursuant
to  a  purchase  and  sale agreement.  The Bank subserviced those mortgage loans
until  the  transfer  to  the  purchaser  was completed in the second quarter of
2000.  The  Bank recorded a $2.2 million gain on the sale of the above mentioned
mortgage  servicing  rights  in  2000.

     In  December  2002,  Coastal  sold  $70.1  million  of  mortgage loans with
servicing  retained  to a third party investor and recognized the estimated fair
value  of  those  servicing  rights  retained  of $359,000, which is recorded in
prepaid  expenses  and  other  assets in the Company's Consolidated Statement of
Financial  Condition  at  December 31, 2002.  As of December 31, 2002, Coastal's
serviced  for others approximately $68.8 million of such loans.  See "First Lien
Residential  Mortgage  Loan  Purchases,  Sales  and  Originations."

     The  Bank  receives  fees  for  servicing  mortgage loans for others, which
generally range from 0.25% to 0.50% per annum on the declining principal balance
of  mortgage  loans.  Such  fees  serve  to compensate the Bank for the costs of
performing  the  servicing  function.  Other  sources of loan servicing revenues
include late charges and other ancillary fees.  Servicing fees are collected out
of  the monthly mortgage payments made by borrowers and were recorded net of the
amortization  of  mortgage  servicing  rights.

MORTGAGE-BACKED  SECURITIES

     The  Bank  maintains  a  large 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,  2002, the Company's mortgage-backed securities available-for-sale portfolio
amounted  to $475.0 million, or 18.8%, of total assets.  Effective September 30,
2001,  Coastal  transferred  all  of  its  mortgage-backed  securities  to  the
available-for-sale category.  This was due to management's intent to restructure
a  portion  of the asset base to make it less vulnerable to market interest rate
fluctuations.  In  late  November  2001,  Coastal  completed  the  sale  of
approximately $845 million of its mortgage-backed securities and recorded a gain
of  $169,000.  The  majority  of  the securities sold were CMOs tied to COFI and
contained  extension  risk  which  caused,  on  average,  higher levels of price
volatility.  Also  in  November  2001, Coastal used a portion of the proceeds of
the  sale  to  purchase  approximately  $512  million  of  primarily  pass-thru
mortgage-backed  securities.  A consequence of this 2001 securities sale is that
any  securities  purchased by Coastal for approximately two years thereafter are
required  to  be  placed  in  either the available-for-sale or trading category.
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.

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

<S>                          <C>              <C>              <C>        <C>
                                                  At December 31,
                                     2002               2001                 2000
                                 -----------         -----------         ------------
                                                    (In thousands)
Held-to-maturity:
 CMOs                             $       --        $     --              $812,460
 Agency securities                        --              --                66,595
 Non-agency securities                    --              --                 6,273
                                  ----------        ---------             ---------
                                          --              --               885,328
 Unamortized premium                      --              --                 1,503
 Unearned discount                        --              --                (1,266)
                                  ----------        --------              ---------
Total held-to-maturity            $       --        $     --              $885,565
                                  ==========        ========              =========
Available-for-sale:
 CMOs                             $   83,794        $106,657              $ 77,590
 Agency securities                   379,569         397,413                19,946
 Non-agency securities                 2,047           2,572                    --
                                  ----------        --------              ---------
                                     465,410         506,642                97,536
                                  ----------        --------              ---------
 Unamortized premium                   8,662           9,873                   149
 Unearned discount                        --              --                  (141)
 Net unrealized gain (loss)              950          (2,447)               (2,871)
                                  ----------        --------              ---------
Total available-for-sale          $  475,022        $514,068              $ 94,673
                                  ==========        ========              =========
Total mortgage-backed
 securities                       $  475,022        $514,068              $980,238
                                  ==========        ========              =========
</TABLE>

     The mortgage-backed securities which the Company purchases and maintains in
portfolio  can  include  FNMA,  FHLMC  and  GNMA certificates, certain privately
issued,  credit-enhanced  mortgage-backed  securities  which  are rated "AAA" or
better  by  the  national  securities rating agencies and certain types of CMOs.
The  FNMA,  FHLMC  and  GNMA  certificates  ("Agency  Securities")  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  Company 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 "AAA" 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 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  interest-only  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  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>
                                                        2002        2001       2000
                                                     ----------  ----------  ---------
                                                               (In thousands)
Mortgage-backed securities
 held-to-maturity purchased                          $      --   $      --   $  4,815
Mortgage-backed securities
 available-for-sale purchased                          112,579     512,267         --
Mortgage-backed securities
 available-for-sale sold                                    --    (844,749)        --
Discount accretion (premium
 amortization), net                                     (3,142)       (401)      (159)
Change in unrealized gain (loss) on
 mortgage-backed securities
 available-for-sale                                      3,397         424        (29)
Principal repayments on
 mortgage-backed securities                           (151,880)   (133,711)   (41,266)
                                                     ----------   ---------   --------
Net decrease in
 mortgage-backed securities                          $ (39,046)  $(466,170)  $(36,639)
                                                     ==========  ==========  =========
</TABLE>


<PAGE>

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 residential mortgage loans, mortgage-backed securities 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, as well as maturities of 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
most  cost  effective.

     DEPOSITS.  The  Bank  attracts  a  majority  of its deposits through its 43
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.  The Bank offers a variety of traditional
retail  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 a commercial banking strategy related to deposits
designed  to increase the level of lower cost transaction and commercial deposit
accounts.  The  Bank  offers  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 39.7% of total deposits at December 31, 2002 from 32.1% at December 31, 1998.












                      [THIS SPACE INTENTIONALLY LEFT BLANK]

<PAGE>
     Effective  January  1,  1998,  the  Company implemented a program whereby a
portion  of  the  balance  in  noninterest-bearing and interest-bearing checking
accounts  is  reclassified to money market demand accounts under Federal Reserve
Regulation  D.  The  amount of such reclassification, reflected in the following
table, was approximately $250.9 million ($131.3 million from noninterest bearing
and  $119.6  million from interest-bearing) at December 31, 2002, $243.3 million
($113.0  million  from  noninterest-bearing  and  $130.3  million  from
interest-bearing)  at  December 31, 2001, and $136.6 million ($68.1 million from
noninterest-bearing  and  $68.5  million  from interest-bearing) at December 31,
2000.  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>

<S>                                        <C>                      <C>        <C>   <C>         <C>        <C>         <C>
                                                                                        At December 31,
                                                         ----------------------------------------------------------------------
                                                                2002                        2001                  2000
                                                         -------------------        --------------------   --------------------
                                                                     Percent                     Percent                Percent
                                                                      of                          of                     of
                                                          Amount    Deposits         Amount     Deposits    Amount     Deposits
                                                        ---------  ---------       ----------  ---------  ----------  ---------
                                                                                    (Dollars in thousands)
Demand deposit accounts:
 Noninterest-bearing checking                          $    51,029      3.16%       $   47,712      2.87%  $   80,849      4.83%
 Interest-bearing checking                                  14,353      0.89            15,894      0.96       61,046      3.64
 Savings                                                    44,603      2.76            45,234      2.72       43,891      2.62
 Money market demand
     (including amounts
     reclassified from noninterest
     and interest-bearing checking)                        530,659     32.87           505,789     30.47      374,210     22.34
                                                       -----------   -------        ----------   --------   ---------    ------
   Total demand deposit accounts                           640,644     39.68           614,629     37.02      559,996     33.43
                                                       -----------   -------        ----------   --------   ---------    ------
Certificate accounts:
 Maturing within 1 year                                    768,407     47.61           950,827     57.26    1,038,522     62.00
 1-2 years                                                 131,792      8.16            61,933      3.73       53,378      3.19
 2-3 years                                                  35,685      2.21            23,707      1.43       13,678      0.82
 3-4 years                                                   4,513      0.28             5,830      0.35        4,284      0.26
 4-5 years                                                  33,302      2.06             3,409      0.21        4,745      0.28
 Over 5 years                                                   25        --                51      0.00          323      0.02
                                                       -----------   -------        ----------   --------   ---------    ------
     Total certificate accounts                            973,724     60.32         1,045,757     62.98    1,114,930     66.57
                                                       -----------   -------        ----------   --------   ---------    -------
                                                         1,614,368    100.00%        1,660,386    100.00%   1,674,926    100.00%
                                                                     ========                     =======                =======
 Premium on purchased
   deposits, net                                               --                          --                     55
                                                       -----------                 ----------             ----------
     Total                                           $  1,614,368                  $1,660,386             $1,674,981
                                                       ===========                 ==========             ==========
</TABLE>


     Prior  to  the  reclassification  as  discussed  above, noninterest-bearing
checking  accounts,  interest-bearing  checking accounts and money market demand
accounts  were  as  follows  at  December  31,  2002,  2001  and  2000:

                                              2002      2001       2000
                                            --------  --------  --------
                                                   (In thousands)
Noninterest-bearing checking                $182,290  $160,738  $148,953
Interest-bearing checking                    134,034   146,144   129,497
Money market demand accounts                 279,717   262,513   237,655


     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>
<S>                          <C>                        <C>         <C>          <C>         <C>         <C>
                                                                     Year Ended December 31,
                                                    2002                       2001                     2000
                                          -------------------------  ----------------------    --------------------
                                            Average      Average      Average     Average      Average     Average
                                            Balance     Rate Paid     Balance    Rate Paid     Balance    Rate Paid
                                        --------------  ----------  -----------  ----------  ----------  ----------
                                                                     (Dollars in thousands)
Demand deposit accounts:
 Noninterest-bearing
  checking                               $      30,533         --%  $    54,695         --%  $   74,575         --%
 Interest-bearing checking                       8,662        0.64       36,785        2.03      50,622        2.00
 Savings                                        46,935        1.01       46,266        1.76      47,950        2.15
 Money market demand(1)                        543,206        1.49      439,894        2.00     366,200        2.56
Certificate accounts                         1,018,159        3.27    1,103,792        5.39   1,095,760        5.62
                                          ------------              -----------              ----------
 Total deposits                           $  1,647,495        2.42  $ 1,681,432        4.15  $1,635,107        4.47
                                          ============              ===========              ==========
</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:
<TABLE>
<CAPTION>
<S>                           <C>         <C>       <C>
                                 2002       2001       2000
                              ----------  --------  --------
                                          (In thousands)

Noninterest-bearing checking  $  139,314  $ 95,733  $ 71,053
Interest-bearing checking        126,532    92,200    69,523
                              ----------  --------  --------
                              $  265,846  $187,933  $140,576
                              ==========  ========  ========
</TABLE>


     The  following  table  presents  by  various  interest  rate categories the
amounts  of  certificate  accounts  at  the  dates  indicated and the amounts of
certificate  accounts  at  December  31,  2002  which  mature during the periods
indicated.
<TABLE>
<CAPTION>

<S>                     <C>         <C>             <C>         <C>           <C>         <C>
                         Amounts at December 31,          Amounts at December 31, 2002 Maturing In
                        ------------------------   ------------------------------------------------------
                                                      One Year                              Greater than
                            2002         2001         or Less      Two Years   Three Years   Three Years
                        ---------     ---------    -----------   -----------   -----------   -----------
                                                         (In thousands)
Certificate accounts:
Less than 2.00%       $    104,358    $   29,707  $    101,478    $   2,874      $    --     $      6
2.00% to 3.99%             764,982       434,529       635,394      102,619       16,582       10,387
4.00% to 5.99%              97,681       512,263        27,760       25,145       17,420       27,356
6.00 to 7.99%                6,630        69,188         3,702        1,154        1,683           91
8.00 to 9.99%                   73            70            73           --           --           --
                        ----------    ----------   -----------    ---------      -------      -------
Total                 $    973,724    $1,045,757  $    768,407    $ 131,792      $35,685      $37,840
                        ==========    ==========  ============    =========      =======      =======


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

<CAPTION>

                                                       Year  Ended  December  31,
<S>                                               <C>          <C>        <C>
                                                      2002        2001       2000
                                                   ----------  ----------  ---------
                                                            (In thousands)
Decrease due to sale of branches (1)               $  (75,275)  $     --   $     --
Net increase (decrease) before interest credited      (11,848)   (86,688)   (20,970)
Interest credited                                      41,105     72,093     71,662
                                                   -----------  ---------  ---------
Net deposit increase (decrease)                    $  (46,018)  $(14,595)  $ 50,692
                                                   ===========  =========  =========
</TABLE>
(1)     For  the year ended December 31, 2002, the $75.3 million decrease is due
to  the  sale  of  five  branch  offices  and  the  related  deposit  accounts.


     The  following  table  sets  forth the amount of the Bank's certificates of
deposits at December 31, 2002 which are $100,000 or more by time remaining until
maturity.
<TABLE>

<CAPTION>

                                             At  December  31,  2002
                                -----------------------------------------------
<S>                             <C>                 <C>             <C>
                                Number of accounts               Deposit Amount
                                ------------------              ---------------
                                                                 (In thousands)
Three months or less                  550                         $  72,245
Over three through six months         341                            37,274
Over six through twelve months        649                            79,989
Over twelve months                    418                            47,523
                                   ------                           -------
   Total                            1,958                         $ 237,031
                                   ======                          ========
</TABLE>


     The Bank's deposits are obtained primarily from businesses and 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 commercial business and retail customers. The Bank uses
traditional  marketing  methods to attract new customers and deposits, including
newspaper  and radio advertising.  Through 2002, 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.  From early
1997  through  mid  year  2002,  the Bank solicitated deposit accounts through a
"money  desk."  Money  desk  rates  were only offered to institutions (primarily
credit unions and municipal utility districts) and were generally up to 50 basis
points  higher than on regular certificate of deposit accounts.  The offering of
deposits  through  the  "money  desk"  was  discontinued  during  2002.

     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, 2002, 2001 or
2000.  See  "Subsidiaries  of  the  Bank  -  CoastalBanc  Financial  Corp",  and
"Subsidiaries  of  the  Bank  -  Coastal  Banc  Insurance  Agency,  Inc."

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

<CAPTION>



<S>                                       <C>                      <C>          <C>
                                                              At or For the Year
                                                              Ended December 31,
                                                    --------------------------------------
                                                         2002         2001         2000
                                                    -------------  ----------    ---------
                                                            (Dollars in thousands)
FHLB advances:
 Average balance outstanding                       $     683,454   $  795,009   $  926,659
 Maximum amount outstanding at any
   month-end during the period                           760,139    1,218,145    1,275,541
 Balance outstanding at end of period                    696,085      690,877    1,150,305
 Average interest rate during the period                    2.95%        4.90%        6.29%
 Average interest rate at end of period                     2.71%        3.46%        6.48%

Securities sold under agreements
 to repurchase:
 Average balance outstanding                       $          --   $  283,622   $  249,655
 Maximum amount outstanding at any
   month-end during the period                                        493,003      605,214
 Balance outstanding at end of period                         --           --           --
 Average interest rate during the period                      --         3.77%        6.68%
 Average interest rate at end of period                       --           --           --
</TABLE>



     As  noted  previously,  as  a  result  of the asset base restructuring that
occurred  in  November  2001,  the  Company's total assets decreased during that
year.  As part of the restructuring, the Company sold mortgage-backed securities
of $845 million, purchased $512 million of mortgage-backed securities to replace
the assets sold and reduced borrowings with the remainder of the sales proceeds.

     The  Bank  obtains  long  term,  fixed  rate  and short term, variable rate
advances  from  the  FHLB  upon  the  security  of  certain  of  its  first lien
residential  and  multifamily  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 various short-term,
fixed  rate  advances  and  long  term,  fixed  and  variable-rate advances.  At
December  31,  2002,  the  Bank  had  total FHLB advances of $696.1 million at a
weighted  average  interest  rate  of  2.71%.  Of  the  advances  outstanding at
December  31,  2002,  $170.0  million  were short-term advances with an original
maturity  of  less  than  90  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  lend the Bank's securities to others 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,  2002,  the  Bank did not have any
borrowings  under  reverse  repurchase  agreements.

     To  a lesser extent, beginning in 1997, the Bank has utilized federal funds
purchased  from  a correspondent bank for overnight borrowing purposes.  Federal
funds  purchased  averaged  approximately $18,000 during the year ended December
31,  2000, with an average interest rate during the period of 5.56%.  There were
no federal funds purchased outstanding at any time during 2002 or 2001 or at any
month-end  during  2000.

     The Asset/Liability Subcommittee of the Bank attempts to match the maturity
of  its borrowings 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 also
attempts  to alter the interest rate risk associated with its borrowings through
the  use  of  interest rate swaps and interest rate caps purchased from selected
securities  brokers/dealers.  See  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations - Asset and Liability Management"
in  Item  7  hereof.


<PAGE>
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,
2002,  the  Bank  was  authorized  to have a maximum investment of approximately
$252.5  million  in  its  subsidiaries.

     At  December  31,  2002, the Bank had two active wholly-owned subsidiaries,
the  activities  of which are described below.  At December 31, 2002, the Bank's
aggregate  equity  investment  in  its  subsidiaries  was  $423,000.

     COASTALBANC  FINANCIAL  CORP.  CoastalBanc  Financial  Corp.  ("CBFC")  was
formed  in  1986  to  act  as  an  investment advisor to other insured financial
institutions.  The  Bank  is  the  sole stockholder of CBFC.  Over the past five
years,  CBFC has been inactive in its investment advisory capacity.  CBFC 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 $5,000, $27,000 and $37,000 for the years ended
December  31,  2002,  2001  and  2000,  respectively.

     COASTAL  BANC  INSURANCE  AGENCY,  INC.  In  1987, the Bank entered into an
Administrative  Services  Agreement  with  CBIA,  a  Texas  business corporation
licensed under Texas law to act as a life insurance agent.  Until June 22, 2000,
CBIA  was affiliated with the Bank as a result of being wholly-owned by a former
executive  officer  of  the Bank.  On June 22, 2000, CBIA became a subsidiary of
the  Bank.  CBIA receives fees related to insurance and investment product sales
through  third  party  intermediaries  to the Bank's deposit and loan customers.
Fees  generated, net of expenses, resulted in net income of $14,000 for the year
ended  December  31,  2002,  $13,000  for  the  year ended December 31, 2001 and
$74,000  for  the  period  from  June 22 to December 31, 2000.  Expenses of CBIA
include  administrative  fees  paid  to  the Bank of $575,000 for the year ended
December  31,  2002,  $510,000 for the year ended December 31, 2001 and $215,000
for  the  period  from  June  22  to  December  31,  2000.

AFFILIATES  OF  THE  BANK

     COASTAL  BANC  CAPITAL  CORP.  CBCC  is  a direct subsidiary of HoCo and an
affiliate of the Bank.  CBCC, through its Mortgage Asset Trading Group, has been
engaged  in  the  business  of  purchasing  and reselling packages of whole loan
assets  on  behalf  of  the  Bank and institutional investors.  These activities
continued  until  September  2002,  when  the  operations  of the Mortgage Asset
Trading  Group  were  moved to CBMC.  Effective January 1, 2002, CBCC formed two
new  groups in an effort to increase its fee income within its existing business
of  asset  trading  and by providing additional services for commercial business
customers.  The  Specialty  Finance  Group will focus on developing a network of
buyers of mortgage loans and to develop the capability of trading in other types
of  debt  instruments.  The  operations of the Specialty Finance Group were also
moved  to  CBMC  in  September  2002.  The  Corporate  Finance  Group,  as  an
intermediary,  will  focus  on  raising  capital  for its business customers and
providing  merger  and  acquisition  advisory  services to buyers and sellers of
companies.

     The  loan  packages  acquired  by CBCC were offered to the Bank on the same
terms  and  at  the  same  time  that  they  were  offered  to other prospective
purchasers.  During  2002,  CBCC  purchased  whole  loan  assets totaling $347.8
million  and  sold  whole  loans  (including  purchase  premium) totaling $340.0
million  to the Bank and $8.6 million to third party investors.  During the year
ended December 31, 2002, CBCC recorded gains on the sale of loans to the Bank of
$810,000  and  gains  on  the sale of loans to third party investors of $40,000.
The  $810,000  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 significant intercompany balances and transactions
are  eliminated  in  consolidation.  At December 31, 2002, HoCo's unconsolidated
equity  investment  in  CBCC  was  $430,000.  CBCC had net income (loss) (before
intercompany  eliminations)  of  $(29,000), $437,000 and $(21,000) for the years
ended  December  31,  2002,  2001  and  2000,  respectively.

     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,  2002.  All  transactions  between  the  Bank  and CBCC are within
regulatory  guidelines.  In 2003, management of the Company made the decision to
discontinue  the  operations of CBCC effective March 31, 2003 due to the current
economic  climate.

     COASTAL  BANC  MORTGAGE  CORP.  CBMC  is a direct subsidiary of HoCo and an
affiliate  of  the  Bank.  Effective  September  2002, CBMC began performing the
functions  previously  performed  by  the  Mortgage  Asset Trading Group and the
Specialty  Finance  Group  of  CBCC,  which  were  moved  from CBCC to CBMC.  In
addition,  CBMC entered into a marketing service agreement with a third party to
enhance the opportunities for both parties related to the business of buying and
selling  whole loan related assets.  The agreement calls for shared revenues for
referring  business  between  the  parties.

     During  2002,  CBMC  purchased whole loan assets totaling $33.5 million and
sold  whole  loans  (including  purchase  premium) totaling $33.6 million to the
Bank.  During  the  period  ended  December 31, 2002, CBMC recorded gains on the
sale  of loans to the Bank of $86,000.  The gain on the sale of the 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.  In addition, during
2002,  CBMC  received  $41,000  in brokerage fees from the Bank related to other
loan  packages  sold  by  the  Bank.  All  significant intercompany balances and
transactions  are  eliminated  in  consolidation.  At  December 31, 2002, HoCo's
unconsolidated equity investment in CBMC was $34,000.  CBMC had net loss (before
intercompany  eliminations)  of  $67,000 for the period from CBMC's inception in
July  2002  through  December  31,  2002.

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.  Certain  federal  banking  laws  have  been
recently  amended.  See  "Regulation  -  The  Company-Financial  Modernization."

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  provided  that  it  meets the grandfather requirement
described  below.  See "The Company - Financial Modernization."  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 he deems 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 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  or financial 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).

     FINANCIAL MODERNIZATION.  Under the Gramm-Leach-Bliley Act enacted into law
on  November  12,  1999,  no  company  may acquire control of a savings and loan
holding  company  after  May  4,  1999,  unless  the  company is engaged only in
activities  traditionally  permitted  to  a  multiple  savings  and loan holding
company  or newly permitted to a financial holding company under Section 4(k) of
the  Bank  Holding  Company  Act.  With limited exceptions, existing savings and
loan  holding  companies  and those formed pursuant to an application filed with
the  OTS  before May 4, 1999, may engage in any activity including non-financial
or  commercial  activities  provided  such  companies  control  only one savings
association  and  that  savings  association  meets  the  QTL  test.  Corporate
reorganizations  are permitted, but the transfer of grandfathered unitary thrift
holding  company  status  through acquisition is not permitted.  The Company and
HoCo  qualify  to  engage  in  that  broader  range  of  activities.

     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.

     SARBANES-OXLEY  ACT  OF  2002.

     On  July  30,  2002,  President  George  W.  Bush  signed  into  law  the
Sarbanes-Oxley  Act  of  2002,  which  generally  establishes  a  comprehensive
framework  to  modernize  and  reform  the oversight of public company auditing,
improve  the  quality and transparency of financial reporting by those companies
and  strengthen  the  independence of auditors. Certain of the new legislation's
more  significant  reforms  are  noted  below.


-     The  new  legislation  creates a public company accounting oversight board
which  is  empowered  to  set auditing, quality control and ethics standards, to
inspect  registered  public  accounting  firms, to conduct investigations and to
take  disciplinary  actions, subject to SEC oversight and review.  The new board
will  be  funded  by  mandatory  fees  paid  by  all public companies.   The new
legislation  also  improves  the Financial Accounting Standards Board, giving it
full  financial  independence  from  the  accounting  industry.

-     The  new  legislation  strengthens  auditor  independence  from  corporate
management  by,  among  other  things, limiting the scope of consulting services
that  auditors  can  offer  their  public  company  audit  clients.

-     The  new  legislation  heightens  the  responsibility  of  public  company
directors  and  senior  managers  for the quality of the financial reporting and
disclosure  made  by  their  companies.  Among other things, the new legislation
provides  for  a  strong  public  company  audit committee that will be directly
responsible  for  the appointment, compensation and oversight of the work of the
public  company  auditors.

-     The  new  legislation contains a number of provisions to deter wrongdoing.
CEOs  and  CFOs  will  have  to certify that company financial statements fairly
present  the company's financial condition.  If a misleading financial statement
later  resulted in a restatement, the CEO and CFO must forfeit and return to the
company  any  bonus,  stock  or stock option compensation received in the twelve
months  following  the  misleading  financial  report.  The new legislation also
prohibits  any  company officer or director from attempting to mislead or coerce
an  auditor.  Among  other  reforms, the new legislation empowers the SEC to bar
certain  persons  from  serving  as  officers  or directors of a public company;
prohibits insider trades during pension fund "blackout periods;" directs the SEC
to  adopt  rules  requiring  attorneys  to report securities law violations; and
requires  that civil penalties imposed by the SEC go into a disgorgement fund to
benefit  harmed  investors.

-     The  new  legislation  imposes  a  range  of  new  corporate  disclosure
requirements.  Among other things, the new legislation requires public companies
to  report  all  off-balance-sheet  transactions  and  conflicts,  as well as to
present  any  pro  forma  disclosures  in  a  way  that is not misleading and in
accordance  with requirements to be established by the SEC.  The new legislation
also  accelerated  the  required  reporting  of  insider transactions, which now
generally  must  be  reported  by the end of the second business day following a
covered  transaction;  requires that annual reports filed with the SEC include a
statement  by  management  asserting  that  it  is  responsible for creating and
maintaining  adequate internal controls and assessing the effectiveness of those
controls; and requires companies to disclose whether or not they have adopted an
ethics code for senior financial officers, and, if not, why not, and whether the
audit  committee includes at least one "financial expert," a term which is to be
defined  by  the  SEC  in  accordance  with  specified  requirements.  The  new
legislation  also  requires  the  SEC,  based  on certain enumerated factors, to
regularly  and  systematically  review  corporate  filings.

-     The  new legislation contains provisions which generally seek to limit and
expose  to  public  view  possible  conflicts  of  interest affecting securities
analysts.

-     Finally, the new legislation imposes a range of new criminal penalties for
fraud  and  other  wrongful  acts,  as  well  as extends the period during which
certain  types  of  lawsuits  can  be brought against a company or its insiders.

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,  Section  23A  limits  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.  Section
23B  applies to "covered transactions" as well as certain other transactions and
requires  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 to,
purchase of assets from and, issuance of a guarantee to an affiliate and similar
transactions.  Section  23B transactions also apply to the provision of services
and the sale of assets by a savings association to an affiliate.  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, 2002, 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  adequacy 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, 2002, 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, 2002, the minimum Tier 1 capital
ratio  for capital adequacy purposes for the Bank was 4.0% and its actual Tier 1
capital  ratio  was  6.88%.

     RISK-BASED  CAPITAL  REQUIREMENTS.  The  risk-based  capital  requirements
contained  in  FDIC regulations generally require the Bank to maintain a minimum
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,  2002, the Bank's Tier 1 capital to risk-weighted assets ratio
was  10.32%  and  its total risk-based capital to risk weighted assets ratio was
11.38%.




                      [THIS SPACE INTENTIONALLY LEFT BLANK]


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

<TABLE>
<CAPTION>

                                                     At  December  31,
                                ----------------------------------------------------------------
                                       2002                  2001                  2000
                                -------------------  --------------------  ---------------------

                                 Actual   Required(1)  Actual   Required(1)  Actual   Required(1)
                                 -------  -----------  -------  -----------  -------  -----------
<S>                             <C>      <C>          <C>      <C>          <C>      <C>
Tier 1 capital to total assets    6.88%        4.00%    7.27%        4.00%    6.22%        4.00%
Tier 1 risk-based capital
 to risk weighted assets         10.32         4.00    11.90         4.00     9.94         4.00
Total risk-based capital
 risk to risk weighted
 assets                          11.38         8.00    12.79         8.00    10.72         8.00
</TABLE>
_____________________________________________
(1)Minimum  required  ratio  for  regulatory  capital  adequacy  purposes.

     The  following  table  sets  forth  a  reconciliation  between  the  Bank's
stockholders'  equity  and  each  of  its  three  minimum  regulatory  capital
requirements  at  December  31,  2002.

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

Total stockholders' equity                       $       199,674   $   199,674   $   199,674
Unrealized gain on securities
 available-for-sale                                         (616)         (616)         (616)
Less nonallowable assets:
Goodwill                                                 (21,429)      (21,429)      (21,429)
Mortgage servicing rights                                    (36)          (36)          (36)
Plus allowance for loan losses                                --            --        18,118
                                                  --------------    -----------    ----------
Total regulatory capital                                 177,593       177,593       195,711
Minimum required capital                                 103,315        68,816       137,632
                                                  --------------    -----------    ----------
Excess regulatory capital                        $        74,278   $   108,777   $    58,079
                                                  ==============    ===========    ==========
Bank's regulatory capital percentage (1)                    6.88%        10.32%        11.38%
                                                  ==============    ===========    ==========
Minimum regulatory capital
 adequacy required percentage                               4.00%         4.00%         8.00%
                                                  ==============    ===========    ==========
Bank's regulatory capital percentage in
 excess of minimum requirement                              2.88%         6.32%         3.38%
                                                  ==============    ===========    ==========
</TABLE>
________________________
(1)Tier  1  capital is computed as a percentage of adjusted average total assets
of  $2.6  billion.  Risk-based  capital  is computed as a percentage of adjusted
risk-weighted  assets  of  $1.7  billion.

     FDIC  INSURANCE  PREMIUMS.  The  deposits  of  the  Bank are insured to the
maximum  extent permitted by the Savings Association Insurance Fund (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 bank and thrift
institutions.  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 during the last six months of 2002
ranging  from zero for well capitalized, healthy institutions, such as the Bank,
to  27  basis  points  for  undercapitalized  institutions  with  substantial
supervisory  concerns.

     In  addition,  all  institutions  with  deposits  insured  by  the FDIC are
required  to  pay  assessments  to fund interest payments on bonds issued by the
Financing  Corporation,  a mixed-ownership government corporation established to
recapitalize the predecessor to the SAIF.  The current assessment rate is .0168%
of  insured deposits and is adjusted quarterly.  These assessments will continue
until  the  Financing  Corporation  bonds  mature  in  2019.

     SAFETY  AND  SOUNDNESS  STANDARDS.  The  FDIC  and  the  other federal bank
regulatory  agencies  have  established  guidelines  for  safety  and soundness,
addressing operational and managerial standards, as well as compensation matters
for  insured  financial  institutions.  Institutions  failing  to  meet  these
standards  are  required to submit compliance plans to their appropriate federal
regulators.  The  FDIC  and  the other agencies have also established guidelines
regarding  asset  quality  and earnings standards for insured institutions.  The
Bank  believes  that  it  is  in compliance with these guidelines and standards.

     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.

     Under  revisions  to  the  CRA  regulations  promulgated  in  1995,  a  new
evaluation system became effective that rates institutions based on their actual
performance  in meeting community credit needs.  The 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.  It also specifies 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.

     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  and  those  of their holding company.  A savings institution has the
option  of  complying  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,  2002,  with  75.8%  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 distributing 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, 2002, the Bank's advances from the FHLB of Dallas amounted to $696.1 million
or  27.6%  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, 2002, the
Bank  had  $41.2  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, 2002,
dividends  paid  by  the  FHLB  of  Dallas  to  the  Bank  totaled $1.2 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, 2002, 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  and  its  subsidiaries, which include the
Bank,  file  a  consolidated  Federal income tax return on a calendar year basis
using  the  accrual method.  Savings banks are subject to provisions of the 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 is
being  recaptured into income over a six year period.  At December 31, 2002, the
Bank  had  approximately  $664,000 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, 2002, 2001 and
2000,  represent  the  gross  tax  liability  computed  under  these tax sharing
provisions  before  reduction  for  actual  federal  taxes  paid to the Internal
Revenue  Service.  Alternative  minimum  taxes  paid  with the federal return in
2002,  2001  and  2000  are  available as credit carryforwards to reduce regular
federal  tax  liabilities  in  future  years, over an indefinite period and were
partially  utilized  beginning  in  2000.  To  the  extent  these  credits  were
generated due to the utilization of other tax benefits retained by the FRF, they
will  also  be  treated  as  tax benefit items.  Although the termination of the
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 been audited by the
United  States  Internal  Revenue  Service.  Generally,  the  tax returns of the
Company  since  1999  are  subject  to  review  by the Internal Revenue Service.

STATE  TAXATION

     The  Company,  the  Bank,  CBCC,  CBMC,  CBFC  and  CBIA each pay 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 applicable entities' Federal
taxable  income  with  certain  modifications, such as the exclusion of interest
earned  on  Federal  obligations.



<PAGE>
ITEM  2.  PROPERTIES
          ----------


     The  Company's  business  is  conducted  from  43  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,
2002.
<TABLE>
<CAPTION>




<S>                                     <C>                  <C>                      <C>        <C>
                                        Owned/Leased              Net Book
                                        (with Lease          Value of Property                   Percent of
                                        Expiration             Or Leasehold                        Total
Location                                   Date)                Improvements           Deposits   Deposits
--------------------------------------  -------------------  -----------------------  ---------  -----------
                                                                       (Dollars in thousands)
BRANCH OFFICES:
--------------------------------------
1329 North Virginia
Port Lavaca, Texas  77979               Owned                               $    108  $  22,894        1.42%
3207 Westpark Drive
Houston, Texas  77005                   Owned                                  2,344     32,454        2.01
8 Braeswood Square                      Leased;
Houston, Texas  77096                   December 31, 2006                        219     70,162        4.35
408 Walnut
Columbus, Texas  78934                  Owned                                    198     47,829        2.96
870 S. Mason, Suite 100                 Leased;
Katy, Texas  77450                      August 31, 2003                           13     30,818        1.91
602 Lyons
Schulenburg, Texas  78956               Owned                                     70     26,784        1.66
325 Meyer Street
Sealy, Texas  77474                     Owned                                    403     43,042        2.67
116 E. Post Office
Weimar, Texas  78962                    Owned                                     28     23,279        1.44
323 Boling Road
Wharton, Texas  77488                   Owned                                     95     38,674        2.40
1621 B FM 517 Rd. E.                    Leased;
Dickinson, Texas  77539.                September 30, 2003                        26     30,714        1.90
300 S. Cage
Pharr, Texas 78577                      Owned                                    163     12,540        0.78
295 West Highway 77
San Benito, Texas  78586                Owned                                    202     20,199        1.25
1260 Blalock, Suite 100                 Leased;
Houston, Texas  77055                   January 20, 2004                           1     56,475        3.50
14011 Park Drive, Suite 115             Leased;
Tomball, Texas  77375                   March 14, 2004                             3     25,959        1.61
915-H North Shepherd                    Leased;
Houston, Texas  77008                   October 31, 2006                           7     40,604        2.52
16000 Stuebner Airline Road, Suite 100  Leased;
Spring, Texas  77379                    September 30, 2005                         5     33,938        2.10
7602 N. Navarro
Victoria, Texas  77904                  Owned                                    430     60,586        3.75
                                                                                                 (continued)
</TABLE>
<PAGE>


<TABLE>
<CAPTION>


(continued from previous page)
<S>                                 <C>                        <C>                   <C>              <C>
                                                                       Net Book
                                    Owned/Leased                       Value of
                                    (with Lease                       Property or                     Percent of
                                    Expiration                         Leasehold                        Total
Location                               Date)                          Improvements         Deposits    Deposits
----------------------------------  -------------------------    -----------------------  ---------  -----------
                                                                              (Dollars in thousands)
1410 Ed Carey
Harlingen, Texas   78550            Owned                                   $  1,378  $  10,209        0.63%
4900 N. 10th St., G-1               Leased;
McAllen, Texas   78504              August 14, 2006                               --     14,250        0.88
10838 Leopard Street, Suite A       Leased;
Corpus Christi, Texas   78410       December 31, 2005                              1     29,751        1.84
4060 Weber Road                     Leased;
Corpus Christi, Texas   78411       April 30, 2004                                 6     45,653        2.83
301 E. Main Street
Brenham, Texas   77833              Owned                                        141     57,861        3.58
1192 W. Dallas                      Leased;
Conroe, Texas   77301               December 31, 2003                             11     36,321        2.25
2353 Town Center Dr                 Owned
Sugar Land, Texas   77478                                                        999     37,330        2.31
1629 S. Voss                        Owned
Houston, Texas   77057                                                         1,366     27,116        1.68
708 East Austin
Giddings, Texas   78942             Owned                                        205     25,212        1.56
5718 Westheimer, Suite 100          Leased;
Houston, Texas 77057                July 31, 2012                                 22     27,873        1.73
                                    Leased;
2600 S. Gessner, Suite 100          October 31, 2012
Houston, Texas 77063                                                              37      7,879        0.49
1250 Pin Oak Road
Katy, Texas 77494                   Owned                                      1,145     17,217        1.07
2120 Thompson Highway
Richmond, Texas 77469               Owned                                        430     30,916        1.92
7200 North Mopac                    Leased;
Austin, Texas 78731                 December 31, 2007                              3     29,764        1.84
1112 Seventh Street.                Leased;
Bay City, Texas 77414               April 30, 2007                                --     51,310        3.18
441 Austin Avenue, Suite A          Leased;
Port Arthur, Texas 77640            June 30, 2004                                318     29,189        1.81
                                    ATM Site Owned
1114  Lost Creek Blvd., Suite 100   Leased;
Austin, Texas 78746                 December 31, 2003                              6      5,495        0.34
3302 Boca Chica                     Leased;
Brownsville, Texas 78521            December 31, 2004                             22     10,522        0.65
1075 Parades Line Road
Brownsville, Texas 78521            Owned                                      2,633     38,115        2.36

                                                                                                   (continued)


<PAGE>


(continued from previous page)
                                   Owned/Leased                       Net Book
                                    (with Lease                   Value of Property                 Percent of
                                    Expiration                      or Leasehold                      Total
Location                               Date)                        Improvements       Deposits     Deposits
------------------------------  -------------------          -----------------------   ----------   -----------
                                                                      (Dollars in thousands)
<S>                             <C>                               <C>                   <C>         <C>
2000 N. Conway
Mission, Texas 78572            Owned                                            957     18,320        1.13
509 South Main                  Leased;
McAllen, Texas 78501            December 31, 2005                                --      36,125        2.24
198 South Sam Houston
San Benito, Texas 78586         Owned                                            961     44,652        2.77
502 S. Dixieland Road
Harlingen, Texas 78552          Owned                                            296      8,509        0.53
200 Sugar Road
Edinburg, Texas 78539           Owned                                            156      8,915        0.55
300 S. Closner
Edinburg, Texas 78539           Owned                                            760     24,193        1.50
221 East Van Buren
Harlingen, Texas 78550          Owned                                          3,285     63,540        3.94
2810 1st Street                 Owned -
Rosenberg, Texas  77471         Under Construction                             1,021         --          --
2402 Research Forest Drive      Owned -
The Woodlands, Texas  77381     Under Construction                               953         --          --

ADMINISTRATIVE OFFICE(1)
------------------------------
Coastal Banc Plaza
5718 Westheimer, Suite 600      Leased;
Houston, Texas 77057            July 31, 2012                                  2,312    261,180       16.16

RECORDS AND RETENTION OFFICE
------------------------------
2199 N. Jefferson               Leased;
La Grange, TX  78945            December 17, 2006                                --          --          --
                                                                            -------- ----------      -------
     Total                                                                   $23,739 $1,614,368      100.00%
                                                                            ======== ==========      =======

</TABLE>
______________________
(1)Includes  location  of administrative, primary lending and mortgage servicing
offices.

<PAGE>
The net book value of the Company's investment in premises and equipment totaled
$27.3 million at December 31, 2002.  At December 31, 2002, the net book value of
the  Company's electronic data processing equipment, which includes its in-house
computer  system, local area network and twenty-seven automatic teller machines,
was  $908,000.

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

We  are,  and  have  been  involved,  from  time  to  time,  in  various claims,
complaints,  proceedings  and  litigation relating to activities from the normal
course  of  our  operations.  Based  on  the facts currently available to us, we
believe  that  the  matters  pending at December 31, 2002, are without merit, or
will  be  covered  by insurance and any other matters are of such amounts, which
upon  resolution,  are  not  likely  to  have  a  material adverse effect on our
consolidated  financial  condition,  results  of  operations  or  cash  flows.


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 59 of the
Company's  printed  Annual  Report  to  Stockholders  for  fiscal  2002 ("Annual
Report"),  which  is  included  herein  as  Exhibit  13.

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

The  information  required  herein  is  incorporated  by reference from pages 10
through  12  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 13 through
30  of  the  Annual  Report.


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

The  information  required  herein  is  incorporated  by reference from pages 23
through 28 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  33  through  58  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 SEC. 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  SEC.

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  SEC.

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

The information required herein is incorporated by reference from the definitive
Proxy  Statement  filed  with  the  SEC.

ITEM  14.  CONTROLS  AND  PROCEDURES
           -------------------------

Pursuant  to  Section  202  of  the  Sarbanes-Oxley  Act  of 2002, the Company's
management  has  reviewed  the disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) of the Company as of a date within 90 days
prior  to  this  annual  report (the "Evaluation Date"). Disclosure controls and
procedures  are  the  controls  and  other  procedures  of  the Company that are
designed  to ensure that the information required to be disclosed by the Company
in its reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the SEC's rules and
forms.  Disclosure controls and procedures include, without limitation, controls
and  procedures  designed to ensure that information required to be disclosed by
the  Company  in  its  reports  filed  under the Exchange Act is accumulated and
communicated  to  the  Company's  management,  including the principal executive
officer  and  principal  financial  officer,  as  appropriate  to  allow  timely
decisions  regarding  required  disclosure.  Management  believes  that  such
disclosure  controls  and  procedures as of the Evaluation Date were adequate to
ensure  the  material  information  relating  to  the  Company,  including  its
consolidated  subsidiaries,  is  made  known  to management by others within the
Company and its consolidated subsidiaries. To management's knowledge, there were
no  significant  changes  in  internal  controls  or in other factors that could
significantly  affect  internal  controls  subsequent  to  the  Evaluation Date.

<PAGE>
------
PART  IV
--------

ITEM  15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND  REPORTS  ON FORM 8-K
           ---------------------------------------------------------------------

(a)(1)    The  following  financial  statements are incorporated herein by
          reference  from  pages  33  through  58  of  the  Annual  Report.

          Report  of  Independent  Certified  Public  Accountants.

          Consolidated Statements of Financial Condition as of December 31,
          2002  and  2001.

          Consolidated  Statements  of  Operations  for each of the years in the
          three-year  period  ended  December  31,  2002.

          Consolidated  Statements  of Comprehensive Income for each of the
          years  in  the  three-year  period  ended  December  31,  2002.

          Consolidated  Statements of Stockholders' Equity for each of the years
          in  the  three-year  period  ended  December  31,  2002.

          Consolidated  Statements  of  Cash  Flows for each of the years in the
          three-year  period  ended  December  31,  2002.

          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.

     Exhibit  No.
     ------------

3.1  Articles  of Incorporation of the Company (Incorporated by reference to the
     Company's  Registration Statement on Form S-4 (No. 33-75952) filed on March
     2,  1994).
3.2  Bylaws  of Company (Incorporated by reference to the Company's Registration
     Statement  on  Form  S-4  (No.  33-75952)  filed  on  March  2,  1994).
4    Form  of Company common stock certificate (Incorporated by reference to the
     Company's  Registration Statement on Form S-4 (No. 33-75952) filed on March
     2,  1994).
4.1  Form  of Indenture dated as of June 30, 1995, with respect to the Company's
     10%  Notes,  due  2002  (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).
4.2  Certificate  of  Designations,  9.12%  Series  A Cumulative Preferred Stock
     (Incorporated  by reference to the Company's Registration Statement on Form
     S-3  (No.  333-75983)  filed  on  April  9,  1999).
4.3  Form  of  Indenture  of the Corporation relating to the Junior Subordinated
     Debentures and Amended and Restated Declaration of Trust of Coastal Capital
     Trust  I (Incorporated by reference to the Company's Registration Statement
     on  Form  S-3  (No.  333-87370)  filed  on  May  1,  2002).
10.1 1991 Stock Compensation Program (Incorporated by reference to the Company's
     Registration  Statement on Form S-4 (No. 33-75952) filed on March 2, 1994).
10.2 1995 Stock Compensation Program (Incorporated by reference to the Company's
     Registration  Statement  Form  S-1 (No. 33-91206) filed on April 14, 1995).
10.3 1999 Stock Compensation Program (Incorporated by reference to the Company's
     Registration Statement on Form S-8 (No. 333-80877) filed on June 17, 1999).
10.4 Change-In-Control  Severance  Agreements  (Incorporated by reference to the
     Company's  1998  Annual  Report on Form 10-K (No. 000-24526) filed on March
     23,  1999).
10.5 Form  of  Amendment  No.  1  to  Change-In-Control  Severance  Agreements
     (Incorporated by reference to the Company's 1999 Annual Report on Form 10-K
     (No.  000-24526)  filed  on  March  28,  2000).
10.6 Change-In-Control  Severance  Agreement  (Incorporated  by reference to the
     Company's  2000  Annual  Report on Form 10-K (No. 000-24526) filed on March
     27,  2001).
10.7 2002  Non-employee  Director Stock Purchase Plan (Incorporated by reference
     to  the  Company's Registration Statement on Form S-8 (No. 333-83966) filed
     on  March  7,  2002).
10.8 Stock Purchase Agreement between the Company and James C. Niver dated April
     23, 2002 (Incorporated by reference to the Company's Registration Statement
     on  Form  S-3  (No.  333-87370)  filed  on  May  1,  2002).
10.9 Change-In-Control  Severance  Agreement  dated  August  22,  2002.
12   Ratio  of  earnings to combined fixed charges and preferred stock dividends
     (See  Exhibit  13).
13   Annual  Report  to  Stockholders.
28   Form  of  proxy  mailed  to  stockholders  of  the  Company.
99.1 Certification  of  the  Chairman  of  the Board and Chief Executive Officer
     pursuant  to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
     the  Sarbanese-Oxley  Act  of  2002.
99.2 Certification  of the Chief Financial Officer pursuant to 18 U.S.C. Section
     1350,  as  adopted  pursuant  to  Section 906 of the Sarbanese-Oxley Act of
     2002.
99.3 Statement  of  Factors  Under  Private  Securities Litigation Reform Act of
     1995.
__________________


(b)  Form  8-K  filed on December 18, 2002, concerning the announcement that the
Company  completed  the  sale  of  its  five  central  Texas  branches.

(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.

<PAGE>

     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  25,  2003                          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 25, 2003
----------------------
Manuel  J.  Mehos,  Chairman  of  the
  Board  and  Chief  Executive  Officer


/s/  R.  Edwin  Allday                                      Date: March 25, 2003
----------------------
R.  Edwin  Allday,  Director


/s/  D. Fort Flowers, Jr.                                   Date: March 25, 2003
-------------------------
D.  Fort  Flowers,  Jr.,  Director


/s/  Dennis  S.  Frank                                      Date: March 25, 2003
----------------------
Dennis  S.  Frank,  Director


/s/  Robert  E.  Johnson,  Jr.                              Date: March 25, 2003
------------------------------
Robert  E.  Johnson,  Jr.,  Director


/s/  Clayton  T.  Stone                                     Date: March 25, 2003
-----------------------
Clayton  T.  Stone,  Director


/s/  Catherine  N.  Wylie                                   Date: March 25, 2003
-------------------------
Catherine  N.  Wylie,  Chief  Financial
  Officer  (principal  financial  and
  accounting  officer)

<PAGE>
                                  CERTIFICATION
                                  -------------


I,  Manuel  J.  Mehos,  the  Chief  Executive  Officer of Coastal Bancorp, Inc.,
certify  that:

1.     I have reviewed this annual report on Form 10-K of Coastal Bancorp, Inc.;

2.     Based  on  my  knowledge,  this annual report does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.     Based  on  my  knowledge,  the  financial statements, and other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.     The  registrant's  other  certifying  officers  and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

     a)     designed  such  disclosure  controls  and  procedures to ensure that
material  information  relating  to  the  registrant, including its consolidated
subsidiaries,  is made known to us by others within those entities, particularly
during  the  period  in  which  this  annual  report  is  being  prepared;

     b)     evaluated  the effectiveness of the registrant's disclosure controls
and  procedures  as  of  a  date within 90 days prior to the filing date of this
annual  report  (the  "Evaluation  Date");  and

     c)     presented  in  this  annual  report  our  conclusions  about  the
effectiveness  of the disclosure controls and procedures based on our evaluation
as  of  the  Evaluation  Date;

5.     The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
functions):

a)     all  significant  deficiencies  in  the  design  or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and  have  identified for the
registrant's  auditors  any  material  weaknesses  in  internal  controls;  and

b)     any  fraud,  whether  or  not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.     The  registrant's  other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

Dated:  March  25,  2003                              By     /s/ Manuel J. Mehos
                                                             -------------------
                                                               Manuel  J.  Mehos
                                                       Chief  Executive  Officer

<PAGE>
                                  CERTIFICATION
                                  -------------


I,  Catherine  N.  Wylie,  the Chief Financial Officer of Coastal Bancorp, Inc.,
certify  that:

1.     I have reviewed this annual report on Form 10-K of Coastal Bancorp, Inc.;

2.     Based  on  my  knowledge,  this annual report does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.     Based  on  my  knowledge,  the  financial statements, and other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.     The  registrant's  other  certifying  officers  and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

     a)     designed  such  disclosure  controls  and  procedures to ensure that
material  information  relating  to  the  registrant, including its consolidated
subsidiaries,  is made known to us by others within those entities, particularly
during  the  period  in  which  this  annual  report  is  being  prepared;

     b)     evaluated  the effectiveness of the registrant's disclosure controls
and  procedures  as  of  a  date within 90 days prior to the filing date of this
annual  report  (the  "Evaluation  Date");  and

     c)     presented  in  this  annual  report  our  conclusions  about  the
effectiveness  of the disclosure controls and procedures based on our evaluation
as  of  the  Evaluation  Date;

5.     The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
functions):

a)     all  significant  deficiencies  in  the  design  or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and  have  identified for the
registrant's  auditors  any  material  weaknesses  in  internal  controls;  and

b)     any  fraud,  whether  or  not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.     The  registrant's  other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

Dated:  March  25,  2003                         By     /s/  Catherine  N. Wylie
                                                              ------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer