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

                                    FORM 10-Q


          [  X ]     Quarterly  Report  Under  Section  13  or  15  (d)  of
                     the  Securities  Exchange  Act  of  1934
                     For  the  Quarterly  Period  Ended  June  30,  2003

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

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

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to  be  filed  by  Section  13  or 15 (d) of the Securities Exchange Act of 1934
during  the  preceding 12 months (or for such shorter period that the Registrant
was  required  to  file  such  reports), and (2) has been subject to such filing
requirements  for  the  past  90  days.

                                  YES   X    NO
                                     ------

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

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
Common  Stock,  as  of  the  latest  practicable  date.

            COMMON STOCK OUTSTANDING:   5,165,162 AS OF JULY 31, 2003


<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                                    Form 10-Q
                                Table of Contents



PART  I.     FINANCIAL  INFORMATION
--------     ----------------------

<TABLE>
<CAPTION>
<S>     <C>                                                                       <C>
Item 1  Financial Statements (unaudited)
        Consolidated Statements of Financial Condition at June 30, 2003
        and December 31, 2002                                                      1

        Consolidated Statements of Income for the Six-Month Periods Ended
        June 30, 2003 and 2002                                                     2

        Consolidated Statements of Income for the Three-Month Periods Ended
        June 30, 2003 and 2002                                                     3

        Consolidated Statements of Comprehensive Income for the Six-Month and
        Three-Month Periods Ended June 30, 2003 and 2002                           4

        Consolidated Statements of Cash Flows for the Six-Month Periods
        Ended June 30, 2003 and 2002                                               5

        Notes to Consolidated Financial Statements                                 7

Item 2  Management's Discussion and Analysis of Financial Condition and Results
        of Operations                                                             19

Item 3  Quantitative and Qualitative Disclosures About Market Risk                26

Item 4  Controls and Procedures                                                   26
</TABLE>






PART  II.     OTHER  INFORMATION
---------     ------------------

<TABLE>
<CAPTION>
<S>     <C>                                                  <C>
Item 1  Legal Proceedings                                    27
Item 2  Changes in Securities and Use of Proceeds            27
Item 3  Defaults upon Senior Securities                      27
Item 4  Submission of Matters to a Vote of Security Holders  28
Item 5  Other Information                                    28
Item 6  Exhibits and Reports on Form 8-K                     28
</TABLE>




SIGNATURES

                                        i


<PAGE>



ITEM  1.     FINANCIAL  STATEMENTS
--------     ---------------------

<TABLE>
<CAPTION>
                                         COASTAL BANCORP, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                            (IN THOUSANDS, EXCEPT SHARE DATA)


                                                                                     June 30,               December 31,
ASSETS                                                                                 2003                     2002
---------------------------------------------------------------------               ----------              ------------
                                                                                    (Unaudited)
<S>                                                                    <C>          <C>         <C>           <C>
Cash and cash equivalents                                                           $   37,996                $   39,766
Federal funds sold                                                                         780                    27,755
Loans receivable held for sale                                                          18,517                    49,886
Loans receivable, net (note 4)                                                       1,864,703                 1,812,785
Mortgage-backed securities available-for-sale, at fair value (note 3)                  500,917                   475,022
Other securities available-for-sale, at fair value                                       2,284                     1,788
Accrued interest receivable                                                              9,530                     9,781
Property and equipment                                                                  29,362                    27,341
Stock in the Federal Home Loan Bank of Dallas ("FHLB")                                  41,733                    41,221
Goodwill                                                                                21,429                    21,429
Prepaid expenses and other assets                                                       16,450                    19,370
                                                                                    ----------                ----------
                                                                                    $2,543,701                $2,526,144
                                                                                    ----------                ----------
</TABLE>


<TABLE>
<CAPTION>
     LIABILITIES  AND  STOCKHOLDERS'  EQUITY
     ---------------------------------------

<S>                                                               <C>          <C>
Liabilities:
 Deposits (note 5)                                                $1,619,581   $1,614,368
 Advances from the FHLB (note 6)                                     688,669      696,085
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I (note 7)                     50,000       50,000
 Company obligated mandatorily redeemable variable rate trust
   preferred securities of Coastal Capital Trust II (note 7)          10,000           --
 Advances from borrowers for taxes and insurance                       6,529        2,407
 Other liabilities and accrued expenses                               10,637       10,399
                                                                   ---------    ----------
     Total liabilities                                             2,385,416    2,373,259
                                                                   ---------    ----------
Commitments and contingencies (notes 4 and 9)

Stockholders' equity (notes 1, 3, 10, 12 and 13):
 Preferred stock, no par value; authorized shares 5,000,000;
   9.12% Cumulative, Series A, 1,100,000 shares issued and
   outstanding                                                        27,500       27,500
 Common stock, $.01 par value; authorized shares
   30,000,000; 7,905,060 shares issued and 5,157,560 shares
   outstanding at June 30, 2003; 7,867,029 shares issued
   and 5,141,010 shares outstanding at December 31, 2002                  79           79
 Additional paid-in capital                                           36,093       35,736
 Retained earnings                                                   146,716      141,986
 Accumulated other comprehensive income -
   net unrealized gain on securities available-for-sale                1,554          619
 Treasury stock at cost (2,747,500 shares in 2003 and 2,726,019
   shares in 2002)                                                   (53,657)     (53,035)
                                                                   ---------    ----------
     Total stockholders' equity                                      158,285      152,885
                                                                  -----------  -----------
                                                                  $2,543,701   $2,526,144
                                                                  -----------  -----------
</TABLE>



See  accompanying  Notes  to  Consolidated  Financial  Statements

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                 June 30,
                                                                           ------------------
                                                                            2003           2002
                                                                       ----------------  --------
                                                                                  (Unaudited)
<S>                                                                    <C>                 <C>
Interest income:
 Loans receivable                                                      $          50,831   $60,708
 Mortgage-backed securities                                                        7,152     9,026
 FHLB stock, federal funds sold and other interest-earning assets                    579       855
                                                                       ------------------  --------
                                                                                  58,562    70,589
                                                                       ------------------  --------
Interest expense:
 Deposits                                                                         15,806    21,243
 Advances from the FHLB                                                            8,458    10,359
 Senior Notes payable (note 8)                                                        --       378
 Company obligated mandatorily redeemable trust preferred securities               2,258       163
                                                                       ------------------  --------
                                                                                  26,522    32,143
                                                                       ------------------  --------

   Net interest income                                                            32,040    38,446
Provision for loan losses (note 4)                                                 1,800     1,800
                                                                       ------------------  --------
   Net interest income after provision for loan losses                            30,240    36,646
                                                                       ------------------  --------

Noninterest income:
 Service charges on deposit accounts                                               5,846     4,133
 Loan fees                                                                           422       622
 Gain on sale of loans receivable held for sale                                      792        40
 Gain (loss) on derivative instruments (note 9)                                       13       (24)
 Gain (loss) on real estate owned                                                    (96)      240
 Other                                                                               522       452
                                                                       ------------------  --------
                                                                                   7,499     5,463
                                                                       ------------------  --------
Noninterest expense:
 Compensation, payroll taxes and other benefits                                   15,454    15,853
 Office occupancy                                                                  4,720     5,221
 Data processing                                                                     894       822
 Advertising                                                                         569       850
 Postage and delivery                                                                757       795
 Other                                                                             4,885     3,994
                                                                       ------------------  --------
                                                                                  27,279    27,535
                                                                       ------------------  --------
       Income before provision for Federal income taxes and
         minority interest                                                        10,460    14,574
Provision for Federal income taxes                                                 3,237     4,244
                                                                       ------------------  --------
       Income before minority interest                                             7,223    10,330
Minority interest - preferred stock dividends of Coastal Banc ssb                     --     1,294
                                                                       ------------------  --------
     Net income                                                        $           7,223   $ 9,036
                                                                       ------------------  --------
     Net income available to common stockholders                       $           5,969   $ 7,782
                                                                       ==================  ========
Basic earnings per common share (note 10)                              $            1.16   $  1.35
                                                                       ==================  ========
Diluted earnings per common share (note 10)                            $            1.11   $  1.29
                                                                       ==================  ========
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                  June 30,
                                                                            --------------------
                                                                               2003           2002
                                                                       --------------------  -------
                                                                                   (Unaudited)
<S>                                                                    <C>                   <C>
Interest income:
 Loans receivable                                                      $             25,219  $30,741
 Mortgage-backed securities                                                           3,485    4,062
 FHLB stock, federal funds sold and other interest-earning assets                       289      380
                                                                       --------------------  -------
                                                                                     28,993   35,183
                                                                       --------------------  -------
Interest expense:
 Deposits                                                                             7,758   10,202
 Advances from the FHLB                                                               4,233    5,091
 Company obligated mandatorily redeemable trust preferred securities.                 1,133      163
                                                                       --------------------  -------
                                                                                     13,124   15,456
                                                                       --------------------  -------

   Net interest income                                                               15,869   19,727
Provision for loan losses (note 4)                                                      900      900
                                                                       --------------------  -------
   Net interest income after provision for loan losses                               14,969   18,827
                                                                       --------------------  -------

Noninterest income:
 Service charges on deposit accounts                                                  2,944    2,138
 Loan fees                                                                              203      315
 Gain on sale of loans receivable held for sale                                          58       40
 Gain on derivative instruments (note 9)                                                  7       --
 Gain on real estate owned                                                               34      218
 Other                                                                                  260      243
                                                                       --------------------  -------
                                                                                      3,506    2,954
                                                                       --------------------  -------

Noninterest expense:
 Compensation, payroll taxes and other benefits                                       7,446    7,992
 Office occupancy                                                                     2,403    2,641
 Data processing                                                                        461      399
 Advertising                                                                            294      421
 Postage and delivery                                                                   378      367
 Other                                                                                2,377    1,999
                                                                       --------------------  -------
                                                                                     13,359   13,819
                                                                       --------------------  -------
       Income before provision for Federal income taxes and
         minority interest                                                            5,116    7,962
Provision for Federal income taxes                                                    1,578    2,360
                                                                       --------------------  -------
       Income before minority interest                                                3,538    5,602
Minority interest - preferred stock dividends of Coastal Banc ssb                        --      647
                                                                       --------------------  -------
     Net income                                                        $              3,538  $ 4,955
                                                                       --------------------  -------
     Net income available to common stockholders                       $              2,911  $ 4,328
                                                                       ====================  =======
Basic earnings per common share (note 10)                              $               0.56  $  0.76
                                                                       ====================  =======
Diluted earnings per common share (note 10)                            $               0.54  $  0.72
                                                                       ====================  =======
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        Six Months Ended
                                                            June 30,
                                                       ------------------
                                                          2003          2002
                                                    ------------------  ------
                                                               (Unaudited)
<S>                                                 <C>                 <C>
Net income                                          $            7,223  $9,036
Other comprehensive income, net of tax:
 Unrealized gains on securities available-for-sale
   arising during period                                           935      64
                                                    ------------------  ------
Total comprehensive income                          $            8,158  $9,100
                                                    ------------------  ------
</TABLE>




<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                              June 30,
                                                        --------------------
                                                            2003           2002
                                                    --------------------  ------
                                                                (Unaudited)
<S>                                                 <C>                   <C>


Net income                                          $              3,538  $4,955

Other comprehensive income, net of tax:
 Unrealized gains on securities available-for-sale
   arising during period                                           1,120      69
                                                    --------------------  ------
Total comprehensive income                          $              4,658  $5,024
                                                    -------------------   ------
</TABLE>



See  accompanying  Notes  to  Consolidated  Financial  Statements

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

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                 June 30,
                                                                           ------------------
                                                                           2003            2002
                                                                    ------------------  ----------
                                                                               (Unaudited)

<S>                                                                 <C>                 <C>
Cash flows from operating activities:
 Net income                                                         $           7,223   $   9,036
 Adjustments to reconcile net income
   to net cash provided by operating activities:
 Depreciation and amortization of property and equipment,
   and prepaid expenses and other assets                                        4,709       4,113
 Net amortization (accretion) of premiums, discounts and loan fees              4,067       2,615
 Provision for loan losses                                                      1,800       1,800
 Originations and purchases of mortgage loans held for sale                  (127,431)     (8,592)
 Sales of mortgage loans held for sale                                        148,095      11,758
 Gain on sale of mortgage loans held for sale                                    (792)        (40)
 Stock dividends from the FHLB                                                   (512)       (598)
 (Gain) loss on derivative instruments                                            (13)         24
 Decrease (increase) in:
   Accrued interest receivable                                                    251       1,734
   Other, net                                                                   3,836       3,879
                                                                  ------------------- ------------
   Net cash provided by operating activities                                   41,233      25,729
                                                                  ------------------- ------------
Cash flows from investing activities:
 Net decrease in federal funds sold                                            26,975      13,350
 Purchase of mortgage-backed securities available-for-sale                   (117,766)         --
 Principal repayments on mortgage-backed securities
   available-for-sale                                                          91,489      84,580
 Purchase of other securities available-for-sale                                 (511)       (243)
 Principal repayments on other securities available-for-sale                       --      41,000
 Purchases of loans receivable                                               (252,717)   (218,988)
 Sales of loans receivable                                                         --      10,111
 Net decrease in loans receivable                                             204,179     140,822
 Net purchases of property and equipment                                       (3,663)     (1,594)
                                                                  ------------------- ------------
   Net cash provided (used) by investing activities                           (52,014)     69,038
                                                                  ------------------- ------------
</TABLE>



                                                  (Table continued on next page)

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

<TABLE>
<CAPTION>
                                                                           Six Months Ended
                                                                               June 30,
                                                                          ------------------
                                                                         2003             2002
                                                                  ------------------  ------------
                                                                              (Unaudited)

<S>                                                               <C>                 <C>
Cash flows from financing activities:
 Net increase (decrease) in deposits                              $           5,213   $    (9,627)
 Advances from the FHLB                                                   8,171,847     2,893,300
 Principal payments on advances from the FHLB                            (8,179,263)   (2,974,331)
 Proceeds from issuance of trust preferred securities                         9,850        48,125
 Net increase in advances from borrowers for taxes and insurance              4,122         3,107
 Exercise of stock options for purchase of common stock, net                    342            55
 Purchase of treasury stock                                                    (652)      (16,436)
 Issuance of treasury stock                                                      45            59
 Redemption of Senior Notes payable                                              --       (43,875)
 Dividends paid                                                              (2,493)       (2,658)
                                                                  ------------------  ------------
   Net cash provided (used) by financing activities                           9,011      (102,281)
                                                                  ------------------  ------------
   Net decrease in cash and cash equivalents                                 (1,770)       (7,514)
 Cash and cash equivalents at beginning of period                            39,766        41,537
                                                                  ------------------  ------------
 Cash and cash equivalents at end of period                       $          37,996   $    34,023
                                                                  ------------------  ------------

 Supplemental schedule of cash flows-interest paid                $          27,081   $    33,315
                                                                  ------------------  ------------
 Supplemental schedule of noncash investing and financing
   activities:
   Transfer of loans to the held for sale category                $              --   $     9,075
   Transfer of loans from held for sale to loans receivable                   9,391            --
   Foreclosures of loans receivable                                           1,978         3,436
                                                                  ------------------  ------------
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(1)     BASIS  OF  PRESENTATION

     The  accompanying unaudited Consolidated Financial Statements were prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all  disclosures  necessary  for a complete presentation of financial condition,
results  of  operations,  comprehensive income and cash flows in conformity with
accounting  principles  generally accepted in the United States of America.  All
adjustments,  which  are,  in  the  opinion of management, of a normal recurring
nature  and  are  necessary  for  a  fair  presentation of the interim financial
statements,  have been included.  The results of operations for the period ended
June 30, 2003 are not necessarily indicative of the results that may be expected
for  the  entire  fiscal  year  or  any  other  interim  period.

     Recent  Accounting  Pronouncements
     ----------------------------------
     In  November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation  No.  45  "Guarantor's Accounting and Disclosure Requirements for
Guarantees,  Including  Indirect  Guarantees  of  Indebtedness  to  Others,  an
interpretation  of  FASB  Statements  No. 5, 57 and 107 and a rescission of FASB
Interpretation  No.  34"  ("FIN  45").  This  Interpretation  elaborates  on the
disclosures  to  be  made  by  a  guarantor  in its interim and annual financial
statements  about  its  obligations under guarantees issued.  The Interpretation
also  clarifies  that  a  guarantor  is required to recognize, at inception of a
guarantee,  a  liability  for  the  fair value of the obligation undertaken. The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable  to guarantees issued or modified after December 31, 2002 and did not
have  a  material  effect on Coastal's consolidated financial statements for
the  six  months  ended  June  30,  2003.

     On  January  17,  2003,  the  FASB  issued  FASB  Interpretation  No.  46
"Consolidation  of Variable Interest Entities", which addresses consolidation by
business  enterprises  of  variable  interest  entities.  FIN  46  clarifies the
application  of  Accounting  Research  Bulletin  No.  51 "Consolidated Financial
Statements",  to  certain  entities  in  which  equity investors do not have the
characteristics  of  a  controlling financial interest or do not have sufficient
equity  at  risk  for  the  entity  to finance its activities without additional
subordinated  financial  support from other parties.  FIN 46 applies immediately
to  variable  interest  entities created after January 31, 2003, and to variable
interest  entities  in  which an enterprise obtains an interest after that date.
It  applies  in the first fiscal year or interim period beginning after June 15,
2003,  to  variable  interest  entities  in which an enterprise holds a variable
interest  that it acquired before February 1, 2003.  Coastal does not expect the
requirements  of  FIN 46 to have a material impact on its financial condition or
results  or  operations.

     In  April  2003,  the  FASB  issued  Statement  No.  149 ("Statement 149"),
"Amendment  of  Statement 133 on Derivative Instruments and Hedging Activities".
Statement  149  amends FASB Statement No. 133 ("Statement 133"), "Accounting for
Derivative  Instruments  and  Hedging  Activities"  and  clarifies  financial
accounting  and  reporting  for  derivative  instruments,  including  certain
derivative  instruments  embedded in other contracts and for hedging activities.
Statement  149  improves  financial  reporting  by requiring that contracts with
comparable characteristics be accounted for similarly.  In particular, Statement
149 clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative, clarifies when a derivative contains a
financing  component,  amends  the  definition  of  underlying to conform to the
language in FIN 45, and amends certain other existing pronouncements.  Statement
149  is effective for contracts entered into or modified after June 30, 2003 and
for  hedging  relationships  designated  after  June  30,  2003.  However,  the
provisions  of Statement 149 that related to Statement 133 implementation issues
that  have been effective for fiscal quarters that began prior to June 15, 2003,
should  continue  to  be  applied  in accordance with their respective effective
dates.  The  adoption of Statement 149 is not expected to have a material impact
on  Coastal's  consolidated  financial  statements.

     In  May  2003,  the  FASB  issued  Statement  No.  150  ("Statement  150"),
"Accounting  for  Certain  Financial  Instruments  with  Characteristics of Both
Liabilities  and  Equity".  Statement 150 requires certain financial instruments
that  have  characteristics of both liabilities and equity to be classified as a
liability  on  the consolidated statements of financial condition.  Prior to the
issuance  of  Statement  150,  Coastal  classified trust preferred securities as
liabilities  on  the  consolidated  statements  of  financial  condition and the
related  interest  cost  as  interest  expense on the consolidated statements of
income,  which  is consistent with the requirements of Statement 150.  Statement
150  is  effective  for financial instruments entered into or modified after May
31,  2003,  and  otherwise  is  effective  at the beginning of the first interim
period  beginning  after  June  15,  2003.  Statement  150  will  be effected by
reporting  the  cumulative  effect  of  a  change  in  accounting  principle for
contracts  created  before the issuance date and still existing at the beginning
of that interim period.  The adoption of Statement 150 did not have an impact on
Coastal's  consolidated  financial  statements.

     Treasury  Stock
     ---------------
     On  August  27, 1998, December 21, 1998, February 25, 1999, April 27, 2000,
July 27, 2000 and April 25, 2002, the Board of Directors authorized six separate
repurchase  plans  for  up  to  500,000 shares each of the outstanding shares of
common  stock through an open-market repurchase program and privately negotiated
repurchases,  if any.  As of June 30, 2003, a total of 2,752,575 shares had been
repurchased  under  all  of  the  authorized  repurchase  plans.

     As of June 30, 2003, 2,747,500 shares of common stock were held in treasury
at an average price of $19.53 per share for a total cost of $53.7 million.  Book
value  per  common  share  at  June  30,  2003  was  $24.46.

     Common  Stock  Dividends
     ------------------------
     On  July  31,  2003,  Coastal announced an increase in its quarterly common
stock  dividend from $0.12 to $0.15 per common share.  Future dividend increases
will  be  determined  by  the Board of Directors based upon Coastal's results of
operations  and  financial  condition, in addition to general economic and other
factors.

     Stock  Options
     --------------
     Statement  of  Financial  Accounting  Standards  No.  148 ("Statement 148")
"Accounting for Stock-Based Compensation - Transition and Disclosure" was issued
in  December  2002.  Statement 148 amends FASB Statement No. 123 "Accounting for
Stock-Based  Compensation"  ("Statement  123") to provide alternative methods of
transition  for  a voluntary change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition, Statement 148 amends the
disclosure  requirements  of  Statement  123 to require prominent disclosures in
both  annual and interim financial statements about the method of accounting for
stock-based  employee compensation and the effect of the method used on reported
results. Coastal has adopted the disclosure provisions included in Statement 148
in  the  notes to the consolidated financial statements for the three months and
six  months  ended  June  30,  2003  and  2002  contained  herein.




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

<TABLE>
<CAPTION>
<S>                                                         <C>                                     <C>
                                                                         Six Months Ended June 30,
                                                                              2003          2002
                                                                    ------------------------------------
                                                                   (In thousands, except per share data)

Net income available to common stockholders, as reported                     $5,969         $7,782
Deduct:  Total stock-based compensation expense determined
 under the fair value based method for all awards, net of
 related tax effects                                                           (123)          (213)
                                                                            --------       --------
Proforma net income available to common stockholders                         $5,846         $7,569
                                                                            --------       --------
Earnings per common share:
Basic - as reported                                                          $ 1.16         $ 1.35
                                                                            --------       --------
Basic - proforma                                                             $ 1.13         $ 1.31
                                                                            --------       --------
Diluted - as reported                                                        $ 1.11         $ 1.29
                                                                            --------       --------
Diluted - proforma                                                           $ 1.08         $ 1.25
                                                                            --------       --------
</TABLE>


<TABLE>
<CAPTION>
<S>                                                         <C>                                     <C>
                                                                          Three Months Ended June 30,
                                                                               2003         2002
                                                                          ----------------------------
                                                                    (In thousands, except per share data)

Net income available to common stockholders, as reported                      $2,911       $4,328
Deduct:  Total stock-based compensation expense determined
 under the fair value based method for all awards, net of
 related tax effects                                                             (61)        (106)
                                                                             -------       -------
Proforma net income available to common stockholders                          $2,850       $4,222
                                                                             -------       -------
Earnings per common share:
Basic - as reported                                                           $ 0.56       $ 0.76
                                                                             -------       -------
Basic - proforma                                                              $ 0.55       $ 0.74
                                                                             -------       -------
Diluted - as reported                                                         $ 0.54       $ 0.72
                                                                             -------       -------
Diluted - proforma                                                            $ 0.53       $ 0.71
                                                                             -------       -------
</TABLE>


<PAGE>
(2)     PRINCIPLES  OF  CONSOLIDATION

     The  accompanying  unaudited  Consolidated Financial Statements include the
accounts of Coastal Bancorp, Inc. ("Bancorp") and its wholly-owned subsidiaries,
Coastal  Banc Holding Company, Inc., Coastal Capital Trust I and Coastal Capital
Trust  II  (collectively  "Coastal").  Coastal  Banc  Holding  Company  Inc.'s
wholly-owned  subsidiaries  are Coastal Banc ssb, Coastal Banc Capital Corp. and
Coastal  Banc  Mortgage  Corp.  Coastal Banc ssb's wholly-owned subsidiaries are
CoastalBanc  Financial  Corp.  and  Coastal  Banc  Insurance  Agency,  Inc.
(collectively,  the  "Bank").  All  significant  intercompany  balances  and
transactions  have  been  eliminated  in  consolidation.

(3)     MORTGAGE-BACKED  SECURITIES

     Mortgage-backed securities at June 30, 2003 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                   Gross       Gross
                                     Amortized   Unrealized   Unrealized   Fair
                                        Cost       Gains       Losses     Value
                                     ----------  ----------  ---------   ----------
<S>                      <C>        <C>          <C>         <C>     <C>     <C>
Available-for-sale:
  Agency securities                 $   437,368      $2,841     $(100)     $440,109
  CMOs - Non-agency                      59,312          --      (357)       58,955
  Non-agency securities                   1,852           6        (5)        1,853
                                     ----------  ----------  ---------   ----------
                                    $   498,532      $2,847     $(462)     $500,917
                                     ----------  ----------  ---------   ----------
</TABLE>

     As  overall  interest  rates  increase,  the  fair  value  of  Coastal's
mortgage-backed  securities  could  be  negatively  effected  by  decreasing the
unrealized  gains  and  possibly  resulting  in  net unrealized losses in future
periods.

     Mortgage-backed  securities  at  December  31,  2002  were  as  follows (in
thousands):

<TABLE>
<CAPTION>
                                                   Gross       Gross
                                     Amortized  Unrealized   Unrealized     Fair
                                        Cost       Gains       Losses      Value
                                     ----------  ---------   --------    ----------
<S>                      <C>        <C>          <C>         <C>     <C>       <C>
Available-for-sale:
  Agency securities                 $   387,636    $1,983    $  (470)      $389,149
  CMOs - Non-agency                      84,376        67       (644)        83,799
  Non-agency securities                   2,060        14         --          2,074
                                     ----------  ---------   --------    ----------
                                    $   474,072    $2,064    $(1,114)      $475,022
                                     ----------  ---------   --------    ----------
</TABLE>


<PAGE>
(4)     LOANS  RECEIVABLE

     Loans  receivable  at  June  30, 2003 and December 31, 2002 were as follows
(dollars  in  thousands):

<TABLE>
<CAPTION>
                                               June 30, 2003                December 31, 2002
                                              ---------------               -----------------
<S>                                           <C>              <C>                <C>
Real estate mortgage loans:
  First-lien mortgage, primarily residential  $      899,418                      $  855,633
  Commercial                                         359,565                         317,692
  Multifamily                                        106,605                         116,020
  Residential construction                           119,269                         123,085
  Acquisition and development                        133,937                         143,463
  Commercial construction                            184,943                         241,128
Commercial, financial and industrial                 149,788                         135,209
Loans secured by deposits                             13,662                          14,465
Consumer and other loans                              31,767                          33,430
                                              ---------------                     -----------
                                                   1,998,954                       1,980,125
                                              ---------------                     -----------
Loans in process                                    (117,803)                       (147,769)
Allowance for loan losses                            (18,786)                        (18,118)
Unearned interest and loan fees                       (3,032)                         (2,910)
Premium on purchased loans, net                        5,370                           1,457
                                              ---------------                     -----------
                                              $    1,864,703                      $1,812,785
                                              ---------------                     -----------
Weighted average yield                                  5.26%                           5.52%
                                              ---------------                     -----------
</TABLE>


     At  June  30,  2003,  Coastal  had  outstanding commitments to originate or
purchase  $34.8  million  of  real  estate  mortgage  and  other  loans  and had
commitments  under lines of credit to originate primarily construction and other
loans  of  approximately $149.0 million.  In addition, at June 30, 2003, Coastal
had  $15.2  million  of  outstanding  standby  letters  of  credit.  Management
anticipates  the  funding  of  these  commitments  through  normal  operations.

     Standby letters of credit are written for conditional commitments issued by
the  Bank  to  guarantee  the  performance  of a customer to a third party.  The
Bank's  policies  generally  require that letters of credit arrangements contain
security  and  debt  covenants  similar  to  those contained in loan agreements.
Under  the  standby  letters of credit, the Bank is required to make payments to
the beneficiary of the letters of credit upon request by the beneficiary so long
as  all  performance  criteria  have  been  met.  At  June 30, 2003, the maximum
potential  amount  of  future payments under standby letters of credit was $15.2
million.  As  of June 30, 2003, the fair value of these guarantees, which is the
liability  recorded  when fees are collected, was immaterial to the consolidated
financial  statements.

     At  June  30,  2003 and December 31, 2002, the carrying value of loans that
were  considered  to  be  impaired  totaled  approximately $7.9 million and $8.5
million,  respectively,  and  the  related  allowance  for  loan losses on those
impaired  loans  totaled  $2.5  million  and  $2.4  million at June 30, 2003 and
December  31, 2002, respectively. Of the impaired loans outstanding, three loans
with  a  balance  of $107,000 at June 30, 2003 and eight loans with a balance of
$551,000  at  December  31, 2002 did not have specific portions of the allowance
for loan losses allocated to them at each respective date.  The average recorded
investment  in impaired loans during the six months ended June 30, 2003 and 2002
was  $8.2  million  and  $3.2  million,  respectively.

     An analysis of activity in the allowance for loan losses for the six months
ended  June  30,  2003  and  2002  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                                                    Six Months Ended June 30,
                                                    -------------------------
                                                           2003      2002
                                                         --------  --------
<S>                           <C>                        <C>       <C>
Balance, beginning of period                             $18,118   $15,385
Provision for loan losses                                  1,800     1,800
Charge-offs                                               (1,468)   (2,274)
Recoveries                                                   336       322
                                                         --------  --------
Balance, end of period                                   $18,786   $15,233
                                                         --------  --------
</TABLE>


     Coastal  services for others loans receivable which are not included in the
Consolidated  Financial  Statements.  The total amounts of such loans were $58.4
million  and $68.8 million at June 30, 2003 and December 31, 2002, respectively.

<PAGE>

(5)     DEPOSITS

     Deposits,  their  stated  rates  and  the related weighted average interest
rates,  at June 30, 2003 and December 31, 2002, are summarized below (dollars in
thousands).  Effective  January 1, 1998, Coastal implemented a program whereby a
portion  of  the  balances  in noninterest-bearing and interest-bearing checking
accounts  is  reclassified to money market demand accounts under Federal Reserve
Regulation  D.  The  amount of such reclassification, reflected in the following
table, was approximately $239.6 million ($128.5 million from noninterest-bearing
and  $111.1  million  from interest-bearing) at June 30, 2003 and $250.9 million
($131.3  million  from  noninterest-bearing  and  $119.6  million  from
interest-bearing)  at  December  31,  2002.


<TABLE>
<CAPTION>
                                  Stated Rate                   June 30, 2003  December 31, 2002
                                --------------                  -------------  -----------------
<S>                             <C>              <C>            <C>                  <C>
Noninterest-bearing checking              0.00%                 $      58,621   $   51,029
Interest-bearing checking        0.00  -  1.00                         13,632       14,353
Savings accounts                 0.50  -  1.24                         46,341       44,603
Money market demand accounts     0.00  -  2.13                        550,673      530,659
                                                                --------------  -----------
                                                                      669,267      640,644
                                                                --------------  -----------
Certificate accounts            Less than 2.00                        265,661      104,358
                                 2.00  -  2.99                        432,627      558,337
                                 3.00  -  3.99                        168,050      206,645
                                 4.00  -  4.99                         51,598       63,234
                                 5.00  -  5.99                         28,114       34,447
                                 6.00  -  6.99                          4,215        6,524
                                 7.00  -  7.99                             19          106
                                 8.00  -  8.99                             30           73
                                                                --------------  -----------
                                                                      950,314      973,724
                                                                --------------  -----------
                                                               $    1,619,581   $1,614,368
                                                                --------------  -----------
Weighted average interest rate                                           1.87%        2.12%
                                                                --------------  -----------
</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 June 30, 2003 and December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                              June 30, 2003             December 31, 2002
                              --------------            -----------------
<S>                           <C>             <C>                <C>
Noninterest-bearing checking  $      187,101                     $182,290
Interest-bearing checking            124,721                      134,034
Money market demand accounts         311,104                      279,717
</TABLE>


<PAGE>
     The  scheduled  maturities  of certificate accounts outstanding at June 30,
2003  were  as  follows  (in  thousands):

<TABLE>
<CAPTION>
                            June 30, 2003
                            --------------
<S>                         <C>
    0 through 12 months     $      755,344
  13 through 24 months             120,633
  25 through 36 months              22,641
  37 through 48 months              22,697
  49 through 60 months              28,897
            Over 60 months             102
                            --------------
                            $      950,314
                            --------------
</TABLE>

(6)     ADVANCES  FROM  THE  FHLB

     The  weighted  average interest rates on advances from the FHLB at June 30,
2003  and  December  31, 2002 were 2.38% and 2.71%, respectively.  The scheduled
maturities and related weighted average interest rates on advances from the FHLB
at  June  30,  2003  are  summarized  as  follows  (dollars  in  thousands):

<TABLE>
<CAPTION>
                                         Weighted Average
Due during the year ending December 31,    Interest Rate             Amount
---------------------------------------  -----------------           ------
<S>                                      <C>                <C>     <C>
2003                                                 2.83%          $146,022
2004                                                 1.97            175,970
2005                                                 2.16            264,147
2006                                                 1.95             73,519
2007                                                 6.68              1,109
2008                                                 3.88              5,396
2009                                                 7.99              3,332
2010                                                 5.38              2,062
2011                                                 6.64                739
2012                                                 5.76                292
2013                                                 5.64              8,181
2014                                                 5.44              2,882
2015                                                 6.66              1,617
2017                                                 5.43              1,980
2018                                                 5.05              1,421
                                                                    --------
                                                     2.38%          $688,669
                                                                    --------
</TABLE>

Advances  from  the  FHLB  are  secured  by  certain  first-lien  mortgage  and
multifamily  loans  and  mortgage-backed  securities  owned  by  Coastal.


<PAGE>
(7)     COMPANY  OBLIGATED  MANDATORILY  REDEEMABLE  TRUST  PREFERRED SECURITIES

     On June 23, 2003, Bancorp, through Coastal Capital Trust II (a consolidated
trust  subsidiary) ("CCTII"), issued to a private institutional investor, 10,000
floating  rate  pooled  trust  preferred securities ("Trust Preferred Securities
II")  with a liquidation preference of $1,000 per security.  The Trust Preferred
Securities  II  represent  an  interest  in  the  related  junior  subordinated
debentures  of Bancorp, which were purchased by the CCTII and have substantially
the  same  payment  terms  as  these  Trust  Preferred Securities II. The junior
subordinated  notes  are the only assets of the CCTII and interest payments from
the  notes  finance the distributions paid on the Trust Preferred Securities II.
Distributions  on  the  securities  are payable quarterly at a variable interest
rate,  reset  quarterly, equal to LIBOR plus 3.05%, and are included in interest
expense  in  the  consolidated  statements  of  income.

     The  Trust  Preferred  Securities II 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 23,
2033,  at  the option of Bancorp on or after June 23, 2008, in whole at any time
or  in  part  from  time  to  time.  The junior subordinated debentures are also
redeemable  at  any  time,  in  whole,  but  not in part, upon the occurrence of
specific  events  defined within the trust indenture.  Bancorp has the option to
defer  distributions on the junior subordinated debentures from time to time for
a  period  not  to  exceed  20  consecutive  quarters.

     The  proceeds  from  the issuance of the Trust Preferred Securities II were
used  on  July 31, 2003 in the redemption of Bancorp's 9.12% Series A Cumulative
Preferred  Stock  (Nasdaq:CBSAO).

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

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


<PAGE>
(8)     SENIOR  NOTES  PAYABLE

     On  June  30,  1995, Coastal issued $50.0 million of 10.0% Senior Notes due
June 30, 2002.  The Senior Notes became redeemable at Coastal's option, in whole
or  in  part,  on June 30, 2000, at par, plus accrued interest to the redemption
date.  Interest  on  the  Senior  Notes  was payable quarterly.  During 2001 and
1999,  Coastal  repurchased  in  the  open  market  $3.0  and  $3.1  million,
respectively,  of  the  Senior  Notes  outstanding at par.  On February 1, 2002,
Coastal  redeemed  all of the remaining Senior Notes outstanding ($43.9 million)
at  par  plus  accrued  interest  to  the  redemption  date.

(9)     DERIVATIVE  INSTRUMENTS

     Coastal  is  a  party  to  derivative  instruments  in the normal course of
business  to  reduce  its  exposure  to  fluctuations  in interest rates.  These
derivative instruments have included interest rate swap agreements where Coastal
makes  fixed  interest  payments and receives payments based on a floating index
and  interest rate cap agreements, as described below.  For the six months ended
June  30,  2003  and  2002,  Coastal  recorded a fair value gain (loss) on these
derivative  instruments  of $13,000 and ($24,000), respectively.  As of June 30,
2003  and  December  31,  2002, interest rate cap agreements were Coastal's only
derivative  instruments  and  were  recorded  at  fair  value.

     As  of  June  30, 2003, Coastal had interest rate cap agreements with third
parties  with  notional amounts totaling $103.3 million.  The current agreements
provide  for  the  third  parties to make payments to Coastal whenever a defined
floating  rate  exceeds  rates  ranging  from  8.0%  to  9.0%,  depending on the
agreement.  All of Coastal's current agreements expire in 2003.  Payments on the
interest  rate  cap agreements are based on the notional principal amount of the
agreements;  no  funds  were actually borrowed or are to be repaid.  No payments
are  required  to be made upon the expiration of the agreements.  The fair value
of  the  interest rate cap agreements was zero at June 30, 2003 and December 31,
2002,  which  is  the  recorded book value of the agreements at such dates.  The
interest  rate cap agreements are used to alter the interest rate sensitivity of
a  portion  of  Coastal's  mortgage-backed  securities and loans receivable.  As
such,  the  amortization  of  any  purchase  price  and interest income from the
interest  rate cap agreements is recorded in interest income in the accompanying
consolidated  statements of income, as applicable.  The net decrease in interest
income related to the interest rate cap agreements was approximately $13,000 for
each  of  the  six-month periods ended June 30, 2003 and 2002.  No payments were
made  to  Coastal  under  the interest rate cap agreements during the six months
ended  June  30,  2003  or  2002.

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

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


<PAGE>
(10)     EARNINGS  PER  SHARE

     The  following  summarizes  information related to the computation of basic
and  diluted  earnings  per  share  ("EPS") for the six- and three-month periods
ended  June  30, 2003 and 2002 (dollars in thousands, except share and per share
data):

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                      June 30,
<S>                                           <C>               <C>         <C>
                                                                   2003        2002
                                                                ----------  ----------

Net income                                                      $    7,223  $    9,036
Preferred stock dividends                                            1,254       1,254
                                                                ----------  ----------
Net income available to common stockholders                     $    5,969  $    7,782
                                                                ==========  ==========
Weighted average number of common shares
 outstanding used in basic EPS calculation                       5,154,785   5,768,001
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                       234,409     269,078
                                                                ----------  ----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                     5,389,194   6,037,079
                                                                ==========  ==========
Basic EPS                                                       $     1.16  $     1.35
                                                                ==========  ==========
Diluted EPS                                                     $     1.11  $     1.29
                                                                ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                        June 30,
<S>                                           <C>                 <C>         <C>
                                                                     2003        2002
                                                                  ----------  ----------

Net income                                                        $    3,538  $    4,955
Preferred stock dividends                                                627         627
                                                                  ----------  ----------
Net income available to common stockholders                       $    2,911  $    4,328
                                                                  ==========  ==========
Weighted average number of common shares
 outstanding used in basic EPS calculation                         5,165,051   5,715,222
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                         226,776     269,214
                                                                  ----------  ----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                       5,391,827   5,984,436
                                                                  ==========  ==========
Basic EPS                                                         $     0.56  $     0.76
                                                                  ==========  ==========
Diluted EPS                                                       $     0.54  $     0.72
                                                                  ==========  ==========
</TABLE>


(11)     COASTAL  BANC  SSB  PREFERRED  STOCK

     On October 21, 1993, the Bank issued 1,150,000 shares of 9.0% Noncumulative
Preferred  Stock,  no  par  value,  Series A, at a price of $25 per share to the
public  (Nasdaq:CBSAP).  Dividends on the Preferred Stock were payable quarterly
at  the annual rate of $2.25 per share, when, as and if declared by the Board of
Directors of the Bank.  At any time on or after December 15, 1998, the Preferred
Stock could be redeemed in whole or in part only at the Bank's option at $25 per
share  plus  unpaid  dividends  (whether or not earned or declared) for the then
current  dividend  period  to  the  date  fixed  for  redemption.

     With  a  portion  of  the proceeds from the issuance of the Trust Preferred
Securities  I,  the  Bank  redeemed, from the stockholders of record, all of the
9.0%  Series A Noncumulative Preferred Stock on July 15, 2002 (see note 7).  The
redemption  price  was  $25.185 per share, which represented the stated value of
the  Preferred  Stock,  plus  accrued  and  unpaid  dividends  to  the  date  of
redemption.

     Pursuant to Coastal's tax benefit agreement with the FDIC, Coastal received
a  tax  benefit for dividends paid on this Preferred Stock.  This benefit ceased
upon  the  redemption  of  this  Preferred  Stock.

(12)     COASTAL  BANCORP,  INC.  PREFERRED  STOCK

     On  May 11, 1999, Coastal Bancorp, Inc. ("Bancorp") issued 1,100,000 shares
of  9.12%  Series  A Cumulative Preferred Stock, no par value, at a price of $25
per  share  (Nasdaq:CBSAO) to the public ("Bancorp Preferred Stock").  Dividends
on  the  Bancorp  Preferred  Stock  were payable quarterly at the annual rate of
$2.28  per share.  The preferred stock was callable on May 15, 2003 at Bancorp's
option.

     With  the  proceeds  from the issuance of the Trust Preferred Securities II
(note  7)  and  a  capital  distribution of $17.9 million from the Bank, Bancorp
redeemed  from the stockholders of record all of the 9.12% Series A Noncumlative
Preferred Stock on July 31, 2003. The redemption price was $25.19633, per share,
which  represented  the stated value, plus an amount equal to accrued but unpaid
dividends  to  the  date  of  redemption.

     Pursuant to Coastal's tax benefit agreement with the FDIC, Coastal received
a  tax  benefit for dividends paid on this Bancorp Preferred Stock. This benefit
ceased  upon  the  redemption  of  the  Bancorp  Preferred  Stock.


(13)     STATUTORY  CAPITAL  REQUIREMENTS

     The  applicable  regulations  require federally insured institutions, which
are not the highest rated, to have a minimum regulatory tier 1 (core) capital to
total  assets  ratio  equal to a minimum of 4.0%, a tier 1 risk-based capital to
risk-weighted assets ratio of 4.0% and total risk-based capital to risk-weighted
assets  ratio  of  8.0%.

     At June 30, 2003, the Bank's regulatory capital in relation to its existing
regulatory  capital  requirements  for  capital adequacy purposes was as follows
(dollars  in  thousands):

<TABLE>
<CAPTION>
                                                                Minimum For Capital     Well-Capitalized
                                                  Actual          Adequacy Purposes       Requirements
                                           ------------------    -------------------   --------------------
<S>                   <C>                  <C>                 <C>            <C>       <C>     <C>       <C>
Capital Requirement                        Amount        Ratio      Amount     Ratio      Amount     Ratio
--------------------                      -------       ------    --------    ------   ---------    -------
 Tier 1 (core)                             180,961        7.22%    $100,206     4.00%   $125,257     5.00%
 Tier 1 risk-based                         180,961       10.53       68,751     4.00     103,126     6.00
 Total risk-based                          199,748       11.62      137,502     8.00     171,877    10.00
</TABLE>


     As  of June 30, 2003, the most recent notification from the Federal Deposit
Insurance  Corporation ("FDIC") categorized the Bank as "well capitalized" under
the  regulatory  framework  for  prompt corrective action.  To be categorized as
well  capitalized,  the  Bank  must  maintain  minimum  Tier  1  (core),  Tier 1
risk-based  and  total risk-based ratios as set forth in the table above.  There
are  no  conditions  or  events since that notification that management believes
have  changed  the  institution's  category.


<PAGE>
ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             -------------------------------------------------------------------
             RESULTS  OF  OPERATIONS
             -----------------------

Financial  Condition
--------------------

     Total  assets increased slightly by $17.6 million from December 31, 2002 to
June  30,  2003.  The  net  increase  was  primarily  comprised of the following
changes:  a $51.9 million increase in loans receivable, a $25.9 million increase
in  mortgage-backed  securities  available-for-sale, a $31.4 million decrease in
loans  receivable  held  for  sale and a $27.0 million decrease in federal funds
sold.  There were also small changes in other asset categories.  The increase in
loans  receivable  was  primarily  due  to  the  purchase  of  $252.7 million in
single-family  mortgage loans, offset by principal payments received on mortgage
and other types of loans.  The increase in mortgage-backed securities was due to
the  purchase  of  $117.8  million  of  securities, offset by principal payments
received.  The  decrease  in loans receivable held for sale was due primarily to
the sale to third party investors in January 2003 of a loan package purchased in
November  of  2002,  the  majority  of  which  was  intended  to  be  sold.

     Deposits  increased $5.2 million or 0.3% from December 31, 2002 to June 30,
2003  and advances from the FHLB decreased 1.1% or $7.4 million.  During the six
months  ended  June  30,  2003,  Coastal issued $10.0 million in Trust Preferred
Securities  through  a  consolidated  trust  subsidiary  (see  note  7  to  the
Consolidated Financial Statements).  Stockholders' equity increased 3.5% or $5.4
million  from  December  31,  2002 to June 30, 2003 primarily as a result of net
income, a $935,000 increase in accumulated other comprehensive income, offset by
an  increase  in  Treasury  Stock  of  $622,000  and  dividends  declared.

Results  of  Operations  for  the  Six  Months  Ended  June  30,  2003  and 2002
--------------------------------------------------------------------------------

     General
     -------

     For  the  six  months  ended  June  30,  2003,  net income was $7.2 million
compared  to  $9.0 million for the six months ended June 30, 2002.  The decrease
was primarily due to a $6.4 million decrease in net interest income, as a result
of  a  0.52%  decrease in net interest margin (due to the overall lower interest
rate  environment)  and a $14.1 million decrease in average net interest-earning
assets  when  comparing the first six months of 2003 to the same period in 2002.
This  decrease  in net interest income was partially mitigated by a $2.0 million
increase  in  noninterest  income, a $256,000 decrease in noninterest expense, a
$1.0  million  decrease  in  the  provision  for Federal income taxes and a $1.3
million  decrease  in  the  expense  for minority interest (related to preferred
stock  of  Coastal  Banc  ssb  which  was  redeemed  on  July  15,  2002).

     Interest  Income
     ----------------

     Due  to  the  overall  lower  interest  rate  environment  and  significant
principal  payments  received  on  Coastal's  mortgage-backed  securities  and
single-family  mortgage loan portfolios, interest income decreased $12.0 million
to  $58.6  million for the six months ended June 30, 2003 from $70.6 million for
the  six  months  ended  June  30,  2002.  The  decrease was comprised of a $9.9
million decrease in interest income on loans receivable, a $1.9 million decrease
in  interest  income  on  mortgage-backed  securities and a $276,000 decrease in
interest  income  on  FHLB  stock, federal funds sold and other interest-earning
assets.

     When  comparing  the two periods, average interest-earning assets decreased
$12.2  million and the average yield decreased 0.97% from 5.83% in 2002 to 4.86%
in  2003.  The  $12.2  million  decrease  in  average  interest-earning  assets
consisted  primarily of a $13.2 million decrease in the average balance of other
securities  available-for-sale  resulting  from one security maturing during the
2002  period,  offset  by  smaller  changes  in  other  asset  categories.

     As  in  2002,  during  2003 Coastal has continued to experience significant
principal  paydowns on its mortgage-backed securities and single family mortgage
loans  receivable  portfolios due to the continuing low market rates of interest
and  the  resulting  refinancings  of  mortgage  assets.  These  paydowns, on an
annualized  basis,  were approximately 39% on mortgage-backed securities and 48%
on  single  family  mortgage  loans  during  the six months ended June 30, 2003.
Because Coastal's mortgage assets are primarily acquired through purchases (many
at  a  premium),  these  significant  paydowns  resulted  in  greater  premium
amortization (and therefore a lower yield) on those assets.  In addition, due to
the lower interest rate environment, Coastal is replacing these paid down assets
with  lower  yielding  assets,  again  with  many  being purchased at a premium.

     Interest  Expense
     -----------------

     Interest  expense on interest-bearing liabilities was $26.5 million for the
six months ended June 30, 2003, as compared to $32.1 million for the same period
in  2002.  The decrease in interest expense was again primarily due to the lower
overall  market  rates  of  interest  that  declined  throughout  2002  and have
continued to decline during the first six months of 2003, offset by the increase
in  interest expense due to the 9.0% Trust Preferred Securities I issued in June
of  2002.  When  comparing  the  two  periods,  the  average  rate  paid  on
interest-bearing  liabilities  decreased  to 2.48% for the six months ended June
30,  2003  from  3.01%  for the same period in 2002 and average interest-bearing
liabilities  increased  slightly  by  $1.9  million.  The  0.53% decrease in the
average rate paid on interest-bearing liabilities was due primarily to the 0.67%
decrease  in  the  average  rate  paid  on interest-bearing deposits and a 0.64%
decrease  in  the average rates paid on advances from the FHLB.  The increase in
average  interest-bearing  liabilities  consisted  primarily  of a $46.9 million
increase  in  the  average  balance  of  Trust  Preferred  Securities due to the
issuance  of  $50.0 million of the Trust Preferred Securities I on June 18, 2002
at  9.0% and $10.0 million of the Trust Preferred Securities II on June 23, 2003
at  a  floating  rate  (LIBOR  plus  3.05%)  and an increase of $14.8 million in
advances from the FHLB.  These increases were somewhat offset by a $52.3 million
decrease  in average interest-bearing deposits (primarily due to the sale of the
Hill  Country  branches  in  December  2002)  and a $7.5 million decrease in the
average  balance  of  Senior  Notes due to their redemption on February 1, 2002.

     Net  Interest  Income
     ---------------------

     Net  interest  income  was  $32.0 million for the six months ended June 30,
2003  and  $38.4  million  for the same period in 2002.  As discussed above, the
decrease  was  due  primarily  to  the  overall  lower  market  interest  rate
environment,  the  overall  high  levels of principal paydowns being received on
mortgage  assets  and  the  change  in  the  composition  of  interest-bearing
liabilities.  Net  interest margin ("Margin") was 2.65% for the six months ended
June  30, 2003 compared to 3.17% for the six months ended June 30, 2002.  Margin
represents  net  interest  income  as  a  percentage of average interest-earning
assets.  Net  interest spread ("Spread"), defined to exclude noninterest-bearing
deposits,  decreased  to 2.38% for the six months ended June 30, 2003 from 2.82%
for  the  six  months  ended  June  30,  2002.  Management  also  calculates  an
alternative  Spread  which  includes  noninterest-bearing  deposits.  Under this
calculation,  the alternative Spreads for the six months ended June 30, 2003 and
2002  were 2.58% and 3.04%, respectively.  Margin and Spread are affected by the
changes  in  the  amount  and  composition  of  interest-earning  assets  and
interest-bearing  liabilities.  When  comparing  the  two  periods,  average
interest-earning  assets  decreased  $12.2  million and average interest-bearing
liabilities  increased  $1.9  million.

     Management's  overall  goal  is  to continue to improve the asset/liability
composition  to  be  less  vulnerable  to  market  interest  rate  fluctuations,
primarily through the addition of loans tied to variable rates such as LIBOR and
local  and  regional  prime  rates.  Management  attempts  to  mitigate  margin
compression  in a declining interest rate environment by requiring interest rate
floors  on  certain  variable  rate  loans.

     Provision  for  Loan  Losses  and  the Allowance for Loan Losses - Critical
     ---------------------------------------------------------------------------
     Accounting  Policy
     ------------------

     The  provision  for  loan  losses was $1.8 million for the six months ended
June  30,  2003  and  for the six months ended June 30, 2002.  At June 30, 2003,
Coastal  had nonperforming loans totaling $14.2 million, which was a decrease of
$4.4  million,  or  23%,  when compared to December 31, 2002.  This decrease was
primarily a result of the decrease in nonperforming single family mortgage loans
due  to  management's  increased  focus  on  ongoing  collection  efforts.
Nonperforming  loans are those loans on nonaccrual status as well as those loans
greater  than  ninety days delinquent and still accruing interest.  The ratio of
nonperforming  assets  to  total  assets was 0.72% at June 30, 2003, compared to
0.91% at December 31, 2002.  At June 30, 2003 the allowance for loan losses as a
percentage  of  nonperforming loans (excluding nonperforming loans held for sale
which  are  recorded  at the lower of cost or fair value) was 132.4% compared to
97.7%  at  December  31,  2002.

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

     Noninterest  Income
     -------------------

     For  the  six months ended June 30, 2003, noninterest income increased $2.0
million  to $7.5 million, compared to $5.5 million for the six months ended June
30,  2002.  The $2.0 million increase in noninterest income was primarily due to
the  $1.7 million increase in service charges on deposit accounts and a $752,000
gain  on  the sale of loans receivable held for sale.  The increased income from
service  charges  on  deposit  accounts  is  due to Coastal's continued focus on
increasing  transaction-type  accounts  and  the  related  fee income, including
Coastal's  Free  Checking  and  Bounce  Protection  features  on retail checking
accounts introduced during August 2002.  The increase in the gain on the sale of
mortgage  loans  held  for sale was due to routine sales transactions by Coastal
Banc  ssb  (the  "Bank"),  which were facilitated by Coastal Banc Mortgage Corp.
("CBMC"),  an  affiliate of the Bank.  The loans sold were purchased by the Bank
in  packages  with  the  intention  to  resell  all  or part of the loans in the
packages  to third party investors.  CBMC was formed during the third quarter of
2002  for  the  purpose of facilitating the purchase and sale of whole loans and
participations  to  third  parties.  These increases in other noninterest income
were  somewhat  offset  by  a  $336,000 decrease in the gain on the sale of real
estate  owned  and  a $200,000 decrease in loan fees.  The decrease in loan fees
was  due  to decreased construction loan activity, no warehouse activity in 2003
and  decreased  single family mortgage loan fees due to the fact that the number
of  Coastal's  mortgage loans that are being serviced by Coastal has decreasesd.

     Noninterest  Expense
     --------------------

     For  the  six  months  ended  June  30, 2003, noninterest expense decreased
$256,000 from the six months ended June 30, 2002.  When comparing the six months
ended  June  30,  2003  to the same period in 2002, the $256,000 net decrease in
noninterest  expense  was  comprised  primarily  of  a decrease in compensation,
payroll  taxes  and  benefits  of  $399,000,  a  decrease  of $501,000 in office
occupancy and a $281,000 decrease in advertising, somewhat offset by an $891,000
increase  in  other  noninterest expense.  The $399,000 decrease in compensation
related expense is primarily comprised on the following:  a $257,000 decrease in
incentive  and  bonus expense because of the overall lower net income results, a
$293,000  decrease due to the sale of the five Hill Country branches in December
2002,  a  $252,000  decrease  due  to  the  outsourcing  of  the  internal audit
department  in  2002, offset by a $314,000 increase in compensation paid to CBMC
employees  including  brokerage  commissions related to the loan sales mentioned
previously.  The decrease in office occupancy was due to various assets becoming
fully  depreciated  in  2002  and  in  2003,  the  sale of the five Hill Country
branches  and  the  decrease  in  advertising  expense  was  due to management's
decision  to  reduce  this  spending in 2003.  The increase in other noninterest
expense  was primarily comprised of the following:  a $235,000 increase in audit
and accounting fees, a $228,000 increase in legal fees and insurance premiums, a
$144,000 increase in the provision for losses on deposit accounts and a $128,000
increase  in  expenses  related  to  loans  and  real  estate  owned.

     Provision  for  Federal  Income  Taxes
     --------------------------------------

     The  provision  for  Federal income taxes for the six months ended June 30,
2003 was $3.2 million compared to $4.2 million for the six months ended June 30,
2002.  The  $1.0  million  decrease was due to the lower amount of income before
provision for Federal income taxes and minority interest, with the effective tax
rate  for the periods being approximately 31% for six months ended June 30, 2003
and  32%  for  the same period in 2002 (when taking into account the tax benefit
for  the  minority  interest expense in 2002).  As discussed in the notes to the
Consolidated  Financial  Statements,  Coastal  received  a  tax  benefit for the
dividends  paid on the Bancorp Preferred Stock pursuant to an agreement with the
FDIC.  The  effective tax rate for the six months ended June 30, 2003 would have
been  35%  without this tax benefit related to the Bancorp Preferred Stock.  The
ongoing  tax  benefit ceased upon the redemption of the Bancorp Preferred Stock.

Results  of  Operations  for  the  Three  Months  Ended  June  30, 2003 and 2002
--------------------------------------------------------------------------------

     General
     -------

     For  the  three  months  ended  June  30, 2003, net income was $3.5 million
compared to $5.0 million for the three months ended June 30, 2002.  The decrease
was primarily due to a $3.9 million decrease in net interest income, as a result
of  a  0.63%  decrease in net interest margin (due to the overall lower interest
rate  environment)  and a $14.7 million decrease in average net interest-earning
assets  when  comparing  the  second quarter of 2003 to the same period in 2002.
This  decrease  in  net  interest  income  was partially mitigated by a $552,000
increase  in  noninterest  income, a $460,000 decrease in noninterest expense, a
$782,000  decrease  in  the  provision  for  Federal income taxes and a $647,000
decrease in the expense for minority interest (related to the preferred stock of
Coastal  Banc  ssb  which  was  redeemed  on  July  15,  2002).

     Interest  Income
     ----------------

     Due  to  the  overall  lower  interest  rate  environment  and  significant
principal  payments  received  on  Coastal's  mortgage-backed  securities  and
single-family  mortgage  loan portfolios, interest income decreased $6.2 million
to $29.0 million for the three months ended June 30, 2003 from $35.2 million for
the  three  months  ended  June  30, 2002.  The decrease was comprised of a $5.5
million  decrease in interest income on loans receivable, a $577,000 decrease in
interest income on mortgage-backed securities and a $91,000 decrease in interest
income  on  FHLB  stock,  federal  funds sold and other interest-earning assets.

     When  comparing  the two periods, average interest-earning assets decreased
$3.4  million  and the average yield decreased 1.01% from 5.76% in 2002 to 4.75%
in 2003.  The $3.4 million decrease in average interest-earning assets consisted
primarily  of  a  $21.6  million  decrease  in  the  average  balance  of  loans
receivable,  an  $8.2  million  decrease in the average balance of Federal funds
sold,  offset  by  a  $25.9  million  increase  in  the  average  balance  of
mortgage-backed  securities.

     As  in  2002,  during  2003 Coastal has continued to experience significant
principal  paydowns on its mortgage-backed securities and single family mortgage
loans  receivable  portfolios due to the continuing low market rates of interest
and  the  resulting  refinancings  of  mortgage  assets.  These  paydowns, on an
annualized  basis, were approximately 38% on mortgage-backed securities and over
50% on single family mortgage loans during the three months ended June 30, 2003.
Because Coastal's mortgage assets are primarily acquired through purchases (many
at  a  premium),  these  significant  paydowns  resulted  in  greater  premium
amortization (and therefore a lower yield) on those assets.  In addition, due to
the lower interest rate environment, Coastal is replacing these paid down assets
with  lower  yielding  assets,  again  with  many  being purchased at a premium.

     Interest  Expense
     -----------------

     Interest  expense on interest-bearing liabilities was $13.1 million for the
three  months  ended  June  30,  2003, as compared to $15.5 million for the same
period in 2002.  The decrease in interest expense was again primarily due to the
lower  overall  market  rates of interest that declined throughout 2002 and have
continued to decline during the first six months of 2003, offset by the increase
in  interest expense due to the 9.0% Trust Preferred Securities I issued in June
of  2002.  When  comparing  the  two  periods,  the  average  rate  paid  on
interest-bearing  liabilities  decreased  to 2.42% for the six months ended June
30,  2003  from  2.87%  for the same period in 2002 and average interest-bearing
liabilities  increased  $11.3  million.  The  0.45% decrease in the average rate
paid  on interest-bearing liabilities was due primarily to the 0.60% decrease in
the  average  rate paid on interest-bearing deposits and a 0.55% decrease in the
average  rates  paid  on  advances  from  the  FHLB.  The  increase  in  average
interest-bearing  liabilities consisted primarily of a $43.7 million increase in
the  average  balance of Trust Preferred Securities due to the issuance of $50.0
million of  the Trust  Preferred Securities I on June 18, 2002 at 9.0% and $10.0
million of the Trust Preferred Securities II on June 23, 2003 at a floating rate
(LIBOR  plus  3.05%) and an increase of $11.0 million in advances from the FHLB.
These  increases  were  somewhat  offset  by a $43.4 million decrease in average
interest-bearing  deposits,  primarily  due  to  the  December 2002 branch sale.

     Net  Interest  Income
     ---------------------

     Net  interest  income was $15.9 million for the three months ended June 30,
2003  and  $19.7  million  for the same period in 2002.  As discussed above, the
decrease  was  due  primarily  to  the  overall  lower  market  interest  rate
environment.  Net  interest  margin  ("Margin")  was  2.60% for the three months
ended  June 30, 2003 compared to 3.23% for the three months ended June 30, 2002.
Margin  represents  net  interest  income  as  a  percentage  of  average
interest-earning  assets.  Net  interest  spread  ("Spread"), defined to exclude
noninterest-bearing deposits, decreased to 2.33% for the three months ended June
30,  2003  from 2.89% for the three months ended June 30, 2002.  Management also
calculates  an  alternative  Spread which includes noninterest-bearing deposits.
Under  this calculation, the alternative Spreads for the three months ended June
30,  2003  and  2002  were 2.52% and 3.10%, respectively.  Margin and Spread are
affected by the changes in the amount and composition of interest-earning assets
and  interest-bearing  liabilities.  When  comparing  the  two  periods, average
interest-earning  assets  decreased  $3.4  million  and average interest-bearing
liabilities  increased  $11.3  million.

     Management's  overall  goal  is  to continue to improve the asset/liability
composition  to  be  less  vulnerable  to  market  interest  rate  fluctuations,
primarily through the addition of loans tied to variable rates such as LIBOR and
local  and  regional  prime  rates.  Management  attempts  to  mitigate  margin
compression  in a declining interest rate environment by requiring interest rate
floors  on  certain  variable  rate  loans.

     Provision  for  Loan  Losses  and  the Allowance for Loan Losses - Critical
     ---------------------------------------------------------------------------
     Accounting  Policy
     ------------------

     The  provision for loan losses was $900,000 for the three months ended June
30,  2003  and  for  the  three  months  ended June 30, 2002.  At June 30, 2003,
Coastal  had  nonperforming loans totaling $14.2 million, which is a decrease of
$4.4  million,  or  23%,  when compared to December 31, 2002.  This decrease was
primarily a result of the decrease in nonperforming single family mortgage loans
due  to  management's  increased  focus  on  ongoing  collection  efforts.
Nonperforming  loans are those loans on nonaccrual status as well as those loans
greater  than  ninety days delinquent and still accruing interest.  The ratio of
nonperforming  assets  to  total  assets was 0.72% at June 30, 2003, compared to
0.91% at December 31, 2002.  At June 30, 2003 the allowance for loan losses as a
percentage  of  nonperforming loans (excluding nonperforming loans held for sale
which  are  recorded  at the lower of cost or fair value) was 132.4% compared to
97.7%  at  December  31,  2002.

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

     Noninterest  Income
     -------------------

     For  the  three  months  ended  June 30, 2003, noninterest income increased
$552,000  to  $3.5  million, compared to $3.0 million for the three months ended
June 30, 2002.  The $552,000 increase in noninterest income was primarily due to
the  $806,000  increase  in  service charges on deposit accounts.  The increased
income  from  service  charges on deposit accounts is due to Coastal's continued
focus  on  increasing  transaction-type  accounts  and  the  related fee income,
including  Coastal's  Free  Checking  and  Bounce  Protection features on retail
checking  accounts  introduced  during  August  2002.  This  increase in service
charges  on  deposit  accounts was somewhat offset by a $184,000 decrease in the
gain  on  the  sale  of  real estate owned and a $112,000 decrease in loan fees.

     Noninterest  Expense
     --------------------

     For  the  three  months  ended June 30, 2003, noninterest expense decreased
$460,000  from  the three months ended June 30, 2002.  When comparing the second
quarter  of  2003  to  the  same  period  in  2002, the $460,000 net decrease in
noninterest  expense  was  comprised  primarily  of  a decrease in compensation,
payroll  taxes  and benefits of $546,000, and decreases of $238,000 and $127,000
in  office  occupancy  and  advertising,  respectively.  These  decreases  were
somewhat  offset  by a $378,000 increase in other noninterest expense, a $62,000
increase  in  data  processing  and  a  small  increase  in postage and delivery
expense.  The  decrease in compensation related expenses was primarily comprised
of  the following:  decreased incentive and bonus expense of $177,000 because of
the overall lower net income results, a $142,000 decrease due to the outsourcing
of the internal audit department in 2002, a $144,000 decrease due to the sale of
the  five  Hill  Country branches in December 2002, in addition to other overall
staffing  changes  to  gain  efficiencies  throughout  Coastal.  The decrease in
office  occupancy was primarily due to certain assets becoming fully depreciated
in  2002  and  2003,  in addition to decreases in rent and repair expenses.  The
decrease  in advertising expense was due to management's decision to reduce this
spending  in  2003.  The  $378,000  increase  in  other  noninterest expense was
primarily  comprised of a $114,000 increase in audit and accounting fees related
to  the  outsourcing  of  the  internal audit department, a $108,000 increase in
legal fees and insurance premiums and a $103,000 increase in expenses related to
software  and  network  communications  costs.

     Provision  for  Federal  Income  Taxes
     --------------------------------------

     The  provision for Federal income taxes for the three months ended June 30,
2003  was  $1.6 million compared to $2.4 million for the three months ended June
30,  2002.  The  $782,000  decrease was due to the lower amount of income before
provision for Federal income taxes and minority interest, with the effective tax
rate for the periods being approximately 31% for the quarter ended June 30, 2003
and  32%  for  the same period in 2002 (when taking into account the tax benefit
for  the  minority  interest  expense in 2002). As discussed in the notes to the
Consolidated  Financial  Statements,  Coastal  received  a  tax  benefit for the
dividends  paid on the Bancorp Preferred Stock pursuant to an agreement with the
FDIC. The effective tax rate for the three months ended June 30, 2003 would have
been  35%  without  this tax benefit related to the Bancorp Preferred Stock. The
ongoing  tax  benefit  ceased  upon  redemption  of the Bancorp Preferred Stock.

     Liquidity  and  Capital  Resources
     ----------------------------------

Coastal's  primary  sources of funds consist of deposits bearing market rates of
interest,  advances  from  the  FHLB, principal payments on loans receivable and
mortgage-backed  securities  and  other  types  of borrowings.  Coastal uses its
funding  resources  principally to meet its ongoing commitments to fund maturing
deposits  and  deposit  withdrawals, repay borrowings, purchase loans receivable
and  mortgage-backed  securities, fund existing and continuing loan commitments,
maintain  its  liquidity,  meet  operating expenses and fund dividends and stock
purchases and acquisitions of other banks and thrifts, either on a branch office
or  whole  bank  acquisition  basis.  At  June  30,  2003,  Coastal  had binding
commitments  to originate or purchase loans totaling approximately $34.8 million
and had $117.8 million of undisbursed loans in process.  Scheduled maturities of
certificates  of  deposit  during the 12 months following June 30, 2003, totaled
$755.3  million at June 30, 2003.  Management believes that Coastal has adequate
resources  to  fund  all  of  its  commitments.

     During  the  six months ended June 30, 2003, Coastal opened a new branch in
the  City  of  Rosenberg, Texas. As of June 30, 2003, Coastal operated 44 retail
banking  offices in Texas cities, including Houston, Austin, Corpus Christi, the
Rio Grande Valley and small cities in the southeast quadrant of Texas (including
this  new  branch  in  Rosenberg).

     Forward-Looking  Information
     ----------------------------

     The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth in this Form 10-Q should be read in conjunction with the
information  contained  in  the  Consolidated Financial Statements and the Notes
thereto.

     The  statements  contained  in this Quarterly Report on Form 10-Q which are
not  historical facts contain forward looking information with respect to plans,
projections  or  future  performance of Coastal, the occurrence of which involve
certain  risks  and  uncertainties  detailed  in  Coastal's  filings  with  the
Securities  and  Exchange  Commission  ("SEC").  Such  discussion  contains
"forward-looking  statements"  within  the  meaning  of  the  Private Securities
Litigation  Reform  Act  of  1995 (the "Reform Act"), and is subject to the safe
harbor  created  by  that  Reform  Act.  The  words  "estimate,"  "project,"
"anticipate,"  "expect,"  "intend,"  "believe," "plans," and similar expressions
are  intended  to  identify  forward-looking  statements.  Because  such
forward-looking  statements involve risks and uncertainties, there are important
factors  that  could  cause  actual  results  to  differ  materially  from those
expressed  or  implied by such forward-looking statements. Factors, all of which
are  difficult  to  predict and many of which are beyond the control of Coastal,
that  could  cause  actual  results  to  differ  materially include, but are not
limited  to:  risks  related  to changes in market rates of interest, changes in
our  loan  portfolio,  including  the  risks associated with our non-traditional
lending  (loans  other  than  single-family  residential  mortgage loans such as
multifamily,  real  estate  acquisition and development, commercial real estate,
commercial  business  and  commercial  construction loans), the possibility that
Coastal's  allowance  for loan losses proves to be inadequate, Coastal's ability
to attract core deposits, the concentration of Coastal's loan portfolio in Texas
and  California  to  the  extent  that  the economies of those states experience
problems,  Coastal's acquisition strategy, including risks of adversely changing
results  of  operations  and  factors  affecting Coastal's ability to consummate
further  acquisitions;  risks  involved  in  Coastal's  ability  to  quickly and
efficiently integrate the operations of acquired entities with those of Coastal;
changes  in  business  strategies,  changes  in  general  economic  and business
conditions  and  changes  in the laws and regulations applicable to Coastal; and
other  factors as discussed in Coastal's Annual Report on Form 10-K for the year
ended  December  31,  2002,  as  filed  with  the  SEC  on  March  25,  2003.

ITEM  3.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK
             ----------------------------------------------------------------

     There  have  been  no  material  changes  in  Coastal's  interest rate risk
position since December 31, 2002. Coastal's principal market risk exposure is to
interest  rates.  See  note 9 of the Notes to Consolidated Financial Statements.

ITEM  4.     CONTROLS  AND  PROCEDURES
             -------------------------

     Pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act of 2002, Coastal's
management  has  reviewed  the disclosure controls and procedures (as defined in
Rules  13a-15(e)  and  15d-15(e)  under  the Securities Exchange Act of 1934, as
amended  (the "Exchange Act")) of Coastal or caused such disclosure controls and
procedures  to  be  designed under management's supervision, particularly during
the  period  in  which  this  quarterly  report  was being prepared.  Disclosure
controls  and  procedures  are the controls and other procedures of Coastal that
are  designed to ensure that the information required to be disclosed by Coastal
in its reports filed or submitted under the Exchange Act is recorded, processed,
summarized  and  reported,  within the time periods 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 Coastal in its reports filed under the Exchange Act is accumulated
and  communicated  to  Coastal'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 end of the period covered by this
report  were  adequate  to ensure that material information relating to Coastal,
including  its  consolidated subsidiaries, is made known to management by others
within  Coastal  and  its consolidated subsidiaries.  To management's knowledge,
there  were  no significant changes in internal control over financial reporting
or  in  other  factors  that has materially affected, or is reasonably likely to
materially  affect,  the registrant's internal control over financial reporting.

     Coastal  intends  to  continually  review  and  evaluate  the  design  and
effectiveness  of  its  disclosure  controls  and  procedures and to improve its
controls  and  procedures  over time and to correct any deficiencies that it may
discover in the future.  The goal is to ensure that senior management has timely
access  to  all  material  financial  and  non-financial  information concerning
Coastal's  business.  While  Coastal  believes  that  the  present design of its
disclosure  controls  and  procedures is effective to achieve this goal, further
events  affecting  its  business  may  cause  Coastal  to  modify its disclosure
controls  and  procedures.


<PAGE>
PART  II  -  OTHER  INFORMATION

Item  1.     Legal  Proceedings
             ------------------

     Coastal  is,  and  has been involved, from time to time, in various claims,
complaints,  proceedings  and litigation relating to activities arising from the
normal  course  of  its  operations.  Based  on the facts currently available to
management,  management  believes  that the matters pending at June 30, 2003 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  Coastal's  consolidated  financial  condition, results of operations or cash
flows.

Item  2.     Changes  in  Securities  and  Use  of  Proceeds
             -----------------------------------------------

     On June 23, 2003, Bancorp, through Coastal Capital Trust II (a consolidated
trust  subsidiary) ("CCTII"), issued to a private institutional investor, 10,000
floating  rate  pooled  trust  preferred securities ("Trust Preferred Securities
II")  with a liquidation preference of $1,000 per security.  The Trust Preferred
Securities  II  represent  an  interest  in  the  related  junior  subordinated
debentures  of Bancorp, which were purchased by the CCTII and have substantially
the  same  payment  terms  as  these  Trust  Preferred Securities II. The junior
subordinated  notes  are the only assets of the CCTII and interest payments from
the  notes  finance the distributions paid on the Trust Preferred Securities II.
Distributions  on  the  securities  are payable quarterly at a variable interest
rate,  reset  quarterly, equal to LIBOR plus 3.05%, and are included in interest
expense  in  the  consolidated  statements  of  income.

     The  Trust  Preferred  Securities II 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 23,
2033,  at  the option of Bancorp on or after June 23, 2008, in whole at any time
or  in  part  from  time  to  time.  The junior subordinated debentures are also
redeemable  at  any  time,  in  whole,  but  not in part, upon the occurrence of
specific  events  defined within the trust indenture.  Bancorp has the option to
defer  distributions on the junior subordinated debentures from time to time for
a  period  not  to  exceed  20  consecutive  quarters.

     The  proceeds  from  the issuance of the Trust Preferred Securities II were
used  on  July 31, 2003 in the redemption of Bancorp's 9.12% Series A Cumulative
Preferred  Stock  (Nasdaq:CBSAO).

Item  3.     Defaults  Upon  Senior  Securities
             ----------------------------------

     Not  applicable.


<PAGE>
Item  4.     Submission  of  Matters  to  a  Vote  of  Security  Holders
             -----------------------------------------------------------

On  April  24,  2003,  at the Annual Meeting of Stockholders of Coastal Bancorp,
Inc.  (the  "Company"), the stockholders voted upon and approved the election of
two  directors  and  the  ratification  of  the  appointment  of KPMG LLP as the
Company's independent public accountants for the fiscal year ending December 31,
2003.

With  respect  to  such  matters,  the  results  of  the  votes were as follows:

1)     Election  of  directors:
                                            Number  of  Votes
                                            -----------------
                                          In  favor    Withheld
                                          --------    ----------
     Manuel  J.  Mehos                    4,217,263     327,871
     Clayton  T.  Stone                   4,461,205      83,929

2)     Ratification  of KPMG LLP as the Company's independent public accountants
for  the  fiscal  year  ending  December  31,  2003:

     Number  of  votes  in  favor:         4,374,680
     Number  of  votes  against:             169,704
     Number  of  votes  abstaining               750

Item  5.     Other  Information
             ------------------

     Not  applicable.

Item  6.     Exhibits  and  Reports  on  Form  8-K
             -------------------------------------

Reports  on  Form  8-K.

1)    Form 8-K filed with the SEC on April 17, 2003 concerning the announcement
that the Company. had issued a press release regarding the results of operations
and  financial  condition  for  the  quarterly  period  ended  March  31,  2003.

2)     Form  8-K  filed with the SEC on May 16, 2003 concerning the announcement
that  the Company requested Moody's Investor Services to withdraw all ratings on
the  Company.

3)     Form  8-K  filed with the SEC on May 27, 2003 concerning the announcement
that  Clayton  T.  Stone,  a  Director  of  the  Company,  passed  away.

Exhibits.
31.1     Certification  of  the Chief Executive Officer pursuant to Rules 13a-14
and  15d-14  of  the  Securities  Exchange  Act  of  1934 and Section 302 of the
Sarbanes-Oxley  Act  of  2002.

31.2     Certification  of  the Chief Financial Officer pursuant to Rules 13a-14
and  15d-14  of  the  Securities  Exchange  Act  of  1934 and Section 302 of the
Sarbanes-Oxley  Act  of  2002.

32.1     Certification  of  the  Chief  Executive  Officer pursuant to 18 U.S.C.
Section  1350,  as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

32.2     Certification  of  the  Chief  Financial  Officer pursuant to 18 U.S.C.
Section  1350,  as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

99.1     Statement  of  Factors  Under Private Securities Litigation Reform
Act  of  1995.

<PAGE>
                                   SIGNATURES


     Pursuant  to  the  requirement  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.




Dated:     8/8/03                            By     /s/  Manuel  J. Mehos
           ------                                   ---------------------
                                             Manuel  J.  Mehos
                                             Chairman  of  the  Board
                                             Chief  Executive  Officer
                                             (Principal  Executive  Officer)








Dated:     8/8/03                            By  /s/  Catherine  N. Wylie
           ------                               -------------------------
                                             Catherine  N.  Wylie
                                             Chief  Financial  Officer
                                             (Principal  Financial  and
                                             Accounting  Officer)



<PAGE>