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  September  30,  2002

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

          COMMON STOCK OUTSTANDING:  5,155,438  AS OF NOVEMBER 1, 2002


<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES

                                Table of Contents



PART  I.     FINANCIAL  INFORMATION
--------     ----------------------
<TABLE>

<CAPTION>



<S>     <C>                                                                       <C>
Item 1  Financial Statements (unaudited)
        Consolidated Statements of Financial Condition at September 30, 2002
        and December 31, 2001                                                      1

        Consolidated Statements of Income for the Nine-Month Periods Ended
        September 30, 2002 and 2001                                                2

        Consolidated Statements of Income for the Three-Month Periods Ended
        September 30, 2002 and 2001                                                3

        Consolidated Statements of Comprehensive Income for the Nine-Month and
        Three-Month Periods Ended September 30, 2002 and 2001                      4

        Consolidated Statements of Cash Flows for the Nine-Month Periods
        Ended September 30, 2002 and 2001                                          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  Default upon Senior Securities                       27
Item 4  Submission of Matters to a Vote of Security Holders  27
Item 5  Other Information                                    27
Item 6  Exhibits and Reports on Form 8-K                     28
</TABLE>




SIGNATURES

CERTIFICATIONS

<PAGE>



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

<TABLE>

<CAPTION>

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


                                                                       September 30,            December 31,
ASSETS                                                                    2002                     2001
------------------------------------------------------               --------------            ------------
                                                                       (Unaudited)
<S>                                                     <C>          <C>             <C>           <C>
Cash and cash equivalents                                            $       40,822                $   41,537
Federal funds sold                                                              750                    16,710
Loans receivable held for sale (note 4)                                       3,163                        --
Loans receivable (note 4)                                                 1,966,119                 1,863,601
Mortgage-backed securities available-for-sale (note 3)                      468,407                   514,068
Other securities available-for-sale                                           1,758                    42,827
Accrued interest receivable                                                  11,344                    13,243
Property and equipment                                                       27,501                    27,461
Stock in the Federal Home Loan Bank of Dallas (FHLB)                         40,937                    40,032
Goodwill (note 5)                                                            21,811                    21,811
Prepaid expenses and other assets                                            16,665                    16,601
                                                                     --------------                ----------
                                                                     $    2,599,277                $2,597,891
                                                                     ==============                ==========
</TABLE>


<TABLE>

<CAPTION>

LIABILITIES  AND  STOCKHOLDERS'  EQUITY
---------------------------------------
<S>                                                                <C>          <C>
Liabilities:
 Deposits (note 6)                                                 $1,643,681   $1,660,386
 Advances from the FHLB (note 7)                                      732,783      690,877
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I (note 8)                      50,000           --
 Senior notes payable, net (note 9)                                        --       43,875
 Advances from borrowers for taxes and insurance                       10,368        4,259
 Other liabilities and accrued expenses                                14,860       12,310
                                                                    ---------    ----------
     Total liabilities                                              2,451,692    2,411,707
                                                                    ---------    ----------

Minority interest - 9.0% noncumulative preferred stock of
 Coastal Banc ssb (note 12)                                                --       28,750

Commitments and contingencies (notes 4 and 10)

Stockholders' equity (notes 1, 3, 11, 13 and 14):
 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; 7,852,650 shares issued and 5,145,803 shares
   outstanding at September 30, 2002; 7,835,178 shares issued
   and 5,835,178 shares outstanding at December 31, 2001                   79           78
 Additional paid-in capital                                            35,507       35,366
 Retained earnings                                                    136,924      127,425
 Accumulated other comprehensive income (loss) -
   Unrealized gain (loss) on securities available-for-sale                 36       (1,590)
 Treasury stock at cost (2,706,847, shares in 2002 and 2,000,000
   shares in 2001)                                                    (52,461)     (31,345)
                                                                   -----------  -----------
     Total stockholders' equity                                       147,585      157,434
                                                                   -----------  -----------
                                                                   $2,599,277   $2,597,891
                                                                   ===========  ===========
</TABLE>



See  accompanying  Notes  to  Consolidated  Financial  Statements.
<TABLE>
<CAPTION>

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

                                                                                                        Nine Months Ended
                                                                                                          September 30,
                                                                                                        -------------------
                                                                                                       2002            2001
                                                                                                   ------------   -------------
                                                                                                           (Unaudited)
<S>                                                                                                 <C>                  <C>
Interest income:
 Loans receivable                                                                                 $   90,357         $121,828
 Mortgage-backed securities                                                                           13,060           43,646
 FHLB stock, federal funds sold and other interest-earning assets                                      1,203            1,964
                                                                                                   ---------         ---------
                                                                                                     104,620          167,438
                                                                                                   ---------         ---------
Interest expense:
 Deposits                                                                                             30,859           56,090
 Advances from the FHLB                                                                               15,303           32,710
 Other borrowed money                                                                                     --            8,916
 Senior notes payable                                                                                    378            3,490
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I                                                               1,275               --
                                                                                                   ---------         ---------
                                                                                                      47,815          101,206
                                                                                                   ---------         ---------
   Net interest income                                                                                56,805           66,232
Provision for loan losses                                                                              2,700            3,000
                                                                                                   ---------         ---------
   Net interest income after provision for loan losses                                                54,105           63,232
                                                                                                   ---------         ---------
Noninterest income:
 Service charges on deposit accounts                                                                   6,732            5,656
 Loan fees                                                                                               888              940
 Loss on derivative instruments                                                                          (18)            (450)
 Gain on sale of real estate owned                                                                       207              841
 Other                                                                                                   708            1,296
                                                                                                   ---------         ---------
                                                                                                       8,517            8,283
                                                                                                   ---------         ---------
Noninterest expense:
 Compensation, payroll taxes and other benefits                                                       23,821           22,925
 Office occupancy                                                                                      7,629            8,206
 Data processing                                                                                       1,235            2,531
 Amortization of goodwill (note 5)                                                                        --            2,098
 Advertising                                                                                           1,396            1,072
 Postage and delivery                                                                                  1,206            1,078
 Other                                                                                                 6,128            6,249
                                                                                                   ---------         ---------
                                                                                                      41,415           44,159
                                                                                                   ---------         ---------
       Income before provision for Federal income taxes, minority
         interest and cumulative effect of accounting change                                          21,207           27,356
Provision for Federal income taxes                                                                     6,289            8,442
                                                                                                   ---------         ---------
       Income before minority interest and cumulative effect of
         accounting change                                                                            14,918           18,914
Minority interest - preferred stock dividends of Coastal Banc ssb                                      1,507            1,941
                                                                                                   ---------         ---------
       Income before cumulative effect of accounting change                                           13,411           16,973
Cumulative effect of change in accounting for derivative instruments,  net of tax (note 10)               --             (104)
                                                                                                   ---------         ---------
   Net income                                                                                     $   13,411         $ 16,869
                                                                                                   =========         =========
   Net income available to common stockholders                                                    $   11,530         $ 14,988
                                                                                                   =========         =========
Basic earnings per share before cumulative effect of accounting change                            $     2.06         $   2.62
                                                                                                   =========         =========
Basic earnings per share (notes 5 and 11)                                                         $     2.06         $   2.60
                                                                                                   =========         =========
Diluted earnings per share before cumulative effect of accounting change                          $     1.97         $   2.49
                                                                                                   =========         =========
Diluted earnings per share (notes 5 and 11)                                                       $    1.97          $   2.47
                                                                                                   =========         =========
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements.

<PAGE>
<TABLE>

<CAPTION>

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

                                                                          Three Months Ended
                                                                            September 30,
                                                                         --------------------
                                                                            2002           2001
                                                                        -----------   ------------
                                                                                (Unaudited)

<S>                                                                 <C>                   <C>
Interest income:
 Loans receivable                                                         $      29,649   $37,749
 Mortgage-backed securities                                                       4,034    12,659
 FHLB stock, federal funds sold and other interest-earning assets                   348       442
                                                                            -----------   --------
                                                                                 34,031    50,850
                                                                            -----------   --------
Interest expense:
 Deposits                                                                         9,616    17,108
 Advances from the FHLB                                                           4,944     6,750
 Other borrowed money                                                                --     4,338
 Senior notes payable                                                                --     1,145
 Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I                                          1,112        --
                                                                            -----------   --------
                                                                                 15,672    29,341
                                                                            -----------   --------

   Net interest income                                                           18,359    21,509
Provision for loan losses                                                           900       900
                                                                            -----------   --------
   Net interest income after provision for loan losses                           17,459    20,609
                                                                            -----------   --------
Noninterest income:
 Service charges on deposit accounts                                              2,599     2,035
 Loan fees                                                                          266       340
 Gain (loss) on derivative instruments                                                6        (7)
 Gain (loss)  on sale of real estate owned                                          (33)      810
 Other                                                                              216       299
                                                                            -----------   --------
                                                                                  3,054     3,477
                                                                            -----------   --------
Noninterest expense:
 Compensation, payroll taxes and other benefits                                   7,968     7,719
 Office occupancy                                                                 2,408     2,689
 Data processing                                                                    413       844
 Amortization of goodwill (note 5)                                                   --       701
 Advertising                                                                        546       357
 Postage and delivery                                                               411       377
 Other                                                                            2,134     2,217
                                                                            -----------   --------
                                                                                 13,880    14,904
                                                                            -----------   --------
       Income before provision for Federal income taxes and
         minority interest                                                        6,633     9,182
Provision for Federal income taxes                                                2,045     2,836
                                                                            -----------   --------
     Income before minority interest                                              4,588     6,346
Minority interest - preferred stock dividends of Coastal Banc ssb                   213       647
                                                                            -----------   --------
     Net income                                                            $      4,375   $ 5,699
                                                                             ===========  ========
     Net income available to common stockholders                           $      3,748   $ 5,072
                                                                             ===========  ========
Basic earnings per share (notes 5 and 11)                                  $       0.72   $  0.88
                                                                             ===========  ========
Diluted earnings per share (notes 5 and 11)                                $       0.68   $  0.83
                                                                             ===========  ========
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements.

<PAGE>
<TABLE>

<CAPTION>

                         COASTAL BANCORP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                     (IN THOUSANDS)
                                                                 Nine Months Ended
                                                                   September 30,
                                                                -------------------
                                                                2002             2001
                                                             ---------       ----------
                                                                     (Unaudited)
<S>                                                         <C>                  <C>
Net income                                                $      13,411         $16,869
Other comprehensive income, net of tax:
 Unrealized holding gains on securities available-for-sale
 arising during period                                            1,626           1,569
                                                          -------------         -------
Total comprehensive income                                $      15,037         $18,438
                                                          =============         ========
</TABLE>



<TABLE>

<CAPTION>
                                                                Three Months Ended
                                                                   September 30,
                                                                --------------------
                                                                 2002           2001
                                                            -----------       ---------
                                                                     (Unaudited)
<S>                                                         <C>                   <C>
Net income                                               $        4,375         $5,699
Other comprehensive income, net of tax:
 Unrealized holding gains on securities available-for-sale
 arising during period                                            1,562             26
                                                           ------------       --------
Total comprehensive income                                $       5,937         $5,725
                                                           ============       ========
</TABLE>




See  accompanying  Notes  to  Consolidated  Financial  Statements.

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                                September 30,
                                                                             -------------------
                                                                              2002             2001
                                                                          ----------------  ----------
                                                                                    (Unaudited)

<S>                                                                    <C>                  <C>
Cash flows from operating activities:
 Net income                                                                $       13,411   $  16,869
 Adjustments to reconcile net income
   to net cash provided (used) by operating activities:
 Depreciation and amortization of property and equipment
   and prepaid expenses and other assets                                            6,476       6,229
 Net premium amortization (discount accretion)                                      3,558      (2,230)
 Provision for loan losses                                                          2,700       3,000
 Amortization of goodwill                                                              --       2,098
 Originations and purchases of mortgage loans held for sale                        (8,592)    (20,550)
 Sales of mortgage loans for held for sale                                         11,758      20,723
 Stock dividends from the FHLB                                                       (905)     (1,658)
 Loss on derivative instruments                                                        18         610
 Decrease (increase) in:
   Accrued interest receivable                                                      1,899       3,354
   Other, net                                                                       4,025     (29,085)
                                                                                ---------    ---------
   Net cash provided (used) by operating activities                                34,348        (640)
                                                                                ---------    ---------
Cash flows from investing activities:
 Net decrease (increase) in federal funds sold                                     15,960      (4,111)
 Purchase of mortgage-backed securities available-for-sale                        (70,138)         --
 Purchase of other securities available-for-sale                                     (243)         --
 Principal repayments on mortgage-backed securities held-to-maturity                   --      73,725
 Principal repayments on mortgage-backed securities
   available-for-sale                                                             115,898       8,773
 Proceeds from maturity of U.S. Treasury securities held-to-maturity                   --         100
 Proceeds from maturity of other securities available-for-sale                     41,000          --
 Purchases of loans receivable                                                   (387,843)   (199,699)
 Sales of loans receivable                                                         10,111          --
 Net decrease in loans receivable                                                 261,129     177,640
 Purchases of property and equipment, net                                          (2,861)     (2,125)
 Purchases of FHLB stock                                                               --      (3,986)
 Proceeds from sales of FHLB stock                                                     --      28,431
                                                                                ---------    ---------
   Net cash provided (used) by investing activities                               (16,987)     78,748
                                                                                ---------    ---------

</TABLE>



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

<CAPTION>
                                                                              Nine Months Ended
                                                                                 September 30,
                                                                             -------------------
                                                                              2002              2001
                                                                       -------------------  ------------
                                                                                    (Unaudited)
<S>                                                                    <C>                  <C>
Cash flows from financing activities:
 Net increase (decrease) in deposits                                   $          (16,705)  $     2,742
 Securities sold under agreements to repurchase and federal funds
   Purchased                                                                           --     2,514,648
 Purchases of securities sold under agreements to repurchase and
   federal funds purchased                                                             --    (2,092,086)
 Advances from the FHLB                                                        15,601,400     7,662,279
 Principal payments on advances from the FHLB                                 (15,559,494)   (8,203,922)
 Proceeds from issuance of 9.0% trust preferred securities                         48,125            --
 Redemption or repurchase of senior notes payable                                 (43,875)       (3,000)
 Redemption of Coastal Banc ssb 9.0% noncumulative preferred
   Stock                                                                          (28,750)           --
 Net increase in advances from borrowers for taxes and insurance                    6,109         8,587
 Exercise of stock options for purchase of common stock, net                          105         1,965
 Purchase of treasury stock                                                       (21,162)           --
 Issuance of treasury shares                                                           83            --
 Dividends paid                                                                    (3,912)       (3,845)
                                                                       -------------------  ------------
   Net cash provided (used) by financing activities                               (18,076)     (112,632)
                                                                       -------------------  ------------
   Net decrease in cash and cash equivalents                                         (715)      (34,524)
 Cash and cash equivalents at beginning of period                                  41,537        69,730
                                                                       -------------------  ------------
 Cash and cash equivalents at end of period                            $           40,822   $    35,206
                                                                       ===================  ============
 Supplemental schedule of cash flows-interest paid                     $           49,801   $   101,527
                                                                       ===================  ============
 Supplemental schedule of noncash investing and financing activities:
   Transfer of loans to held for sale category                         $            9,075   $        --
   Foreclosures of loans receivable                                                 4,289         3,984
   Transfer of mortgage-backed securities from held-to-maturity
      to available-for-sale category                                                   --       811,748
                                                                       ===================  ============

</TABLE>
See  accompanying  Notes  to  Consolidated  Financial  Statements.

<PAGE>
                     COASTAL BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (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, 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 September 30, 2002 are not
necessarily indicative of the results that may be expected for the entire fiscal
year  or  any  other  interim  period.

     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.  During  June 2002, Coastal repurchased 547,800 shares of
common  stock  at  an  average  repurchase  price  of $30.00 per share.  Of that
amount,  500,000  shares  were repurchased in a privately negotiated transaction
with  a  director  of  Coastal at $30.00 per share, which was less than the then
current  market  price.  During  the  quarter  ended September 30, 2002, Coastal
repurchased  161,775  shares  of  common stock at an average repurchase price of
$29.22  per  share.  As  of  September 30, 2002, a total of 2,709,575 shares had
been  repurchased  under  all  of  the  authorized  repurchase  plans.

     As  of  September  30,  2002,  2,706,847 shares were held in treasury at an
average price of $19.38 per share for a total cost of $52.5 million.  Book value
per  common  share  at  September  30,  2002  was  $22.39.

(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. and  Coastal Capital Trust I (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  September  30,  2002  were  as follows (in
thousands):
<TABLE>

<CAPTION>



                                              Gross       Gross
                           Amortized        Unrealized  Unrealized        Market
                             Cost             Gains       Losses          Value
                         ------------       ----------  ----------      ----------
<S>                      <C>        <C>          <C>         <C>      <C>      <C>
Available-for-sale:
  Agency securities        $   372,986        $ 1,098      $  (409)       $373,675
  CMOs - Non-agency             93,223             68         (725)         92,566
  Non-agency securities          2,148             18           --           2,166
                           -----------        -------     ---------       --------
                           $   468,357        $ 1,184      $(1,134)       $468,407
                           ===========        =======     =========       ========

</TABLE>



<PAGE>

     Mortgage-backed  securities  at  December  31,  2001  were  as  follows (in
thousands):
<TABLE>

<CAPTION>
                                         Gross         Gross
                          Amortized    Unrealized   Unrealized          Market
                             Cost        Gains        Losses             Value
                           ---------  -----------    ----------         -------
<S>                      <C>        <C>          <C>         <C>      <C>       <C>
Available-for-sale:
  Agency securities       $   406,437    $   319      $(2,455)          $404,301
  CMOs - Non-agency           107,488         82         (418)           107,152
  Non-agency securities         2,590         34           (9)             2,615
                          ----------     ------       -------           --------
                          $   516,515    $   435      $(2,882)          $514,068
                          ===========    =======      =======           ========

</TABLE>

Effective  September  30,  2001,  Coastal transferred all of its mortgage-backed
securities held-to-maturity to the available-for-sale category.  This was due to
management's  intent  to  restructure  a  portion  of  the asset base to be less
vulnerable to market interest rate fluctuations.  In late November 2001, Coastal
entered  into  a  transaction  in  which  it  sold  $844.9  million  of  its
mortgage-backed  securities.  Also  in  November 2001, Coastal used a portion of
the  proceeds of that sale to purchase approximately $512.3 million of primarily
pass  through  mortgage-backed  securities.  All of the securities purchased and
the  remaining  securities  not  sold  were  placed  in  the  available-for-sale
category.

(4)     LOANS  RECEIVABLE

     Loans  receivable  at  September  30,  2002  and  December 31, 2001 were as
follows  (in  thousands):
<TABLE>

<CAPTION>
                                                    September 30, 2002             December 31, 2001
                                                   --------------------             -----------------
<S>                                                <C>                   <C>                <C>
Real estate mortgage loans:
  First-lien mortgage, primarily residential       $           988,100                      $  880,624
  Commercial                                                   333,615                         319,377
  Multifamily                                                  118,056                         124,616
  Residential construction                                     156,423                         136,035
  Acquisition and development                                  131,782                         140,009
  Commercial construction                                      252,818                         222,026
Commercial loans, secured by residential mortgage
 loans held for sale                                               207                          11,508
Commercial, financial and industrial                           125,233                         116,029
Loans secured by deposits                                       15,975                          21,238
Consumer and other loans                                        35,364                          43,384
                                                   --------------------                     ----------
                                                             2,157,573                       2,014,846
Loans in process                                              (174,032)                       (131,064)
Allowance for loan losses                                      (16,004)                        (15,385)
Unearned interest and  loan fees                                (2,993)                         (2,959)
Premium (discount) on purchased loans, net                       1,575                          (1,837)
                                                   --------------------                     -----------
                                                   $         1,966,119                      $1,863,601
                                                   ===================                      ===========
Weighted average yield                                           5.95%                           6.90%
                                                                 =====                          ======

</TABLE>



<PAGE>

     At  September 30, 2002, Coastal had outstanding commitments to originate or
purchase  $18.3  million  of  real  estate  mortgage  and  other  loans  and had
commitments  under  existing lines of credit to originate primarily construction
and  other loans of approximately $113.9 million.  In addition, at September 30,
2002,  Coastal  had  $16.0 million of outstanding letters of credit.  Management
anticipates  the  funding  of  these  commitments  through  normal  operations.

     At  September  30,  2002 and December 31, 2001, the carrying value of loans
that  were considered to be impaired totaled approximately $3.9 million and $3.8
million,  respectively  and  the  related  allowance  for  loan  losses on those
impaired  loans totaled $623,000 and $554,000 at September 30, 2002 and December
31,  2001,  respectively.  Of  the impaired loans outstanding, nine loans with a
balance  of  $873,000 at September 30, 2002 and nineteen loans with a balance of
$1.3  million  at  December  31,  2001  did  not  have  specific portions of the
allowance  for  loan  losses  allocated  to  them  at each respective date.  The
average  recorded  investment  in  impaired  loans  during the nine months ended
September  30,  2002  and  2001 was $3.4 million and $4.4 million, respectively.

     An  analysis  of  activity  in  the  allowance for loan losses for the nine
months  ended  September  30,  2002  and  2001  is  as  follows  (in thousands):
<TABLE>

<CAPTION>

                                                      Nine Months Ended September 30,
                                                      -------------------------------
                                                                 2002      2001
                                                               --------  --------
<S>                           <C>                              <C>       <C>
Balance, beginning of period                                   $15,385   $14,507
Provision for loan losses                                        2,700     3,000
Charge-offs                                                     (2,785)   (2,964)
Recoveries                                                         704       811
                                                               -------   --------
Balance, end of period                                         $16,004   $15,354
                                                               =======   ========
</TABLE>

     During the first quarter of 2002, management made the decision to liquidate
a  portion  of  its under-performing single-family mortgage loans.  On March 22,
2002,  Coastal  sold  $10.8  million  of these under-performing loans to a third
party investor.  Prior to the sale, Coastal wrote these loans down to fair value
and  recorded  a  charge-off  to  the allowance for loan losses of $761,000.  In
addition,  as  of  March  31,  2002,  Coastal  wrote  down  to  fair  value  and
reclassified $9.1 million of other under-performing single-family mortgage loans
to the held for sale category.  The loans that were reclassified to the held for
sale  category  were  written  down to fair value as of March 31, 2002 through a
charge-off  to  the  allowance  for  loan losses of $691,000.  During the second
quarter  of  2002,  a total of $3.1 million of these under-performing loans held
for  sale were sold to the same third party investor.  As of September 30, 2002,
Coastal had a total of $3.2 million loans held for sale remaining (net of second
and  third  quarter  activity including sales, payoffs, foreclosures and monthly
principal  payments  received).


<PAGE>
(5)     GOODWILL

          On  January 1, 2002, Coastal adopted Statement of Financial Accounting
Standards  No.  141,  "Business Combinations" ("Statement 141") and Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("Statement  142").  Statement 141 eliminated the pooling of interests method of
accounting  for  business  combinations and requires that the purchase method of
accounting  be used for all business combinations.  Statement 141 also required,
effective  January 1, 2002, that Coastal evaluate its existing intangible assets
and  goodwill  that  were  acquired in prior purchase business combinations, and
make  any  necessary reclassifications in order to conform with the new criteria
in Statement 141 for recognition apart from goodwill.  Statement 142 changed the
accounting  for  goodwill  from  an  amortization  method  to an impairment-only
approach.

          Statement  141  required  that  Coastal  reclassify amounts originally
recorded  as goodwill pursuant to Statement of Financial Accounting Standard No.
72,  "Accounting  for  Certain  Acquisitions  of Banking or Thrift Institutions"
("Statement  72") to other intangible assets, as those amounts, under Statements
142,  were  not  subject  to  the non-amortization provisions.  As of January 1,
2002,  Coastal had unamortized goodwill that was subject to the non-amortization
provision  of  Statements  141  and  142 of $5.5 million.  As of that same date,
Coastal  reclassified  $16.3 million to other intangible assets and continued to
amortize  these  amounts  in  2002.

On  October 1, 2002, Statement of Accounting Standards No. 147, "Acquisitions of
Certain  Financial  Institutions"  ("Statement  147") was issued.  Statement 147
amended  Statement  72, to exclude from its scope, the acquisitions of financial
institutions  (other  than  transactions between two or more mutual enterprises)
and provide certain transition provisions for existing intangible assets.  Under
Statement  147  transition  provisions,  if the transaction that gave rise to an
unidentifiable other intangible asset was considered a business combination, the
carrying  amount  of that asset amount would now be reclassified to goodwill and
be  subject  to  the non-amortization provisions as of the effective date of the
implementation  of  Statement  142, which in Coastal's case was January 1, 2002.
Based  on  the  implementation  of Statement 147, Coastal has reclassified as of
January  1,  2002, the $16.3 million mentioned above to goodwill and removed the
amortization expense recorded in 2002, through restatement of its 2002 financial
statements  as  required  by  Statement  147.

     In  connection  with  the  adoption of these statements, Coastal tested for
impairment  in  accordance with the provisions of Statement 142 during the first
quarter  of 2002 and did not recognize any transitional impairment losses as the
cumulative  effect  of  a  change  in  accounting  principle.  Pursuant  to  the
transition  provisions  of  Statement  142,  presented below are as adjusted net
income  and  earnings per share amounts to exclude the amortization expense (net
of  any tax effect) recognized in the period prior to the implementation related
to  the  goodwill  that  is  no longer being amortized (in thousands, except per
share  data).

<PAGE>

<TABLE>
<CAPTION>

                                                                Nine Months Ended
                                                                   September 30,
<S>                                           <C>                   <C>      <C>
                                                                   2002    2001
                                                                 -------  -------
Net income:
As reported                                                      $13,411  $16,869
Add back:  goodwill amortization, net of tax                          --    1,526
                                                                 -------  -------
As adjusted                                                      $13,411  $18,395
                                                                 =======  =======

Basic earnings per share:
As reported                                                      $  2.06  $  2.60
Add back:  goodwill amortization, net of tax                          --     0.27
                                                                 -------  -------
As adjusted                                                      $  2.06  $  2.87
                                                                 =======  =======

Diluted earnings per share:
As reported                                                      $  1.97  $  2.47
Add back:  goodwill amortization, net of tax                          --     0.25
                                                                 -------  -------
As adjusted                                                      $  1.97  $  2.72
                                                                 =======  =======
</TABLE>


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                  September 30,
<S>                                              <C>                 <C>     <C>
                                                                   2002    2001
                                                                  ------  ------
Net income:
As reported                                                       $4,375  $5,699
Add back:  goodwill amortization, net of tax                          --     511
                                                                 -------  -------
As adjusted                                                       $4,375  $6,210
                                                                 =======  =======

Basic earnings per share:
As reported                                                       $ 0.72  $ 0.88
Add back:  goodwill amortization, net of tax                          --    0.09
                                                                 -------  -------
As adjusted                                                       $ 0.72  $ 0.97
                                                                 =======  =======

Diluted earnings per share:
As reported                                                       $ 0.68  $ 0.83
Add back:  goodwill amortization, net of tax                          --    0.08
                                                                 -------  -------
As adjusted                                                       $ 0.68  $ 0.91
                                                                 =======  =======
</TABLE>

As  restated  (required  by  Statement  147),  basic  earnings per share for the
quarter  ended  June  30,  2002  were  $0.76  (as  compared  to $0.70 previously
reported)  and  for  the quarter ended March 31, 2002 were $0.59 (as compared to
$0.53  previously  reported.  Diluted  earnings  per share, as restated, for the
quarter  ended  June  30,  2002  were  $0.72  (as  compared  to $0.66 previously
reported)  and  for  the quarter ended March 31, 2002 were $0.57 (as compared to
$0.51  previously  reported).

<PAGE>
(6)     DEPOSITS

     Deposits,  their  stated  rates  and  the related weighted average interest
rates,  at  September  30,  2002  and  December  31,  2001, 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 $256.9
million  ($135.6  million  from  noninterest-bearing  and  $121.3  million  from
interest-bearing)  at September 30, 2002 and $243.3 million ($113.0 million from
noninterest-bearing  and  $130.3  million from interest-bearing) at December 31,
2001.

<TABLE>

<CAPTION>

                                  Stated Rate         September 30, 2002   December 31, 2001
                                ---------------       ------------------  -------------------
<S>                             <C>              <C>                 <C>                  <C>
Noninterest-bearing checking             0.00%             $      41,624       $   47,712
Interest-bearing checking        0.50  -  1.00                     9,758           15,894
Savings accounts                 0.50  -  1.24                    46,974           45,234
Money market demand accounts     0.00  -  2.23                   544,323          505,789
                                                           -------------        ----------
                                                                 642,679          614,629
                                                           -------------        ----------
Certificate accounts            Less than 2.00                    70,265           29,707
                                 2.00  -  2.99                   592,375          171,523
                                 3.00  -  3.99                   215,776          263,006
                                 4.00  -  4.99                    73,209          356,314
                                 5.00  -  5.99                    40,071          155,949
                                 6.00  -  6.99                     9,128           68,979
                                 7.00  -  7.99                       105              209
                                 8.00  -  8.99                        73               70
                                                           -------------        ----------
                                                               1,001,002        1,045,757
                                                           -------------        ----------
                                                           $   1,643,681       $1,660,386
                                                           =============       ==========
Weighted average interest rate                                     2.22%            3.02%
                                                                  =====            ======
</TABLE>

     Prior  to  the  reclassification  as  discussed  above, noninterest-bearing
checking  accounts,  interest-bearing  checking accounts and money market demand
accounts  were  as  follows  at  September  30,  2002  and  December  31,  2001:

<TABLE>
<CAPTION>
                                  September 30, 2002              December 31, 2001
                                  -------------------             -----------------
<S>                           <C>                  <C>                <C>
Noninterest-bearing checking            $ 177,204                    $ 160,738
Interest-bearing checking                 131,032                      146,144
Money market demand accounts              287,469                      262,513
</TABLE>


<PAGE>

     The  scheduled  maturities of certificate accounts outstanding at September
30,  2002  were  as  follows  (dollars  in  thousands):
<TABLE>
<CAPTION>

                             September 30, 2002
                            -------------------
<S>                         <C>
    0 through 12 months     $           859,339
  13 through 24 months                   71,718
  25 through 36 months                   35,538
  37 through 48 months                    5,284
  49 through 60 months                   29,069
        Over 60 months                       54
                            -------------------
                            $         1,001,002
                            ===================
</TABLE>


(7)     ADVANCES  FROM  THE  FHLB

     The  weighted average interest rates on advances from the FHLB at September
30,  2002  and  December  31,  2001  were  2.83%  and  3.46%, respectively.  The
scheduled  maturities  and  related  weighted average interest rates on advances
from  the  FHLB  at  September  30,  2002  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>
2002                                                 2.07%          $318,264
2003                                                 3.62            132,983
2004                                                 2.56            139,675
2005                                                 3.47            108,967
2006                                                 5.66              7,735
2007                                                 6.66              1,171
2008                                                 5.52              2,226
2009                                                 8.01              3,584
2010                                                 6.73                987
2011                                                 6.54              1,268
2012                                                 5.76                292
2013                                                 5.75              7,585
2014                                                 5.45              2,919
2015                                                 6.67              1,662
2017                                                 5.43              2,000
2018                                                 5.05              1,465
                                                     ----           --------
                                                     2.83%          $732,783
                                                                    ========
</TABLE>



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


<PAGE>
(8)     COMPANY OBLIGATED MANDATORILY REDEEMABLE 9.0% TRUST PREFERRED SECURITIES

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

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

     A  portion  of  the  proceeds  from  the  issuance  of  the Trust Preferred
Securities  were  used  to  repurchase  500,000 shares of common stock for $15.0
million  from  a  director  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:CBSAO) through a capital contribution to
Coastal  Banc  ssb.

(9)     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.

(10)     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,
as  well as interest rate cap agreements, as described below.  Effective January
1,  2001,  Coastal  adopted Statement of Financial Accounting Standards No. 133,
"Accounting  for  Derivative Instruments and for Hedging Activities" ("Statement
133.")  Statement  133 requires companies to recognize all derivatives as either
assets  or  liabilities  in the statement of financial condition and measure all
derivatives  at  fair  value.  The interest rate swap and cap agreements held by
Coastal  on December 31, 2000 did not qualify for hedge accounting, therefore on
implementation  of  Statement  133,  Coastal recorded a transition adjustment to
record  these derivative instruments at fair value.  On January 1, 2001, Coastal
recorded  a  transition  adjustment loss of $160,000, or $104,000 net of the tax
effect,  as  the  cumulative  effect  of the change in accounting for derivative
instruments  to record the fair value of Coastal's derivative instruments in the
consolidated statements of income.  For the nine months ended September 30, 2002
and  2001,  Coastal  recorded  an additional fair value loss on these derivative
instruments  of  $18,000  and  $450,000, respectively.  The decrease in the fair
value  of  derivatives  during  2001  was  primarily  due  to interest rate swap
agreements,  which  were  liquidated in June 2001.  As of September 30, 2002 and
December  31,  2001, interest rate cap agreements were Coastal's only derivative
instruments  and  were  recorded  at  fair  value  pursuant  to  Statement  133.

     The  interest  rate  cap agreements provide for applicable third parties to
make  payments to Coastal whenever a defined floating rate exceeds rates ranging
from  8.0%  to  9.0%, depending on the agreement.  Payments on the interest rate
cap  agreements are based on the notional principal amount of the agreements; no
funds  were  actually  borrowed  or  are  to  be  repaid.  The fair value of the
interest rate cap agreements was approximately zero at September 30, 2002, which
is  the  recorded  book  value  of  such agreements due to the implementation of
Statement  133.  The interest rate cap agreements are used to alter the interest
rate  sensitivity of a portion of Coastal's mortgage-backed securities and loans
receivable.  As such, the amortization of 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
$19,000 for the nine months ended September 30, 2002 and 2001, respectively.  No
payments  were made to Coastal under the interest rate cap agreements during the
three  months  ended  September  30,  2002  or  2001.

     Interest  rate  cap  agreements outstanding at September 30, 2002 expire as
follows  (dollars  in  thousands):
<TABLE>

<CAPTION>

Year of      Strike Rate    Notional
Expiration      Range        Amount
----------  --------------  ---------
<S>         <C>             <C>
2002                 9.00%  $   5,100
2003        8.00  -  9.00     107,614
                            ---------
                            $ 112,714
                            =========
</TABLE>

     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,  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>

(11)     EARNINGS  PER  SHARE

     The  following  summarizes  information related to the computation of basic
and  diluted  earnings  per  common  share  ("EPS") for the nine-and three-month
periods  ended  September  30,  2002  and 2001 (dollars in thousands, except per
share  data):

<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                                      September 30,
<S>                                           <C>                <C>          <C>
                                                                     2002         2001
                                                                 -----------  -----------

Net income                                                       $   13,411   $   16,869
Preferred stock dividends                                            (1,881)      (1,881)
                                                                 -----------  -----------
Net income available to common stockholders                      $   11,530   $   14,988
                                                                 ===========  ===========
Weighted average number of common shares
 outstanding used in basic EPS calculation                        5,596,525    5,755,274

Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                        262,176      313,896
                                                                 -----------  -----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                      5,858,701    6,069,170
                                                                 ===========  ===========
Basic EPS                                                        $     2.06   $     2.60
                                                                 ===========  ===========
Diluted EPS                                                      $     1.97   $     2.47
                                                                 ===========  ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                                                       September 30,
<S>                                           <C>                 <C>          <C>
                                                                      2002         2001
                                                                  -----------  -----------

Net income                                                        $    4,375   $    5,699
Preferred stock dividends                                               (627)        (627)
                                                                  ----------   -----------
Net income available to common stockholders                       $    3,748   $    5,072
                                                                  ===========  ===========
Weighted average number of common shares
 outstanding used in basic EPS calculation                         5,226,334    5,796,458
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                         248,101      325,621
                                                                  ----------   -----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                       5,474,435    6,122,079
                                                                  ===========  ===========
Basic EPS                                                         $     0.72   $     0.88
                                                                  ===========  ===========
Diluted EPS                                                       $     0.68   $     0.83
                                                                  ===========  ===========
</TABLE>

     The  weighted  average number of common shares outstanding has been reduced
by  the  treasury  stock  held  by  Coastal.  As of September 30, 2002 and 2001,
Coastal  had  2,706,847  and  2,000,000 common shares in treasury, respectively.

<PAGE>
(12)     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  ("Preferred  Stock").  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  (but not including) the date fixed for
redemption.

     With  a  portion  of  the proceeds from the issuance of the Trust Preferred
Securities,  the  Bank  redeemed from the stockholders of record all of the 9.0%
Series  A  Noncumulative  Preferred  Stock  on  July 15, 2002 (see note 8).  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.

(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  September  30,  2002,  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)                     $172,969        6.82%    $101,510     4.00%    $126,887     5.00%
 Tier 1 risk-based                  172,969        9.80       70,624     4.00      105,936     6.00
 Total risk-based                   188,973       10.70      141,248     8.00      176,560    10.00
</TABLE>


     As  of  September  30,  2002, 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.

(14)     COASTAL  BANCORP,  INC.  PREFERRED  STOCK

     On  May  11,  1999,  Bancorp  issued  1,100,000  shares  of  9.12% Series A
Cumulative  Preferred  Stock,  no  par value, at a price of $25 per share to the
public  ("Bancorp  Preferred  Stock").  Dividends on the Bancorp Preferred Stock
are  payable  quarterly  at  the  annual  rate  of $2.28 per share.  The Bancorp
Preferred  Stock  is  callable on May 15, 2003 at Bancorp's option.  Pursuant to
Coastal's  tax  benefit  agreement with the FDIC, Coastal receives a tax benefit
for  dividends  paid  on  the  Bancorp  Preferred  Stock.

<PAGE>

(15)     RECENT  ACCOUNTING  STANDARDS

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

(16)     PENDING  BRANCH  SALE

     On  September  24,  2002,  Coastal  announced the execution of a definitive
agreement  to  sell  five  of  its  branches in Central Texas (located in Llano,
Burnet,  Mason,  Kingsland  and Marble Falls, Texas) to First State Bank Central
Texas.  The  sale  includes deposit accounts of approximately $80 million, which
are  being  sold  at  a 6.25% premium.  The transaction is subject to regulatory
approval  and  is  expected  to  close  during  the  fourth  quarter  of  2002.


<PAGE>


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

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

     Total  assets  increased slightly by $1.4 million from December 31, 2001 to
September  30,  2002.  The  net  increase resulted primarily from an increase of
$102.5  million in loans receivable, offset by decreases of $45.7 million, $41.1
million  and  $16.0  million  in  mortgage-backed securities available-for-sale,
other  investment  securities  available-for-sale  and  federal  funds  sold,
respectively.  There  were  also smaller changes in other asset categories.  The
increase  in  loans  receivable  was  due  to  bulk  single-family mortgage loan
purchases  of $387.8 million, somewhat reduced by significant principal paydowns
received on the single-family mortgage loan portfolio, the sale of $10.8 million
of  under-performing  mortgage  loans,  the  reclassification of $9.1 million of
other  under-performing  loans  to  the  held for sale category and decreases in
other  loan  categories.  The  decrease  in  mortgage-backed  securities
available-for-sale  was  due  to significant prepayments received (approximately
33%  on  an  annualized  basis)  resulting  from  a continuing low interest rate
environment,  which is encouraging refinancings of mortgage loans.  The decrease
in other investment securities available-for-sale was due to the maturity of one
security  during  the  period.

     Deposits  decreased  $16.7  million  or  1.0%  from  December  31,  2001 to
September  30,  2002 and advances from the FHLB increased 6.1% or $41.9 million.
In  addition,  during the nine months ended September 30, 2002, Coastal redeemed
the  remaining  Senior  Notes  payable  outstanding of $43.9 million at par plus
accrued  interest and issued $50.0 million in Trust Preferred Securities through
a  consolidated  trust  subsidiary  (see  note  8  to the Consolidated Financial
Statements).  Coastal  used  part of the proceeds from the issuance of the Trust
Preferred  Securities  to repurchase outstanding shares of its common stock.  In
addition,  $28.8  million  of  the  proceeds  were use to redeem the Bank's 9.0%
Series  A Noncumulative Preferred Stock.  Stockholders' equity decreased 6.3% or
$9.8  million from December 31, 2001 to September 30, 2002 primarily as a result
of  the  market  repurchase  of  709,575  shares  of  common stock at an average
repurchase  price  of $29.82 per share.  This decrease was only partially offset
by  the  net  increase in stockholders' equity due to net income, a $1.6 million
decrease  in  accumulated other comprehensive income (loss), offset by dividends
declared.

Results  of  Operations  for  the  Nine Months Ended September 30, 2002 and 2001
--------------------------------------------------------------------------------

     General
     -------

     For  the nine months ended September 30, 2002, net income was $13.4 million
compared  to  $16.9  million  for the nine months ended September 30, 2001.  The
decrease  was primarily due to a $9.4 million decrease in net interest income as
a  result  of  Coastal's  smaller  asset  size,  lower market interest rates and
significant  principal paydowns recevied on Coastal's mortgage-backed securities
and  loans  receivable  portfolios (approximately 33% on an annualized basis for
mortgage-backed  securities  and  40%  for  single-family mortgage loans).  This
decrease  was  somewhat  offset by a $300,000 decrease in the provision for loan
losses,  a  $234,000  increase in noninterest income, a $2.7 million decrease in
noninterest  expense  ($2.1  million  of  which  was  due to the decrease in the
amortization  of  goodwill due to the implementation of FASB Statements 141, 142
and  147  in  2002), a $2.2 million decrease in the provision for Federal income
taxes,  and  the $104,000 (net of tax) cumulative transition adjustment loss due
to  the  change  in  accounting  for  derivative  instruments  recorded in 2001.

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

     Due  to  Coastal's  smaller  asset  size,  the  lower  market interest rate
environment  and  significant  principal  paydowns  received  on mortgage-backed
securities  and  single-family  loans  receivable,  interest income for the nine
months  ended  September 30, 2002 decreased $62.8 million or 37.5% from the nine
months  ended September 30, 2001.  The decrease was comprised of a $31.5 million
decrease  in  interest  income  on loans receivable, a $30.6 million decrease in
interest  income  on  mortgage-backed  securities  and  a  $761,000  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
$482.6 million and the average yield decreased 1.80% from 7.52% in 2001 to 5.72%
in  2002.  The  $482.6  million  decrease  in  average  interest-earning  assets
consisted  primarily  of  a  $488.1  million  decrease in the average balance of
mortgage-backed  securities and a $44.0 million decrease in the average balances
of  loans  receivable.  The  decrease  in average mortgage-backed securities was
largely  due  to  the  sale  of  those  securities  in  late  November 2001.  To
strategically restructure a portion of its asset base to make it less vulnerable
to  market  interest rate and price fluctuations, Coastal sold $844.9 million of
mortgage-backed  securities  and  purchased  $512.3  million  of  primarily pass
through  securities at a premium.  This transaction had the effect of shortening
the  duration of the mortgage-backed securities portfolio, thereby lessening the
extension  risk  to  Coastal.

     In  addition  to  the  reduction  in  Coastal's  asset  size  due  to  the
restructuring,  during  the  first  nine  months of 2002 as a consequence of the
extraordinarily  high  levels  of  refinancings,  Coastal experienced signifcant
principal  repayments  of  $115.9 million (or approximately 33% on an annualized
basis)  on  its  mortgage-backed  securities  portfolio  and  $251.6 million (or
approximately  40%  on  an  annualized basis) on its single-family mortgage loan
portfolio,  which  resulted in greater premium amortization on those assets that
were  purchased  at  a  premium.

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

     Interest  expense on interest-bearing liabilities was $47.8 million for the
nine months ended September 30, 2002, as compared to $101.2 million for the same
period  in  2001.  The  decrease  in interest expense was again due to Coastal's
smaller  asset  size  and  the  lower  market  interest  rate environment.  When
comparing the two periods, the average rate paid on interest-bearing liabilities
decreased  to  2.94%  for  2002 from 4.97% for 2001 and average interest-bearing
liabilities decreased by $545.3 million.  The 2.03% decrease in the average rate
paid  on  interest-bearing  liabilities  was  due  to  the 2.08% decrease in the
average  rate  paid  on  interest-bearing  deposits  and a 2.13% decrease in the
average  rates  paid  on  advances  from  the  FHLB.  The  decrease  in  average
interest-bearing  liabilities consisted primarily of a $55.4 million decrease in
average interest-bearing deposits, a $174.1 million decrease in average advances
from  the  FHLB  and  a  $293.5 million decrease in the average balance of other
borrowings.  The  large  decreases  in the average balances in FHLB advances and
other  borrowings  was due primarily to the reduction in these borrowings due to
the  restructuring  mentioned  previously.  In  addition, during the nine months
ended  September  30,  2002, Coastal redeemed the remaining Senior Notes payable
outstanding  of  $43.9  million  at  par  plus accrued interest and issued $50.0
million  in  Trust Preferred Securities, through a consolidated trust subsidiary
(see  note  8  to  the  Consolidated  Financial  Statements).

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

     Net  interest  income was $56.8 million for the nine months ended September
30, 2002 and $66.2 million for the same period in 2001.  As discussed above, the
decrease  was  due to Coastal's smaller asset size and the lower market interest
rate  environment.  When  comparing  the  two  periods, average interest-earning
assets  decreased  $482.6  million  and  average  interest-bearing  liabilities
decreased  $545.3  million due to the restructuring and the principal repayments
discussed  above.  Net  interest margin ("Margin") was 3.10% for the nine months
ended  September  30, 2002 compared to 2.97% for the nine months ended September
30,  2001.  Margin  represents  net  interest  income as a percentage of average
interest-earning  assets.  Net  interest  spread  ("Spread"), defined to exclude
noninterest-bearing  deposits,  increased  to  2.78%  for  the nine months ended
September  30,  2002  from  2.55%  for the nine months ended September 30, 2001.
Management  also  calculates  an  alternative  Spread  which  includes
noninterest-bearing  deposits.  Under  this calculation, the alternative Spreads
for  the  nine  months  ended  September 30, 2002 and 2001 were 2.99% and 2.81%,
respectively.  Margin  and  Spread are affected by the changes in the amount and
composition  of  interest-earning  assets  and  interest-bearing  liabilities.

     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 and through the efforts to replace LIBOR based
borrowings  with  lower  cost  retail  deposits.

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

     The  provision  for  loan losses was $2.7 million for the nine months ended
September  30,  2002  and  $3.0  million for the nine months ended September 30,
2001.  At  September  30,  2002,  Coastal had nonperforming loans totaling $16.2
million,  which is a decrease of $8.5 million, or 34%, when compared to December
31,  2001.  Nonperforming  loans are those loans on nonaccrual status as well as
those  loans  greater  than  ninety days delinquent and still accruing interest.
The  decrease  in  nonperforming  loans  is  mainly due to Coastal's decision to
liquidate  a portion of its under-performing single-family mortgage loans during
the  first  quarter  of  2002.  On March 22, 2002, Coastal sold $10.8 million of
these  under-performing  loans  to  a  third party investor.  Prior to the sale,
Coastal  wrote  these  loans  to  fair  value  and  recorded a charge-off to the
allowance  for  loan  losses  of  $761,000.

     In  addition,  as  of March 31, 2002, Coastal also wrote down to fair value
and  reclassified  $9.1 million of other under-performing single-family mortgage
loans  to  the  held for sale category.  The loans that were reclassified to the
held  for  sale category were written down to fair value through a charge-off to
the allowance for loan losses of $691,000.  During the second quarter of 2002, a
total  of  $3.1 million of these loans held for sale were sold.  As of September
30,  2002, Coastal had $3.2 million loans held for sale remaining (net of second
and  third  quarter activity including, sales, payoffs, foreclosures and monthly
principal  payments  received).

     The  ratio  of  nonperforming assets to total assets was 0.78% at September
30, 2002, compared to 1.13% as of December 31, 2001.  At September 30, 2002, 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  107.4%  compared  to  62.3%  at  December  31,  2001.

     Although  no assurance can be given, management believes that the allowance
for  loan  losses at September 30, 2002 is adequate considering the size and the
changing  composition  of  the  loans  receivable portfolio, historical and peer
group  loss  experience,  delinquency  trends  and  current economic conditions.
Management  will  continue to review its loan loss allowance policy as Coastal's
loan  portfolio  diversifies  to  determine  if  changes  to  the policy and the
resulting  allowance  for  loan  losses  are  necessary.

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

     For  the nine months ended September 30, 2002, noninterest income increased
$234,000  to  $8.5  million,  compared to $8.3 million for the nine months ended
September 30, 2001.  The increase in noninterest income was primarily due to the
$1.1  million increase in service charges on deposits accounts and the effect of
the  fair  value  loss on derivative instruments of $450,000 recorded during the
nine  months  ended September 30, 2001 pursuant to Statement 133 (compared to an
$18,000  loss  in  2002).  These  increases  were  somewhat  offset by a $52,000
decrease  in  loan  fees,  a  $634,000  decrease in the gain on the sale of real
estate  owned and a $588,000 decrease in other noninterest income (primarily due
to  $300,000  in  insurance  proceeds  received in 2001 for the reimbursement of
certain  deposit  losses  incurred  in  prior  years).  The  increase in service
charges  on deposit accounts was due to Coastal's continuing focus on increasing
transaction  type  accounts  and the related fee income, including Coastal's new
Free  Checking  and  Bounce  Protection  features  on  retail  checking accounts
introduced  during  August  2002.  The fair value loss on derivative instruments
recorded  during  the  nine  months  ended  September  30,  2001  was  primarily
attributable to Coastal's interest rate swap positions, which were liquidated in
June  2001.  As  of  September  30,  2002,  interest  rate  cap  agreements were
Coastal's  only  derivative  instruments  and  were  recorded  at  fair value on
Coastal's  consolidated  statement  of  financial  condition.

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

     For the nine months ended September 30, 2002, noninterest expense decreased
$2.7  million  from  the nine months ended September 30, 2001.  The $2.7 million
decrease  in  noninterest expense was primarily due the $2.1 million decrease in
the  amortization  of goodwill due to the implementation of FASB Statements 141,
142  and 147 effective January 1, 2002 (see note 5 to the Consolidated Financial
Statements).  In  addition,  Coastal  experienced  decreases  of  $577,000, $1.3
million  and $121,000 in office occupancy, data processing and other noninterest
expense,  respectively, partially offset by a $896,000 increase in compensation,
payroll  taxes  and  other  benefits,  a  $324,000 increase in advertising and a
$128,000  increase  in  postage  and  delivery  expenses.  The  decrease in data
processing  expense  was  due  to  the  conversion  to  a new mortgage loan data
processing  system  in  the second quarter of 2001, the conversion of the Valley
Region  branches  to  Coastal's  primary deposit and loan data processing system
during  the  third  quarter  of  2001  and the item processing functions brought
in-house during the third quarter of 2001.  The decrease in office occupancy was
primarily  due  to  certain assets becoming fully depreciated during 2001 and in
2002.  The increase in compensation, payroll taxes and other benefits was due to
normal  merit  increases  for existing staff, in addition to the staff increases
for  the  item processing functions brought in-house during the third quarter of
2001  and  additional personnel needed to continue Coastal's focus on commercial
banking  products,  lending  and providing other services to commercial business
customers.  The  increase  in advertising and postage and delivery expenses were
primarily  due  to  Coastal's continued focus on commercial banking products and
lending.

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

     The  provision for Federal income taxes for the nine months ended September
30,  2002  was  $6.3  million compared to $8.4 million for the nine months ended
September  30,  2001.  The  decrease  was  due  to  the  decreased income before
provision  for  federal income taxes, minority interest and cumulative effect of
accounting  change  in  2001,  with the effective tax rate for the periods being
approximately  30% for nine months ended September 30, 2002 and 31% for the same
period  in  2001.  The decrease in the effective tax rate when comparing the two
periods  is  due  to  the  elimination  of  the  goodwill  amortization.

Results  of  Operations  for  the Three Months Ended September 30, 2002 and 2001
--------------------------------------------------------------------------------

     General
     -------

     For  the three months ended September 30, 2002, net income was $4.4 million
compared  to  $5.7  million  for the three months ended September 30, 2001.  The
decrease was primarily due to a $3.2 million decrease in net interest income, as
a  result  of  Coastal's  smaller  asset  size,  lower market interest rates and
significant  principal  repayments  on  Coastal's  mortgage-backed  and  loans
receivable  portfolios  (approximately  30%  on  an  annualized  basis  for
mortgage-backed  securities  and  40%  for  single-family  mortgage  loans).  In
addition,  noninterest  income  decreased  by  $423,000.  These  decreases  were
somewhat offset by a $1.0 million decrease in noninterest expense and a $791,000
decrease  in  the  provision  for  Federal  income  taxes.

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

     As  noted previously, due to Coastal's smaller asset size, the lower market
interest  rate  environment  and  significant  principal  paydowns  received  on
mortgage-backed  securities  and single-family loans receivable, interest income
for  the  three months ended September 30, 2002 decreased $16.8 million or 33.1%
from the three months ended September 30, 2001.  The decrease was comprised of a
$8.1  million  decrease  in  interest income on loans receivable, a $8.6 million
decrease in interest income on mortgage-backed securities and a $94,000 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
$443.9 million and the average yield decreased 1.49% from 6.98% in 2001 to 5.49%
in  2002.  The  $443.9  million  decrease  in  average  interest-earning  assets
consisted  primarily  of  a  $476.6  million  decrease in the average balance of
mortgage-backed  securities,  offset somewhat by a $31.3 million increase in the
average  balance  of  loans receivable.  The decrease in average mortgage-backed
securities  was  largely  due  to  the  restructuring  discussed  previously.

     In  addition  to  the  reduction  in  Coastal's  asset  size  due  to  the
restructuring,  during  the  three  months  ended  September  30,  2002,  as  a
consequence  of  the  extraordinarily  high  levels  of  refinancings,  Coastal
experienced  principal  repayments  of $31.3 million (or approximately 30% on an
annualized  basis) on its mortgage-backed securities portfolio and $97.1 million
(or approximately 40% on an annualized basis) on its single-family mortgage loan
portfolio,  which  resulted in greater premium amortization on those assets that
were  purchased  at  a  premium.

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

     Interest  expense on interest-bearing liabilities was $15.7 million for the
three months ended September 30, 2002, as compared to $29.3 million for the same
period  in  2001.  As discussed previously, the decrease in interest expense was
due  to  Coastal's  smaller  asset  size  and  the  lower  market  interest rate
environment.  When  comparing  the  two  periods,  the  average  rate  paid  on
interest-bearing liabilities decreased to 2.81% for 2002 from 4.37% for 2001 and
average  interest-bearing  liabilities  decreased  $436.6  million.  The  1.56%
decrease in the average rate paid on interest-bearing liabilities was due to the
1.86% decrease in the average rate paid on interest-bearing deposits and a 1.45%
decrease  in  the average rates paid on advances from the FHLB.  The decrease in
average  interest-bearing  liabilities  consisted  primarily  of a $50.9 million
decrease  in average interest-bearing deposits, a $461.7 million decrease in the
average  balance of other borrowings and a $45.8 million decrease in the average
balance  of  Senior  Notes  payable.  FHLB advances increased $71.8 million when
comparing  the two periods.  The large decrease in the average balances in other
borrowings was due primarily to Coastal's repayment of such borrowings as a part
of  the  restructuring  done  in  late 2001.  The decrease in the balance of the
Senior  Notes  payable  was  due to their redemption during the first quarter of
2002.  During  the second quarter of 2002, Coastal issued $50.0 million in Trust
Preferred  Securities through a consolidated trust subsidiary (see note 8 to the
Consolidated  Financial  Statements).

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

     Net  interest income was $18.4 million for the three months ended September
30, 2002 and $21.5 million for the same period in 2001.  As discussed above, the
decrease  was  due to Coastal's smaller asset size and the lower market interest
rate  environment.  When  comparing  the  two  periods, average interest-earning
assets  decreased  $443.9  million  and  average  interest-bearing  liabilities
decreased  $436.6 million due to the restructuring and the prepayments discussed
above.  Net  interest  margin  ("Margin")  was  2.97% for the three months ended
September  30,  2002  compared to 2.95% for the three months ended September 30,
2001.  Margin  represents  net  interest  income  as  a  percentage  of  average
interest-earning  assets.  Net  interest  spread  ("Spread"), defined to exclude
noninterest-bearing  deposits,  increased  to  2.68%  for the three months ended
September  30,  2002  from  2.61% for the three months ended September 30, 2001.
Management  also  calculates  an  alternative  Spread  which  includes
noninterest-bearing  deposits.  Under  this calculation, the alternative Spreads
for  the  three  months  ended September 30, 2002 and 2001 were 2.88% and 2.85%,
respectively.  Margin  and  Spread are affected by the changes in the amount and
composition  of  interest-earning  assets  and  interest-bearing  liabilities.

     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 and through the efforts to replace LIBOR based
borrowings  with  lower  cost  retail  deposits.

     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
September  30, 2002 and the three months ended September 30, 2001.  At September
30,  2002,  Coastal  had  nonperforming loans totaling $16.2 million, which is a
decrease  of  $8.5  million,  or  34%,  when compared to December 31, 2001.  See
previous  discussion  under  "Results  of  Operations  for the Nine Months Ended
September  30,  2002  and 2001 - Provision for Loan Losses and the Allowance for
Loan  Losses."

     Although  no assurance can be given, management believes that the allowance
for  loan  losses at September 30, 2002 is adequate considering the size and the
changing  composition  of  the  loans  receivable portfolio, historical and peer
group  loss  experience,  delinquency  trends  and  current economic conditions.
Management  will  continue to review its loan loss allowance policy as Coastal's
loan  portfolio  diversifies  to  determine  if  changes  to  the policy and the
resulting  allowance  for  loan  losses  are  necessary.

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

     Noninterest  income  decreased  by $423,000 for the quarter ended September
30,  2002  compared  to the quarter ended September 30, 2001.  This decrease was
primarily  due  to  the $843,000 decrease in the gain on the sale of real estate
owned  and  smaller  decreases  of  $74,000  and  $83,000 in loan fees and other
noninterest  income.  The  decrease in the gain on the sale of real estate owned
was  primarily  due  to  a  gain  of  $603,000 recorded during the quarter ended
September  30,  2001  on  one  real estate owned property.  These decreases were
somewhat offset by the $564,000 increase in service charges on deposit accounts.
The  increase  in  service  charges  on  deposit  accounts  was due to Coastal's
continuing  focus  on  increasing  transaction type accounts and the related fee
income,  including  Coastal's new Fee Checking and Bounce Protection features on
retail  checking  accounts  introduced  during  August  2002.

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

     For  the  three  months  ended  September  30,  2002,  noninterest  expense
decreased $1.0 million from the three months ended September 30, 2001.  The $1.0
million  decrease  in  noninterest  expense  was  primarily  due to decreases of
$281,000,  $431,000,  $701,000 and $83,000 in office occupancy, data processing,
the  amortization  of  goodwill  and  other  noninterest  expense, respectively,
partially offset by a $249,000 increase in compensation, payroll taxes and other
benefits,  a  $189,000 increase in advertising and a $34,000 increase in postage
and  delivery  expenses.  The  decrease in office occupancy was primarily due to
certain assets becoming fully depreciated during 2001 and 2002.  The decrease in
data  processing  expense  was  due  to  the of the conversion Rio Grande Valley
Region  branches  to  Coastal's  primary deposit and loan data processing system
during  the  third  quarter  of  2001  and the item processing functions brought
in-house  during the third quarter of 2001.  The decrease in the amortization of
goodwill  was  due  to the implementation of FASB Statements 141, 142 and 147 on
January  1,  2002  (see  note 5 to the Consolidated Financial Statements).   The
increase  in  compensation,  payroll  taxes and other benefits was due to normal
merit  increases  for existing staff, in addition to the staff increases for the
item  processing functions brought in-house during the third quarter of 2001 and
additional  personnel  needed  to continue Coastal's focus on commercial banking
products, lending and providing other services to commercial business customers.
The increase in advertising and postage and delivery expenses were primarily due
to  Coastal's  continued  focus  on  commercial  banking  products  and lending.

<PAGE>

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

     The provision for Federal income taxes for the three months ended September
30,  2002  was  $2.0 million compared to $2.8 million for the three months ended
September  30,  2001.  The  decrease  was  due  to  the  decreased income before
provision  for  Federal  income  taxes  and  minority interest in 2002, with the
effective  tax  rate  for  the  both  periods  being  approximately  31%.

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

Coastal's  primary  sources of funds consist of deposits bearing market rates of
interest,  advances  from  the  FHLB,  securities  sold  under  agreements  to
repurchase,  federal  funds purchased and principal payments on loans receivable
and  mortgage-backed securities.  Coastal uses its funding resources principally
to  meet  its  ongoing  commitments  to  fund  maturing  deposits  and  deposit
withdrawals,  repay  borrowings,  purchase  loans receivable and mortgage-backed
securities,  fund  existing  and  continuing  loan  commitments,  maintain  its
liquidity,  meet operating expenses and fund stock purchases and acquisitions of
other  banks  and  thrifts,  either on a branch office or whole bank acquisition
basis.  At  September  30, 2002, Coastal had binding commitments to originate or
purchase  loans  totaling  approximately $18.3 million and had $174.0 million of
undisbursed  loans  in  process. Scheduled maturities of certificates of deposit
during  the  12  months  following September 30, 2002, totaled $859.3 million at
September  30, 2002.  Management believes that Coastal has adequate resources to
fund  all  of  its  commitments.

     As  of  September  30,  2002, Coastal operated 49 retail banking offices in
Texas  cities,  including Houston, Austin, Corpus Christi, the Rio Grande Valley
and small cities in the southeast quadrant of Texas.  Five of these branches are
currently  subject  to  a  definitive branch sale agreement.  See note 16 to the
Consolidated  Financial Statements.  Management's overall goal is to continue to
improve  the  asset/liability  composition of Coastal's balance sheet to be less
vulnerable  to  market  interest  rate  fluctuations.

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), 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, 2001, as filed with the SEC on March 26, 2002, and as filed in Exhibit 99.3,
attached  hereto.

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, 2001. Coastal's principal market risk exposure is to
interest  rates.  See note 10 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
Exchange  Act  Rules  13a-14  and 15d-14) of Coastal as of a date within 90 days
prior to this quarterly report (the "Evaluation Date").  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 Evaluation Date 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 controls or in other factors that could significantly affect
internal  controls  subsequent  to  the  Evaluation  Date.

<PAGE>
PART  II  -  OTHER  INFORMATION

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

     We  are,  and  have  been  involved,  from time to time, in various claims,
complaints,  proceedings  and litigation relating to activities arising from the
normal  course of our operations.  Based on the facts currently available to us,
we  believe that the matters pending at September 30, 2002 are without merit, or
will  be  covered  by insurance and any other matters are of such amounts, which
upon  resolution,  are  not  likely  to  have  a  material adverse effect on our
consolidated  financial  condition,  results  of  operations  or  cash  flows.

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

     On July 15, 2002, Coastal Banc ssb redeemed from the stockholders of record
all  of  the  9.0%  Series  A Noncumulative Preferred Stock (Nasdaq:CBSAO).  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.

Item  3.     Default  Upon  Senior  Securities
             ---------------------------------

Not  applicable.

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

Not  applicable.

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

Not  applicable.


<PAGE>
Item  6.     Exhibits  and  Reports  on  Form  8-K
             -------------------------------------

Reports  on  Form  8-K.
1)     Form  8-K filed with the SEC on July 17, 2002 concerning the announcement
that  Coastal  Banc  ssb  redeemed  all  of its 1,150,000 issued and outstanding
shares  of  9.0%  Noncumulative Preferred Stock, Series A (Nasdaq:CBSAP) on July
15,  2002.

2)     Form  8-K filed with the SEC on July 17, 2002 concerning the announcement
that  Mr.  James  C. Niver had resigned from the Board of Directors for personal
reasons  as  of  June  30, 2002.  In addition, the Board of Directors filled the
vacancy  left by Mr. Niver's resignation by electing Mr. Clayton T. Stone to the
Board  effective  July  1,  2002.

3)     Form  8-K  filed  with  the  SEC  on  September  26,  2002 concerning the
announcement  that  Coastal Banc ssb had executed a definitive agreement to sell
five  Central  Texas branches (Llano, Burnet, Mason, Kingsland and Marble Falls,
Texas)  to  First  State  Bank  Central  Texas.

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

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

99.3     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:  11/14/02                                   By     /s/  Manuel  J.  Mehos
        --------                                          ----------------------
                                                               Manuel  J.  Mehos
                                                       Chief  Executive  Officer









Dated:  11/14/02                                   By     /s/ Catherine N. Wylie
        --------                                          ----------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer

<PAGE>



                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

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

Dated:  11/14/02                                   By     /s/  Manuel  J.  Mehos
        --------                                          ----------------------
                                                               Manuel  J.  Mehos
                                                       Chief  Executive  Officer

<PAGE>
                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

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

Dated:  11/14/02                                   By     /s/ Catherine N. Wylie
        --------                                          ----------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer

<PAGE>

                                  EXHIBIT 99.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In  connection  with  the  Quarterly  Report  of Coastal Bancorp, Inc. (the
"Company")  on  Form  10-Q for the period ended September 30, 2002 as filed with
the  Securities  and Exchange Commission on November 14, 2002 (the "Report"), I,
Manuel  J.  Mehos,  Chairman  of  the  Board  and Chief Executive Officer of the
Company,  certify,  pursuant  to  18 U.S.C. Section 1350, as adopted pursuant to
Section  906  of  the  Sarbanes-Oxley  Act  of  2002,  that:

     (1)     The Report fully complies with the requirements of section 13(a) of
the  Securities  Exchange  Act  of  1934;  and

     (2)     The  information  contained  in  the Report fairly presents, in all
material  respects,  the  financial  condition  and results of operations of the
Company.


Dated:11/14/02                                   By     /s/  Manuel  J.  Mehos
      --------                                          ----------------------
                                                             Manuel  J.  Mehos
                                                      Chairman  of  the  Board
                                                  and Chief Executive  Officer


<PAGE>


                                  EXHIBIT 99.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In  connection  with  the  Quarterly  Report  of Coastal Bancorp, Inc. (the
"Company")  on  Form  10-Q for the period ended September 30, 2002 as filed with
the  Securities  and Exchange Commission on November 14, 2002 (the "Report"), I,
Catherine N. Wylie, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act  of  2002,  that:

     (1)     The Report fully complies with the requirements of section 13(a) of
the  Securities  Exchange  Act  of  1934;  and

     (2)     The  information  contained  in  the Report fairly presents, in all
material  respects,  the  financial  condition  and results of operations of the
Company.




Dated:     11/14/02                              By     /s/  Catherine  N. Wylie
           --------                                          -------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer

<PAGE>


                                  EXHIBIT 99.3


   STATEMENT OF FACTORS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     From  time  to  time, Coastal Bancorp, Inc. ("Coastal" or "we," "us," "our"
and  other  terms  referring  to Coastal Bancorp, Inc. and Coastal Banc ssb) has
made  and  will  make  forward-looking  statements.  These  statements  can  be
identified by the fact that they do not relate strictly to historical or current
facts.  Forward-looking  statements  often  use  words  such  as  "anticipate,"
"target,"  "expect,"  "estimate,"  "intend,"  "plan," "goal," "believe" or other
words  of  similar  meaning.  Forward-looking  statements give Coastal's current
expectations  or  forecasts  of  future  events,  circumstances or results.  Our
disclosure  in  this  report,  including  in  the Section entitled "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of Operations"
("MD&A"),  contains forward-looking statements. We also may make forward-looking
statements  in  its  other  documents  filed  with  the  Securities and Exchange
Commission  (the  "SEC")  and in other written materials. In addition, Coastal's
senior  management  may  make  forward-looking  statements  orally  to analysts,
investors,  representatives  of  the  media  and  others.  Any  forward-looking
statements  made  by  or on behalf of Coastal speak only as of the date they are
made.  We  do  not undertake to update forward-looking statements to reflect the
impact  of circumstances or events that arise after the date the forward-looking
statement  was made. The reader should, however, consult any further disclosures
of  a forward-looking nature we may make in our Annual Reports on Form 10-K, our
Quarterly  Reports  on  Form  10-Q  and  our  Current  Reports  on Form 8-K. All
forward-looking  statements,  by  their  nature,  are  subject  to  risks  and
uncertainties.  Coastal's actual future results may differ materially from those
set forth in our forward-looking statements. Factors that might cause our future
financial  performance  to  vary  from  that  described  in  our forward-looking
statements include the credit, market, operational, liquidity, interest rate and
other  risks  discussed in the MD&A section of this report and in other periodic
reports  filed  with  the  SEC. In addition, the following discussion sets forth
certain  risks  and  uncertainties that we believe could cause our actual future
results  to  differ  materially  from  expected  results. However, other factors
besides  those  listed  below  or discussed in Coastal's reports to the SEC also
could  adversely affect our results, and the reader should not consider any such
list  of  factors  to be a complete set of all potential risks or uncertainties.
This  discussion  is  provided as permitted by the Private Securities Litigation
Reform  Act  of  1995.

WE  ARE  VULNERABLE  TO  CHANGES  IN  INTEREST  RATES.

     Our  ability  to  make  a profit, like that of most financial institutions,
substantially  depends  upon  our  net  interest income, which is the difference
between  the  interest  income  we  earn on our interest-earning assets, such as
loans  and  investment  securities,  and  the  interest  expense  we  pay on our
interest-bearing  liabilities,  such  as deposits and borrowings. Certain assets
and  liabilities,  however,  may react in different degrees to changes in market
interest rates.  Further, interest rates on some types of assets and liabilities
may  fluctuate prior to changes in broader market interest rates, while rates on
other  types  may  lag  behind.  Additionally,  some  of  our  assets,  such  as
adjustable rate mortgages, have features, including payment and rate caps, which
restrict  changes  in  their  interest  rates.

     Factors  such  as inflation, recession, unemployment, money supply, acts of
terrorism,  international  disorders,  instability  in  domestic  and  foreign
financial  markets,  and  other  factors  beyond our control may affect interest
rates.  Changes in market interest rates will also affect the level of voluntary
prepayments  on  our  loans  and  the receipt of payments on our mortgage-backed
securities  resulting  in  the  receipt  of proceeds that may be reinvested at a
lower rate than the loan or mortgage-backed security being prepaid.  Although we
pursue  an  asset-liability  management  strategy  designed  to  manage our risk
resulting  from  changes in market interest rates, changes in interest rates can
still  have  a  material  adverse  effect  on  our  profitability.



                                     99.3-1

<PAGE>
OUR  EXPOSURE TO CREDIT RISK WILL INCREASE AS WE INCREASE OUR COMMERCIAL BANKING
ACTIVITIES.

     As  we  increase  our  focus  on commercial business banking and attempt to
increase  our net interest margin, a gradual increase in our consolidated credit
risk  is  likely  to  occur.  One  of  our  main  strategies  is  to  replace
lower-yielding  first  lien  single-family  residential  mortgage  loans  and
mortgage-backed  securities  with  commercial  and  consumer  loans.  Generally,
commercial  loans  (including commercial and multi-family real estate loans) are
considered  to  be  riskier  than  first  lien,  single-family residential loans
because  they  have  larger  balances  to  a single borrower or group of related
borrowers  and  because  their  repayment generally relies on the success of the
borrowing  enterprise.  In  addition,  consumer  loans  are  usually  secured by
depreciating  assets  (such  as cars and boats) and collections are dependent on
the  borrowers'  continuing  financial  stability,  which  is  more likely to be
adversely  affected  by  job  loss,  divorce,  illness  and personal bankruptcy.
Accordingly,  we  expect higher loan losses on this type of lending.  If we have
to  provide  for loan losses that are higher than our historical experience, our
results  of  operations  and  financial  condition  could be adversely affected.

OUR  ALLOWANCE  FOR  LOAN  LOSSES  MAY  BE  INADEQUATE  TO COVER LOSSES ACTUALLY
INCURRED,  WHICH  COULD  HAVE  A  MATERIAL  ADVERSE  EFFECT  ON  OUR  RESULTS OF
OPERATIONS  AND  FINANCIAL  CONDITION.

     We maintain an allowance for loan losses in an amount management believe is
sufficient to provide for known and inherent risks in our loan portfolio.  If we
incur actual losses on our loans in excess of our allowance for loan losses, our
profitability  may  be  adversely  affected.

THE  CONCENTRATION  OF OUR LOAN PORTFOLIO IN TEXAS AND CALIFORNIA SUBJECTS US TO
RISK  TO  THE  EXTENT  THE  CALIFORNIA  AND TEXAS ECONOMIES EXPERIENCE PROBLEMS.

     A substantial portion of the loans we originate and purchase are secured by
properties  located  in  Texas  and  California  or are made to businesses which
operate  in  those  states.  As  a  result,  a large  number of borrowers may be
affected  by  adverse  changes  in  the  economic  conditions occurring in those
states.

The  Texas  economy  has  been  historically  sensitive  to  business  cycles,
particularly those in the oil and gas industry.  Unfavorable economic conditions
in  Texas  could significantly increase the number of borrowers which are unable
to  pay  their  loans  on a timely basis and cause a decline in the value of the
properties  securing our loans which could have an adverse effect on our results
of  operations  and  financial  condition.

 The  California  economy  experienced  a  major  slowdown  in  2001.  Economic
conditions  in  California  are  subject  to various uncertainties at this time,
including the long-term impact of the electrical power crisis and the decline in
the  technology  sector.  If  economic  conditions  in  California  continue  to
decline,  we expect that our level of problem assets could increase accordingly.

WE  MAY  FAIL  TO  IDENTIFY  OR  CONSUMMATE  ADDITIONAL  ACQUISITIONS.

     Our business strategy has historically relied, in part, upon our ability to
obtain  low  cost  deposits, expand into new markets and enhance our presence in
existing  markets  by  identifying  and  acquiring  branches  of other financial
institutions  or  whole  banks  that  meet our acquisition criteria. In pursuing
these  opportunities,  we compete with other financial institutions with similar
acquisition  strategies,  many  of which are larger than we are and have greater
financial  and  other  resources  than  we  have.  We will compete for potential
acquisitions  based  on  a  number  of  factors,  including  price,  terms  and
conditions,  size,  access  to  capital  and our ability to offer cash, stock or
other  forms  of  consideration.  We  cannot  assure you that we will be able to
identify  suitable  acquisition  candidates  or,  once  a  suitable  acquisition
candidate  is  identified, that we will be able to consummate the acquisition on
terms  and  conditions  acceptable  to  us  or  at  all.


                                     99.3-2

<PAGE>
WE  MAY  FAIL  TO  INTEGRATE  OUR  ACQUISITIONS  SUCCESSFULLY.

     We  have  grown  through  the  acquisition  of  branches of other financial
institutions  or of whole banks. To a certain extent, our success is tied to our
ability  to  integrate  the operations, management, products and services of the
entities  we  acquire.  After  each  acquisition,  we  must  expend  substantial
managerial,  operating,  financial  and  other  resources  to  integrate  these
entities.  In  particular,  we must install and standardize adequate operational
and  control  systems,  deploy  or modify certain equipment, implement marketing
efforts  in  new as well as existing locations and employ and maintain qualified
personnel.  Our  operating  results  may  be  adversely  affected  if we fail to
properly  integrate  companies  we  acquire.

COMPETITION  WITH  OTHER  FINANCIAL  INSTITUTIONS  COULD  ADVERSELY  AFFECT  OUR
PROFITABILITY.

     We  face substantial competition in purchasing and originating loans and in
attracting  deposits. This competition in purchasing and originating loans comes
principally  from  banks, other savings institutions, mortgage banking companies
and  other  lenders  and  purchasers  of  loans.  Many  of our competitors enjoy
competitive advantages including greater financial resources, a wider geographic
presence  or  more  accessible  branch  office  locations,  the ability to offer
additional services or more favorable pricing alternatives and lower origination
and  operating  costs.  This  competition  could  result  in a decrease in loans
originated  or  purchased  by  us  that  could  adversely  affect our results of
operations,  and  financial  condition.

     In  attracting  deposits,  we  compete with insured depository institutions
such  as  savings institutions, credit unions and banks, as well as institutions
offering  uninsured  investment alternatives including money market funds. These
competitors  may  offer  higher interest rates than we do, which could result in
either  our  attracting  fewer deposits or in our being required to increase our
rates in order to attract deposits. Increased deposit competition could increase
our  cost  of  funds  and  adversely  affect  our  ability to generate the funds
necessary for our lending operations, thereby adversely affecting our results of
operations  and  financial  condition.

CHANGES  IN  STATUTES  AND  REGULATIONS  COULD  ADVERSELY  AFFECT  US.

     We are subject to extensive regulation and supervision by federal and state
authorities.  Such  supervision  and  regulation  establish  a  comprehensive
framework  of  activities  in  which an institution may engage, and are intended
primarily  for  the  protection  of  the  federal deposit insurance fund and our
depositors.  This  regulatory  structure  also  provides  our  regulators  with
significant  discretion  in the performance of their supervisory and enforcement
duties.  Any change in such regulation, whether by our regulators or as a result
of  legislation subsequently enacted by the Congress of the United States or the
Texas  legislature,  could  have  a substantial impact on our operations and us.
Additional  legislation  and regulations may be enacted or adopted in the future
that  could  significantly  affect  our  powers, authority and operations, which
could  have  a  material  adverse  effect  on  our  operations.













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