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,  2001

          [    ]     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:  5,830,840  AS OF OCTOBER 31, 2001


<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, 2001
        and December 31, 2000                                                      1

        Consolidated Statements of Income for the Nine-Month Periods Ended
        September 30, 2001 and 2000                                                2

        Consolidated Statements of Income for the Three-Month Periods Ended
        September 30, 2001 and 2000                                                3

        Consolidated Statements of Comprehensive Income for the Nine-Month and
        Three-Month Periods Ended September 30, 2001 and 2000                      4

        Consolidated Statements of Cash Flows for the Nine-Month Periods
        Ended September 30, 2001 and 2000                                          5

        Notes to Consolidated Financial Statements                                 7

        Management's Discussion and Analysis of Financial Condition and Results
Item 2  of Operations                                                             17

Item 3  Quantitative and Qualitative Disclosures About Market Risk                23

</TABLE>






PART  II.     OTHER  INFORMATION
---------     ------------------
<TABLE>

<CAPTION>



<S>     <C>                                                  <C>
Item 1  Legal Proceedings                                    24
Item 2  Changes in Securities and Use of Proceeds            24
Item 3  Default upon Senior Securities                       24
Item 4  Submission of Matters to a Vote of Security Holders  24
Item 5  Other Information                                    24
Item 6  Exhibits and Reports on Form 8-K                     24
</TABLE>




SIGNATURES

<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                                                                      2001                      2000
------------------------------------------------------                 --------------               ----------
                                                                        (Unaudited)
<S>                                                     <C>          <C>             <C>           <C>
Cash and cash equivalents                                                $   35,206                $   69,730
Federal funds sold                                                            4,980                       869
Loans receivable (note 4)                                                 1,913,605                 1,896,228
Mortgage-backed securities held-to-maturity (note 3)                             --                   885,565
Mortgage-backed securities available-for-sale (notes 3 and 14)              900,030                    94,673
U.S. Treasury securities held-to-maturity                                     1,400                     1,497
Accrued interest receivable                                                  15,418                    18,772
Property and equipment                                                       26,832                    28,086
Stock in the Federal Home Loan Bank of Dallas (FHLB)                         35,218                    58,005
Goodwill                                                                     22,513                    24,611
Prepaid expenses and other assets                                            15,399                    13,575
                                                                       ------------                ----------
                                                                         $2,970,601                $3,091,611
                                                                       ------------                ----------
</TABLE>
<TABLE>

<CAPTION>

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

<S>                                                              <C>                                 <C>
Liabilities:
 Deposits (note 5)                                                       $1,677,675               $1,674,981
 Advances from the FHLB (note 6)                                            608,662                1,150,305
 Securities sold under agreements to repurchase and federal
   funds purchased (note 6)                                                 422,562                       --
 Senior notes payable, net (note 7)                                          43,900                   46,900
 Advances from borrowers for taxes and insurance                             13,637                    5,050
 Other liabilities and accrued expenses                                      20,386                   47,154
                                                                         ------------              ---------
     Total liabilities                                                    2,786,822                2,924,390
                                                                         ------------              ---------

Minority interest - 9.0% noncumulative preferred stock of
 Coastal Banc ssb (note 10)                                                  28,750                   28,750

Commitments and contingencies (notes 4 and 8)

Stockholders' equity (notes 1, 3, 9, 11 and 12):
 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; 7,829,390 shares issued and 5,829,390 shares
   outstanding at September 30, 2001; 7,677,622 shares issued
   and 5,677,622 shares outstanding at December 31, 2000                         78                       77
 Additional paid-in capital                                                  35,276                   33,312
 Retained earnings                                                          123,818                  110,794
 Accumulated other comprehensive loss -
   unrealized loss on securities available-for-sale                           (298)                  (1,867)
 Treasury stock at cost (2,000,000 shares in 2001
   and 2000)                                                               (31,345)                 (31,345)
                                                                         -----------              ----------
     Total stockholders' equity                                             155,029                  138,471
                                                                         -----------              ----------
                                                                         $2,970,601               $3,091,611
                                                                         -----------              ----------
</TABLE>

See  accompanying  Notes  to  Consolidated  Financial  Statements.

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

<CAPTION>



                                                                                                            Nine Months Ended
                                                                                                              September 30,
                                                                                                           -------------------
                                                                                                             2001        2000
                                                                                                         -------------  --------
                                                                                                                 (Unaudited)
<S>                                                                                                <C>                  <C>
Interest income:
 Loans receivable                                                                                       $     121,828   $124,319
 Mortgage-backed securities                                                                                    43,646     47,642
 FHLB stock, federal funds sold and other interest-earning assets                                               1,964      4,306
                                                                                                          ------------  --------
                                                                                                              167,438    176,267
                                                                                                          ------------  --------
Interest expense:
 Deposits                                                                                                      56,090     53,005
 Advances from the FHLB                                                                                        32,710     49,383
 Other borrowed money                                                                                           8,916      7,045
 Senior notes payable                                                                                           3,490      3,517
                                                                                                          ------------  --------
                                                                                                              101,206    112,950
                                                                                                          ------------  --------
   Net interest income                                                                                         66,232     63,317
Provision for loan losses                                                                                       3,000      4,890
                                                                                                          ------------  --------
   Net interest income after provision for loan losses                                                         63,232     58,427
                                                                                                          ------------  --------

Noninterest income:
 Service charges on deposit accounts                                                                            5,656      5,213
 Loan fees                                                                                                        940        809
 Loan servicing income, net                                                                                        --        244
 Gain (loss) on derivative instruments                                                                           (450)        --
 Gain on sale of real estate owned, net                                                                           841        148
 Other                                                                                                          1,296        829
 Gain on sale of mortgage servicing rights                                                                         --      2,172
                                                                                                          ------------  --------
                                                                                                                8,283      9,415
                                                                                                          ------------  --------
Noninterest expense:
 Compensation, payroll taxes and other benefits                                                                22,925     21,973
 Office occupancy                                                                                               8,206      8,502
 Data processing                                                                                                2,531      2,512
 Amortization of goodwill                                                                                       2,098      2,276
 Other                                                                                                          8,399      8,397
                                                                                                          ------------  --------
                                                                                                               44,159     43,660
                                                                                                          ------------  --------
       Income before provision for Federal income taxes, minority
         interest and cumulative effect of accounting change                                                   27,356     24,182
Provision for Federal income taxes                                                                              8,442      7,378
                                                                                                          ------------  --------
       Income before minority interest and cumulative effect of
         accounting change                                                                                     18,914     16,804
Minority interest - preferred stock dividends of Coastal Banc ssb                                               1,941      1,941
                                                                                                          ------------  --------
       Income before cumulative effect of accounting change                                                    16,973     14,863
Cumulative effect of change in accounting for derivative instruments, net of tax (note 8)                        (104)        --
                                                                                                          ------------  --------
     Net income                                                                                           $    16,869   $ 14,863
                                                                                                          ------------  --------
     Net income available to common stockholders                                                          $    14,988   $ 12,982
                                                                                                          ============  ========
Basic earnings per share before cumulative effect of accounting change                                    $      2.62   $   2.17
                                                                                                          ============  ========
Basic earnings per common share (note 9)                                                                  $      2.60   $   2.17
                                                                                                          ============  ========
Diluted earnings per share before cumulative effect of accounting change                                  $      2.49   $   2.12
                                                                                                          ============  ========
Diluted earnings per common share (note 9)                                                                $      2.47   $   2.12
                                                                                                          ============  ========
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements.

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

<CAPTION>



                                                                                Three Months Ended
                                                                                   September 30,
                                                                              --------------------
                                                                               2001           2000
                                                                          ----------------  -------
                                                                                  (Unaudited)

<S>                                                                 <C>                   <C>
Interest income:
 Loans receivable                                                          $     37,749     $43,199
 Mortgage-backed securities                                                      12,659      16,398
 FHLB stock, federal funds sold and other interest-earning assets                   442       1,158
                                                                           -------------    -------
                                                                                 50,850      60,755
                                                                           -------------    -------
Interest expense:
 Deposits                                                                        17,108      19,022
 Advances from the FHLB                                                           6,750      12,894
 Other borrowed money                                                             4,338       7,044
 Senior notes payable                                                             1,145       1,172
                                                                           -------------    -------
                                                                                 29,341      40,132
                                                                           -------------    -------
   Net interest income                                                           21,509      20,623
Provision for loan losses                                                           900         900
                                                                           -------------    -------
   Net interest income after provision for loan losses                           20,609      19,723
                                                                           -------------    -------
Noninterest income:
 Service charges on deposit accounts                                              2,035       1,760
 Loan fees                                                                          340         210
 Gain (loss) on derivative instruments                                               (7)         --
 Gain on sale of real estate owned, net                                             810          76
 Other                                                                              299         319
                                                                           -------------    -------
                                                                                  3,477       2,365
                                                                           -------------    -------
Noninterest expense:
 Compensation, payroll taxes and other benefits                                   7,719       7,260
 Office occupancy                                                                 2,689       2,822
 Data processing                                                                    844         812
 Amortization of goodwill                                                           701         762
 Other                                                                            2,951       2,717
                                                                           -------------    -------
                                                                                 14,904      14,373
                                                                           -------------    -------
       Income before provision for Federal income taxes and
         minority interest                                                        9,182       7,715
Provision for Federal income taxes                                                2,836       2,338
                                                                           -------------    -------
     Income before minority interest                                              6,346       5,377
Minority interest - preferred stock dividends of Coastal Banc ssb                   647         647
                                                                           -----------     --------
     Net income                                                            $      5,699     $ 4,730
                                                                           -------------    -------
     Net income available to common stockholders                           $      5,072     $ 4,103
                                                                           =============    =======
Basic earnings per common share (note 9)                                   $       0.88     $  0.73
                                                                           =============    =======
Diluted earnings per common share (note 9)                                 $       0.83     $  0.71
                                                                           =============    =======
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements.

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

<CAPTION>



                                                                                Nine Months Ended
                                                                                  September 30,
                                                                              -------------------
                                                                                2001            2000
                                                                             -----------      --------
                                                                                   (Unaudited)
<S>                                                                  <C>                  <C>


Net income                                                                  $     16,869      $14,863

Other comprehensive income (loss), net of tax:
 Unrealized holding gains (losses) on securities available-for-sale
 arising during period                                                             1,569       (1,475)
                                                                            --------------    --------
Total comprehensive income                                                  $     18,438      $13,388
                                                                            --------------    --------
</TABLE>





<TABLE>

<CAPTION>



                                                                              Three Months Ended
                                                                                 September 30,
                                                                            --------------------
                                                                                2001           2000
                                                                            ------------   --------
                                                                                 (Unaudited)
<S>                                                                  <C>                     <C>


Net income                                                                  $       5,699    $4,730

Other comprehensive income (loss), net of tax:
 Unrealized holding gains (losses) on securities available-for-sale
 arising during period                                                                 26       531
                                                                              ------------  -------
Total comprehensive income                                                  $       5,725    $5,261
                                                                             -------------  -------
</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,
                                                                               -------------------
                                                                                2001          2000
                                                                              -----------  ----------
                                                                                   (Unaudited)

<S>                                                                   <C>                  <C>
Cash flows from operating activities:
 Net income                                                                  $    16,869   $  14,863
 Adjustments to reconcile net income
   to net cash provided (used) by operating activities:
 Depreciation and amortization of property and equipment,
   mortgage servicing rights and prepaid expenses and other assets                 6,229       7,055
 Net (discount accretion) premium amortization                                    (2,230)        463
 Provision for loan losses                                                         3,000       4,890
 Amortization of goodwill                                                          2,098       2,276
 Originations and purchases of mortgage loans held for sale                      (20,550)     (2,876)
 Sales of mortgage loans for held for sale                                        20,723       2,898
 Stock dividends from the FHLB                                                    (1,658)     (4,114)
 Gain on sale of mortgage servicing rights                                            --      (2,172)
 Loss on derivative instruments                                                      610          --
 Decrease (increase) in:
   Accrued interest receivable                                                     3,354      (2,144)
   Other, net                                                                    (29,085)      4,909
                                                                               ----------    --------
   Net cash provided (used) by operating activities                                 (640)     26,048
                                                                               ----------    --------
Cash flows from investing activities:
 Net increase in federal funds sold                                               (4,111)    (10,000)
 Purchases of mortgage-backed securities held-to-maturity                             --      (2,300)
 Purchase of U.S. Treasury securities held-to-maturity                                --        (692)
 Principal repayments on mortgage-backed securities held-to-maturity              73,725      27,416
 Principal repayments on mortgage-backed securities
   available-for-sale                                                              8,773       3,647
 Proceeds from maturity of U.S. Treasury securities held-to-maturity                 100          --
 Purchases of loans receivable                                                  (199,699)   (236,970)
 Net decrease in loans receivable                                                177,640      82,186
 Purchases of property and equipment, net                                         (2,125)     (1,629)
 Purchases of FHLB stock                                                          (3,986)     (7,603)
 Proceeds from sales of FHLB stock                                                28,431      39,000
 Proceeds from the sale of mortgage servicing rights                                  --       5,001
                                                                               ----------   ---------
   Net cash provided (used) by investing activities                               78,748    (101,944)
                                                                               ----------   ---------

</TABLE>



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

<CAPTION>



                                                                                Nine Months Ended
                                                                                  September 30,
                                                                               -------------------
                                                                                2001              2000
                                                                           ---------------  ------------
                                                                                   (Unaudited)

<S>                                                                    <C>                  <C>
Cash flows from financing activities:
 Net increase in deposits                                                     $     2,742   $    24,838
 Advances from the FHLB                                                         7,662,279     8,133,597
 Principal payments on advances from the FHLB                                  (8,203,922)   (8,672,308)
 Securities sold under agreements to repurchase and federal funds
   purchased                                                                    2,514,648     1,403,567
 Purchases of securities sold under agreements to repurchase and
   federal funds purchased                                                     (2,092,086)     (824,196)
 Repurchase of Senior notes payable                                                (3,000)           --
 Net increase in advances from borrowers for taxes and insurance                    8,587         9,315
 Exercise of stock options for purchase of common stock, net                        1,965           273
 Purchase of treasury stock                                                            --       (10,882)
 Dividends paid                                                                    (3,845)       (3,443)
                                                                              ------------  ------------
   Net cash provided (used) by financing activities                              (112,632)       60,761
                                                                              ------------  ------------
   Net decrease in cash and cash equivalents                                      (34,524)      (15,135)
 Cash and cash equivalents at beginning of period                                  69,730        48,098
                                                                              ------------  ------------
 Cash and cash equivalents at end of period                                   $    35,206   $    32,963
                                                                              ------------  ------------

 Supplemental schedule of cash flows-interest paid                            $   101,527   $   113,594

 Supplemental schedule of noncash investing and financing activities:
   Transfer of mortgage-backed securities from held-to-maturity to
      available-for-sale category                                             $   811,748   $        --
   Foreclosures of loans receivable                                                 3,984         2,794


</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,  2001  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 and
July  27, 2000, the Board of Directors authorized five separate repurchase plans
for  up to 500,000 shares each of the outstanding shares of common stock through
an  open-market repurchase program and privately negotiated repurchases, if any.
As  of  September  30,  2001,  2,000,000 shares had been repurchased in the open
market  at  an  average repurchase price of $15.67 per share for a total cost of
$31.3  million,  with no shares from the July 27, 2000 authorization having been
repurchased  to  date.  Book  value  per  common share at September 30, 2001 was
$21.13.

(2)  PRINCIPLES  OF  CONSOLIDATION

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

(3)  MORTGAGE-BACKED  SECURITIES

Effective  September  30,  2001,  Coastal transferred all of its mortgage-backed
securities  held-to-maturity  to the available-for-sale category. This is due to
management's  intent  to  restructure  a portion of the balance sheet to be less
vulnerable  to  market  interest rate fluctuations. The following table reflects
Coastal's  mortgage-backed securities held at September 30, 2001 (in thousands):
<TABLE>
<CAPTION>

                                                  Gross       Gross
                                Amortized      Unrealized   Unrealized       Fair
                                   Cost           Gains       Losses         Value
                                ---------     -----------    ----------    ----------
<S>                     <C>        <C>          <C>         <C>     <C>       <C>
Available-for-sale:
 REMICS - Agency               $   666,944       $2,397       $(6,219)      $663,122
 REMICS - Non-agency               157,063        2,784            (5)       159,842
 FNMA certificates                  44,322          447          (286)        44,483
 GNMA certificates                  26,915          497           --          27,412
 Non-agency securities               5,244           43          (116)         5,171
                                ---------    -----------    ----------    ----------
                               $   900,488       $6,168       $(6,626)      $900,030
                                ---------    -----------    ----------    ----------
</TABLE>

See  Note  14 to the Notes to the Consolidated Financial Statements for a recent
development.


<PAGE>
Mortgage-backed  securities at December 31, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>

                                                Gross         Gross
                               Amortized     Unrealized     Unrealized       Fair
                                  Cost          Gains          Losses        Value
                                ---------    -----------    ----------    ----------
<S>                     <C>        <C>          <C>         <C>     <C>        <C>
Held-to-maturity:
 REMICS - Agency               $   642,588       $1,370       $(18,368)     $625,590
 REMICS - Non-agency               168,886            9         (7,337)      161,558
 FNMA certificates                  50,128            5           (680)       49,453
 GNMA certificates                  17,681          104             --        17,785
 Non-agency securitie                6,282           --           (151)        6,131
                               -----------        ------      ---------     --------
                               $   885,565       $1,488       $(26,536)     $860,517
                               -----------        ------      ---------     --------
Available-for-sale:
 REMICS - Agency               $    77,449       $   --       $ (2,838)     $ 74,611
 GNMA certificates                  20,095            2            (35)       20,062
                               -----------        ------      ---------     --------
                               $    97,544       $    2       $ (2,873)     $ 94,673
                               -----------        ------      ---------     --------
</TABLE>

(4)     LOANS  RECEIVABLE

Loans receivable at September 30, 2001 and December 31, 2000 were as follows (in
thousands):
<TABLE>

<CAPTION>

                                                    September 30, 2001               December 31, 2000
                                                   --------------------               -----------------
<S>                                                <C>                   <C>                <C>
Real estate mortgage loans:
 First-lien mortgage, primarily residential               $    900,247                      $  908,841
 Commercial                                                    331,629                         347,921
 Multifamily                                                   159,389                         224,361
 Residential construction                                      149,193                         157,950
 Acquisition and development                                   152,130                         133,005
 Commercial construction                                       217,794                          90,256
Commercial loans, secured by residential mortgage
 loans held for sale                                             6,431                           8,518
Commercial, financial and industrial                           113,296                         120,420
Loans secured by savings deposits                               21,558                          13,681
Consumer and other loans                                        47,738                          56,522
                                                          -------------                     -----------
                                                             2,099,405                       2,061,475
                                                          -------------                     -----------
Loans in process                                              (164,482)                       (142,451)
Allowance for loan losses                                      (15,354)                        (14,507)
Unearned interest and loan fees                                 (3,234)                         (3,864)
Discount on purchased loans, net                                (2,730)                         (4,425)
                                                          -------------                     -----------
                                                          $  1,913,605                      $1,896,228
                                                          -------------                     -----------
Weighted average yield                                            7.68%                           9.38%
                                                          -------------                     -----------
</TABLE>

<PAGE>
At  September  30,  2001,  Coastal  had  outstanding commitments to originate or
purchase  $107.7  million  of  real  estate  mortgage  and  other  loans and had
commitments under existing lines of credit to originate primary construction and
other loans of approximately $120.7 million. In addition, at September 30, 2001,
Coastal  had  $9.3  million  of  outstanding  letters  of  credit.  Management
anticipates  the  funding  of  these  commitments  through  normal  operations.

At  September  30,  2001 and December 31, 2000, the carrying value of loans that
were  considered  to  be  impaired  totaled  approximately $4.3 million and $4.4
million,  respectively  and  the  related  allowance  for  loan  losses on those
impaired  loans  totaled  $960,000  and  $1.6  million at September 30, 2001 and
December  31,  2000,  respectively.  At  September  30,  2001,  fourteen  loans
considered to be impaired totaling $897,000 did not have an allocated portion of
the  allowance  for loan losses. At December 31, 2000, one loan considered to be
impaired  with  a  balance  of $650,000 did not have an allocated portion of the
allowance  for  loan  losses.  The average recorded investment in impaired loans
during  the  nine  months ended September 30, 2001 and 2000 was $4.4 million and
$3.3  million,  respectively.

An  analysis  of  activity  in the allowance for loan losses for the nine months
ended  September  30,  2001  and  2000  is  as  follows  (in  thousands):
<TABLE>

<CAPTION>

                                                        Nine Months Ended September 30,
                                                       -------------------------------
                                                                 2001      2000
                                                               --------  --------
<S>                           <C>                              <C>       <C>
Balance, beginning of period                                   $14,507   $10,493
Provision for loan losses                                        3,000     4,890
Charge-offs                                                     (2,964)   (1,545)
Recoveries                                                         811       372
                                                              --------- ---------
Balance, end of period                                         $15,354   $14,210
                                                              --------- ---------
</TABLE>

During  the  nine  months  ended  September  30,  2001,  charge-offs include the
charge-off  of  an  $821,000  unsecured  commercial  overdraft  loan  that  was
determined  to  be  uncollectible,  in  addition  to $709,000 in smaller balance
consumer loans. During the quarter ended September 30, 2001, Coastal was able to
recover  $450,000 related to the unsecured commercial overdraft loan charged-off
earlier  in  the  year.

Effective  March  31,  2000,  Coastal  sold  its rights to service approximately
$389.1  million  of  mortgage  loans  for  third  party investors and recorded a
nonrecurring gain of $2.2 million. Coastal continues to service the loans in its
own  loans  receivable  portfolio.


<PAGE>
(5)  DEPOSITS

Deposits, their stated rates and the related weighted average interest rates, at
September  30,  2001  and  December  31,  2000, 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 $225.0 million ($107.6 million from noninterest-bearing
and  $117.4  million  from  interest-bearing)  at  September  30, 2001and $136.6
million  ($68.1  million  from  noninterest-bearing  and  $68.5  million  from
interest-bearing)  at  December  31, 2000.

<TABLE>

<CAPTION>

                                          Stated Rate                  September 30, 2001   December 31, 2000
                                         --------------                ------------------   ------------------
<S>                                      <C>             <C>                 <C>                  <C>
Noninterest-bearing checking accounts .           0.00%                    $     44,615            $   80,849
Interest-bearing checking accounts       0.75  -  2.00                            9,622                61,046
Savings accounts                         0.75  -  3.00                           44,391                43,891
Money market demand accounts             0.00  -  6.31                          492,004               374,210
  (including amounts reclassified from
   noninterest and interest bearing
   checking accounts)
                                                                            -------------          -----------
                                                                                590,632               559,996
                                                                             ------------          -----------

Certificate accounts                     2.00  -  2.99                           15,837                   111
                                         3.00  -  3.99                          228,056                   475
                                         4.00  -  4.99                          388,969                39,930
                                         5.00  -  5.99                          215,310               261,398
                                         6.00  -  6.99                          238,488               807,684
                                         7.00  -  7.99                              306                 5,166
                                         8.00  -  8.99                               70                    67
                                         9.00  -  9.99                               --                    99
                                                                            -------------          -----------
                                                                              1,087,036             1,114,930
                                                                            -------------          -----------
Premium on purchased deposits                                                         7                    55
                                                                            -------------          -----------
                                                                            $ 1,677,675            $1,674,981
                                                                            -------------          -----------
Weighted average interest rate                                                    3.80%                  4.83%
                                                                            -------------          -----------
</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,  2001  and  December  31,  2000:

<TABLE>

<CAPTION>

                                    September 30, 2001            December 31, 2000
                                    -------------------            -----------------
<S>                             <C>                  <C>                <C>
Noninterest-bearing checking              $152,227                     $148,953
Interest-bearing checking                  127,039                      129,497
Money market demand accounts               266,975                      237,655
</TABLE>

The  scheduled  maturities  of certificate accounts outstanding at September 30,
2001  were  as  follows  (in  thousands):
<TABLE>

<CAPTION>

                       September 30, 2001
                       -------------------
<S>                    <C>
 0 through 12 months          $    991,470
 13 through 24 months               63,886
 25 through 36 months               22,481
 37 through 48 months                5,419
 49 through 60 months                3,738
 Over 60 months                         42
                              ------------
                              $  1,087,036
                              ------------
</TABLE>

(6)  ADVANCES FROM THE FHLB AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

(A)  The weighted average interest rates on advances from the FHLB at September
30, 2001 and December 31, 2000 were 5.01% and 6.48%, respectively. The scheduled
maturities and related weighted average interest rates on advances from the FHLB
at  September  30,  2001  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>
2001                                                3.69%          $ 21,275
2002                                                 5.10            449,545
2003                                                 4.37             86,528
2004                                                 5.48             10,984
2005                                                 5.10             12,188
2006                                                 6.30              4,349
2007                                                 6.65              1,249
2008                                                 5.63              2,128
2009                                                 8.03              3,898
2010                                                 6.73                987
2011                                                 6.56              1,343
2012                                                 5.76                292
2013                                                 5.75              7,688
2014                                                 5.44              2,966
2015                                                 6.67              1,720
2018                                                 5.05              1,522
                                                                    --------
                                                     5.01%          $608,662
                                                    ------          --------
</TABLE>

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

<PAGE>
(B)  The  weighted  average interest rate on securities sold under agreements to
repurchase  at  September  30,  2001  was  3.28%  with the stated interest rates
ranging  from  2.68%  to  3.55%.

(7)  SENIOR  NOTES  PAYABLE

On  June  30,  1995, Coastal issued $50.0 million of 10.0% Senior Notes due June
30,  2002.  The  Senior Notes are redeemable at Coastal's option, in whole or in
part, on or after June 30, 2000, at par, plus accrued interest to the redemption
date.  Interest  on  the  Senior Notes is payable quarterly. As of September 30,
2001,  Coastal  has  repurchased  a  total  of  $6.1 million of the Senior Notes
outstanding  at  par.

(8)  DERIVATIVE  INSTRUMENTS

Coastal is a party to derivative instruments in the normal course of business to
reduce  its  exposure  to  fluctuations  in  interest  rates.  These  derivative
instruments  have  included  interest  rate  swap agreements where Coastal makes
fixed  interest  payments  and  receives payments based on a floating index and,
currently,  interest  rate cap agreements, as described below. Effective January
1,  2001,  Coastal  adopted Statement of Financial Accounting Standards No. 133,
"Accounting  for  Derivative Instruments and for Hedging Activities" ("Statement
133").  Statement  133 requires companies to recognize all derivatives as either
assets  or  liabilities  in the statement of financial condition and measure all
derivatives  at  fair  value.  The interest rate swap and cap agreements held by
Coastal  on  December  31,  2000  were  determined  to  not  qualify  for  hedge
accounting,  therefore  on  implementation  of Statement 133, Coastal recorded a
transition  adjustment  to record these derivative instruments at fair value. 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, 2001, Coastal recorded an additional fair value loss
on  these  derivative  instruments  of  $450,000.  The fair value changes in the
derivative  instruments  during  2001  were  primarily attributable to Coastal's
interest rate swap agreements, which were totally liquidated in June 2001. As of
September  30,  2001,  Coastal's  interest  rate  cap  agreements  were the only
derivative  instruments  recorded  at  fair  value  pursuant  to  Statement 133.

Coastal  has  interest  rate  cap  agreements with third parties. The agreements
provide  for  the  third  parties to make payments to Coastal whenever a defined
floating  rate  exceeds  rates  ranging  from  8.0%  to  9.0%,  depending on the
agreement.  Payments  on  the  interest  rate  cap  agreements  are based on the
notional  principal amount of the agreements; no funds were actually borrowed or
are to be repaid. The fair value of the interest rate cap agreements was $15,000
at  September  30, 2001, 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
the purchase price and interest income from the interest rate cap agreements are
recorded in "interest income on mortgage-backed securities or loans receivable,"
as  appropriate,  in the accompanying consolidated statements of income. The net
decrease  in  interest  income  related  to the interest rate cap agreements was
approximately  $19,000 for the nine months ended September 30, 2001 and 2000. No
payments  were made to Coastal under the interest rate cap agreements during the
nine  months  ended  September  30,  2001  or  2000.

<PAGE>

Interest rate cap agreements outstanding at September 30, 2001 expire as follows
(dollars  in  thousands):
<TABLE>
<CAPTION>
Year of       Strike Rate        Notional
Expiration       Range            Amount
----------   --------------     ---------
<S>         <C>                 <C>
2002         8.75  -  9.00%     $  16,600
2003         8.00  -  9.00%       107,667
                                ---------
                                $ 124,267
                                ---------
</TABLE>

Coastal totally liquidated its interest rate swap positions in June of 2001. The
interest rate swap agreements previously held by Coastal provided for Coastal to
make  fixed  interest  payments  and  receive payments based on a floating LIBOR
index,  as  defined  in  each  agreement.  The  terms  of the interest rate swap
agreements  outstanding  at December 31, 2000 are summarized as follows (dollars
in  thousands):
<TABLE>
<CAPTION>

                                                                        Fair Value at
                                                       Floating Rate       End of
                       Notional      LIBOR     Fixed         at            Period
Maturity                Amount       Index      Rate   End of Period    (gain (loss))
---------------------  ---------  -----------  ------  --------------  ---------------
<S>                    <C>        <C>          <C>     <C>             <C>
At December 31, 2000:
2003                   $   5,523  One-month    5.345%          6.821%  $           32
2004                       3,758  One-month    5.635           6.710               11
2005                      11,095  Three-month  6.500           6.736             (176)
                       ---------                                       ---------------
                       $  20,376                                       $         (133)
                       ---------                                       ---------------
</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 the
portfolio to expected market level changes resulting from an instantaneous shock
of  plus and minus 200 basis points on a quarterly basis. This process discloses
the effects on market values of the assets and liabilities, unrealized gains and
losses,  including  off-balance sheet items, as well as potential changes in net
interest  income.

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

<PAGE>
(9)  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, 2001 and 2000 (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                                      September 30,
<S>                                           <C>                <C>          <C>
                                                                       2001         2000
                                                                 -----------  -----------

Net income                                                       $   16,869   $   14,863
Preferred stock dividends                                            (1,881)      (1,881)
                                                                 -----------  -----------
Net income available to common stockholders                      $   14,988   $   12,982
                                                                 -----------  -----------
Weighted average number of common shares
 outstanding used in basic EPS calculation                        5,755,274    5,990,397
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                        313,896      119,624
                                                                 -----------  -----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                      6,069,170    6,110,021
                                                                 -----------  -----------
Basic EPS                                                        $     2.60   $     2.17
                                                                 ===========  ===========
Diluted EPS                                                      $     2.47   $     2.12
                                                                 ===========  ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                        September 30,
<S>                                           <C>                 <C>          <C>
                                                                        2001         2000
                                                                  -----------  -----------

Net income                                                        $    5,699   $    4,730
Preferred stock dividends                                               (627)        (627)
                                                                  -----------  -----------
Net income available to common stockholders                       $    5,072   $    4,103
                                                                  -----------  -----------
Weighted average number of common shares
 outstanding used in basic EPS calculation                         5,796,458    5,645,330
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                         325,621      146,142
                                                                  -----------  -----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                       6,122,079    5,791,472
                                                                  -----------  -----------
Basic EPS                                                         $     0.88   $     0.73
                                                                  ===========  ===========
Diluted EPS                                                       $     0.83   $     0.71
                                                                  ===========  ===========
</TABLE>

The weighted average number of common shares outstanding has been reduced by the
treasury  stock  held by Coastal. As of September 30, 2001 and 2000, Coastal had
2,000,000  common  shares  in  treasury.

<PAGE>
(10)  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  are 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 may be redeemed in whole or in part only at the Bank's option at
$25  per share plus unpaid dividends (whether or not earned or declared) for the
then  current  dividend  period  to  the  date  fixed  for  redemption.

(11)  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, 2001, 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)                         $   201,120        6.72%    $119,679     4.00%    $149,599     5.00%
 Tier 1 risk-based                         201,120       10.89       73,850     4.00      110,775     6.00
 Total risk-based                          216,474       11.73      147,700     8.00      184,626    10.00
</TABLE>

As  of September 30, 2001, 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.

(12)  COASTAL  BANCORP,  INC.  PREFERRED  STOCK

On  May  11,  1999, Coastal Bancorp, Inc. ("Bancorp") issued 1,100,000 shares of
9.12%  Series  A Cumulative Preferred Stock, no par value, at a price of $25 per
share  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. The
$26.0  million  net  proceeds  was  used  for  repurchases in the open market of
Bancorp's  outstanding  common  stock  and  of  Bancorp's outstanding 10% Senior
Notes.  Pursuant  to  Coastal's  tax  benefit  agreement  with the FDIC, Coastal
receives  a  tax  benefit  for  dividends  paid  on the Bancorp Preferred Stock.

(13)  RECENT  ACCOUNTING  STANDARDS

In  July  2001,  Statement  of Financial Accounting Standards No. 141, "Business
Combinations"  ("Statement 141") and Statement of Financial Accounting Standards
No.  142,  "Goodwill and Other Intangible Assets" ("Statement 142") were issued.
Statement  141,  which  is  effective  for  business  combinations  initiated or
completed  after  June  30,  2001, eliminates 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 requires,
upon  adoption  of  Statement 142, that Coastal evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business combination,
and  make  any  necessary  reclassifications  in  order  to conform with the new
criteria  in  Statement  141  for  recognition  apart  from  goodwill.

Statement 142 changes the accounting for goodwill from an amortization method to
an  impairment-only  approach.  Amortization  of  goodwill,  including  goodwill
recorded  in  past  business  combinations,  will  cease  upon  the  adoption of
Statement 142. Coastal is required to implement Statement 142 on January 1, 2002
and  test  for  impairment  in  accordance  with the provisions of Statement 142
within the first interim period of 2002. Any impairment loss will be measured as
of  the  date of adoption and recognized as the cumulative effect of a change in
accounting  principle  in that first interim period. As of the date of adoption,
Coastal  expects  to  have  unamortized goodwill in the amount of $21.8 million,
which  will  be  subject to the transition provisions of Statements 141 and 142.
Amortization  expense  related to goodwill was $2.1 million and $701,000 for the
nine  and three month periods ended September 30, 2001, respectively. Because of
the  extensive  effort needed to comply with adopting Statements 141 and 142, it
is  not  practicable  to  reasonably  estimate  the  impact  of  adopting  these
statements  on  Coastal's  financial  statements  at  the  date  of this report,
including  whether  Coastal  will  be  required  to  recognize  any transitional
impairment  losses as the cumulative effect of a change in accounting principle.

(14)  RECENT  DEVELOPMENT

On  November  8,  2001,  Coastal entered into an agreement with a New York Stock
Exchange-traded  company  to  sell  approximately  $855  million  of  its
mortgage-backed  securities portfolio. The gain to be recognized related to this
transaction  is  estimated  to  be  approximately  $175,000. The purpose of this
transaction  is  to restructure a portion of Coastal's consolidated statement of
financial  condition  to be less vulnerable to market interest rate fluctuations
by  taking  advantage  of  the current low interest rate environment. Management
will  use  the  proceeds of this sale to immediately purchase approximately $280
million  of  pass-through  mortgage-backed  securities.  Management  intends  to
purchase  up  to  an additional $220 million in other mortgage-backed securities
which,  together  with those to be acquired, are expected to be less volatile in
times  of  interest  rate fluctuations and should lessen the extension risk that
was  presented  by  the  securities sold. Coastal will place any mortgage-backed
securities  purchased  in  the  available-for-sale  category on the consolidated
statement  of  financial  condition.  Management  further  intends  to  acquire
approximately  $350  million  of  single-family mortgage loans through bulk loan
purchases. It is anticipated that the sales proceeds will be fully reinvested by
the  end  of  the  first quarter of 2002. Management's restructuring actions are
intended  to  improve  the stability and quality of future earnings, although in
the  short-term,  earnings  could  be negatively impacted depending on Coastal's
ability  to  replace the assets sold in a timely manner. The sales agreement, as
well  as  the  purchase of the $280 million in securities, are both scheduled to
close  on November 26, 2001. Coastal's ability to complete the intended sale and
purchases  of  the  securities  or  the  loans  is  not  certain  and  cannot be
guaranteed.  If consummated, Coastal intends to report the transaction on a Form
8-K  as  required  by  the  Securities Exchange Act of 1934, as amended, and the
rules of the SEC, and will provide further information relating to the effect of
the  transactions  on  its  balance  sheet  and  future  earnings  at that time.

<PAGE>

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

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

Total  assets  decreased  slightly  by  $121.4 million from December 31, 2000 to
September  30, 2001. The net decrease resulted primarily from decreases of $34.5
million,  $80.6  million  and  $22.8 million in cash and cash equivalents, total
mortgage-backed  securities and stock in the FHLB, respectively, and other small
changes  in  other  categories. The decrease in total mortgage-backed securities
was due to principal payments received and the decrease in stock in the FHLB was
due  to  the  decreased amounts required to be maintained based on the decreased
level of FHLB advances outstanding. These decreases were only slightly offset by
increases of $4.1 million, $17.4 million and $1.8 million in Federal funds sold,
loans  receivable  and  prepaid  expenses  and  other  assets,  respectively.

As  discussed  in  Note  3  to  the Consolidated Financial Statements, effective
September  30,  2001,  Coastal transferred all of its mortgage-backed securities
held-to-maturity  to  the  available-for-sale  category.

Deposits increased $2.7 million from December 31, 2000 to September 30, 2001 and
securities  sold  under  agreements  to  repurchase  and federal funds purchased
increased  100.0%  or  $422.6  million.  Advances from the FHLB decreased $541.6
million  or  47.1%  during  the  period  due  to a reallocation of borrowings to
securities sold under agreements to repurchase with more favorable market rates.
Stockholders'  equity increased 11.8% or $16.3 million from December 31, 2000 to
September  30,  2001  as  a  result of net income and a $1.3 million decrease in
accumulated  other  comprehensive  loss,  offset somewhat by dividends declared.


Results  of  Operations  for  the  Nine Months Ended September 30, 2001 and 2000
--------------------------------------------------------------------------------

General
-------


For  the  nine  months  ended  September  30, 2001, net income was $16.9 million
compared  to  $14.9  million  for  the nine months ended September 30, 2000. The
increase  in  net  income  for  the  nine  months  ended  September 30, 2001 was
comprised  of  the following compared to the same period in 2000: a $2.9 million
increase  in  net  interest income, a $1.9 million decrease in the provision for
loan  losses,  somewhat  offset by a $1.1 million decrease in noninterest income
(which  includes a $450,000 fair value loss on derivative instruments due to the
adoption  of  Statement  133),  a $499,000 increase in noninterest expense and a
$1.1  million  increase  in the provision for Federal income taxes. Net interest
income  for  the  nine  months  ended September 30, 2000 includes a $1.1 million
special  stock  dividend declared by the FHLB (the "FHLB special dividend"). The
increase  in  net  interest  income  was  due  primarily  to the increase in net
interest margin to 2.97% for the nine months ended September 30, 2001 from 2.86%
for  the  same  period  in  2000,  which includes the FHLB special dividend. Net
interest  margin,  excluding  the  FHLB  dividend, was 2.81% for the nine months
ended  September  30, 2000. The decrease in noninterest income was primarily due
to  the  $2.2  million gain recorded on the sale of Coastal's mortgage servicing
rights  during  the first quarter of 2000, the related $244,000 decrease in loan
servicing  income  in  2001 and the fair value loss on derivative instruments of
$450,000  recorded  in  2001  pursuant to Statement 133. In addition, there were
increases  of  $443,000,  $131,000,  $693,000 and $467,000 in service charges on
deposit  accounts,  loan  fees,  gain  on  sale  of  real estate owned and other
noninterest  income,  respectively.

<PAGE>
Interest  Income
----------------

Interest  income  for  the  nine  months ended September 30, 2001 decreased $8.8
million  or 5.0% from the nine months ended September 30, 2000. The decrease was
primarily due to the decrease in the average yield on interest-earning assets of
0.45%  to  7.52% for the nine months ended September 30, 2001 from 7.97% for the
same  period  in 2000, which includes the FHLB special dividend, offset somewhat
by  an  increase  in  average interest-earning assets of $18.3 million. Interest
income  on  loans  receivable  decreased  $2.5  million due to a decrease in the
average  yield  to 8.30% for the nine months ended September 30, 2001 from 8.84%
for  the same period in 2000, offset by an $82.3 million increase in the average
balance  of  loans  receivable.  Interest  income  on mortgage-backed securities
decreased  $4.0  million  due to a $51.8 million decrease in the average balance
and a decrease in the average yield to 6.09% for the nine months ended September
30,  2001  from  6.31%  for  the  same  period  in  2000.

In  addition,  interest  income  on  FHLB  stock,  Federal  funds sold and other
interest-earning  assets  decreased  $2.3  million  during the nine months ended
September 30, 2001, as compared to the same period in 2000. The decrease was due
to  the  $12.2 million decrease in the average balance of such assets and to the
FHLB  special  dividend  recorded  in  the  second  quarter  of  2000.

Total  interest-earning  assets for the nine months ended September 30, 2001 and
2000  averaged  $3.0  billion  for  both  periods.

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

Interest expense on interest-bearing liabilities was $101.2 million for the nine
months  ended  September  30,  2001,  as compared to $112.9 million for the same
period  in  2000,  which  represents  a decrease of $11.7 million, or 10.4%. The
decrease  in  interest  expense was primarily due to the decrease in the average
rate  paid  on  interest-bearing  liabilities to 4.97% for the nine months ended
September  30,  2001  from 5.53% for the same period in 2000, in addition to the
slight  decrease  of  $5.9  million  in  the average balance of interest-bearing
liabilities  outstanding.  The  change  in  average interest-bearing liabilities
consisted  of  a $214.3 million decrease in average FHLB advances and a decrease
of  $374,000  in  average  Senior notes payable, offset by an increase of $152.5
million  in  average  securities sold under agreements to repurchase and federal
funds  purchased  and  a  $56.3  million  increase  in  average interest-bearing
deposits.

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

Net  interest  income  was $66.2 million for the nine months ended September 30,
2001  and  $63.3  million  for  the  same  period  in  2000. Net interest margin
("Margin")  was  2.97%  for the nine months ended September 30, 2001 compared to
2.86%  (2.81%  excluding  the  effect of the FHLB special dividend) for the nine
months  ended  September  30,  2000.  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 2.55% for the nine
months  ended  September  30, 2001 from 2.44% (2.39% excluding the effect of the
FHLB  special dividend) for the nine months ended September 30, 2000. Management
also  calculates  an  alternative  Spread  which  includes  noninterest-bearing
deposits to show a spread that considers the cost of all deposits as part of the
overall  cost  of funds. Under this calculation, the alternative Spreads for the
nine  months  ended  September  30,  2001  and  2000 were 2.81% and 2.72% (2.67%
excluding  the  effect  of  the FHLB special dividend), respectively. Margin and
Spread  are  affected  by  the  changes  in  the  amount  and  composition  of
interest-earning  assets  and interest-bearing liabilities. The overall increase
in Margin and Spread was primarily due to the 0.56% decrease in the average rate
paid  on interest-bearing liabilities during the nine months ended September 30,
2001  compared to the first nine months of 2000, offset by the 0.45% decrease in
the  average  yield  on  interest-earning  assets.  Average net interest-earning
assets increased $24.2 million for the nine months ended September 30, 2001 from
the  nine  months  ended  September  30,  2000.

<PAGE>

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.  Management  is  looking  at  balance  sheet alternatives to
improve  the  balance  sheet  composition  to  reduce interest rate risk and the
related  prepayment  risk. In addition, management is focusing on efforts to add
loans  tied  to  variable  rates  such  as LIBOR, local and regional prime rates
(instead of, for example, the cost of funds rate), as well as efforts to replace
LIBOR  based  borrowings  with  lower  cost  retail  deposits.

Also  see  Note  14  to the Notes to the Consolidated Financial Statements for a
recent  development.

Provision  for  Loan  Losses
----------------------------

The  provision  for  loan  losses  was  $3.0  million  for the nine months ended
September  30, 2001 compared to $4.9 million for the nine months ended September
30, 2000. At September 30, 2001, Coastal had nonperforming loans totalling $22.7
million.  Nonperforming  loans  are  those loans on nonaccrual status as well as
those  loans  greater  than  ninety  (90) days delinquent and still accruing. Of
these  nonperforming  loans  at  September 30, 2001, $18.7 million, or 82%, were
first  lien  residential  (single  family)  mortgage  loans,  $1.3  million were
commercial real estate loans, $882,000 were commercial, financial and industrial
loans,  with  the  balance  in  the  residential  construction, multifamily real
estate,  acquisition  and  development,  consumer  and other loan categories. At
December  31,  2000,  nonperforming  loans totaled $21.2 million, of which $16.5
million,  or  78%,  were first lien residential mortgage loans. At September 30,
2001,  the  allowance for loan losses as a percentage of nonperforming loans was
67.6%  compared  to  68.3%  at  December  31,  2000.

Although  no  assurance can be given, management believes that the allowance for
loan  losses  at  September  30,  2001  is  adequate  considering  the  changing
composition  of  the  loans  receivable  portfolio,  historical 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 resulting allowance for loan losses are
necessary.

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

For  the nine months ended September 30, 2001, noninterest income decreased $1.1
million  to  $8.3  million,  compared  to $9.4 million for the nine months ended
September  30, 2000. The decrease in noninterest income was primarily due to the
$2.2  million  non-recurring  gain  recorded  on  the sale of Coastal's mortgage
servicing  rights  during  the first quarter of 2000 and the related loss of the
servicing  income  during the periods subsequent to the sale. In addition to the
effect  of  the  servicing sale, 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  was  a factor in the decrease in total noninterest
income.  The  fair  value  changes  in the derivative instruments were primarily
attributable  to  Coastal's  interest  rate  swap  positions, which were totally
liquidated  in  June 2001. In addition to these items, comparing the nine months
ended  September 30, 2001 to the same period in 2000, service charges on deposit
accounts  increased  $443,000, loan fees increased $131,000, the gain on sale of
real  estate  owned  increased  $693,000  and other noninterest income increased
$467,000.  The  increase  in  service  charges  on  deposit  accounts was due to
Coastal's  continued  focus  on increasing transaction type deposit accounts and
the  related  fee  income.  The  increase in the gain on the sale of real estate
owned  was  primarily  due  to  the $603,000 gain on the sale of one real estate
owned property during the period ended September 30, 2001. The increase in other
noninterest  income  was  primarily  due to $300,000 in insurance claim proceeds
received in 2001 for reimbursement of certain deposit account losses incurred in
prior  years  and  a $151,000 increase in the gain on the sale of loans held for
sale.

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

For  the  nine  months  ended  September 30, 2001, noninterest expense increased
$499,000  from the nine months ended September 30, 2000. The overall increase in
noninterest  expense  was  due  to  increases of $952,000, $19,000 and $2,000 in
compensation,  payroll  taxes  and  other  benefits,  data processing, and other
noninterest  expense,  respectively.  These  increases  were  somewhat offset by
decreases  of  $296,000 and $178,000 in office occupancy and the amortization of
goodwill,  respectively.

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

The  provision  for Federal income taxes for the nine months ended September 30,
2001 was $8.4 million compared to the provision for Federal income taxes for the
nine  months  ended  September 30, 2000 of $7.4 million. The increase was due to
the  increased  income  before  provision  for  Federal  income  taxes, minority
interest  and cumulative effect of accounting change in 2001, with the effective
tax  rate  for  both  periods  being  approximately  31%.


Results  of  Operations  for  the Three Months Ended September 30, 2001 and 2000
--------------------------------------------------------------------------------

General
-------

For  the  three  months  ended  September  30, 2001, net income was $5.7 million
compared  to  $4.7  million  for  the  three  months  ended  September 30, 2000.
Comparing  the third quarter of 2001 to the third quarter of 2000, the following
were  the changes in the components of net income: net interest income increased
$886,000,  noninterest  income  increased  $1.1  million,  noninterest  expense
increased  $531,000  and  the  provision  for  Federal  income  taxes  increased
$498,000.

During  the  third  quarter  of  2001,  Coastal  began  performing  its own item
processing  functions.  These  item  processing  functions, that were previously
performed  by  Coastal's  primary  data  processing  service  provider,  are now
performed by Coastal employees using facilities and equipment owned or leased by
Coastal.  In  addition,  during the third quarter of 2001, Coastal completed the
data  processing conversion of 15 branches to Coastal's primary loan and deposit
system.  These  branches had been operating on a separate system since 1998 when
most  of  the  branches were acquired. The compensation related expenses for the
additional  staff  needed for the inhouse item processing functions added to the
increase in noninterest expense comparing the third quarter of 2001 to the third
quarter  of  2000.  The  positive  effect  of decreased data processing expenses
related  to  the  item  processing  function  change  and  the  data  processing
conversion  for  the  15 branches are expected to begin in the fourth quarter of
2001.

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

Interest  income  for  the  three months ended September 30, 2001 decreased $9.9
million  or  16.3%  from the three months ended September 30, 2000. The decrease
was  due  to a decrease in the average yield on interest-earning assets of 1.23%
to  6.98% for the three months ended September 30, 2001 from 8.21% for the three
months  ended  September 30, 2000. Interest income on loans receivable decreased
$5.5  million  due  to a decrease in the average yield of 1.36% during the three
months ended September 30, 2001 from the same period in 2000, offset somewhat by
an  increase  of  $49.3  million  in  the  average  balance of loans receivable.
Interest  income  on  mortgage-backed securities decreased $3.7 million due to a
decrease  in the average yield of 1.10% for the three months ended September 30,
2001 from the same period in 2000 and a decrease in the average balance of $72.3
million  due  to  principal  payments  received.

In  addition,  interest  income  on  FHLB  stock,  federal  funds sold and other
interest-earning assets decreased $716,000. The majority of the decrease was due
to the decrease in the average balance of other interest-earning assets of $22.8
million,  primarily due to the decrease in average FHLB stock held, offset by an
increase  in  average federal funds sold. Total interest-earning assets averaged
$2.9  billion  for  the  three  months ended September 30, 2001 compared to $3.0
billion  for  the  three  months  ended  September  30,  2000.

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

Interest expense on interest-bearing liabilities was $29.3 million for the three
months  ended  September  30,  2001,  as  compared to $40.1 million for the same
period  in  2000.  The decrease in interest expense was due to a decrease in the
average  rate paid on interest-bearing liabilities to 4.37% for the three months
ended  September  30,  2001  from 5.80% for the three months ended September 30,
2000  and  a  $76.8  million decrease in the average balance of interest-bearing
liabilities.  As  mentioned  previously,  the 1.43% decrease in the average rate
paid  on  interest-bearing  liabilities  was  due  primarily  to the substantial
reduction  in  overall  market interest rates during 2001 (as compared to 2000).
The  decrease  in  average interest-bearing liabilities consisted primarily of a
$163.4  million  decrease  in  average advances from the FHLB and a $1.1 million
decrease  in Senior notes payable, offset by a $45.8 million increase in average
interest-bearing  deposits  and  a  $42.0 million increase in average securities
sold  under  agreements  to  repurchase  and  federal  funds  purchased.

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

For  the  three  months  ended September 30, 2001, net interest income increased
$886,000  as compared to the three months ended September 30, 2000. The increase
in  net interest income was primarily due to the increase in Margin to 2.95% for
the  three months ended September 30, 2001 from 2.79% for the three months ended
September  30,  2000.  Spread  increased  to  2.61%  for  the three months ended
September  30,  2001  from  2.41% for the three months ended September 30, 2000.
Management  also  calculates  an  alternative  Spread  which  includes
noninterest-bearing  deposits.  Under  this calculation, the alternative Spreads
for  the  three  months  ended September 30, 2001 and 2000 were 2.85% and 2.70%,
respectively.  Margin  and  Spread are affected by the changes in the amount and
composition  of  interest-earning  assets  and interest-bearing liabilities. The
overall  increases in Margin and Spread were primarily due to the 1.43% decrease
in the average rate paid on interest-bearing liabilities, offset by the decrease
in  the  average  yield  on  interest-earning  assets  of  1.23%.  Average  net
interest-earning  assets  increased  $31.0  million  for  the three months ended
September  30,  2001  from  the  three  months  ended  September  30,  2000.

Provision  for  Loan  Losses
----------------------------

The  provision for loan losses was $900,000 for the three months ended September
30,  2001  and  for  the three months ended September 30, 2000. At September 30,
2001,  Coastal  had  nonperforming  loans  totaling $22.7 million. Nonperforming
loans  are  those loans on nonaccrual status as well as those loans greater than
ninety  (90) days delinquent and still accruing. Of these nonperforming loans at
September  30,  2001, $18.7 million, or 82%, were first lien residential (single
family) mortgage loans, $1.3 million were commercial real estate loans, $882,000
were  commercial,  financial  and  industrial  loans,  with  the  balance in the
residential  construction, multifamily real estate, acquisition and development,
consumer  and  other  loan categories. At December 31, 2000, nonperforming loans
totaled  $21.2  million,  of  which  $16.5  million,  or  78%,  were  first lien
residential mortgage loans. At September 30, 2001, the allowance for loan losses
as  a  percentage of nonperforming loans was 67.6% compared to 68.3% at December
31,  2000.

<PAGE>

Although  no  assurance can be given, management believes that the allowance for
loan  losses  at  September  30,  2001  is  adequate  considering  the  changing
composition  of  the  loans  receivable  portfolio,  historical 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 resulting allowance for loan losses are
necessary.

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

For  the  three months ended September 30, 2001, noninterest income increased by
$1.1  million  to  $3.5  million,  compared to $2.4 million for the three months
ended  September 30, 2000. The increase in noninterest income was comprised of a
$275,000 increase in service charges on deposit accounts, a $130,000 increase in
loan  fees  and  a  $734,000  increase in the gain on sale of real estate owned,
somewhat  offset  by a $20,000 decrease in other noninterest income and a $7,000
fair  value  loss  on derivative instruments. The increase in service charges on
deposit  accounts was due to Coastal's continued focus on increasing transaction
type  deposit  accounts  and the related fee income. The increase in the gain on
sale  of  real  estate owned was primarily due to the $603,000 (or 6.4 cents per
diluted  share,  after  tax)  gain on the sale of one real estate owned property
during  the  quarter  ended  September  30,  2001.

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

For  the  three  months  ended September 30, 2001, noninterest expense increased
$531,000  from  the  three  months  ended  September  30, 2000. This increase in
noninterest  expense was primarily due to the $459,000 increase in compensation,
payroll  taxes  and  other  benefits,  a  $234,000 increase in other noninterest
expense and a $32,000 increase in data processing expense, partially offset by a
$133,000 decrease in office occupancy and a $61,000 decrease in the amortization
of  goodwill. The increase in compensation, payroll taxes and other benefits was
primarily  due  to normal merit increases for existing staff, in addition to the
staff needed for the item processing functions brought in house during the third
quarter  of  2001 and additional personnel needed to continue Coastal's focus on
commercial  business  products  and  lending.

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

The  provision for Federal income taxes for the three months ended September 30,
2001  was  $2.8  million  compared  to  $2.3  million for the three months ended
September  30,  2000.  The  increase  was  due  to  the  increased income before
provision  for  Federal  income  taxes  and  minority interest in 2001, with the
effective  tax  rates  for  the  periods  being  31%  for 2001 and 30% for 2000.

<PAGE>

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 acquisitions of other banks and
thrifts,  either on a branch office or whole bank acquisition basis, in addition
to  purchasing  treasury  stock.  At  September  30,  2001,  Coastal had binding
commitments to originate or purchase loans totaling approximately $107.7 million
and  had $164.5 million of undisbursed loans in process. Scheduled maturities of
certificates  of  deposit  during  the  12  months  following September 30, 2001
totaled  $991.5 million at September 30, 2001.  Management believes that Coastal
has  adequate  resources  to  fund  all  of  its  commitments.

As  of  September  30, 2001, Coastal operated 50 retail banking offices in Texas
cities,  including  Houston,  Austin,  Corpus Christi, the Rio Grande Valley and
small  cities  in  the southeast quadrant of Texas. Management's forward-looking
five  year  goal  is  to  have  over  $5  billion  in assets, over $3 billion in
deposits, $2.5 billion in loans and 80 branches in cities throughout central and
south  Texas,  although  there  can  be  no  assurance  that  this  goal  can be
accomplished  through  growth  or  acquisitions.

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

The  Management's  Discussion and Analysis of Financial Condition and Results of
Operations  set  forth  in  the 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 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  general  economic and business conditions; changes in
market  rates  of  interest;  changes  in the laws and regulations applicable to
Coastal;  the  risks  associated  with the Bank's 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  warehouse  loans);  and changes in business strategies and other factors as
discussed  in  Coastal's  Annual Report on Form 10-K for the year ended December
31,  2000,  as  filed  with  the  SEC  on  March  27,  2001.

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, 2000. Coastal's principal market risk exposure is to interest
rates.  See  note  8  of  the  Notes  to  Consolidated  Financial  Statements.

<PAGE>

     PART  II  -  OTHER  INFORMATION

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

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

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

     Not  applicable.

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.

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

     Not  applicable.

<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:     11/14/01                                   By     /s/ Manuel J. Mehos
           --------                                          -------------------
                                                               Manuel  J.  Mehos
                                                       Chief  Executive  Officer









Dated:     11/14/01                              By     /s/  Catherine  N.Wylie
           --------                                          ------------------
                                                           Catherine  N.  Wylie
                                                      Chief  Financial  Officer