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  March  31,  2003

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

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

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

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

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

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

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

                                  YES   X       NO
                                     ------

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

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

           COMMON STOCK OUTSTANDING:   5,176,383 AS OF APRIL 30, 2003


<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 March 31, 2003
        and December 31, 2002                                                      1

        Consolidated Statements of Income for the Three-Month Periods Ended
        March 31, 2003 and 2002                                                    2

        Consolidated Statements of Comprehensive Income for the Three-Month
        Periods Ended March 31, 2003 and 2002                                      3

        Consolidated Statements of Cash Flows for the Three-Month Periods
        Ended March 31, 2003 and 2002                                              4

        Notes to Consolidated Financial Statements                                 6

Item 2  Management's Discussion and Analysis of Financial Condition and Results
        of Operations                                                             14

Item 3  Quantitative and Qualitative Disclosures About Market Risk                19

Item 4  Controls and Procedures                                                   19
</TABLE>






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

<CAPTION>



<S>     <C>                                                  <C>
Item 1  Legal Proceedings                                    20
Item 2  Changes in Securities and Use of Proceeds            20
Item 3  Defaults upon Senior Securities                      20
Item 4  Submission of Matters to a Vote of Security Holders  20
Item 5  Other Information                                    20
Item 6  Exhibits and Reports on Form 8-K                     20
</TABLE>




SIGNATURES

CERTIFICATIONS


<PAGE>



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

<TABLE>

<CAPTION>

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

                                                                                    March 31,         December 31,
ASSETS                                                                                2003                2002
------                                                                              ----------          ----------
                                                                                   (Unaudited)
<S>                                                                   <C>          <C>         <C>           <C>
Cash and cash equivalents                                                          $   38,120          $   39,766
Federal funds sold                                                                      8,400              27,755
Loans receivable held for sale                                                          3,723              49,886
Loans receivable, net (note 4)                                                      1,893,351           1,812,785
Mortgage-backed securities available-for-sale at fair value (note 3)                  466,841             475,022
Other securities available-for-sale at fair value                                       1,781               1,788
Accrued interest receivable                                                             9,742               9,781
Property and equipment                                                                 27,986              27,341
Stock in the Federal Home Loan Bank of Dallas ("FHLB")                                 41,475              41,221
Goodwill                                                                               21,429              21,429
Prepaid expenses and other assets                                                      16,989              19,370
                                                                                   ----------          ----------
                                                                                   $2,529,837          $2,526,144
                                                                                   ==========          ==========
</TABLE>


<TABLE>

<CAPTION>

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

<S>                                                                                         <C>          <C>
Liabilities:
Deposits (note 5)                                                                  $1,621,087          $1,614,368
Advances from the FHLB (note 6)                                                       687,659             696,085
Company obligated mandatorily redeemable 9.0% trust preferred
   securities of Coastal Capital Trust I (note 7)                                      50,000              50,000
Advances from borrowers for taxes and insurance                                         4,246               2,407
Other liabilities and accrued expenses                                                 11,627              10,399
                                                                                   ----------          ----------
     Total liabilities                                                              2,374,619           2,373,259
                                                                                   ----------          ----------
Commitments and contingencies (notes 4 and 9)

Stockholders' equity (notes 1, 3, 10, 12 and 13):
Preferred stock, no par value; authorized shares 5,000,000;
   9.12% Cumulative, Series A, 1,100,000 shares issued and
   outstanding                                                                         27,500              27,500
Common stock, $.01 par value; authorized shares
   30,000,000; 7,872,206 shares issued and 5,147,120 shares
   outstanding at March 31, 2003; 7,867,029 shares issued
   and 5,141,010 shares outstanding at December 31, 2002                                   79                  79
Additional paid-in capital                                                             35,796              35,736
Retained earnings                                                                     144,426             141,986
Accumulated other comprehensive income -
   net unrealized gain on securities available-for-sale                                   434                 619
Treasury stock at cost (2,725,086 shares in 2003 and 2,726,019
        shares in 2002)                                                               (53,017)            (53,035)
                                                                                   ----------          ----------
     Total stockholders' equity                                                       155,218             152,885
                                                                                   ----------          ----------
                                                                                   $2,529,837          $2,526,144
                                                                                   ==========          ==========
</TABLE>

See  accompanying  Notes  to  Consolidated  Financial  Statements

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

<CAPTION>



                                                                           Three Months Ended
                                                                                March 31,
                                                                           --------------------
                                                                            2003            2002
                                                                         ----------    -----------
                                                                                 (Unaudited)
<S>                                                                   <C>          <C>         <C>
Interest income:
Loans receivable                                                          $25,612         $29,967
Mortgage-backed securities                                                  3,667           4,964
FHLB stock, federal funds sold and other interest-earning assets              290             475
                                                                          -------         -------
                                                                           29,569          35,406
                                                                          -------         -------
Interest expense:
Deposits                                                                    8,048          11,041
Advances from the FHLB                                                      4,225           5,268
Senior Notes payable (note 8)                                                 --              378
Company obligated mandatorily redeemable 9.0% trust preferred
securities of Coastal Capital Trust I                                       1,125              --
                                                                          -------         -------
                                                                           13,398          16,687
                                                                          -------         -------

Net interest income                                                        16,171          18,719
Provision for loan losses (note 4)                                            900             900
                                                                          -------         -------
Net interest income after provision for loan losses                        15,271          17,819
                                                                          -------         -------

Noninterest income:
Service charges on deposit accounts                                         2,902           1,995
Loan fees                                                                     219             307
Gain on sale of loans receivable held for sale                                734              --
Gain (loss) on derivative instruments (note 9)                                  6             (24)
Gain (loss) on real estate owned                                             (130)             22
Other                                                                         262             209
                                                                          -------         -------
                                                                            3,993           2,509
                                                                          -------         -------

Noninterest expense:
Compensation, payroll taxes and other benefits                              8,008           7,861
Office occupancy                                                            2,317           2,580
Data processing                                                               433             423
Advertising                                                                   275             429
Postage and delivery                                                          379             428
Other                                                                       2,508           1,995
                                                                          -------         -------
                                                                           13,920          13,716
                                                                          -------         -------
Income before provision for Federal income taxes and
  minority interest                                                         5,344           6,612
Provision for Federal income taxes                                          1,659           1,884
                                                                          -------         -------
Income before minority interest                                             3,685           4,728
Minority interest - preferred stock dividends of Coastal Banc ssb             --              647
                                                                          -------         -------
Net income                                                                 $3,685          $4,081
                                                                          =======         =======
Net income available to common stockholders                                $3,058          $3,454
                                                                          =======         =======
Basic earnings per common share (note 10)                                   $0.59           $0.59
                                                                          =======         =======
Diluted earnings per common share (note 10)                                 $0.57           $0.57
                                                                          =======         =======
</TABLE>


See  accompanying  Notes  to  Consolidated  Financial  Statements

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

<CAPTION>

                                                                    Three Months Ended
                                                                        March 31,
                                                                   --------------------
                                                                     2003           2002
                                                                 ----------     ----------
                                                                         (Unaudited)
<S>                                                          <C>                   <C>

Net income                                                       $  3,685          $4,081
Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on securities available-for-sale
   arising during period                                             (185)             (5)
                                                                 --------          -------
Total comprehensive income                                       $  3,500          $4,076
                                                                 ========          =======

</TABLE>

See  accompanying  Notes  to  Consolidated  Financial  Statements

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

<CAPTION>

                                                                               Three Months Ended
                                                                                  March 31,
                                                                            -----------------------
                                                                                2003         2002
                                                                            -----------   ---------
                                                                                 (Unaudited)
<S>                                                                 <C>                   <C>
Cash flows from operating activities:
 Net income                                                                $      3,685   $  4,081
 Adjustments to reconcile net income
   to net cash provided by operating activities:
 Depreciation and amortization of property and equipment,
   and prepaid expenses and other assets                                          2,302      2,165
 Net amortization (accretion) of premiums, discounts and loan fees                  592      1,243
 Provision for loan losses                                                          900        900
 Originations and purchases of mortgage loans held for sale                     (92,166)   (10,233)
 Sales of mortgage loans held for sale                                          132,425         --
 Gain on sale of mortgage loans held for sale                                      (734)        --
 Stock dividends from the FHLB                                                     (254)      (296)
 (Gain) loss on derivative instruments                                               (6)        24
 Decrease (increase) in:
   Accrued interest receivable                                                       39      1,787
   Other, net                                                                     3,476      2,352
                                                                             ----------   ---------
   Net cash provided by operating activities                                     50,259      2,023
                                                                             ----------   ---------
Cash flows from investing activities:
 Net decrease in federal funds sold                                              19,355     13,200
 Purchase of mortgage-backed securities available-for-sale                      (38,840)        --
 Principal repayments on mortgage-backed securities
   available-for-sale                                                            46,910     44,648
 Principal repayments on other securities available-for-sale                         --     41,000
 Purchases of loans receivable                                                 (160,898)   (81,333)
 Sales of loans receivable                                                           --     10,111
 Net decrease in loans receivable                                                84,036     91,642
 Net purchases of property and equipment                                         (1,433)      (588)
                                                                             ----------   ---------
   Net cash provided (used) by investing activities                             (50,870)   118,680
                                                                             ----------   ---------
                                                                    (Table continued on next page)

</TABLE>



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

                                                                           Three Months Ended
                                                                               March 31,
                                                                           -------------------
                                                                           2003             2002
                                                                       -----------      ------------
                                                                               (Unaudited)
<S>                                                               <C>                   <C>
Cash flows from financing activities:
 Net increase (decrease) in deposits                                   $        6,719   $   (20,829)
 Advances from the FHLB                                                     4,485,991     1,490,900
 Principal payments on advances from the FHLB                              (4,494,417)   (1,555,841)
 Net increase in advances from borrowers for taxes and insurance                1,839         1,222
 Exercise of stock options for purchase of common stock, net                       50            40
 Issuance of treasury shares                                                       27            35
 Redemption of Senior Notes payable                                                --       (43,875)
 Dividends paid                                                                (1,244)       (1,328)
                                                                       --------------     ----------
   Net cash used by financing activities                                       (1,035)     (129,676)
                                                                       --------------     ----------

   Net decrease in cash and cash equivalents                                   (1,646)       (8,973)
 Cash and cash equivalents at beginning of period                              39,766        41,537
                                                                       --------------     ----------
 Cash and cash equivalents at end of period                            $       38,120   $    32,564
                                                                       ==============     ==========

 Supplemental schedule of cash flows-interest paid                     $       13,835   $    17,932
                                                                       ==============     ==========
 Supplemental schedule of noncash investing and financing
   activities:
   Transfer of loans to the held for sale category                     $           --   $     9,075
   Transfer of loans from held for sale to loans receivable                     6,175            --
   Foreclosures of loans receivable                                               811         1,924
                                                                       ==============     ==========

</TABLE>




See  accompanying  Notes  to  Consolidated  Financial  Statements

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



(1)     BASIS  OF  PRESENTATION

     The  accompanying unaudited Consolidated Financial Statements were prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all  disclosures  necessary  for a complete presentation of financial condition,
results  of  operations,  comprehensive income and cash flows in conformity with
accounting  principles  generally accepted in the United States of America.  All
adjustments  which  are,  in  the  opinion  of management, of a normal recurring
nature  and  are  necessary  for  a  fair  presentation of the interim financial
statements,  have been included.  The results of operations for the period ended
March  31,  2003  are  not  necessarily  indicative  of  the results that may be
expected  for  the  entire  fiscal  year  or  any  other  interim  period.

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

     Treasury  Stock
     ---------------
     On  August  27, 1998, December 21, 1998, February 25, 1999, April 27, 2000,
July 27, 2000 and April 25, 2002, the Board of Directors authorized six separate
repurchase  plans  for  up  to  500,000 shares each of the outstanding shares of
common  stock through an open-market repurchase program and privately negotiated
repurchases, if any.  As of March 31, 2003, a total of 2,729,575 shares had been
repurchased  under  all  of  the  authorized  repurchase  plans.

     As  of  March  31,  2003,  2,725,086  shares  of  common stock were held in
treasury  at  an  average  price  of  $19.46 per share for a total cost of $53.0
million.  Book  value  per  common  share  at  March  31,  2003  was  $23.86.

     Stock  Options
     --------------
     Statement  of  Financial  Accounting  Standards  No. 148 ("Statement  148")
"Accounting for Stock-Based Compensation - Transition and Disclosure" was issued
in  December  2002.  Statement 148 amends FASB Statement No. 123 "Accounting for
Stock-Based  Compensation"  ("Statement  123") to provide alternative methods of
transition  for  a voluntary change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition, Statement 148 amends the
disclosure  requirements  of  Statement  123 to require prominent disclosures in
both  annual and interim financial statements about the method of accounting for
stock-based  employee compensation and the effect of the method used on reported
results.  Coastal  has  adopted  the disclosure provisions included in Statement
148  in  the notes to the consolidated financial statements for the three months
ended  March  31,  2003  and  2002  contained  herein.

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

<TABLE>

<CAPTION>

<S>                                                         <C>                                     <C>
                                                                         Three Months Ended March 31,
                                                                             2003           2002
                                                                     ------------------------------------
                                                                    (In thousands, except per share data)

Net income available to common stockholders, as reported                    $ 3,058          $3,454
Deduct:  Total stock-based compensation expense determined
 under the fair value based method for all awards, net of
 related tax effects                                                            (49)           (106)
                                                                          ---------         ---------
Proforma net income available to common stockholders                        $ 3,009          $3,348
                                                                          ==========        =========
Earnings per common share:
Basic - as reported                                                        $   0.59          $ 0.59
Basic - proforma                                                           $   0.58          $ 0.57
Diluted - as reported                                                      $   0.57          $ 0.57
Diluted - proforma                                                         $   0.56          $ 0.55

</TABLE>


(2)     PRINCIPLES  OF  CONSOLIDATION

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

(3)     MORTGAGE-BACKED  SECURITIES

     Mortgage-backed  securities  at  March 31, 2003 were as follows (dollars in
thousands):
<TABLE>

<CAPTION>
                                                  Gross       Gross
                                    Amortized  Unrealized   Unrealized    Market
                                      Cost        Gains       Losses       Value
                                   ---------- -----------  ----------    ----------
<S>                     <C>        <C>          <C>         <C>      <C>        <C>
Available-for-sale:
 Agency securities                 $   394,249   $ 1,685     $  (650)     $395,284
 CMOs - Non-agency                      69,948        66        (456)       69,558
 Non-agency securities                   1,981        18          --         1,999
                                   -----------  --------    ---------     --------
                                   $   466,178   $ 1,769     $(1,106)     $466,841
                                   ===========  ========    =========     ========
</TABLE>

<PAGE>

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

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

(4)     LOANS  RECEIVABLE

     Loans  receivable  at  March 31, 2003 and December 31, 2002 were as follows
(dollars  in  thousands):
<TABLE>

<CAPTION>
                                              March 31, 2003                  December 31, 2002
                                             ----------------                 -----------------
<S>                                          <C>               <C>                <C>
Real estate mortgage loans:
 First-lien mortgage, primarily residential  $       929,512                      $  855,633
 Commercial                                          311,981                         317,692
 Multifamily                                         117,213                         116,020
 Residential construction                            121,224                         123,085
 Acquisition and development                         136,855                         143,463
 Commercial construction                             248,997                         241,128
Commercial, financial and industrial                 144,893                         135,209
Loans secured by deposits                             13,668                          14,465
Consumer and other loans                              31,455                          33,430
                                             ----------------                     -----------
                                                   2,055,798                       1,980,125
                                             ----------------                     -----------
Loans in process                                    (146,090)                       (147,769)
Allowance for loan losses                            (18,301)                        (18,118)
Unearned interest and loan fees                       (3,061)                         (2,910)
Premium on purchased loans, net                        5,005                           1,457
                                             ----------------                     -----------
                                             $     1,893,351                      $1,812,785
                                             ================                     ===========
Weighted average yield                                  5.46%                           5.52%
                                             ================                     ===========
</TABLE>

     At  March  31,  2003,  Coastal  had outstanding commitments to originate or
purchase  $23.0  million  of  real  estate  mortgage  and  other  loans  and had
commitments  under lines of credit to originate primarily construction and other
loans  of approximately $117.0 million.  In addition, at March 31, 2003, Coastal
had  $13.6 million of outstanding letters of credit.  Management anticipates the
funding  of  these  commitments  through  normal  operations.

     Letters  of  credit  are  written for conditional commitments issued by the
Bank  to  guarantee  the performance of a customer to a third party.  The Bank's
policies  generally require that letters of credit arrangements contain security
and  debt  covenants  similar  to those contained in loan agreements.  Under the
standby  letters  of  credit,  the  Bank  is  required  to  make payments to the
beneficiary  of the letters of credit upon request by the beneficiary so long as
all  performance  criteria  have  been  met.  At  March  31,  2003,  the maximum
potential  amount  of  future  payments under standby letters of credit is $13.6
million.  As of March 31, 2003, the fair value of these guarantees, which is the
liability  recorded  when fees are collected, was immaterial to the consolidated
financial  statements.

     At  March  31, 2003 and December 31, 2002, the carrying value of loans that
were  considered  to  be  impaired  totaled  approximately $7.9 million and $8.5
million,  respectively,  and  the  related  allowance  for  loan losses on those
impaired  loans  totaled  $2.1  million  and  $2.4 million at March 31, 2003 and
December  31, 2002, respectively. Of the impaired loans outstanding, three loans
with  a  balance of $453,000 at March 31, 2003 and eight loans with a balance of
$551,000  at  December  31, 2002 did not have specific portions of the allowance
for loan losses allocated to them at each respective date.  The average recorded
investment  in  impaired  loans during the three months ended March 31, 2003 and
2002  was  $8.2  million  and  $3.5  million,  respectively.

     An  analysis  of  activity  in  the allowance for loan losses for the three
months  ended  March  31,  2003  and  2002  is  as  follows  (in  thousands):
<TABLE>

<CAPTION>
                                                     Three Months Ended March 31,
                                                     ----------------------------
                                                              2003      2002
                                                            --------  --------
<S>                           <C>                           <C>       <C>
Balance, beginning of period                                $18,118   $15,385
Provision for loan losses                                       900       900
Charge-offs                                                    (908)   (1,890)
Recoveries                                                      191        90
                                                            -------   --------
Balance, end of period                                      $18,301   $14,485
                                                            =======   ========
</TABLE>


     Coastal  services for others loans receivable which are not included in the
Consolidated  Financial  Statements.  The total amounts of such loans were $64.9
million and $68.8 million at March 31, 2003 and December 31, 2002, respectively.

<PAGE>



(5)     DEPOSITS

     Deposits,  their  stated  rates  and  the related weighted average interest
rates, at March 31, 2003 and December 31, 2002, are summarized below (dollars in
thousands).  Effective  January 1, 1998, Coastal implemented a program whereby a
portion  of  the  balances  in noninterest-bearing and interest-bearing checking
accounts  is  reclassified to money market demand accounts under Federal Reserve
Regulation  D.  The  amount of such reclassification, reflected in the following
table, was approximately $245.8 million ($127.2 million from noninterest-bearing
and  $118.6  million from interest-bearing) at March 31, 2003 and $250.9 million
($131.3  million  from  noninterest-bearing  and  $119.6  million  from
interest-bearing)  at  December  31,  2002.

<TABLE>

<CAPTION>
                                  Stated Rate      March 31, 2003  December 31, 2002
                                ---------------    -------------- -------------------
<S>                             <C>              <C>             <C>        <C>
Noninterest-bearing checking              0.00%          $  59,732   $   51,029
Interest-bearing checking        0.50  -  1.00              12,931       14,353
Savings accounts                 0.50  -  1.24              46,268       44,603
Money market demand accounts     0.00  -  2.13             542,375      530,659
                                                         ---------    ----------
                                                           661,306      640,644
                                                         ---------    ----------
Certificate accounts            Less than 2.00             175,680      104,358
                                 2.00  -  2.99             491,870      558,337
                                 3.00  -  3.99             203,816      206,645
                                 4.00  -  4.99              53,997       63,234
                                 5.00  -  5.99              29,730       34,447
                                 6.00  -  6.99               4,595        6,524
                                 7.00  -  7.99                  19          106
                                 8.00  -  8.99                  74           73
                                                         ---------    ---------
                                                           959,781      973,724
                                                         ---------    ---------
                                                        $1,621,087   $1,614,368
                                                        ==========   ==========
Weighted average interest rate                                2.00%        2.12%
                                                        ==========   ==========
</TABLE>


     Prior  to  the  reclassification  as  discussed  above, noninterest-bearing
checking  accounts,  interest-bearing  checking accounts and money market demand
accounts  were  as  follows  at  March  31,  2003  and  December  31,  2002:

<TABLE>

<CAPTION>
                               March 31, 2003             December 31, 2002
                              ---------------             -----------------
<S>                           <C>              <C>                <C>
Noninterest-bearing checking  $       186,925                   $182,290
Interest-bearing checking             131,494                    134,034
Money market demand accounts          296,619                    279,717
</TABLE>


<PAGE>

     The  scheduled  maturities of certificate accounts outstanding at March 31,
2003  were  as  follows  (dollars  in  thousands):
<TABLE>

<CAPTION>

                           March 31, 2003
                           ---------------
<S>                        <C>
  0 through 12 months      $       726,515
 13 through 24 months              155,793
 25 through 36 months               34,407
 37 through 48 months                8,568
 49 through 60 months               34,402
 Over 60 months                         96
                           ---------------
                           $       959,781
                           ===============
</TABLE>



(6)     ADVANCES  FROM  THE  FHLB

     The  weighted average interest rates on advances from the FHLB at March 31,
2003  and  December  31, 2002 were 2.48% and 2.71%, respectively.  The scheduled
maturities and related weighted average interest rates on advances from the FHLB
at  March  31,  2003  are  summarized  as  follows  (dollars  in  thousands):
<TABLE>

<CAPTION>
                                           Weighted Average
Due during the year ending December 31,      Interest Rate           Amount
---------------------------------------    -----------------        --------
<S>                                      <C>                <C>     <C>
2003                                                 2.71%          $205,072
2004                                                 2.10            153,539
2005                                                 2.26            239,761
2006                                                 1.91             59,782
2007                                                 6.67              1,130
2008                                                 4.48              5,480
2009                                                 8.00              3,418
2010                                                 5.72              1,786
2011                                                 6.53              1,228
2012                                                 5.76                292
2013                                                 5.64              8,222
2014                                                 5.45              2,894
2015                                                 6.66              1,632
2017                                                 5.43              1,987
2018                                                 5.05              1,436
                                                                    --------
                                                     2.48%          $687,659
                                                                    ========
</TABLE>

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


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

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

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

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

(8)     SENIOR  NOTES  PAYABLE

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

(9)     DERIVATIVE  INSTRUMENTS

     Coastal  is  a  party  to  derivative  instruments  in the normal course of
business  to  reduce  its  exposure  to  fluctuations  in interest rates.  These
derivative instruments have included interest rate swap agreements where Coastal
makes  fixed  interest  payments and receives payments based on a floating index
and  interest  rate  cap agreements, as described below.  For the quarters ended
March  31,  2003  and  2002,  Coastal recorded a fair value gain (loss) on these
derivative  instruments  of $6,000 and ($24,000), respectively.  As of March 31,
2003  and  December  31,  2002, interest rate cap agreements were Coastal's only
derivative  instruments  and  were  recorded  at  fair  value.

     As  of  March 31, 2003, Coastal has interest rate cap agreements with third
parties  with  notional amounts totaling $107.6 million.  The current agreements
provide  for  the  third  parties to make payments to Coastal whenever a defined
floating  rate  exceeds  rates  ranging  from  8.0%  to  9.0%,  depending on the
agreement.  All of Coastal's current agreements expire in 2003.  Payments on the
interest  rate  cap agreements are based on the notional principal amount of the
agreements; no funds were actually borrowed or are to be repaid.  The fair value
of  the interest rate cap agreements was zero at March 31, 2003 and December 31,
2002,  which  is  the  recorded book value of the agreements at such dates.  The
interest  rate cap agreements are used to alter the interest rate sensitivity of
a  portion  of  Coastal's  mortgage-backed  securities and loans receivable.  As
such,  the  amortization  of  any  purchase  price  and interest income from the
interest  rate cap agreements is recorded in interest income in the accompanying
consolidated  statements of income, as applicable.  The net decrease in interest
income  related to the interest rate cap agreements was approximately $6,000 for
each  of  the three months ended March 31, 2003 and 2002.  No payments were made
to  Coastal under the interest rate cap agreements during the three months ended
March  31,  2003  or  2002.

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

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

(10)     EARNINGS  PER  SHARE

     The  following  summarizes  information related to the computation of basic
and  diluted  earnings per share ("EPS") for the three-month periods ended March
31,  2003  and  2002  (dollars  in  thousands,  except  per  share  data):

<TABLE>
<CAPTION>



                                                                    Three Months Ended
                                                                         March 31,
<S>                                           <C>                 <C>         <C>
                                                                     2003        2002
                                                                  ----------  ----------

Net income                                                        $    3,685  $    4,081
Preferred stock dividends                                                627         627
                                                                  ----------  ----------
Net income available to common stockholders                       $    3,058  $    3,454
                                                                  ==========  ==========
Weighted average number of common shares
 outstanding used in basic EPS calculation                         5,144,407   5,841,945
Add assumed exercise of outstanding stock
 options as adjusted for dilutive securities                         242,159     268,877
                                                                  ----------  ----------
Weighted average number of common shares
 outstanding used in diluted EPS calculation                       5,386,566   6,110,822
                                                                  ==========  ==========
Basic EPS                                                         $     0.59  $     0.59
                                                                  ==========  ==========
Diluted EPS                                                       $     0.57  $     0.57
                                                                  ==========  ==========
</TABLE>


<PAGE>
(11)     COASTAL  BANC  SSB  PREFERRED  STOCK

     On October 21, 1993, the Bank issued 1,150,000 shares of 9.0% Noncumulative
Preferred  Stock,  no  par  value,  Series A, at a price of $25 per share to the
public.  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.

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

(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  preferred  stock is callable on May 15, 2003 at Bancorp's option.  Pursuant
to Coastal's tax benefit agreement with the FDIC, Coastal receives a tax benefit
for  dividends  paid  on  the  Bancorp  Preferred  Stock.

(13)     STATUTORY  CAPITAL  REQUIREMENTS

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

     At  March  31,  2003,  the  Bank's  regulatory  capital  in relation to its
existing  regulatory  capital  requirements for capital adequacy purposes was as
follows  (dollars  in  thousands):
<TABLE>
<CAPTION>



                                                          Minimum For Capital      Well-Capitalized
                                         Actual            Adequacy Purposes         Requirements
                                 -------------------     --------------------   -------------------
<S>                   <C>                  <C>            <C>        <C>       <C>      <C>       <C>
Capital Requirement                Amount      Ratio       Amount     Ratio       Amount    Ratio
--------------------              --------    ------      --------    ------    --------    ------
 Tier 1 (core)                    $179,319      7.30%     $ 98,254     4.00%    $122,817     5.00%
 Tier 1 risk-based                 179,319     10.49        68,345     4.00      102,517     6.00
 Total risk-based                  197,620     11.57       136,670     8.00      170,862    10.00
</TABLE>


     As of March 31, 2003, the most recent notification from the Federal Deposit
Insurance  Corporation ("FDIC") categorized the Bank as "well capitalized" under
the  regulatory  framework  for  prompt corrective action.  To be categorized as
well  capitalized,  the  Bank  must  maintain  minimum  Tier  1  (core),  Tier 1
risk-based  and  total risk-based ratios as set forth in the table above.  There
are  no  conditions  or  events since that notification that management believes
have  changed  the  institution's  category.





<PAGE>


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

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

     Total  assets  increased slightly by $3.7 million from December 31, 2002 to
March  31,  2003.  The  net  increase  was  primarily comprised of the following
changes:  an  $80.6  million  increase  in  loans  receivable,  a  $46.2 million
decrease  in loans receivable held for sale, a $19.4 million decrease in federal
funds  sold  and  a  $8.2  million  decrease  in  mortgage-backed  securities
available-for-sale.  There  were  also  small changes in other asset categories.
The  increase  in  loans  receivable was primarily due to the purchase of $160.9
million  in  single-family mortgage loans, offset by principal payments received
on mortgage and other types of loans.  The decrease in loans receivable held for
sale  was  due  primarily to the loan package purchased in November of 2002 with
the  intention  of selling the majority of the package to third party investors.
The  sales  to the third party investors were completed in January of 2003.  The
decrease  in  mortgage-backed  securities was due to principal payments received
offset  by  purchases  of  $38.8  million  during  the  first  quarter  of 2003.

     Deposits increased $6.7 million or 0.4% from December 31, 2002 to March 31,
2003  and  advances from the FHLB decreased 1.2% or $8.4 million.  Stockholders'
equity  increased  1.5% or $2.3 million from December 31, 2002 to March 31, 2003
primarily  as  a  result  of  net  income,  offset  by  a  $185,000  decrease in
accumulated  other  comprehensive  income  and  dividends  declared.

Results  of  Operations  for  the  Three  Months  Ended  March 31, 2003 and 2002
--------------------------------------------------------------------------------

     General
     -------

     For  the  three  months  ended  March 31, 2003, net income was $3.7 million
compared  to  $4.1  million  for  the  three  months  ended March 31, 2002.  The
decrease was primarily due to a $2.5 million decrease in net interest income, as
a  result  of  a 0.39% decrease in net interest margin (due to the overall lower
interest  rate  environment)  and  a  $14.0  million  decrease  in  average  net
interest-earning  assets  when  comparing  the first quarter of 2003 to the same
period  in  2002.  In  addition,  noninterest expense increased $204,000.  These
decreases  in  net income were partially mitigated by a $1.5 million increase in
noninterest  income,  a  $225,000  decrease  in the provision for Federal income
taxes  and  a $647,000 decrease in the expense for minority interest (related to
preferred  stock  of  Coastal  Banc  ssb  which  was redeemed on July 15, 2002).

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

     Due  to  the  overall  lower  interest  rate  environment  and  significant
principal  payments  received  on  Coastal's  mortgage-backed  securities  and
single-family  mortgage  loan portfolios, interest income decreased $5.8 million
to  $29.6  million  for the three months ended March 31, 2003 from $35.4 million
for the three months ended March 31, 2002.  The decrease was comprised of a $4.4
million decrease in interest income on loans receivable, a $1.3 million decrease
in  interest  income  on  mortgage-backed  securities and a $185,000 decrease in
interest  income  on  FHLB  stock, federal funds sold and other interest-earning
assets.

     When  comparing  the two periods, average interest-earning assets decreased
$21.7  million and the average yield decreased 0.93% from 5.90% in 2002 to 4.97%
in  2003.  The  $21.7  million  decrease  in  average  interest-earning  assets
consisted  primarily  of  a  $30.2  million  decrease  in the average balance of
mortgage-backed  securities,  a $26.6 million decrease in the average balance of
other securities available-for-sale, offset somewhat by a $36.5 million increase
in  the  average  balance  of  loans  receivable.

     As  in  2002,  during  2003 Coastal has continued to experience significant
principal  paydowns on its mortgage-backed securities and single family mortgage
loans  receivable  portfolios  (on  an  annualized  basis,  approximately 40% on
mortgage-backed  securities  and 40% on single family mortgage loans) due to the
continuing  low  market  rates  of  interest  and  the resulting refinancings of
mortgage  assets.  These  paydowns  resulted  in greater premium amortization on
those  mortgage  assets  originally purchased at a premium.  In addition, due to
the lower interest rate environment, Coastal is replacing these paid down assets
with  lower  yielding  assets,  many  being  purchased  at  a  premium.

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

     Interest  expense on interest-bearing liabilities was $13.4 million for the
three  months  ended  March  31, 2003, as compared to $16.7 million for the same
period in 2002.  The decrease in interest expense was again primarily due to the
lower  overall  market  rates of interest that declined throughout 2002 and have
continued  to decline in 2003.  When comparing the two periods, the average rate
paid  on interest-bearing liabilities decreased to 2.53% for 2003 from 3.15% for
2002 and average interest-bearing liabilities decreased $7.7 million.  The 0.62%
decrease  in  the  average  rate  paid  on  interest-bearing liabilities was due
primarily  to  the  0.73% decrease in the rate paid on interest-bearing deposits
and  a 0.72% decrease in the rates paid on advances from the FHLB.  The decrease
in  average  interest-bearing liabilities consisted primarily of a $61.2 million
decrease  in  average interest-bearing deposits, a $15.1 million decrease in the
average  balance  of  Senior  Notes due to their redemption on February 1, 2003,
offset  somewhat  by  a  $50.0  million increase in the average balance of Trust
Preferred  Securities  due to their issuance on June 18, 2002 and an increase of
$18.7  million  in  advances  from  the  FHLB.

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

     Net  interest income was $16.2 million for the three months ended March 31,
2003  and  $18.7  million  for the same period in 2002.  As discussed above, the
decrease  was  due  primarily  to  the  overall  lower  market  interest  rate
environment.  Net  interest  margin  ("Margin")  was  2.71% for the three months
ended  March  31,  2003  compared  to 3.10% for the three months ended March 31,
2002.  Margin  represents  net  interest  income  as  a  percentage  of  average
interest-earning  assets.  Net  interest  spread  ("Spread"), defined to exclude
noninterest-bearing  deposits,  decreased  to  2.44%  for the three months ended
March 31, 2003 from 2.75% for the three months ended March 31, 2002.  Management
also  calculates  an  alternative  Spread  which  includes  noninterest-bearing
deposits.  Under  this calculation, the alternative Spreads for the three months
ended  March  31,  2003 and 2002 were 2.63% and 2.97%, respectively.  Margin and
Spread  are  affected  by  the  changes  in  the  amount  and  composition  of
interest-earning  assets  and  interest-bearing liabilities.  When comparing the
two periods, average interest-earning assets decreased $21.7 million and average
interest-bearing  liabilities  decreased  $7.7  million.

     Management's  overall  goal  is  to continue to improve the asset/liability
composition  to  be  less  vulnerable  to  market  interest  rate  fluctuations,
primarily through the addition of loans tied to variable rates such as LIBOR and
local  and  regional  prime rates and through the efforts to replace LIBOR based
borrowings  with  lower  cost  retail  deposits.

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

     The provision for loan losses was $900,000 for the three months ended March
31,  2003  and  for  the  three months ended March 31, 2002.  At March 31, 2003,
Coastal  had  nonperforming loans totaling $15.5 million, which is a decrease of
$3.0 million, or 16.3%, when compared to December 31, 2002.  Nonperforming loans
are  those loans on nonaccrual status as well as those loans greater than ninety
days  delinquent and still accruing interest.  The ratio of nonperforming assets
to  total  assets  was 0.77% at March 31, 2003.  At March 31, 2003 the allowance
for  loan losses as a percentage of nonperforming loans (excluding nonperforming
loans  held  for sale which are recorded at the lower of cost or fair value) was
118.0%  compared  to  97.7%  at  December  31,  2002.

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

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

     For  the  three  months  ended March 31, 2003, noninterest income increased
$1.5  million  to  $4.0  million,  compared to $2.5 million for the three months
ended  March  31,  2002.  The  $1.5  million  increase in noninterest income was
primarily  due  to  the $907,000 increase in service charges on deposit accounts
and  a  $734,000  gain  on  the  sale  of  loans  receivable held for sale.  The
increased  income  from  service charges on deposit accounts is due to Coastal's
continued  focus  on  increasing  transaction-type  accounts and the related fee
income,  including  Coastal's  Free  Checking  and Bounce Protection features on
retail checking accounts introduced during August 2002.  The gain on the sale of
mortgage  loans  held  for sale was due to routine sales transactions by Coastal
Banc  ssb  (the  "Bank"),  which were facilitated by Coastal Banc Mortgage Corp.
("CBMC"),  an  affiliate of the Bank.  The loans sold were purchased by the Bank
in  packages  with  the  intention  to  resell  all  or part of the loans in the
packages  to third party investors.  CBMC was formed during the third quarter of
2002  for  the  purpose of facilitating the purchase and sale of whole loans and
participations  to  third  parties.  There  were  also  small  changes  in other
categories  of  noninterest  income.

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

     For  the  three  months ended March 31, 2003, noninterest expense increased
$204,000  from  the three months ended March 31, 2002.  When comparing the first
quarter  of  2003  to  the  same  period  in  2002, the $204,000 net increase in
noninterest  expense  was  comprised  primarily  of an increase in compensation,
payroll  taxes  and  benefits  of  $147,000 and an increase in other noninterest
expense  of  $513,000,  offset by decreases of $263,000, $154,000 and $49,000 in
office  occupancy,  advertising and postage and delivery expenses, respectively.
The  increase in compensation related expenses was due primarily to compensation
paid  to  CBMC  employees  for  brokerage  commissions related to the loan sales
mentioned  previously, offset by a decrease due to the internal audit department
being  outsourced  during  2002.  The  $513,000  increase  in  other noninterest
expense  was  comprised  of  a  $120,000  increase  in audit and accounting fees
related to the outsourcing of the internal audit department, a $120,000 increase
in  legal  fees  and  insurance  premiums,  and  a $201,000 increase in expenses
related  to  loans  and real estate owned.  The decrease in office occupancy was
primarily  due  to  certain  assets becoming fully depreciated in 2002 and 2003.
The  decrease  in  advertising expense was due to management's continued work to
monitor  and  reduce  this  type  of  expense,  when  possible.

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

     The provision for Federal income taxes for the three months ended March 31,
2003  was $1.7 million compared to $1.9 million for the three months ended March
31,  2002.  The  $225,000  decrease was due to the lower amount of income before
provision for Federal income taxes and minority interest, with the effective tax
rate  for  the  periods being approximately 31% for quarter ended March 31, 2003
and  32%  for  the same period in 2002 (when taking into account the tax benefit
for  the  minority  interest expense in 2002).  As discussed in the notes to the
Consolidated  Financial  Statements,  Coastal  receives  a  tax  benefit for the
dividends  paid on the Bancorp Preferred Stock pursuant to an agreement with the
FDIC.  The  effective  tax  rate for the three months ended March 31, 2003 would
have  been  35% without this tax benefit related to the Bancorp Preferred Stock.

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

Coastal's  primary  sources of funds consist of deposits bearing market rates of
interest,  advances  from  the  FHLB,  securities  sold  under  agreements  to
repurchase,  federal  funds purchased and principal payments on loans receivable
and  mortgage-backed securities.  Coastal uses its funding resources principally
to  meet  its  ongoing  commitments  to  fund  maturing  deposits  and  deposit
withdrawals,  repay  borrowings,  purchase  loans receivable and mortgage-backed
securities,  fund  existing  and  continuing  loan  commitments,  maintain  its
liquidity,  meet operating expenses and fund stock purchases and acquisitions of
other  banks  and  thrifts,  either on a branch office or whole bank acquisition
basis.  At  March  31,  2003,  Coastal  had  binding commitments to originate or
purchase  loans  totaling  approximately $23.0 million and had $146.1 million of
undisbursed  loans  in process.  Scheduled maturities of certificates of deposit
during  the  12 months following March 31, 2003, totaled $726.5 million at March
31,  2003.  Management  believes that Coastal has adequate resources to fund all
of  its  commitments.

     During the quarter ended March 31, 2003, Coastal opened a new branch in the
City  of  Rosenberg,  Texas.  As  of  March 31, 2003, Coastal operated 44 retail
banking  offices in Texas cities, including Houston, Austin, Corpus Christi, the
Rio Grande Valley and small cities in the southeast quadrant of Texas (including
this  new  branch  in  Rosenberg).  Management's  overall goal is to continue to
improve  the  asset/liability  composition of Coastal's balance sheet to be less
vulnerable  to  market  interest  rate  fluctuations.

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

     The Management's Discussion and Analysis of Financial Condition and Results
of  Operations set forth in 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 changes in market rates of interest, changes in
our  loan  portfolio,  including  the  risks associated with our non-traditional
lending  (loans  other  than  single-family  residential  mortgage loans such as
multifamily,  real  estate  acquisition and development, commercial real estate,
commercial  business,  commercial  construction  and  warehouse  loans),  the
possibility  that  Coastal's  allowance for loan losses proves to be inadequate,
Coastal's  ability to attract core deposits, the concentration of Coastal's loan
portfolio  in  Texas  and  California  to the extent that the economies of those
states  experience  problems, Coastal's acquisition strategy, including risks of
adversely changing results of operations and factors affecting Coastal's ability
to  consummate  further  acquisitions;  risks  involved  in Coastal's ability to
quickly and efficiently integrate the operations of acquired entities with those
of  Coastal;  changes  in  business  strategies, changes in general economic and
business  conditions  and  changes  in  the  laws  and regulations applicable to
Coastal;  and other factors as discussed in Coastal's Annual Report on Form 10-K
for  the  year ended December 31, 2002, as filed with the SEC on March 25, 2003.

<PAGE>

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

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

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

     Pursuant  to  Section  302  of  the  Sarbanes-Oxley  Act of 2002, Coastal's
management  has  reviewed  the disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and 15d-14) of Coastal as of a date within 90 days
prior to this quarterly report (the "Evaluation Date").  Disclosure controls and
procedures are the controls and other procedures of Coastal that are designed to
ensure  that  the information required to be disclosed by Coastal in its reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within  the  time  periods  specified  in  the SEC's rules and forms.
Disclosure  controls  and  procedures  include, without limitation, controls and
procedures  designed  to  ensure  that  information  required to be disclosed by
Coastal  in  its  reports  filed  under  the  Exchange  Act  is  accumulated and
communicated  to Coastal's management, including the principal executive officer
and  principal  financial  officer,  as  appropriate  to  allow timely decisions
regarding  required  disclosure.  Management  believes  that  such  disclosure
controls  and  procedures as of the Evaluation Date were adequate to ensure that
material  information  relating  to  Coastal,  including  its  consolidated
subsidiaries,  is  made  known  to  management  by others within Coastal and its
consolidated subsidiaries.  To management's knowledge, there were no significant
changes in internal controls or in other factors that could significantly affect
internal  controls  subsequent  to  the  Evaluation  Date.

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


<PAGE>

PART  II  -  OTHER  INFORMATION

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

     We  are,  and  have  been  involved,  from time to time, in various claims,
complaints,  proceedings  and litigation relating to activities arising from the
normal  course of our operations.  Based on the facts currently available to us,
we believe that the matters pending at March 31, 2003 are without merit, or will
be  covered  by  insurance and any other matters are of such amounts, which upon
resolution, are not likely to have a material adverse effect on our consolidated
financial  condition,  results  of  operations  or  cash  flows.

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

             Not  applicable.

Item  3.     Defaults  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
             -------------------------------------

             Reports  on  Form  8-K.

             None.

             Exhibits.

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

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

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


<PAGE>


                                   SIGNATURES


     Pursuant  to  the  requirement  of the Securities Exchange Act of 1934, the
Registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.




Dated:     5/15/03                                   By     /s/  Manuel J. Mehos
           -------                                          --------------------
                                                               Manuel  J.  Mehos
                                                        Chairman  of  the  Board
                                                       Chief  Executive  Officer









Dated:     5/15/03                                   By /s/  Catherine  N. Wylie
           -------                                           -------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer

<PAGE>
                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

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

                                                         COASTAL  BANCORP,  INC.

Dated:     5/15/03                                   By     /s/  Manuel J. Mehos
           -------                                          --------------------
                                                               Manuel  J.  Mehos
                                                       Chief  Executive  Officer

<PAGE>
                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

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

                                                         COASTAL  BANCORP,  INC.

Dated:     5/15/03                               By     /s/  Catherine  N. Wylie
           -------                                           -------------------
                                                            Catherine  N.  Wylie
                                                       Chief  Financial  Officer

<PAGE>

                                  EXHIBIT 99.1


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


     In  connection  with  the  Quarterly  Report  of Coastal Bancorp, Inc. (the
"Company")  on  Form  10-Q for the period ended March 31, 2003 as filed with the
Securities  and Exchange Commission on May 15, 2003 (the "Report"), I, Manuel J.
Mehos,  Chairman  of  the  Board  and  Chief  Executive  Officer of the Company,
certify,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of  the  Sarbanes-Oxley  Act  of  2002,  that:

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

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


Dated:     5/15/03                                   By     /s/  Manuel J. Mehos
           -------                                          --------------------
                                                               Manuel  J.  Mehos
                                             Chairman  of  the  Board  and Chief
                                                              Executive  Officer


(A  signed  original  of this written statement required by Section 906 has been
provided  to Coastal Bancorp, Inc. and will be retained by Coastal Bancorp, Inc.
and  furnished  to  the  Securities  and  Exchange  Commission or its staff upon
request.)


<PAGE>


                                  EXHIBIT 99.2


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


     In  connection  with  the  Quarterly  Report  of Coastal Bancorp, Inc. (the
"Company")  on  Form  10-Q for the period ended March 31, 2003 as filed with the
Securities  and Exchange Commission on May 15, 2003 (the "Report"), I, Catherine
N. Wylie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section  1350,  as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002,  that:

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

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




Dated:     5/15/03                                 By  /s/  Catherine  N. Wylie
           -------                                          -------------------
                                                           Catherine  N.  Wylie
                                                      Chief  Financial  Officer


(A  signed  original  of this written statement required by Section 906 has been
provided  to Coastal Bancorp, Inc. and will be retained by Coastal Bancorp, Inc.
and  furnished  to  the  Securities  and  Exchange  Commission or its staff upon
request.)





<PAGE>


                                  EXHIBIT 99.3


   STATEMENT OF FACTORS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

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

WE  ARE  VULNERABLE  TO  CHANGES  IN  INTEREST  RATES.

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

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





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

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

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

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

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

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

The  Texas economy has historically tended to outperform the national economy in
terms  of  employment  and  population  growth.  While  Texas  has  diversified
substantially  in  recent years, it continues to be particularly affected by the
overall health of the oil and gas industry.  The Texas economy is also dependent
upon  trade  (particularly  with  Mexico)  and  the  high  technology  industry.
Unfavorable  economic conditions in these areas could significantly increase the
number  of  borrowers  which are unable to pay their loans on a timely basis and
cause  a  decline  in the value of the properties securing our loans which could
have  an  adverse  effect  on our results of operations and financial condition.

The  California  economy  experienced  a  major slowdown in 2001. While economic
conditions  stabilized  in  2002,  the state economy remains weak and employment
growth  is  sluggish.  Economic  conditions  in  California  are also subject to
various  uncertainties  at  this  time,  including  the  impact  of state budget
shortfalls  and  the continued weakness in the technology industry.  If economic
conditions  in California remain weak or deteriorate further, we expect that our
level  of  problem  assets  could  increase  accordingly.

WE  MAY  FAIL  TO  IDENTIFY  OR  CONSUMMATE  ADDITIONAL  ACQUISITIONS.

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

WE  MAY  FAIL  TO  INTEGRATE  OUR  ACQUISITIONS  SUCCESSFULLY.

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

Competition  with  other  financial  institutions  could  adversely  affect  our
profitability.

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

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

CHANGES  IN  STATUTES  AND  REGULATIONS  COULD  ADVERSELY  AFFECT  US.

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