COASTAL BANCORP INC, DEF 14A, 1999-03-23

COASTAL BANCORP INC
DEF 14A, 1999-03-23
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ____________)

FILED BY THE REGISTRANT
FILED BY A PARTY OTHER THAN THE REGISTRANT
CHECK THE APPROPRIATE BOX:
PRELIMINARY PROXY STATEMENT
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
DEFINITIVE PROXY STATEMENT
DEFINITIVE ADDITIONAL MATERIALS
SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12

COASTAL BANCORP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT))

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
NO FEE REQUIRED.
FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(1) AND 0-11.

(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:

___________________________________
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:

___________________________________
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE
ACT RULE 0-11: (SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):

___________________________________
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:

___________________________________
(5) TOTAL FEE PAID:

___________________________________
FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS:
CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE
0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR
THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.

(1) AMOUNT PREVIOUSLY PAID:

___________________________________
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:

___________________________________
(3) FILING PARTY:

___________________________________
(4) DATE FILED:

___________________________________

<PAGE>

March 23, 1999

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of the stockholders
of Coastal Bancorp, Inc. (the "Company"). The meeting will be held at the
corporate offices of Coastal Bancorp, Inc., at 5718 Westheimer, Houston, Texas
in the Coastal Banc auditorium, Suite 1101, on Thursday, April 22, 1999, at
11:00 a.m., Central Time.

The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. Stockholders will vote to
elect directors, act on the Company's 1999 Stock Compensation Program, act on an
adjournment of the Annual Meeting, if necessary, and ratify the Company's
independent auditors. The Company's Board of Directors believes that these
proposals are in the best interest of the Company and its stockholders and
recommends that stockholders vote "for" them at the Annual Meeting. Directors
and officers of the Company and representatives of the Company's independent
auditors will be present to respond to any questions that our stockholders may
have.

It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. Let me urge you to mark, sign and date your proxy card today
and return it in the postage paid envelope provided, even if you plan to attend
the Annual Meeting. This will not prevent you from voting in person, but will
ensure that your vote is counted if you are unable to attend.

Your continued support of and interest in Coastal Bancorp, Inc. is
appreciated.

Sincerely,

/s/ Manuel J. Mehos
Manuel J. Mehos
Chairman of the Board, President
and Chief Executive Officer

<PAGE>
COASTAL BANCORP, INC.
COASTAL BANC PLAZA
5718 WESTHEIMER, SUITE 600
HOUSTON, TEXAS 77057

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1999

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Coastal Bancorp, Inc. (the "Company") will be held at the corporate
offices of Coastal Bancorp, Inc., at 5718 Westheimer, Suite 1101, Houston, Texas
at 11:00 a.m., Central Time, on April 22, 1999 for the following purposes, all
of which are more completely set forth in the accompanying Proxy Statement:

(1) To elect two directors of the Company to serve until the annual
meeting of stockholders in the year 2002 and until their successors are elected
and qualified;

(2) To consider and act upon a proposal to adopt the 1999 Stock
Compensation Program for the Company and its subsidiaries;

(3) To vote on a proposal to approve an adjournment of the Annual
Meeting to another date and time for the purpose of soliciting additional
proxies if there are not sufficient votes at the time of the Annual Meeting to
approve the proposal relating to the 1999 Stock Compensation Program;

(4) To ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999; and,

(5) To transact such other business as may properly come before the
Annual Meeting, or any adjournment or postponement thereof. Except with respect
to procedural matters incident to the conduct of the Annual Meeting, management
of the Company is not aware of any matters other than those set forth above
which may properly come before the Annual Meeting.

The Board of Directors has fixed February 25, 1999 for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting and any
adjournment or postponement thereof. Only those stockholders of record as of
the close of business on that date will be entitled to vote at the Annual
Meeting or at any such adjournment or postponement.

BY ORDER OF THE BOARD OF
DIRECTORS

/s/ Linda B. Frazier
Linda B. Frazier
Secretary

Houston, Texas
March 23, 1999

YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING,
YOU MAY VOTE IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.

COASTAL BANCORP, INC.

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

This Proxy Statement is furnished to the holders of the common stock, $.01
par value per share (the "Common Stock") of Coastal Bancorp, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company, to be used at the Annual Meeting of Stockholders to
be held at the corporate offices of Coastal Bancorp, Inc., at 5718 Westheimer,
Houston, Texas in the Coastal Banc auditorium, Suite 1101, at 11:00 a.m.,
Central Time, on April 22, 1999 and at any adjournment or postponement thereof
for the purposes set forth in the Notice of Annual Meeting of Stockholders.
This Proxy Statement is expected to be mailed to stockholders on or about March
23, 1999.

Each proxy solicited hereby, if properly signed and returned to the
Company, will be voted in accordance with the instructions contained therein if
it is not revoked prior to its use. IF NO CONTRARY INSTRUCTIONS ARE GIVEN, EACH
PROXY RECEIVED WILL BE VOTED: (I) FOR THE ELECTION OF THE BOARD'S NOMINEES AS
DIRECTORS OF THE COMPANY; (II) FOR THE PROPOSAL TO CONSIDER AND ACT UPON A
PROPOSAL TO ADOPT THE 1999 STOCK COMPENSATION PROGRAM FOR THE COMPANY AND ITS
SUBSIDIARIES; (III) FOR THE PROPOSAL TO APPROVE AN ADJOURNMENT OF THE ANNUAL
MEETING TO ANOTHER DATE AND TIME FOR THE PURPOSE OF SOLICITING ADDITIONAL
PROXIES IF THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF THE ANNUAL MEETING TO
APPROVE THE PROPOSAL RELATING TO THE 1999 STOCK COMPENSATION PROGRAM; (IV) FOR
THE PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999; AND (V) UPON THE
TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING, IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS APPOINTED AS
PROXIES. ANY HOLDER OF COMMON STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO
PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL
BE DEEMED TO HAVE VOTED IN FAVOR OF THE MATTERS SET FORTH IN THE PRECEDING
SENTENCE.

Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Company written
notice of revocation thereof (Linda B. Frazier, Coastal Bancorp, Inc., Coastal
Banc Plaza, 5718 Westheimer, Suite 600, Houston, Texas 77057), (ii) submitting a
duly executed proxy bearing a later date; or (iii) by appearing at the Annual
Meeting and giving the Secretary notice of his or her intention to vote in
person. Proxies solicited hereby may be exercised only at the Annual Meeting
and any adjournment or postponement thereof and will not be used for any other
meeting.

<PAGE>
BACKGROUND INFORMATION
ON
COASTAL BANCORP, INC.
AND
SUBSIDIARIES

Coastal Bancorp, Inc. (the "Company") is engaged primarily in the business
of serving as the parent holding company for Coastal Banc ssb (the "Bank"). The
Company was incorporated in March 1994 in connection with the reorganization of
Coastal Banc Savings Association, a Texas-chartered thrift institution (the
"Association") into the holding company form of organization. In connection
with the reorganization, which was completed in July 1994, the Association
concurrently converted into a Texas-chartered savings bank and took its present
name. In November 1996, in order to minimize state taxes, the Company's
corporate structure was again reorganized by forming Coastal Banc Holding
Company, Inc. ("HoCo") as a Delaware holding company. HoCo became a
wholly-owned subsidiary of the Company and the Bank became a wholly-owned
subsidiary of HoCo. Coastal Bancorp, Inc. is a registered unitary savings and
loan holding company regulated by the Office of Thrift Supervision.

VOTING SECURITIES AND BENEFICIAL
OWNERSHIP THEREOF

Only holders of record of the Company's Common Stock at the close of
business on February 25, 1999 ("Record Date") will be entitled to notice of, and
to vote at, the Annual Meeting. On the Record Date, there were 6,880,964 shares
of Common Stock outstanding and the Company had no other class of equity
securities outstanding. Only holders of Company Common Stock will be entitled
to vote at the Annual Meeting and each share of Common Stock will be entitled to
one vote on all matters properly presented. Stockholders of the Company are not
permitted to cumulate their votes for the election of directors. All share
balances set forth herein have been adjusted to reflect the 3:2 stock split that
was paid on June 15, 1998.

The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. Directors will be elected by a plurality of the
votes cast at the Annual Meeting. The affirmative vote of a majority of the
total votes cast at the Annual Meeting is required for the approval of the 1999
Stock Compensation Program, to adjourn the Annual Meeting, if necessary, and to
approve the proposal to ratify the appointment of the Company's independent
auditors.

Abstentions will be counted for purposes of determining the presence of a
quorum at the Annual Meeting. Because of the required votes, abstentions will
have the same effect as a vote against the proposal to approve the 1999 Stock
Compensation Program, against the proposal to adjourn the Annual Meeting, if
necessary, and against the proposal to ratify the appointment of the Company's
independent auditors, but will not be counted as votes cast for the election of
directors and, thus, will have no effect on the voting for the election of
directors. Under the applicable rules, all of the proposals for consideration
at the Annual Meeting are considered "discretionary" items upon which brokerage
firms may vote in their discretion on behalf of their clients if such clients
have not furnished voting instructions. Thus, there are no proposals to be
considered at the Annual Meeting which are considered "non-discretionary" and
for which there will be "broker non-votes".

At February 25, 1999, directors, executive officers and their affiliates
beneficially owned 1,360,943 shares of Common Stock or 20.28% of the total
shares of Common Stock outstanding on such date. It is anticipated that all of
such shares will be voted for the election of the nominees of the Company's
Board of Directors and in favor of all of the proposals of the Board described
herein.

The following table sets forth the beneficial ownership of the Common Stock
as of February 25, 1999, with respect to (i) any person or entity who is known
to the Company to be the beneficial owner of 5% or more of the Common Stock;
(ii) each nominee for director; (iii) each director of the Company; (iv) each of
the executive officers named in the summary compensation table (see "Executive
Compensation - Summary Compensation Table") and (v) all directors and executive
officers of the Company and its subsidiary, Coastal Banc ssb, as a group. The
address for all directors and executive officers of the Company and the Bank is
Coastal Banc Plaza, 5718 Westheimer, Suite 600, Houston, Texas 77057. Except as
set forth below, as of February 25, 1999, the Company was aware of no other
person or entity unaffiliated with the Company that was the beneficial owner of
5% or more of the Common Stock.

Amount of Shares of
Common Stock
Name Beneficially Owned
(and Address) of as of February 25, Percent of
Beneficial Owner 1999(1) Class
- ------------------------------------------ -------------------- -----------
<S> <C> <C>

First Manhattan Co.. . . . . . . . . . . . 728,988(2) 10.60%
437 Madison Avenue
New York, New York 10022

Thomson Horstmann & Bryant, Inc. . . . . . 665,300(2) 9.67
Park 80 West, Plaza II
Saddle Brook, New Jersey 07662

Dimensional Fund Advisors, Inc.. . . . . . 438,150(2) 6.37
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401

Weiss Peck & Greer, L.L.C. . . . . . . . . 376,850(2) 5.48
One New York Plaza, 30th Floor
New York, New York 10004

Friedman Billings Ramsey & Co., Inc. . . . 232,437(2) 3.38
1001 19th Street North
Arlington, Virginia 22209-1710

Robert Edwin Allday, Director. . . . . . . 0(3) *
Coastal Bancorp, Inc. and Coastal Banc ssb

D. Fort Flowers, Jr., Director . . . . . . 274,020(4) 3.98
Coastal Bancorp, Inc. and Coastal Banc ssb

Dennis S. Frank, Director. . . . . . . . . 2,700 *
Coastal Bancorp, Inc. and Coastal Banc ssb

Robert E. Johnson, Jr., Director . . . . . 19,320 *
Coastal Bancorp, Inc. and Coastal Banc ssb

Manuel J. Mehos, Chairman of the Board,. . 568,250(5)(6) 8.26
President and Chief Executive Officer
Coastal Bancorp, Inc., Coastal Banc
Holding Company, Inc. and
Coastal Banc ssb
</TABLE>

James C. Niver, Director. . . . . . . . . . . 553,428(6) 8.04%
Coastal Bancorp, Inc. and Coastal Banc ssb

John D. Bird, Executive Vice President, . . . 42,416(5) *
Chief Administrative Officer and
Assistant Secretary
Coastal Banc ssb

Gary R. Garrett, Executive Vice President . . 47,206(5) *
and Chief Lending Officer
Coastal Banc ssb

David R. Graham, Executive Vice President - . 21,764(5) *
Real Estate Lending
Coastal Banc ssb

Nancy S. Vadasz, Executive Vice President - . 26,844(5) *
Market and Product Strategies
Coastal Banc ssb

Catherine N. Wylie, Executive Vice President. 46,447(5) *
and Chief Financial Officer
Coastal Bancorp, Inc., Coastal Banc Holding
Company, Inc. and Coastal Banc ssb

All directors and executive officers of the . 1,360,943(5) 20.28
Company and the Bank as a group
(11 persons)
</TABLE>

______________________
- ----------------------

* Represents less than 1.0% of the Common Stock outstanding.

(1) Based upon information furnished by the respective individuals and
filings pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The information is not necessarily indicative of beneficial
ownership for any other purpose. Under regulations promulgated pursuant to the
Exchange Act, shares are deemed to be beneficially owned by a person if he or
she directly or indirectly has or shares (i) voting power, which includes the
power to vote or to direct the voting of the shares, or (ii) investment power,
which includes the power to dispose or to direct the disposition of the shares.
Unless otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.

(2) Based on a Schedule 13G filed under the Exchange Act.

(3) Mr. Allday is the beneficial owner of 2,000 shares of the Bank's 9.0%
Noncumulative Preferred Stock, Series A.

(4) Of such shares, 269,520 are owned by a trust over which Mr. Flowers has
shared voting and dispositive power with two other co-trustees.

(5) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Common Stock which may be acquired within 60 days of
the Record Date pursuant to the exercise of outstanding stock options. Shares
of Common Stock which are subject to stock options are deemed to be outstanding
for the purpose of computing the percentage of outstanding Common Stock owned by
such person or group but not deemed outstanding for the purpose of computing the
percentage of Common Stock owned by any other person or group. The amounts set
forth in the table include 41,416, 46,706, 21,764, 124,750, 26,844 and 42,522
shares which may be received upon the exercise of stock options by Messrs. Bird,
Garrett, Graham and Mehos and Mmes. Vadasz and Wylie, respectively, pursuant to
stock options. For all directors and executive officers as a group, the number
of shares includes 304,002 shares of Common Stock subject to outstanding stock
options.

(6) Mr. Niver is the co-trustee with his wife of a trust which holds such
shares for their benefit.

INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS

ELECTION OF DIRECTORS

Coastal Bancorp, Inc. is a Texas corporation, formed pursuant to the Texas
Business Corporation Act which requires that the business and affairs of the
Company shall be managed by or under the direction of the Board of Directors.
The Company's Articles of Incorporation provide that the Company's Board of
Directors be divided into three classes as nearly equal in number as possible,
with one class to be elected annually, and the Bylaws state that members of each
class are to be elected for a term of office to expire at the third succeeding
annual meeting of stockholders and when their respective successors have been
elected and qualified. The number of directors is determined from time to time
by resolution of the Board. Mr. Stone, effective November 24, 1998, resigned
from the Board of Directors for personal reasons. On January 28, 1999, the
Board of Directors nominated and approved Mr. Paul W. Hobby to replace Mr.
Stone.

Two directors are to be elected at this Annual Meeting to hold office until
the Annual Meeting in 2002 or until their successors are elected and qualified.
The information set forth below relating to a director's tenure is as of the
date he was first elected as director of either the Association or the Company,
where applicable. There are no arrangements or understandings between the
Company and any person pursuant to which such person has been selected as a
nominee, and no director is related to any other director or executive officer
of the Company or the Bank by blood, marriage or adoption.

INFORMATION WITH RESPECT TO CONTINUING DIRECTORS

Information concerning those members of the Board whose terms do not expire
in 1999, including age, tenure and principal position with the Company and
principal occupation during the past five years, as well as the year his term
will expire, is set forth below:

MANUEL J. MEHOS. Age 44. Director since 1986. Mr. Mehos is the Chairman
of the Board, President and Chief Executive Officer of the Company, Coastal Banc
Holding Company, Inc., Coastal Banc Capital Corp., and the Bank and also Chief
Executive Officer of CoastalBanc Financial Corp., a Bank subsidiary. He is also
a director of each of the Bank's subsidiaries and is the President of CBS Asset
Corp., CBS Builders, Inc. and CoastalBanc Investment Corporation, which are
wholly-owned subsidiaries of the Bank, all of which are located in Houston,
Texas. CBS Asset Corp., CBS Builders, Inc. and CoastalBanc Investment
Corporation are presently inactive. Mr. Mehos also currently serves on the
Finance Commission of Texas. His term as a director of the Company will expire
in 2000.

JAMES C. NIVER. Age 69. Director since 1986. Mr. Niver is retired and
from 1972 until 1995 was employed by Century Land Company, Houston, Texas,
retiring as its President. His term as a director of the Company will expire in
2000.

R. EDWIN ALLDAY. Age 48. Director since 1986. Mr. Allday is a private
investor and in September 1993 became a senior consultant with The Dini
Partners, Inc., Houston, Texas, a company that provides counseling in
philanthropy and non-profit company management. Mr. Allday was an independent
consultant for community relations for charitable organizations from March 1990
to June 1993. From August 1988 to March 1990, Mr. Allday was the Chief
Operating Officer of the American Leadership Forum, a non-profit organization
which teaches business leadership skills located in Houston, Texas. From March
1982 to August 1988, Mr. Allday was the General Manager of Anglia Companies, a
family-owned investment management business in Houston, Texas. His term as a
director of the Company will expire in 2001.

D. FORT FLOWERS, JR. Age 37. Director since 1992. Mr. Flowers is the
President of Sentinel Trust Company, a Texas Limited Banking Association,
Houston, Texas, providing fiduciary and investment management services to
affluent families, their closely held corporations and foundations, a position
he has held since January 1997. Mr. Flowers was Chairman of the Board of DIFCO,
Inc., a railroad car engineering and manufacturing company from before the time
he became a director until August, 1997 when that company was sold. His term as
a director of the Company will expire in 2001.

<PAGE>

DENNIS S. FRANK. Age 42. Director since 1988. Mr. Frank is the Chairman
of the Board, Chief Executive Officer and President of Silvergate Bancorp, La
Mesa, California, a position he has held since December 1996. Additionally, he
has been the President and Chief Executive Officer of DSF Management Corp., a
private investment company, located in Houston, Texas, since March 1994. Prior
to that, Mr. Frank was the Manager of the Association's Capital Markets Division
from July 1988 to April 1993 and a consultant to the Association from April 1993
to April 1994. His term as a director of the Company will expire in 2001.

INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR

Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted "FOR" the election of each of the nominees listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Annual Meeting, the Board of Directors will
nominate, and the persons named as proxies will vote, for any replacement
nominee or nominees recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why any of the nominees listed below may
not be able to serve as a director if elected.

Information concerning the nominees for director, including age, tenure,
principal position with the Company and principal occupation during the past
five years, as well as the year his term will expire, is set forth below:

ROBERT E. JOHNSON, JR. Age 45. Director since 1986. Mr. Johnson is a
partner in the law firm of Johnson & Johnson, Austin, Texas. If elected, his
term as a director of the Company will expire in 2002.

PAUL W. HOBBY. Age 38. Director since January, 1999. Mr. Hobby is
Chairman and Chief Executive Officer of Hobby Media Services, Inc., Houston,
Texas, a Houston based corporation which invests in traditional and new media
services. Mr. Hobby also serves on the board of directors of various civic,
charitable and professional associations. If elected, his term as a director of
the Company will expire in 2002.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE ABOVE
NOMINEES BE ELECTED AS DIRECTORS OF THE COMPANY.

<PAGE>
STOCKHOLDER NOMINATIONS

The Company's Articles of Incorporation govern nominations for election to
the Board of Directors and require that all nominations for election to the
Board of Directors other than those made by the Board, be made by a stockholder
who has complied with the notice provisions in the Articles. Written notice of
a stockholder's nomination must be communicated to the attention of the
Company's Secretary and either delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the mailing of the proxy materials by the Company in
connection with the immediately preceding annual meeting of stockholders of the
Company, and with respect to a special meeting of stockholders for the election
of directors, on the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. Such notice shall
include specified matters as set forth in the Articles of Incorporation. If the
nomination is not made in accordance with the requirements set forth in the
Articles of Incorporation, the defective nomination will be disregarded at the
Annual Meeting. The Company did not receive any nominations from stockholders
for the Annual Meeting.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES
OF COASTAL BANCORP, INC. AND COASTAL BANC SSB

Regular meetings of the Board of Directors of the Company are held at least
quarterly and special meetings may be called at any time as necessary. During
the year ended December 31, 1998, the Board of Directors of the Company held
eleven meetings. No incumbent director of the Company attended fewer than 75%
of the Board meetings held during the period in which he served as a director in
1998.

The Board of Directors is authorized by its Bylaws to elect members of the
Board to committees of the Board which may be necessary or appropriate for the
conduct of the business of the Company. At December 31, 1998, there were no
committees of the Board of the Company.

Regular meetings of the Board of Directors of the Bank are held monthly and
special meetings may be called at any time as necessary. During the year ended
December 31, 1998, the Board of Directors of the Bank held twelve meetings. No
incumbent director of the Bank attended fewer than 75% of the aggregate of the
total number of Board meetings held during the period in which he served as a
director and the total number of meetings held by committees of the Board of
Directors of the Bank on which he served in 1998.

The Board of Directors of the Bank is authorized by its Bylaws to elect
members of the Board to committees of the Board which may be necessary or
appropriate for the conduct of the business of the Bank. At December 31, 1998,
the Bank had an Audit, Compensation, Asset/Liability, Directors' Loan Review,
Community Reinvestment Act Committee and an Investment Banking Committee.

<PAGE>

The Audit Committee of the Bank's Board is responsible for reviewing the
reports of the independent auditors and examination reports of regulatory
authorities, monitoring the functions of the internal audit department, which
reports directly to this Committee, and generally overseeing compliance with
internal policies and procedures. The Audit Committee members are Messrs. Niver
(Chairman), Allday and Johnson. This Committee met six times during 1998.

The Compensation Committee reviews the compensation of senior executive
officers and recommends to the Board adjustments in such compensation based on a
number of factors, including the profitability of the Bank. Messrs. Niver
(Chairman), Flowers and Johnson comprise the Compensation Committee, which met
two times during 1998. See "Executive Compensation - Report of the Board of
Directors on Compensation During Fiscal 1998."

The Asset/Liability Committee met four times in 1998 to authorize
investment categories, overall investment limitations and brokers to be
utilized, to review trade recommendations and past trades of the Asset/Liability
Subcommittee (composed of certain officers) and compliance of the Bank's
investment activities with the Bank's Investment and Interest Rate Risk Policies
and with Board recommendations. The Committee also makes interest rate risk
assessments and formulates asset/liability management policy for the forthcoming
quarterly period. This Committee consists of Messrs. Frank (Chairman), Flowers,
Mehos and Hobby.

The Directors' Loan Review Committee met twelve times in 1998 to approve
and/or review certain loans. The Committee can approve any class or type of
loan which is authorized for investment by the Board. Specified loan authority
limits are further delegated to the management loan committee, the management
construction loan committee or an individual officer of the Bank. The
Directors' Loan Review Committee consists of Messrs. Mehos (Chairman), Flowers,
Frank, Niver, and Stone.

The Community Reinvestment Act ("CRA") Committee was established to monitor
the Bank's efforts in serving the credit needs of the residents of the
communities in which it does business, including those credit-worthy persons
having low and moderate incomes. The CRA Committee has appointed a CRA Officer
who is responsible for developing and administering the Bank's CRA program and
for training the Bank's staff to comply with CRA regulations, and Bank policies
and procedures. The CRA Officer chairs a management CRA Committee which works
to oversee that the Bank meets the procedural requirements of the CRA. The CRA
Committee is composed of Messrs. Allday (Chairman), Frank, Mehos and Johnson and
met two times in 1998.

The Investment Banking Committee was established in 1998 to review and
recommend to the Board possible acquisitions of investment banking firms. The
committee is composed of Messrs. Mehos, Flowers and Stone, prior to his
resignation met two times during 1998. Mr. Hobby will be serving as a member of
this committee in 1999.

<PAGE>
BOARD FEES

Through October 22, 1998, each non-employee director of the Company and the
Bank was paid a fee of $1,550 for attendance at Board meetings and a fee of $300
for each committee meeting attended. Directors who were members of the Loan
Review Committee or who attended any ad hoc Portfolio Control Center ("PCC")
meetings were paid a maximum of $600 per month for all such meetings. From
November, 1998, each non-employee director of the Company and the Bank was paid
a fee of $2,000 for attendance at Board meetings, $400 for each committee
meeting attended and $800 for all Loan Review Committee/PCC meetings attended.
When the Board of the Company meets on the same day as the Board of the Bank,
only one attendance fee is paid for that date. No fees are paid for
non-attendance; attendance by conference telephone is similarly not compensated.
Directors are also reimbursed for reasonable travel expenses. Directors who are
also employees of the Company and the Bank receive no fees for attendance at
Board or committee meetings.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires the Company's officers,
directors and beneficial owners of more than 10% of any class of equity
securities of the Company to file reports to indicate ownership and changes in
ownership with the Securities and Exchange Commission and to furnish the Company
with copies of such reports.

Based upon a review of the copies of such forms, the Company believes that
during the year ended December 31, 1998, all Section 16(a) filing requirements
applicable to the Company's officers and directors of the Company and/or the
Bank were complied with. However, the Company believes that First Manhattan Co.
did not file the required reports.

<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

The following table sets forth information concerning executive officers of
the Company, the Bank or other subsidiaries who do not serve on the Company's
Board of Directors. All executive officers are elected by the Board of
Directors of the Company or the Bank or of the respective subsidiary and serve
until their successors are elected and qualified. No such executive officer is
related to any director or other executive officer of the Company or the Bank or
its subsidiaries by blood, marriage or adoption, and there are no arrangements
or understandings between a director and any other person pursuant to which such
person was elected an executive officer.

Position with the Company and/or
the Bank and other subsidiaries
Name Age Principal Occupation During Last Five Years
--------- ------ -------------------------------------------

<S> <C> <C>
John D. Bird 55 Executive Vice President of the Bank since August 1993,
Chief Administrative Officer since June 1993, and
Assistant Secretary of the Bank since March 1986;
Chief Operations Officer of the Bank from March 1986
to June 1993; President and sole stockholder of Coastal
Banc Insurance Agency, Inc., an affiliate of the Bank,
since May 1987.

Gary R. Garrett 52 Executive Vice President of the Bank since August 1993
and a director of each of the Bank's subsidiaries;
Chief Lending Officer of the Company and the since
1995; Senior Vice President- Mortgage Lending of
the Bank from October 1991 to August 1993; Chief
Executive Officer and President of CBS Mortgage Corp.
since August 1993; Executive Vice President, CBS
Mortgage Corp. from January 1989 to August 1993.
Director and Executive Vice President of Coastal Banc
Capital Corp., an affiliate of the Bank, since August 1997.

David R. Graham 55 Executive Vice President of the Bank since August 1993
and a director of each of the Bank's subsidiaries; Senior
Vice President-Real Estate Lending Division of the
Bank from May 1988 to August 1993. Senior Vice
President of CBS Asset Corp. since April 1993.

Nancy S. Vadasz 45 Executive Vice President of the Bank since June of 1994,
Senior Vice President since September 1991. Ms.
Vadasz is responsible for Market and Product Strategies.

Catherine N. Wylie 44 Executive Vice President of Coastal Banc Holding
Company, Inc. since November, 1996, of the Company
since July 1994 and of the Bank since August 1993 and a
director of Coastal Banc Holding Company, Inc., and of
each of the Bank's subsidiaries; Chief Financial Officer of
of the Company and the Bank since October 1993; Controller
of the Bank from April 1989 to October 1993; also Executive
Vice President/Treasurer of each of the Bank's subsidiaries
since October 1990. Director and Executive Vice President
of Coastal Banc Capital Corp., an affiliate of the Bank
since August 1997.
</TABLE>

<PAGE>

EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
COMPENSATION DURING FISCAL 1998. Officers of the Company do not receive
compensation for their services.

The Compensation Committee of the Board of Directors of the Bank (the
"Committee") is composed entirely of independent outside directors. See
"Information With Respect to Nominees for Director, Directors Whose Terms
Continue and Executive Officers - Board of Directors Meetings and Committees of
Coastal Bancorp, Inc. and Coastal Banc ssb." The Committee is responsible for
reviewing the compensation of executive officers of the Bank and recommending
executive compensation proposals to the Bank's Board of Directors for approval.

The Board of Directors of the Bank has a compensation philosophy pursuant
to which executive compensation is designed to be at least comparable with
average executive compensation for the Bank's peers, which are generally
considered to be companies of approximately the same size and in the same
industry. Companies included are independent financial companies, banks and
savings and loan associations, ranging from $900 million to $4.0 billion in
asset size. In May 1992, the Bank retained an executive compensation consultant
to review its executive compensation policies. The consultant developed a
compensation program for the Bank's executive officers which is a combination of
base salary plus incentive compensation linked to the Bank's profitability.

The Committee evaluates the base salaries of the Bank's executive officers
annually. An executive officer's base salary is determined based upon longevity
with the Bank, the effectiveness of such individual in performing his or her
duties, peer averages at the position in question and the Bank's overall
performance. No particular weight is assigned to these variables. The base
salary component alone, while designed to be competitive with peer group
averages, is not designed to produce top levels of compensation for the Bank's
executive officers when compared to its peer group. The incentive component, as
described below, which requires the Bank to achieve returns at a pre-specified
level before additional compensation is paid, is the element which is designed
to make total compensation for each of the Bank's executive officers comparable
or better than the comparable executive compensation for the executive officers
in the Bank's peer group. Based upon the foregoing, Mr. Mehos, the Chief
Executive Officer, earned $269,900 in base salary during 1998.

The amount of incentive compensation is related to the financial
performance of the Bank. No cash incentive compensation will be paid to the
Bank's executive officers unless the Committee determines the Bank is safe and
sound in the following areas: capital adequacy, earnings composition, earnings
capability, liquidity, risk management (classified assets), strategic planning,
and compliance with laws and regulations.

<PAGE>

During 1998, the Board of Directors determined that no incentive awards to
its Executive Management would be paid unless a 7.5% return on average equity
("ROE") was achieved. Any earnings from extraordinary items or unsound
practices are excluded from such calculations at the Board's discretion. Gains
on sales of securities from the investment account, net of losses of sales from
the investment account, are deducted from the earnings pool. During 1998, the
Committee calculated that the Company achieved a 14.96% ROE.

Accordingly, during 1998, a bonus pool of $348,697 in the aggregate was
established and incentive awards were paid to the three top executive officers,
Mehos, Garrett and Wylie, of the Bank. See "Summary Compensation Table."

By the Committee:

James C. Niver (Chairman)
D. Fort Flowers, Jr.
Robert E. Johnson, Jr.

<PAGE>
SUMMARY COMPENSATION TABLE. To meet the goal of providing shareholders a
concise, comprehensive overview of compensation awarded, earned or paid in the
reporting period, the Summary Compensation Table is utilized by the Company.
The Summary Compensation Table includes individual compensation information with
respect to the Chief Executive Officer and the four other most highly
compensated executive officers of the Bank and its subsidiaries whose total
compensation exceeded $100,000 for services rendered in all capacities during
the fiscal years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
ANNUAL ALL
NAME AND PRINCIPAL COMPENSATION AWARDS OTHER
POSITION(1) YEAR SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION(5)
-------------------- ---- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>

Manuel J. Mehos
Chairman of the Board, 1998 $269,900 $174,899 10,000 $ 2,000
President and 1997 264,000 127,900 22,000 2,000
Chief Executive Officer 1996 241,000 131,228 30,000 1,425

John D. Bird 1998 128,369 27,000 2,000 8,000
Executive Vice President and 1997 124,630 30,000 5,000 8,000
Chief Administrative Officer 1996 121,000 40,000 5,000 7,425

Gary R. Garrett 1998 179,900 87,149 3,000 5,669
Executive Vice President and 1997 164,800 64,000 11,000 5,000
Chief Lending Officer 1996 160,000 70,000 10,000 4,425

David R. Graham 1998 131,071 34,291 2,000 2,000
Executive Vice President 1997 124,630 32,895 8,000 2,000
Real Estate Lending Division 1996 121,000 40,000 7,500 1,425

Catherine N. Wylie 1998 179,900 87,149 3,000 26,120
Executive Vice President and 1997 164,800 64,000 11,000 5,000
Chief Financial Officer 1996 160,000 70,000 10,000 4,425

</TABLE>

(1) Principal positions are for fiscal 1998.
(2) Does not include amounts attributable to miscellaneous benefits received
by executive officers of the Bank, including use of Bank-owned vehicles and
reimbursement of educational expenses. In the opinion of management of the
Company, the costs to the Company of providing such benefits to any individual
executive officer during the year ended December 31, 1998 did not exceed the
lesser of $50,000 or 10% of the total of annual salary and bonus reported for
the individual.
(3) Includes lump sum cash bonuses earned for the fiscal year stated and
paid in some casesin the subsequent year.
(4) Free standing stock options; see "- Option Grants in Last Fiscal Year."
(5) Includes, for the named individuals, employer matching contributions
accrued pursuant to the Company's Profit Sharing (401(k)) Plan, any car
allowances and educational reimbursements.

<PAGE>
EXECUTIVE SEVERANCE AGREEMENTS

On June 25, 1998, the Company and the Bank extended the term of the
executive severance agreements (the "Executive Severance Agreements") with Mr.
Garrett and Ms. Wylie (the "Employees" or "Employee") out one year to expire
June 25, 2001. The Executive Severance Agreements provide for the payment of
certain severance benefits to Mr. Garrett and Ms. Wylie in the event of a
trigger event under the Executive Severance Agreements, which means (i) the
occurrence of a change in control of the Company as defined below, or (ii) the
voluntary termination within 90 days of an event which occurs during the
"Protected Period" (i.e., the period six months before and three years after a
change of control or after the expiration of the Executive Severance Agreement)
and constitutes "Good Reason" (as defined below), or (iii) termination of the
Employee's employment for any reason other than "Just Cause" during the
Protected Period. If a trigger event occurs, the Employees will be entitled to
(x) payment by the Company or the Bank of one times the annual salary and bonus
for incentive compensation (not including stock compensation plans) paid to the
Employee during his or her immediately preceding year of employment or (y) the
payment by the Company or the Bank of an amount equal to 2.99 times their annual
salary plus bonuses paid during the immediately preceding year; and (z) the
Company will cause any and all outstanding options to purchase stock of the
Company held by each Employee to become immediately exercisable in full. The
Executive Severance Agreement also provides that the Company will reimburse the
Employee for all costs and expenses, including reasonable attorney's fees
incurred by the Employee to enforce rights or benefits under such agreements.
Other than the foregoing, the Company has not entered into any employment
contracts with any of its officers.

Under the Executive Severance Agreements, a "Change In Control" of the
Company would be deemed to occur if (i) the Company is not the surviving entity
in any merger, consolidation, or other reorganization, (ii) the sale, exchange,
lease, transfer or other disposition to any person of all or a substantial part
of the assets, liabilities, or business of the Company or the Bank, (iii) any
change in business of the Company or the Bank such that the Company does not own
the voting stock of the Bank or the business of the Bank is not as an insured
depository institution, (iv) any person or entity including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act acquires or gains ownership
or control (including, without limitation, power to vote) of more than 25% of
the outstanding shares of the Bank's or the Company's voting stock, or (v) as a
result of or in connection with a contested election of directors, the persons
who were directors of the Bank or the Company before such election cease to
constitute at least two-thirds of the Board of Directors.

Under the Executive Severance Agreements (a) "Good Reason" means any of
the following events, which has not been consented to in advance by the Employee
in writing: (i) the requirement that the Employee move his or her personal
residence, or perform his or her principal executive functions, more than thirty
(30) miles from his or her primary office as of the date of the Change in
Control; (ii) a material (defined to be 10% or more) reduction in the Employee's
base compensation as in effect on the date of the Change in Control or as the
same may be increased from time to time; (iii) a successor to the Company or the
Bank fails or refuses to assume the Company's and the Bank's obligations under
the Executive Severance Agreement; (iv) the Company, the Bank or successor
thereto breaches any provision of the Executive Severance Agreement; or (v) the
Employee is terminated for other than Just Cause after the Change in Control;
and (b) "Just Cause" means, in the good faith determination of the Company's and
the Bank's Boards of Directors, the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of the
Executive Severance Agreement. The Employee shall have the right to make a
presentation to the Board of Directors with counsel prior to rendering of such
determination by the Board. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
No act, or failure to act, on the Employee's part shall be considered "willful"
unless he has acted, or failed to act, with the absence of good faith and
without a reasonable belief that his action or failure to act was in the best
interest of the Bank and the Company.

In the event that the Employee and the Company or the Bank agree that the
Employee will be paid an amount under the Executive Severance Agreement which
triggers the requirement to pay the excise tax required under Section 280G of
the Internal Revenue Code of 1986, as amended, the Company or the Bank will
reimburse the Employee for all such excise taxes.

The Executive Severance Agreement remains in effect for the modified period
commencing on June 25, 1998 (the "Effective Date") and ending on the earlier of
(i) June 25, 2001, or (ii) the date on which the Employee terminates his or her
employment with the Company or the Bank. Any payments made to the Employee
pursuant to the Executive Severance Agreement, or otherwise, are subject to and
conditioned upon their compliance with the Federal Deposit Insurance Act and any
regulations promulgated by the Federal Deposit Insurance Corporation thereunder.

OPTION GRANTS IN LAST FISCAL YEAR

On March 23, 1995, the Board of Directors adopted the 1995 Stock
Compensation Program (the "1995 Program"). Stockholders of the Company approved
the 1995 Program at the April 27, 1995 annual meeting. The Board reserved
255,261 shares of Common Stock for issuance under the 1995 Program at the time
of adoption. There were 47,500 options issued under the 1995 Program in 1998.
The 1995 Program is substantially similar to the 1991 Program, as described
below.

The Board of Directors adopted the 1991 Stock Compensation Program (the
"1991 Program") for the benefit of officers and other selected key employees of
the Company and the Bank who were deemed to be responsible for the future growth
of the Company. Stockholders of the Company approved the program at a Special
Meeting of Stockholders held in December 1991. In connection with the
reorganization of the Association in 1994, the 1991 Program was adopted by the
Company, and approved by stockholders for the benefit of officers and key
employees of the Company and the Bank and its subsidiaries.

An aggregate of 241,001 shares of authorized but unissued shares of Company
Common Stock were originally reserved for future issuance under the 1991
Program. All shares of the 1991 Program have been issued.

Of the shares reserved for issuance under both the 1995 Program and the
1991 Program (the "Programs"), 2,842 shares are not currently subject to option
at February 25, 1999. The Programs will remain in effect for a term of ten
years from the date of adoption unless sooner terminated in accordance with the
provisions of the Programs.

Four kinds of rights, evidenced by four plans, are contained in the
Programs and are available for grant: (i) incentive stock options; (ii)
compensatory stock options; (iii) stock appreciation rights; and (iv)
performance share awards. Shares issuable under the Programs pursuant to the
exercise of stock options and/or the granting of stock appreciation rights and
performance shares are subject to modification or adjustment to reflect changes
in the Company's capitalization.

The Programs are administered by Messrs. Niver, Flowers and Johnson (the
"Program Administrators"). The Program Administrators are given absolute
discretion under each Program to select the persons to whom options, rights and
awards will be granted and to determine the number of shares subject to each
option, right or award. Only regular, full-time employees of the Company or the
Bank, or any subsidiary of the Company or the Bank are eligible for selection by
the Program Administrators to participate in the Programs. Non-employee
directors are not eligible to receive awards under the Programs.

The option prices per share for incentive stock options granted under the
Programs may not be less than the fair market value of the Company's Common
Stock on the date of the grant; provided, however, that if any employee owns
more than 10% of the combined voting power of all classes of stock of the
Company, the purchase price for shares acquired pursuant to the exercise of an
option shall not be less than 110% of the fair market value of the Common Stock.
The per share exercise price for compensatory options granted under the Programs
may be equal to or less than the fair market value on the date of grant. The
purchase price for shares of Common Stock subject to incentive or compensatory
options may be paid in cash, by check, or if permitted by the Program
Administrators at the time the option is granted, by shares of Common Stock, or
by a combination thereof.

In the event of a change in control of the Company, as defined, all
incentive and compensatory stock options previously granted may become
immediately exercisable notwithstanding any existing installment limitation
which may be established by the Program Administrators, provided that the
exercisability of an option may not be accelerated prior to the six month
anniversary of the date the option is granted.

<PAGE>
AGGREGATE OPTIONS GRANTED IN LAST FISCAL YEAR

The following table sets forth individual grants of options that were made
during the last fiscal year to the executive officers named in the Summary
Compensation Table. This table is intended to allow stockholders to ascertain
the number and size of option grants made during the fiscal year, the expiration
date of the grants and the potential realizable present value of such options
under specified assumptions.

<TABLE>
<CAPTION>
PERCENT OF
OPTIONS TOTAL OPTIONS
GRANTED GRANTED TO EXERCISE GRANT DATE
(NO. OF EMPLOYEES PRICE EXPIRATION PRESENT
NAME SHARES)(1) IN FISCAL YEAR PER SHARE DATE VALUE(2)
---- ---------- -------------- --------- ---- --------
<S> <C> <C> <C> <C> <C>
Manuel J. Mehos 10,000 21.05% $25.13 6/25/08 $113,880
John D. Bird 2,000 4.21 25.13 6/25/08 22,776
Gary R. Garrett 3,000 6.32 25.13 6/25/08 34,164
David R. Graham 2,000 4.21 25.13 6/25/08 22,776
Catherine N. Wylie 3,000 6.32 25.13 6/25/08 34,164
</TABLE>

______________

(1) Total options granted in 1998 were 47,500 shares. The options vest 25%
during the first year and an additional 25% for each of the next three years.

(2) The potential realizable value of the grant of options is the present
value of the grant at the date of grant using a variation of the Black-Scholes
option pricing model. Assumptions used to calculate the present value of the
options granted on June 25, 1998, respectively, were as follows: an expected
volatility rate of 25.49%, a risk free rate of return of 5.47%, a dividend yield
of $.32 per share per year and the expiration date of June 25, 2008,
respectively.

<PAGE>
AGGREGATE OPTIONS EXERCISED IN LAST YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth, with respect to the executive officers
named in the Summary Compensation Table, information with respect to the
aggregate amount of options exercised during the last fiscal year, any value
realized thereon, the number of unexercised options at the end of the fiscal
year (exercisable and unexercisable) and the value with respect thereto.

<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised in-the-Money Options at
Acquired on Value Options at Fiscal Year-End Fiscal Year-End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Manuel J. Mehos -- -- 124,750 35,250 $767,940 $92,130
John D. Bird -- -- 41,416 7,125 327,515 20,306
Gary R. Garrett -- -- 46,706 16,530 512,346 46,799
David R. Graham -- -- 21,764 10,807 162,208 31,872
Catherine N. Wylie -- -- 42,522 19,924 499,748 69,545
</TABLE>

______________

(1) Based upon a closing market price for the Company's Common Stock as of
December 31, 1998 of $17.50.

COMPARATIVE STOCK PERFORMANCE GRAPH

The stock performance graph below compares the cumulative total stockholder
return of the Company's Common Stock from December 31, 1993 to December 31, 1998
with the cumulative total return of the National Association of Securities
Dealers Automated Quotations ("NASDAQ") Market Index and certain thrift
institutions traded on the NASDAQ, as compiled by SNL Securities, L.P. in its
OTC Thrift Index, assuming an investment of $100 on December 31, 1993 and the
reinvestment of all dividends. The Company did not pay dividends on the
Company's Common Stock during 1993. In 1994, the Company paid its first
dividend of $.08 per share on June 15, 1994. Quarterly dividends of the same
amount were paid on September 15, 1994, December 15, 1994, March 15, 1995, June
15, 1995, September 15, 1995, and December 15, 1995. The Board of Directors
voted at the January 25, 1996 regularly scheduled Board Meeting to increase the
dividend for the fourth quarter of 1995 from $.08 per share to $.10 per share.
Quarterly dividends of $.10 per share were paid on March 15, 1996, June 15,
1996, September 15, 1996 and December 15, 1996. During 1997 the Company paid
quarterly dividends in the amount of $.10 per share on March 15, 1997 and
quarterly dividends of $.12 per share on June 15, 1997, September 15, 1997 and
December 15, 1997. In 1998 the Company split the stock 3:2 at which time the
$.12 per share dividend, adjusted for the split was $.08 per share. During
1998, the Company paid quarterly dividends in the amount of $.08 per share, as
adjusted for the stock split, on March 15, 1998, June 15, 1998, September 15,
1998 and December 15, 1998.

<PAGE>
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURN PERFORMANCE

<TABLE>
<CAPTION>
PERIOD ENDING
--------------
INDEX 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Coastal Bancorp, Inc 100.00 110.00 136.68 182.51 282.89 216.13
NASDAQ - Total US Index 100.00 97.75 138.26 170.01 208.58 293.21
SNL OTC Thrift Index 100.00 100.85 153.34 199.50 324.02 283.31
</TABLE>

______________

Notes:
A. Each Index is weighted for all companies that fit the criteria of
that particular Index. The Index is calculated to exclude companies as they are
acquired, and add them to the Index calculation as they become publicly traded
companies. All companies in the particular Index that were in existence at
December 31, 1998 are included in the calculations.
B. Each Index value measures dividend re-investment by assuming
dividends are received in cash on the ex-date and re-invested back into the
company stock paying the dividend on the same day. The stock price on the
ex-date is used to calculate how many shares can be bought with the dividend.

<PAGE>
CERTAIN TRANSACTIONS

As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") on August 9, 1989, Section
22(h) of the Federal Reserve Act became applicable to a savings institution,
such as the Bank. This law generally provides that any credit extended by a
savings institution to its executive officers, directors and, to the extent
otherwise permitted, principal stockholder(s), or any related interest of the
foregoing, must (i) be on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions by
the savings association with non-affiliated parties; (ii) be pursuant to
underwriting standards that are no less stringent than those applicable to
comparable transactions with non-affiliated parties; (iii) not involve more than
the normal risk of repayment or present other unfavorable features; and (iv) not
exceed, in the aggregate, the institution's unimpaired capital and surplus, as
defined. The Company had no loans to principal shareholders, directors or
executive officers outstanding at the year ended December 31, 1998. In 1998,
the Company voted to make loans available to employees starting in the last
quarter of 1998 under the same terms as those offered to the public. The
Directors and Executive Officers of the Company and the Bank are excluded from
this program.

In 1987, the Bank entered into an Administrative Services Agreement with
Coastal Banc Insurance Agency, Inc. ("CBIA"), a Texas business corporation
licensed under Texas law to act as a life insurance agent. CBIA is wholly-owned
by an executive officer of the Bank who receives no salary or dividends from
CBIA. CBIA has granted to the Bank the legal ownership of all of its books and
records and the stockholder of CBIA has granted to the Bank the right to assign
all of its stock in CBIA to any other properly licensed life insurance agent in
the Bank's sole discretion. The Bank has agreed to provide to CBIA certain
services, including but not limited to employee training, office space,
furniture, fixtures, equipment, clerical services, data processing and other
services as well as marketing leads and information to assist CBIA in the sale
of annuities underwritten by an independent annuity company to the Bank's
deposit and loan customers. In consideration for such services, CBIA has agreed
to pay the Bank a flat fee which is subject to renegotiation on a quarterly
basis. The fee payable to the Bank was last negotiated on December 28, 1998,
and was $260,000 for the year ended December 31, 1998. Such fee represented
substantially all of CBIA's net income for the year then ended.

PROPOSAL TO ADOPT THE
1999 STOCK COMPENSATION PROGRAM

The Board of Directors of the Company has approved the adoption of a new
stock compensation program for officers and employees of the Company and its
subsidiaries. The Coastal Bancorp, Inc. 1999 Stock Compensation Program (the
"1999 Program") is substantially similar to the Company's 1991 and 1995 Stock
Compensation Programs. The Board of Directors believes that the 1999 Program is
necessary primarily because there are no shares remaining under the 1991 Program
and only 2,842 shares currently remaining and reserved for issuance under the
1995 Program. The Board of Directors believes that it is in the best interests
of the Company and its stockholders to ensure stock ownership for certain
individuals who are key to the success of the Company and who will be
responsible for its future growth. Like the 1991 and 1995 Programs, the 1999
Program is designed to help the Company attract and retain superior personnel
for, and in positions of, substantial responsibility with the Company and to
provide them with a stock-based incentive. The Board believes that stock
options, stock appreciation rights and performance share grants should be an
integral part of certain individuals' compensation package and desires the
ability to continue to provide such awards on terms and conditions substantially
similar to the terms and conditions set forth under the 1991 and 1995 Programs
which have been in effect for the past eight years. The Board has reserved
340,000 shares of Common Stock (or 4.94% of the 6,880,964 shares of Common Stock
issued and outstanding as of the Record Date) for issuance under the 1999
Program.

Accordingly, the stockholders of the Company are being requested at the
Annual Meeting to consider and approve the adoption of the 1999 Program. The
1999 Program must be approved by the affirmative vote of a majority of the
shares of Common Stock entitled to vote and cast on this matter and represented
in person or by proxy at the Annual Meeting. The following is a summary of the
1999 Program which does not purport to be complete.

GENERAL

Four kinds of rights, evidenced by four plans, are contained in the 1999
Program and will be available for grant: incentive stock options ("Plan I"),
compensatory stock options ("Plan II"), stock appreciation rights ("Plan III")
and performance share awards ("Plan IV"). An aggregate of 340,000 shares of
authorized but unissued Common Stock has been reserved for issuance pursuant to
the 1999 Program, subject to modification or adjustment to reflect changes in
the Company's capitalization, as discussed below. See "- Adjustments to Number
and Purchase Price of Shares." No options, stock appreciation rights or
performance shares have been granted under the 1999 Program as of the date
hereof and the Board of Directors does not anticipate making any such grants
until after the 1999 Program has been approved by the stockholders of the
Company. Therefore, the amount of options, stock appreciation rights or
performance share awards are not currently determinable and may not be
determined with respect to the last completed fiscal year as if the 1999 Program
had been in effect. Upon approval of the 1999 Program by stockholders of the
Company, the Company will register the securities of the 1999 Program under the
Securities Act of 1933 and any applicable state securities laws.

PURPOSE

As noted above, the purpose of the 1999 Program is to advance the interests
of the Company and its stockholders by enabling the Company, the Bank and any
other subsidiaries or affiliates thereof (which are collectively referred to
herein, unless the context otherwise requires, as the "Company") to attract and
retain superior personnel for positions of substantial responsibility and to
provide key employees with an additional incentive to contribute to the success
of the Company. The successful conduct of the Company's business is largely
dependent upon the judgment, initiative and efforts of the Company's officers
and other key employees, and the Program provides such persons with an
opportunity to receive greater rewards for their efforts and the incentive
advantages inherent in ownership of the Company's Common Stock.

<PAGE>
ADMINISTRATION

The 1999 Program is to be administered by not less than three disinterested
outside directors of the Company as determined by the Board of Directors of the
Company ("Program Administrators"). The Program Administrators serve as such
until they resign or are replaced by the Board of Directors of the Company.
Each Program Administrator must be a "disinterested person" as defined by Rule
16b-3(d)(3) of the Securities Exchange Act. A "disinterested person" means an
administrator of a plan who is not at the time he exercises discretion in
administering the plan eligible, and has not at any time within one year prior
thereto, been eligible for selection as a person to whom stock may be allocated
or to whom stock options or stock appreciation rights may be granted pursuant to
the plan or any other plan of the Company or its affiliates. The Program
Administrators have absolute discretion to determine the employees to whom stock
options, stock appreciation rights or performance shares will be granted under
the 1999 Program and to determine the number of shares subject to each stock
option, stock appreciation right or performance share. Subject to the
provisions of the 1999 Program, the Program Administrators also have absolute
discretion to determine the terms on which such options, appreciation rights and
performance shares are to be granted, to interpret the 1999 Program, and to make
all other determinations necessary or advisable for the administration of the
1999 Program. No Program Administrator shall be liable for any action or
determination made in good faith with respect to the 1999 Program or to any
option, stock appreciation right or performance share granted thereunder and the
Company will indemnify the Program Administrators against proceedings brought by
reason of actions or omissions by any Program Administrator in his capacity as
such under or with respect to the 1999 Program. As of the date of this Proxy
Statement, the Board of Directors has appointedJames C. Niver (Chairman), Robert
Edwin Allday and D. Fort Flowers, Jr., to serve as the Program Administrators of
the 1999 Program.

ELIGIBILITY

All regular full-time employees, including officers, of the Company or any
subsidiary thereof, approximately 655 individuals, are eligible to be granted
stock options, stock appreciation rights and performance share awards under the
1999 Program. Stock options, stock appreciation rights and performance share
awards may be granted to those employees who, in the determination of the
Program Administrators, are largely responsible through their judgment, ability
and special efforts for the successful conduct of the operation of the Company.
Directors of the Company, unless they are also employees, are not eligible to
participate in the 1999 Program. Each employee who receives an option may be
requested to agree in writing, as a condition of the receipt of such option to
remain in the employ of the Company, or the applicable subsidiary, for a period
not in excess of three years. However, nothing in the 1999 Program confers upon
any employee any right to continued employment by the Company or any subsidiary
thereof or limits in any way the right of the Company to terminate or alter the
terms of such employment. In addition, the Program Administrators may revoke,
rescind and terminate any option, or portion thereof which has not yet vested,
or any stock appreciation right to the extent not yet exercised, which has been
previously granted under the 1999 Program to an employee who is discharged from
the employ of the Company or any subsidiary thereof for certain acts such as
conviction of a felony for misappropriating Company assets or which results in a
threat to the Company's reputation or for willful failure to perform his or her
duties and responsibilities. An employee who receives options will have no
voting, dividend or other rights as a stockholder of the Company with respect to
the shares of Common Stock under option until such option is properly exercised
(which includes full payment for such shares).

STOCK OPTIONS (PLANS I AND II)

Options granted under Plan I of the 1999 Program are intended to qualify as
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended ("Code"). Options granted under Plan II of the 1999 Program
are nonstatutory or compensatory stock options ("non-qualified options"). The
tax treatment differs with respect to the two types of options. See "- Federal
Income Tax Consequences."

An incentive stock option is defined in the Code as an option to purchase
Common Stock of the Company and granted to an employee in connection with his or
her employment which satisfies certain conditions. An incentive stock option
must be granted pursuant to a plan specifying the aggregate number of shares
which may be issued under the Plan and the employees, or class of employees,
eligible to receive such options. The incentive stock option plan must be
approved by the stockholders of the granting corporation within 12 months of the
date of its adoption. (The 1999 Program was adopted by the Board of Directors
at a meeting of the Board on January 28, 1999.) The per share exercise price of
an incentive stock option may not be less than the fair market value of the
Common Stock at the date of the grant, and incentive stock options must be
granted within 10 years from the date of adoption of the Plan. By its terms, an
incentive stock option must not be exercisable after 10 years from the date it
is granted. However, if an employee of the Company owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock issued to stockholders of the Company or any subsidiary at the time an
incentive stock option is granted to him or her, the exercise price of incentive
stock options granted to him or her may be no less than 110% of the fair market
value of a share of Common Stock at the time of the grant and the option may not
be exercisable beyond five years from the date of grant. Finally, the Code
currently requires that the aggregate fair market value (determined at the time
the options are granted) of the Common Stock with respect to which incentive
stock options are first exercisable by any optionee during any calendar year may
not exceed $100,000. The terms of Plan I of the 1999 Program comply with the
above-stated requirements of the Code.

Incentive stock options under Plan I and non-qualified stock options under
Plan II become vested and are exercisable during the period specified in each
option agreement as determined by the Program Administrators; however, no
expiration date may be later than the tenth anniversary (the fifth anniversary
for a greater than 10% stockholder of the Company) of the date on which an
incentive stock option was granted and, with respect to a non-qualified stock
option, no later than ten years and one month. Options may be exercisable in
installments pursuant to a schedule designated by the Program Administrators
and, to the extent not exercised, will accumulate unless otherwise specified.
If (i) a "change in control" or "threatened change in control" of the Company
occurs, as determined in accordance with the 1999 Program, or (ii) the Company
or its stockholders enter into an agreement to dispose of all or substantially
all of the assets or stock of the Company (or of the Bank) by means of a sale,
merger or other reorganization or liquidation where the stockholders of the
Company will not own at least 50% of the voting stock of any surviving entity,
all options previously granted may become immediately exercisable
notwithstanding any existing installment limitation. The term "control" is
defined in the 1999 Program to mean the acquisition of 10% or more of the voting
securities of the Company by any person or group of persons; provided, that for
purposes of the 1999 Program, no change in control or threatened change in
control will be deemed to have occurred if prior to the acquisition of, or offer
to acquire, 10% or more of the Company's voting securities, the full Board of
Directors of the Company adopts by not less than a two-thirds vote a resolution
specifically approving such acquisition or offer for the specific purpose of
preventing the acceleration of the vesting of such options. These provisions of
the 1999 Program may have certain antitakeover effects, including, among others:
(i) increasing the cost to a potential acquiror by increasing the possible
number of shares of Common Stock outstanding; (ii) increasing the number of
shares of Common Stock in the hands of management of the Company who might vote
such shares in a manner contrary to that desired by other non-management
stockholders; and (iii) increasing the total number of shares of Common Stock
which are issued and outstanding which could dilute the stock ownership of a
potential acquiror. Such provisions could result in causing the potential
acquiror to negotiate with the Board of Directors, and perhaps with certain
option holders, regarding such options in conjunction with any offer to acquire
control of the Company. As a consequence, these provisions might have the
effect of discouraging an attempt by another person or entity from seeking to
acquire control of the Company. The Board of Directors is not aware of any
effort by any person to gain control of the Company. Notwithstanding the above,
the Board believes that this aspect of the 1999 Program is far outweighed by the
benefits of the 1999 Program, as described herein.

If employment is terminated due to disability (as defined by the Code) or
retirement, the Program Administrators may allow the options to be exercised
within one year after the date of such termination due to disability or
retirement to the extent exercisable on the date of termination of employment.
If employment is terminated by reason of death or if the optionee dies within
three months after leaving the employ of the Company or any subsidiary thereof,
the person or persons to whom the optionee's rights under the option pass by
will or by the laws of descent and distribution will also have one year to
exercise the options to the extent exercisable on the date of termination of
employment. However, in order for the option to be treated under the Code as an
incentive stock option, the option must be exercised within three months after
the date of termination of employment. If the employment of an optionee
terminates for any other reason, his or her options will expire upon such
termination, except that in the discretion of the Program Administrators, such
options may be exercised for a period of between three months and five years
following termination to the extent exercisable on the date of termination of
employment. In no event, however, will the exercise period for any option
extend beyond the original expiration date of the option.

The option exercise price per share for incentive stock options granted
under the 1999 Program may not be less than the fair market value of the Common
Stock (as defined by the 1999 Program) on the date of the grant (or 110% of the
fair market value in the case of an incentive stock option granted to a greater
than 10% stockholder of the Company's Common Stock). The option exercise price
per share for compensatory stock options can be equal to or less than the fair
market value of the shares at the time of grant, as determined by the Program
Administrators at the time of grant, but in no event will such price be less
than the par value of the Common Stock. Neither incentive nor compensatory
stock options granted under the 1999 Program are transferable or assignable
other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of an optionee only by the optionee.

Payment for shares purchased under the 1999 Program through the exercise of
stock options may be made either in cash or check or, by exchanging shares of
Common Stock of the Company (including shares acquired pursuant to the exercise
of an option) or by withholding some of the shares of Common Stock which are
being purchased thereby, or in other property, if permitted by the Program
Administrators, having a fair market value equal to the option exercise price,
or a combination thereof. If the fair market value of a share of Common Stock
at the time of exercise is greater than the exercise price per share, permitting
the optionee to use previously acquired shares or to withhold some of the shares
being acquired, would enable the optionee to acquire a number of shares of
Common Stock upon exercise of the option which is greater than the number of
shares delivered as payment for the exercise price. In addition, if permitted
by the Program Administrators, an optionee could partially exercise his or her
option and then deliver the shares acquired upon such exercise as payment for
the exercise price of the remaining options. Again, if the fair market value of
a share of Common Stock at the time of exercise is greater than the exercise
price per share, this feature would enable the optionee to either (1) reduce the
amount of cash required to receive a fixed number of shares upon exercise of the
option or (2) receive a greater number of shares upon exercise of the option for
the same amount of cash that otherwise would have been used. Because options
may be exercised in part from time to time, the ability to deliver Common Stock
as payment of the exercise price would enable the optionee to turn a relatively
small number of shares into a larger number of shares. In the case of any
incentive stock options exercisable within the first six months following the
date of grant, the shares of Common Stock received upon the exercise of such
option may not be sold or disposed of by the optionee for the first six months
following the date of grant.

STOCK APPRECIATION RIGHTS (PLAN III)

Under Plan III of the 1999 Program, the Program Administrators may, in
their sole discretion, grant rights to optionees to surrender exercisable
options granted under Plan I or Plan II, or any portion thereof, in return for
the payment by the Company to the optionee of cash or, subject to certain
conditions, Common Stock of the Company in an amount equal to the excess of the
fair market value of the shares of Common Stock subject to the option at the
time over the exercise price of the option with respect to such shares, or a
combination of cash and Common Stock. An optionee may exercise such stock
appreciation rights only during the period beginning on the third business day
following the release of certain quarterly or annual financial information of
the Company and ending on the twelfth business day following such date.

Upon the exercise of a stock appreciation right, the stock option to which
it relates terminates with respect to the number of shares as to which the right
is so exercised. Conversely, upon the exercise of a stock option, any related
stock appreciation right terminates as to any number of shares subject to the
right that exceeds the total number of shares for which the stock option remains
unexercised. With respect to incentive stock options, stock appreciation rights
must be granted concurrently with the incentive stock options to which they
relate. With respect to non-qualified stock options, stock appreciation rights
may be granted concurrently or at any time thereafter prior to the exercise or
expiration of such options. The holder of a stock appreciation right may not
transfer or assign the right other than by will or by the laws of descent and
distribution. In the event of an employee's termination of employment with the
Company, a stock appreciation right may be exercised only within the period, if
any, in which the option to which it relates may be exercised.

Whenever an incentive stock option and a stock appreciation right are
granted together and the exercise of one affects the right to exercise the
other, the stock appreciation right will expire no later than the expiration of
the underlying incentive stock option and the stock appreciation right may be
for no more than the difference between the exercise price of the underlying
incentive option and the market price of the Common Stock subject to the
underlying incentive option at the time the stock appreciation right is
exercised. In addition, the stock appreciation right is transferable only when
the underlying incentive stock option is transferable and under the same
conditions, the stock appreciation right may be exercised only when the
underlying incentive stock option is eligible to be exercised, and the stock
appreciation right may be exercised only when the market price of the Common
Stock subject to the incentive option exceeds the exercise price of the Common
Stock subject to the option.

In addition, Plan III of the 1999 Program contains a provision giving the
Program Administrators discretion to grant "limited stock appreciation rights"
in tandem with incentive stock options in the event there is an "Offer." An
"Offer" is defined to mean a tender offer or exchange offer for shares of the
Company's capital stock, provided that the person making the Offer acquires
shares of the Company's capital stock pursuant to such Offer. The limited stock
appreciation right would be exercisable between the first and the thirtieth day
following the expiration date of the Offer. In general, with respect to
determining the value of the limited stock appreciation right, the fair market
value of the shares to which the right relates is determined to be the highest
price per share paid in any Offer that is in effect at any time during the
period beginning on the sixtieth day prior to the date on which the limited
stock appreciation right is exercised and ending on such exercise date. The
limited stock appreciation rights may have anti-takeover effects similar to
those of the options, described above under "- Stock Options (Plans I and II)."

The Program Administrators are also authorized to grant stock appreciation
rights which are not linked to options ("Naked Rights"). Employees may be
awarded Naked Rights for a period of between six months and five years which are
payable in cash or in shares of Common Stock as determined by the Program
Administrators. For purposes of determining the amount of the Naked Rights
award, the Program Administrators, based on factors they deem appropriate, will
determine the difference between the market value of such right at the date of
grant and the market value at the end of the designated period. The Naked
Rights are to be used solely as a device to determine the amount to be paid to
participants under Plan III and will not constitute or be treated as property or
a trust fund of any kind. As set forth in Plans I and II, if there is a sale,
merger or other reorganization of the Company (or of the Bank) where the
stockholders of the Company will not own at least 50% of the voting stock of any
surviving entity or if there is a "change in control" or "threatened change in
control" of the Company, all Naked Rights will become immediately exercisable.
Such an event may have certain antitakeover effects similar to those discussed
above regarding stock options, under "- Stock Options (Plans I and II)."
Holders of Naked Rights may be requested to agree to remain in the employ of the
Company, or an applicable subsidiary, for a period of up to three years. If a
Naked Rights holder ceases to be employed for any reason other than death,
disability or retirement, his or her Naked Rights will immediately terminate
unless the Program Administrators, at the time of the granting of the Naked
Rights, permit it to be exercised within three months after the date of such
termination. A holder who becomes disabled or retires may exercise such rights
at any time within one year from the date of termination. If such holder dies
during his term of employment or within three months thereafter, the Naked Right
will expire one year after the date of death, unless it expires sooner.

<PAGE>
PERFORMANCE SHARES (PLAN IV)

Employees of the Company also may receive performance share awards pursuant
to Plan IV of the 1999 Program. The granting of performance shares gives the
recipient thereof the right to receive a specified number of shares of Common
Stock of the Company contingent upon the achievement of specified performance
objectives within a specified award period. Any performance shares granted
under the 1999 Program constitute an unfunded promise to make future payments to
the employee upon the completion of the specified objectives. The grant of an
opportunity to receive performance shares does not entitle the affected employee
to any rights to specified funds or assets of the Company. In lieu of some or
all of the shares earned by achievement of the specified performance objectives
within the specified period, the Program Administrators may distribute cash in
an amount equal to the fair market value thereof. The duration of the award
period is determined by the Program Administrators but cannot be less than one
year nor more than five years. If the participating individual dies or
terminates his or her position with the Company prior to the close of an award
period, any performance share granted to him or her for the period is forfeited.
A participating employee may not transfer or assign a performance share award.

ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF SHARES

In the event of a merger, reorganization, stock dividend, stock split or
any other transaction affecting the number or kind of outstanding shares of
Common Stock of the Company, the number and kind of shares allocated to
unexercised stock options, stock appreciation rights and performance shares will
also be appropriately and proportionately adjusted, as will the maximum number
and kind of shares which may be granted under the 1999 Program. Corresponding
adjustments will be made in the exercise price per share for shares covered by
outstanding stock options, stock appreciation rights and performance shares, or
portions thereof. If, upon a merger, consolidation, reorganization or the like,
the shares of the Company's Common Stock are exchanged for other securities of
the Company or another corporation, each recipient of an option, stock
appreciation right or performance share will be entitled to purchase or acquire
such number of shares of the securities as were exchangeable for the number of
shares of Common Stock of the Company which the optionees would have been
entitled to purchase, with appropriate adjustments to be made to the per share
exercise price of the outstanding options or stock appreciation rights.

FEDERAL INCOME TAX CONSEQUENCES

INCENTIVE STOCK OPTIONS. The grant of an incentive stock option under the
1999 Program will not result in taxable income to the recipient either at the
date of grant or at the date of its timely exercise. However, the excess of the
fair market value of the Common Stock received upon exercise of an incentive
stock option over the option exercise price is an item of tax preference income
potentially subject to the alternative minimum tax. Upon disposition of the
Common Stock acquired upon exercise of an incentive stock option, long-term
capital gain or loss is recognized in an amount equal to the difference between
the sale price and the option exercise price, provided that the option holder
has not disposed of the stock within two years from the date of grant or within
one year from the date of exercise. If the option holder disposes of the
acquired Common Stock without complying with both holding period requirements (a
"Disqualifying Disposition"), the option holder will recognize ordinary income
at the time of such Disqualifying Disposition in an amount equal to the
difference between (i) the lesser of the fair market value of the Common Stock
on the date the incentive stock option is exercised (the value at a later date
may govern in the case of an optionee whose sale of stock at a profit could
subject him or her to suit under Section 16(b) of the Exchange Act) or the
amount realized on such Disqualifying Disposition, and (ii) the exercise price
paid for the Common Stock. Any remaining gain or loss will generally be treated
as a short-term capital gain or loss, depending upon how long the Common Stock
is held. In the event of a Disqualifying Disposition, the incentive stock
option tax preference described above does not apply. Where the Disqualifying
Disposition occurs subsequent to the year in which the option is exercised, it
may be necessary for the option holder to amend his or her return to eliminate
the tax preference item previously reported. Unlike the case when a
non-qualified stock option is exercised, the Company and its subsidiary are not
entitled to a tax deduction upon either the exercise of an incentive stock
option or the disposition of Common Stock acquired pursuant to such an exercise,
except to the extent that the option holder recognizes ordinary income in a
Disqualifying Disposition.

If a holder of an incentive stock option pays the exercise price, in full
or in part, with shares of previously acquired Common Stock, the exchange should
not affect the incentive stock option tax treatment of the exercise. Upon such
an exchange, and except as otherwise provided herein, no gain or loss is
recognized upon the disposition of the previously owned shares, and the shares
of Common Stock received by the option holder, equal in number to the previously
owned shares exchanged therefor, will have the same basis and holding period as
the previously owned shares. Holders will not, however, be able to utilize the
holding period for purposes of satisfying the incentive stock option statutory
holding period requirements. Shares of Common Stock received by the option
holder, in excess of the number of previously owned shares, will have a basis of
zero and a holding period which commences as of the date the shares are
transferred upon exercise of the incentive stock option. However, if such an
exercise is effected using shares of Common Stock acquired upon exercise of an
incentive stock option, the exchange of these previously owned shares will be
considered a disposition of such shares for the purpose of determining whether a
Disqualifying Disposition has occurred.

NON-QUALIFIED STOCK OPTIONS. Under present federal regulations, the grant
of a non-qualified stock option under the 1999 Program does not result in
taxable income to the recipient at the time of grant, assuming that the option
does not have a readily ascertainable fair market value at the time it is
granted. However, the optionee must recognize ordinary income at the time of
exercise of the non-qualified stock option in the amount by which the fair
market value of the Common Stock received upon exercise of the non-qualified
stock option at the time of exercise exceeds the exercise price. However, if an
optionee is subject to the restrictions on resale of the Common Stock under
Section 16 of the Exchange Act, such person must generally recognize ordinary
income at a date six months after exercise of the option in an amount equal to
the difference between the option exercise price and the fair market value of
the Common Stock at such later date. Nevertheless, the optionee may elect
within 30 days after the date of exercise to recognize ordinary income as of the
date of exercise. The amount of ordinary income recognized by the optionee is
deductible by the Company or a subsidiary in the year that the income is
recognized and will be subject to withholding.

If a holder of a non-qualified stock option pays the option exercise price
solely in cash, his or her basis in such shares is equal to the fair market
value of the Common Stock on the date ordinary income is recognized and, upon
subsequent disposition, any further gain or loss is taxable either as short-term
or long-term capital gain or loss, depending upon how long the shares are held.
The holding period for such shares commences as of the date ordinary income is
recognized.

If a holder of a non-qualified stock option pays the option exercise price
by delivering already owned Common Stock in lieu of cash, the optionee will
recognize ordinary income to the extent the fair market value of the shares
received exceeds the option exercise price. If a holder of a non-qualified
stock option pays the exercise price, in full or in part, with shares of
previously acquired Common Stock, no gain or loss is recognized upon the
disposition of such previously owned shares. Shares of Common Stock received by
the option holder equal in number to the previously owned shares exchanged
therefor will have the same basis and holding period as such previously owned
shares. Shares of Common Stock received by the option holder in excess of the
number of previously acquired shares will have a basis equal to the fair market
value of such additional shares as of the date ordinary income is recognized
which, except with respect to recipients subject to Section 16 of the Exchange
Act, is the date the option is exercised. The holding period for such
additional shares commences as of the date ordinary income is recognized.

STOCK APPRECIATION RIGHTS. A recipient of a stock appreciation right under
the 1999 Program is not taxed upon the grant of the stock appreciation right.
Upon the exercise of a stock appreciation right, the holder generally is taxed
at ordinary income tax rates on the amount of cash received and the fair market
value of any shares of Common Stock received. If a recipient receiving shares
of Common Stock is subject to the restrictions on resale of the Common Stock
under Section 16 of the Exchange Act, such person generally recognizes ordinary
income at the time that the six-month restriction lapses in an amount equal to
the fair market value of the Common Stock on the date of lapse. Nevertheless,
such recipient may elect within 30 days of the date of exercise to recognize
ordinary income as of the date of exercise. The amount of ordinary income
recognized by the recipient is deductible by the Company in the year that income
is recognized and will be subject to withholding. The recipient's basis in any
shares acquired is equal to the amount of ordinary income recognized with
respect to such shares, and, upon subsequent disposition, any further gain or
loss is taxable either as short-term or long-term capital gain or loss,
depending on how long the shares are held. The holding period for such shares
commences as of the date ordinary income is recognized.

PERFORMANCE SHARE AWARDS. Generally, stock grants which are subject to a
substantial risk of forfeiture and which are not freely transferable within the
meaning of Section 83 of the Code will give rise to taxable ordinary income (and
a deduction to the Company) when the restrictions lapse or the stock becomes
freely transferable, unless the recipient elects under Section 83(b) of the Code
to recognize income as of the date of transfer, as discussed below.

PERSONS SUBJECT TO SECTION 16 OF THE EXCHANGE ACT. Under the Code, shares
acquired pursuant to the 1999 Program by an officer or director of the Company
or by a person who within six months thereafter becomes an officer or director
are considered subject to a substantial risk of forfeiture so long as their sale
at a profit could subject such person to suit under Section 16(b) of the
Exchange Act. Thus, if a participant acquires shares upon the exercise of a
non-qualified stock option or a related stock appreciation right or pursuant to
a performance share grant, he or she must recognize ordinary income as described
above but at such time as the sale of such shares at a profit would no longer
subject such person to suit under Section 16(b) of the Exchange Act and based on
the fair market value of the shares at that time. Similarly, if a participant
acquires shares upon the exercise of an incentive stock option but disposes of
the shares in a Disqualifying Disposition, he or she must recognize ordinary
income as described above at the time of such disposition but based on the fair
market value of the shares at the first time that their sale at a profit would
no longer have subjected such person to suit under Section 16(b) of the Exchange
Act.

A participant who receives, upon exercise of a non-qualified stock option
or a related stock appreciation right or pursuant to a performance share award,
shares subject to a substantial risk of forfeiture may elect, notwithstanding
such substantial risk of forfeiture, to include in income at the time the shares
are transferred to him or her the excess, if any, of the fair market value at
the time the shares are received over the amount paid for them (if any). The
election is made by filing a written statement with the Internal Revenue Service
and must be made within 30 days after receipt of the shares. Such an election
is irrevocable without consent of the Secretary of the Treasury. In the event
that such an election is made, and the shares involved are forfeited, no
deduction will be allowed to the participant in respect of such forfeiture.

ACCOUNTING TREATMENT

Generally accepted accounting principles require, in most cases, that the
estimated cost of stock appreciation rights be charged to the Company's earnings
based on the change in the market price of the Common Stock at the beginning (or
grant date if granted during the period) and end of each accounting period if it
is higher than the exercise price. In the event of a decline in the market
price of the Company's Common Stock subsequent to a charge against earnings
related to the estimated costs of stock appreciation rights, a reversal of prior
charges is made in the amount of such decline (but not to exceed aggregate prior
charges). Performance share awards are treated in the same manner as stock
appreciation rights when it becomes likely that the shares will be awarded.

Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the 1999 Program currently requires any charge
against earnings under generally accepted accounting principles. In certain
circumstances, shares issuable pursuant to outstanding stock options under the
1999 Program might be considered outstanding for purposes of calculating
earnings per share of the Company.

In June 1993, the Financial Accounting Standards Board ("FASB") issued an
exposure draft proposing that companies be required to recognize an expense for
all stock-based compensation awards, including stock options. However, in
December 1994, the FASB agreed to work toward improving disclosures about
employee stock options and related arrangements in the notes to financial
statements rather than requiring the previously proposed expense charge for all
options. The FASB expects to encourage, rather than require, companies to adopt
a new method that accounts for stock compensation awards based on their
estimated fair market value at the date they are granted. Companies would be
permitted, however, to continue accounting under the present requirements,
which, as stated above, do not require an expense charge for most options.

ERISA AND OTHER QUALIFICATION

The 1999 Program will not be subject to the participation, vesting and
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and is not qualified under Section 401(a) of the Code.

AMENDMENT OR TERMINATION OF THE 1999 PROGRAM

The 1999 Program will terminate 10 years from the date it was adopted by
the Board of Directors of the Company, which was January 28, 1999, and no stock
options, stock appreciation rights or performance shares shall be granted under
the 1999 Program after that date. The Board of Directors may amend, suspend or
terminate the 1999 Program or any portion thereof at any time, except that it
may not amend the 1999 Program without stockholder approval where the absence of
such approval would cause the 1999 Program to fail to comply with Rule 16b-3
under the Exchange Act, Section 422 of the Code, the requirements of any
securities exchange or national quotation system or any other requirement of law
or regulation. The Program Administrators may at any time amend or revise the
terms of the 1999 Program, provided that no amendment or revision shall (i)
increase the maximum aggregate number of shares covered by the 1999 Program,
except to the extent described under "- Adjustments to Number and Purchase
Price of Shares," above; (ii) change the minimum exercise price of any option
granted under the terms of Plan I and II, except to the extent described under
"- Adjustments to Number and Purchase Price of Shares," above; (iii) increase
the stated maximum term for any option, stock appreciation right or performance
share; or (iv) expand the class of persons eligible to participate in the 1999
Program. In addition, no amendment, suspension or termination of the 1999
Program shall, without the consent of the person who has received a stock
option, stock appreciation right or performance share, alter or impair any of
that person's rights or obligations under any stock option, stock appreciation
right or performance share granted under the 1999 Program prior to such
amendment, suspension or termination.

RESTRICTIONS ON RESALES

Upon the registration of the shares underlying the 1999 Program, persons
who are not deemed to be "affiliates" of the Company at the time of resale will
be free to resell any shares of Common Stock of the Company issued to them upon
the grant of stock awards or the exercise of stock options and stock
appreciation rights granted under the 1999 Program either publicly or privately,
without regard to the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act") or compliance with the
restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of a person is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, that person. Normally, a director, principal officer or major stockholder
of a corporation may be deemed to be an "affiliate" of that corporation. A
person who may be deemed an "affiliate" of the Company at the time of a proposed
resale will be permitted to make public resales of the Company's shares only
pursuant to a "reoffer" prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act or some other
exemption from registration. In general, the amount of the Company's shares
which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed one percent of the Company's shares then
outstanding, such sales may be made only through brokers without solicitation
and only at a time when the Company is current in filing the reports required of
it under the Exchange Act, and certain notice filings must be made with the
Securities and Exchange Commission.

<PAGE>
BOARD RECOMMENDATION

The Board of Directors has unanimously approved and adopted the 1999
Program and recommends that stockholders of the Company vote "FOR" the 1999
Program.

THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" THE 1999 PROGRAM

PROPOSAL TO APPROVE THE ADJOURNMENT OF THE
ANNUAL MEETING, IF NECESSARY

Each proxy solicited hereby by the Company requests authority to vote for
an adjournment of the Annual Meeting if an adjournment of such meeting is deemed
to be necessary. The Company may seek an adjournment of the Annual Meeting for
not more than 120 days in order to enable it to solicit additional votes in
favor of the 1999 Stock Compensation Program in the event that such proposal has
not received the requisite vote of Stockholders at the Annual Meeting.

If the Company desires to adjourn the Annual Meeting with respect to the
foregoing proposal, it will request a motion that the Annual Meeting be
adjourned for up to 120 days with respect to such proposal, and no vote will be
taken on such proposal at the originally scheduled meeting. Each proxy
solicited hereby, if properly signed and returned to the Company and not revoked
prior to its use, will be voted on any such motion for adjournment in accordance
with the instructions contained therein. If no contrary instructions are given,
each proxy received will be voted in favor of any motion by the Company to
adjourn the Annual Meeting. Unless revoked prior to its use, any proxy
solicited for the Annual Meeting will continue to be valid for any adjournment
of such meeting, and will be voted in accordance with the instructions contained
therein, and if no contrary instructions are given, for the 1999 Stock
Compensation Program.

Any adjournment will permit the Company to solicit additional proxies and
will permit a greater expression of the Stockholders' views with respect to such
proposal. Such an adjournment would be disadvantageous to Stockholders who are
against the 1999 Stock Compensation Program because an adjournment will give the
Company additional time to solicit favorable votes and thus increase the chances
of approving such proposal.

If a quorum is not present at the Annual Meeting, no proposal will be acted
upon and the Company will adjourn the Annual Meeting to an alternative date in
order to solicit additional proxies on each of the proposals being submitted to
Stockholders.

An adjournment for up to 120 days may require the setting of a new record
date and, if so required, notice of the adjourned meeting will be provided to
Stockholders as in the case of an original meeting. The Company does not have
any reason to believe that an adjournment of the Annual Meeting will be
necessary at this time.

BECAUSE THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS STOCKHOLDERS VOTE
"FOR" THE 1999 STOCK COMPENSATION PROGRAM, AS DISCUSSED ABOVE, THE BOARD OF
DIRECTORS OF THE COMPANY ALSO RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
POSSIBLE ADJOURNMENT OF THE ANNUAL MEETING ON SUCH PROPOSAL.

PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS

The Board of Directors of the Company has appointed KPMG LLP as independent
auditors for the Company for the year ending December 31, 1999, and has further
directed that the selection of auditors be submitted for ratification by the
stockholders at the Annual Meeting. The Company has been advised by KPMG LLP
that neither the firm nor any of its associates has any relationship with the
Company or its subsidiaries other than the usual relationship that exists
between independent public accountants and clients. KPMG LLP will have one or
more representatives at the Annual Meeting who will have an opportunity to make
a statement, if he or she so desires, and will be available to respond to
appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR FISCAL 1999.

STOCKHOLDER PROPOSALS

Any proposal which a stockholder wishes to have presented at the next
Annual Meeting of Stockholders of the Company and included in the proxy
materials used by the Company in connection with such meeting must be received
at the corporate headquarters office of the Company at Coastal Banc Plaza, 5718
Westheimer, Suite 600, Houston, Texas 77057, no later than November 24, 1999.
If such proposal is in compliance with all of the requirements of Rule 14a-8
promulgated under the Exchange Act, it will be included in the Proxy Statement
and set forth on the form of proxy issued for the next Annual Meeting of
Stockholders. It is urged that any such proposals be sent by certified mail,
return receipt requested.

Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to the Company's Articles of
Incorporation, which provide that business must be properly brought before the
meeting by or at the direction of the Board of Directors, or otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Company not less than 60 days prior to
the anniversary date of the mailing of proxy materials by the Company in
connection with the immediately preceding annual meeting of stockholders of the
Company. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before an annual meeting such information
specified in the Company's Articles of Incorporation. If the proposal is not
made in accordance with the terms of the Articles of Incorporation, such
proposal will not be acted upon at the Annual Meeting. No stockholder proposals
were received by the Company in connection with the 1999 Annual Meeting.

<PAGE>
PROXY SOLICITATION

The Company has retained Corporate Investor Communications, Inc. ("CIC"),
111 Commerce Road, Carlstadt, New Jersey 07072, a professional proxy
solicitation firm, to assist in the solicitation of proxies and for related
services. The Company will pay CIC a fee of $5,000 and has agreed to reimburse
it for its reasonable out-of-pocket expenses.

OTHER MATTERS

Management is not aware of any business to come before the 1999 Annual
Meeting other than those matters described above in this Proxy Statement and
possibly, procedural matters incident to the conduct of the meeting. However,
if any other matters should properly come before the meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.

The cost of the solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company or its
subsidiary may solicit proxies personally or by telephone without additional
compensation.
ANNUAL REPORT AND FINANCIAL STATEMENTS

A copy of the Company's Annual Report for the year ended December 31, 1998
("Annual Report") accompanies this Proxy Statement. The Annual Report is not a
part of the proxy solicitation materials.

UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998, AND ANY EXHIBITS THERETO REQUIRED TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE EXCHANGE ACT. SUCH
WRITTEN REQUEST SHOULD BE DIRECTED TO CATHERINE N. WYLIE, CHIEF FINANCIAL
OFFICER, COASTAL BANCORP, INC., COASTAL BANC PLAZA, 5718 WESTHEIMER, SUITE 600,
HOUSTON, TEXAS 77057. THE FORM 10-K IS NOT A PART OF THE PROXY SOLICITATION
MATERIALS.

By Order of the Board of Directors

/s/ Linda B. Frazier
Linda B. Frazier
Secretary

March 23, 1999

EXHIBIT A

1999 Stock Compensation Program

<PAGE>

COASTAL BANCORP, INC.

1999 STOCK COMPENSATION PROGRAM

1. PURPOSE. This Coastal Bancorp, Inc. 1999 Stock Compensation Program
-------
("Program") is intended to secure for Coastal Bancorp, Inc. (the "Company"), any
Subsidiaries thereof and its stockholders the benefits arising from ownership of
the Company's Common Stock, par value $.01 per share ("Common Stock"), by those
selected Officers and other key Employees of the Company and any Subsidiary
thereof who will be responsible for its future growth. The Program is designed
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and to provide key Employees with an additional
incentive to contribute to the success of the Company. All Incentive Stock
Options issued under the Incentive Plan are intended to comply with the
requirements of Section 422 of the Code, and the regulations thereunder, and all
provisions under the Incentive Plan shall be read, interpreted and applied with
that purpose in mind. Capitalized terms are defined in Article 15 of the
General Provisions of the Stock Compensation Program.

2. ELEMENTS OF THE PROGRAM. In order to maintain flexibility in the
--------------------------
award of stock benefits, the Program is comprised of four parts. The first part
is the Incentive Stock Option Plan ("Incentive Plan"). The second part is the
Compensatory Stock Option Plan ("Compensatory Plan"). The third part is the
Stock Appreciation Rights Plan ("S.A.R. Plan"). The fourth part is the
Performance Share Plan ("Performance Plan"). Copies of the Incentive Plan,
Compensatory Plan, S.A.R. Plan and Performance Plan are attached hereto as Part
I, Part II, Part III and Part IV, respectively, and are collectively referred to
herein as the "Plans" or the "Program." The grant of an Option, Stock
Appreciation Right or Performance Share under one of the Plans shall not be
construed to prohibit the grant of an Option, Stock Appreciation Right or
Performance Share under any of the other Plans.

3. APPLICABILITY OF GENERAL PROVISIONS. Unless any Plan specifically
-------------------------------------
indicates to the contrary, all Plans shall be subject to the General Provisions
of the Stock Compensation Program set forth below.

4. ADMINISTRATION OF THE PLANS. The Plans shall be administered,
------------------------------
construed, governed and amended in accordance with the General Provisions of the
Stock Compensation Program and their respective terms.

GENERAL PROVISIONS OF THE STOCK COMPENSATION PROGRAM

ARTICLE 1. ADMINISTRATION. The Program shall be administered by a
--------------
committee appointed by the Board of Directors of the Company and composed of not
less than three directors of the Company, none of whom is an Officer or Employee
of the Company or any Subsidiary thereof. The Board of Directors may, from time
to time, remove members from, or add members to this Committee, provided that
the Committee shall continue to consist of three or more members of the Board,
none of whom is an Officer or Employee of the Company or any Subsidiary thereof,
and each of whom shall be a "disinterested person" within the meaning of Rule
16b-3 under the Exchange Act. The Committee, when acting to administer the
Program, is referred to herein as the "Program Administrators." Any action of
the Program Administrators shall be taken by majority vote or the written
consent of a majority of the Program Administrators. Subject to the express
provisions and limitations of the Program, this Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. It may appoint one of its members to be chairman, and any person,
whether or not a member of this Committee, to be its secretary or agent. This
Committee shall report its actions and decisions to the Board of Directors at
appropriate times, but in no event less than one time per calendar year. No
Program Administrator or member of the Board of Directors of the Company, shall
be liable for any action or determination made in good faith with respect to the
Program or to any Option, Stock Appreciation Right, or Performance Share granted
thereunder. If a Program Administrator is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of anything
done or not done by him or her in such capacity under or with respect to the
Program, the Company shall, subject to the requirements of applicable laws and
regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Company and any of its
Subsidiaries and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

ARTICLE 2. AUTHORITY OF PROGRAM ADMINISTRATORS. Subject to the other
--------------------------------------
provisions of this Program, and with a view to effecting its purpose, the
Program Administrators shall have sole authority in their absolute discretion:
(a) to construe and interpret the Program; (b) to define the terms used herein;
(c) to prescribe, amend and rescind rules, regulations and procedures relating
to the Program, including, without limitation, rules, regulations and procedures
which (i) deal with satisfaction of an Employee's tax withholding obligation
pursuant to Article 11 hereof, (ii) include arrangements to facilitate the
Employee's ability to borrow funds for payment of the exercise or purchase price
of an Award, if applicable, from securities brokers and dealers, and (iii)
include arrangements which provide for the payment of some or all of such
exercise or purchase price by delivery of previously-owned shares of Common
Stock or other property and/or by withholding some of the shares of Common Stock
which are being acquired; (d) to determine the Employees to whom Awards shall be
granted under the Program; (e) to determine the time or times at which Awards
shall be granted under the Program; (f) to determine the number of shares
subject to any Option or Stock Appreciation Right under the Program and the
number of shares to be awarded as Performance Shares under the Program as well
as the option exercise price, and the duration of each Award, and any other
terms and conditions of Awards; (g) to terminate the Program; and (h) to make
any other determinations necessary or advisable for the administration of the
Program and to do everything necessary or appropriate to administer the Program.
All decisions, determinations and interpretations made by the Program
Administrators shall be final, binding and conclusive on all participants in the
Program and on their legal representatives, heirs and beneficiaries.

ARTICLE 3. MAXIMUM NUMBER OF SHARES SUBJECT TO THE PROGRAM. The aggregate
-----------------------------------------------
number of shares of Common Stock available to be issued pursuant to the Plans,
subject to adjustment as provided in Article 6 hereof, shall be equal to 340,000
shares of the Company's Common Stock. If any of the Options granted under this
Program are surrendered before exercise (including surrender in connection with
the exercise of a Stock Appreciation Right), expire or terminate for any reason
before they have been exercised in full, the unpurchased shares subject to those
surrendered, expired or terminated Options shall again be available for the
purposes of the Program as if no Awards had been previously granted with respect
to such shares. If the performance objectives associated with the grant of any
Performance Share(s) are not achieved within the specified performance period or
if the Performance Share grant terminates for any reason before the performance
objective date arrives, the shares of Common Stock associated with such
Performance Shares shall again be available for the purposes of the Program.
The shares of Common Stock issued under the Program may be authorized but
unissued shares, treasury shares or shares purchased by the Company on the open
market or from private sources for use under the Program.

ARTICLE 4. ELIGIBILITY AND PARTICIPATION. Only regular full-time
-------------------------------
Employees of the Company or any Subsidiary thereof, including Officers whether
or not directors of the Company, or of any Subsidiary, shall be eligible for
selection by the Program Administrators to participate in the Program.
Directors of the Company shall not be eligible to participate in the Program.

ARTICLE 5. EFFECTIVE DATE AND TERM OF PROGRAM. The Program shall become
-----------------------------------
effective upon its adoption by the Board of Directors of the Company and
subsequent approval of the Program by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon at a meeting of stockholders of
the Company and represented in person or by proxy at such meeting at which a
quorum is present, which vote shall be taken within 12 months of adoption of the
Program by the Company's Board of Directors; provided, however, that Awards may
be granted under this Program prior to obtaining stockholder approval of the
Program, except that any such Awards shall be contingent upon such stockholder
approval being obtained and may not be exercised prior to such approval. The
Program shall continue in effect for a term of ten years unless sooner
terminated under Article 2 or Article 7 of the General Provisions. Termination
of the Program shall not affect any Awards previously granted and such Awards
shall remain valid and in effect until they have been fully exercised or earned,
are surrendered or by their terms expire or are forfeited.

ARTICLE 6. ADJUSTMENTS. If the shares of Common Stock of the Company as a
-----------
whole are increased, decreased, changed into or exchanged for a different number
or kind of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
as to which Awards may be granted under this Program. A corresponding
proportionate adjustment of the exercise price of any Option or Stock
Appreciation Right and of the number or kind of shares allocated to unexercised
Options, Stock Appreciation Rights, Performance Shares or portions thereof,
which shall have been granted prior to any such change, shall likewise be made.
In making any adjustment pursuant to this Article 6, any fractional shares shall
be rounded in the discretion of the Program Administrators. If, upon a merger,
consolidation, reorganization, liquidation, recapitalization or the like of the
Company, the shares of the Company's Common Stock shall be exchanged for other
securities of the Company or of another corporation, each recipient of an Award
shall be entitled, subject to the conditions herein stated, to purchase or
acquire such number of shares of Common Stock or amount of other securities of
the Company or such other corporation as were exchangeable for the number of
shares of Common Stock of the Company which such Optionees would have been
entitled to purchase or acquire except for such action, and appropriate
adjustments shall be made to the per share exercise price of outstanding Options
and Stock Appreciation Rights.

ARTICLE 7. TERMINATION AND AMENDMENT OF PROGRAM. The Program shall
----------------------------------------
terminate no later than ten years from the date such Program is adopted by the
Board of Directors or the date such Program is approved by the stockholders,
whichever is earlier. No Awards shall be granted under the Program after that
date. The Board of Directors may amend, suspend or terminate the Program or any
portion thereof at any time, except that it may not amend the Program without
stockholder approval where the absence of such approval would cause the Program
to fail to comply with Rule 16b-3 under the Exchange Act, Section 422 of the
Code, the requirements of any securities exchange or national quotation system
on which the shares of Common Stock are then listed or traded, or any other
requirement of applicable law or regulation. Subject to the limitation
contained in Article 8 of the General Provisions, the Program Administrators may
at any time amend or revise the terms of the Program, including the form and
substance of the Option, Stock Appreciation Right, and Performance Share
agreements to be used hereunder; provided that no amendment or revision shall
(a) increase the maximum aggregate number of shares that may be sold,
appreciated or distributed pursuant to Options, Stock Appreciation Rights or
Performance Shares granted under this Program, except as permitted under Article
6 of the General Provisions; (b) change the minimum purchase price for shares
under Section 4 of Plans I and II, except as permitted under Article 6 of the
General Provisions; (c) increase the maximum term established under the Plans
for any Option, Stock Appreciation Right or Performance Share; or (d) permit the
granting of an Option, Stock Appreciation Right or Performance Share to anyone
other than as provided in Article 4 of the General Provisions.

ARTICLE 8. PRIOR RIGHTS AND OBLIGATIONS. No amendment, suspension or
-------------------------------
termination of the Program shall, without the consent of an Employee who has
received an Award, alter or impair any of that Employee's rights or obligations
under any Award granted under the Program prior to such amendment, suspension or
termination.

ARTICLE 9. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the exercise of
-----------------------------
any Options or Stock Appreciation Rights granted pursuant to the terms of this
Program or the achievement of any performance objective specified in any
Performance Share granted pursuant to the terms of this Program, no Employee
shall have any of the rights or privileges of a stockholder of the Company in
respect of any shares of stock issuable upon the exercise of his or her Option
or achievement of his or her performance goal until certificates representing
the shares have been issued and delivered. No shares shall be required to be
issued and delivered upon exercise of any Option or achievement of any
performance goal as specified in a Performance Share unless and until all of the
requirements of law and of all regulatory agencies having jurisdiction over the
issuance and delivery of the securities shall have been fully complied with. No
adjustment shall be made for dividends or any other distributions for which the
record date is prior to the date on which such stock certificate is issued.

ARTICLE 10. RESERVATION OF SHARES OF COMMON STOCK. The Company, during
---------------------------------------
the term of this Program, will at all times reserve and keep available such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program. All Awards granted hereunder shall be subject to
all applicable federal and state laws, rules and regulations and to such
approval by any governmental or regulatory agency as may be required. The
Company will from time to time, as is necessary to accomplish the purposes of
this Program, seek to obtain all necessary and appropriate approvals from any
governmental authority or regulatory agency having jurisdiction any requisite
authority in order to issue and sell shares of Common Stock hereunder. The
inability of the Company to obtain from any regulatory agency having
jurisdiction the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares of its stock hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of the stock
as to which the requisite authority shall not have been obtained.

ARTICLE 11. TAX WITHHOLDING. The exercise of any Award granted under the
---------------
Program is subject to the condition that if at any time the Company shall
determine, in its discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or desirable
as a condition of, or in any connection with, such exercise or the delivery or
purchase of shares pursuant thereto, then in such event, the exercise of the
Option, Stock Appreciation Right or Performance Share shall not be effective
unless such withholding tax or other withholding liabilities shall have been
satisfied in a manner acceptable to the Company. The Company may withhold from
any cash payment made under this Program sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of such cash
payment is insufficient, the Company may require the Optionee to pay to the
Company the amount required to be withheld as a condition to delivering the
shares acquired pursuant to an Award. The Company also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 16 of the Incentive Stock Option Plan. The Program Administrators are
authorized to adopt rules, regulations, or procedures which provide for the
satisfaction of an Employee's tax withholding obligation by, among other things,
the retention of shares of Common Stock to which the Employee would otherwise be
entitled pursuant to an Award and/or by the Employee's delivery of
previously-owned shares of Common Stock or other property.

ARTICLE 12. EMPLOYMENT. Nothing in the Program or in any Option, Stock
----------
Appreciation Right, or Performance Share award, shall confer upon any eligible
Employee any right to continued employment by the Company or any Subsidiary
thereof, or limit in any way the right of the Company or any Subsidiary thereof,
at any time to terminate or alter the terms of that employment.

ARTICLE 13. REVOCATION FOR MISCONDUCT. The Program Administrators may by
-------------------------
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Program to an
Employee who is discharged from the employ of the Company or any Subsidiary
thereof for cause, which, for purposes hereof, shall mean termination for: (i)
conviction of a felony involving the misappropriation of the Company's or any
Subsidiaries assets or a conviction of a felony which results in a substantial,
demonstrable threat to the Company's or any Subsidiaries reputation, or (ii)
gross and willful failure to perform a substantial portion of the Employee's
duties and responsibilities as an Employee.

ARTICLE 14. RESTRICTIONS ON TRANSFER. The Company may place a legend upon
------------------------
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.

ARTICLE 15. DEFINITIONS.
-----------

(a) "Award" means an Option, Stock Appreciation Right or Performance
Share granted pursuant to the terms of this Program.

(b) "Board" means the Board of Directors of the Company.

(d) "Committee" means a Committee of three or more directors
appointed by the Board pursuant to Article 1 of the General Provisions hereof,
none of whom shall be an Officer or Employee of the Company or any Subsidiary,
and each of whom shall be a "disinterested person" within the meaning of Rule
16b-3 under the Exchange Act.

(e) "Common Stock" means shares of the common stock, $.01 par value
per share, of the Company.

(f) "Disability" means any disability which makes a person unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment as defined in Section 22(e)(3) of the
Code.

(g) "Employee" means any person who is employed full time by the
Company or any Subsidiary, or is an Officer of the Company or any Subsidiary,
but not including directors who are not also Officers of, or otherwise employed
by, the Company or any Subsidiary.

(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(i) "Fair Market Value" shall be equal to the fair market value per
share of the Company's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Committee.

(j) "Incentive Stock Option" means any Option granted under this
Program which the Board intends (at the time it is granted) to be an Incentive
Stock Option within the meaning of Section 422 of the Code.

(k) "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.

(l) "Officer" means an Employee whose position in the Company or any
Subsidiary thereof is that of a corporate officer, as determined by the Board.

(m) "Option" means a right granted under this Program to purchase
Common Stock.

(n) "Optionee" means an Employee or former Employee to whom an
Option, Stock Appreciation Right, or Performance Share, as appropriate, is
granted under the Program.

(o) "Performance Shares" means a specified number of shares of Common
Stock granted to an Employee, as provided in the discretion of the Program
Administrators in accordance with Performance Share Plan.

(p) "Retirement" means a termination of employment which constitutes
a "retirement" pursuant to the personnel policies of the Company or any
Subsidiary thereof or under any applicable qualified pension benefit plan
maintained by the Company or any Subsidiary thereof.

(q) "Stock Appreciation Right" means a right to surrender an Option
in consideration for a payment by the Company in cash and/or Common Stock, as
provided in the discretion of the Program Administrators in accordance with the
Stock Appreciation Rights Plan.

(r) "Subsidiary" or "Subsidiaries" means those subsidiaries of the
Company, including Coastal Banc ssb, which meet the definition of "Subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of granting
of the Award in question.

(s) "Termination Date" means the date the employee is effectively no
longer an employee. This does not cover time paid for severance.

(t) Other terms are defined as set forth in the General Provisions
and the respective Plans.

ARTICLE 16. STOCK OPTION AGREEMENT. The proper Officers, on behalf of the
----------------------
Company, and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Program Administrators in each instance shall deem appropriate. Each Optionee
shall receive a copy of his or her executed Stock Option Agreement.

ARTICLE 17. GOVERNING LAW. To the extent not superseded by federal law,
--------------
the provisions of the Program shall be governed by and interpreted in accordance
with the laws of the State of Texas.

<PAGE>
COASTAL BANCORP, INC.
1999 STOCK COMPENSATION PROGRAM

PLAN I - INCENTIVE STOCK OPTION PLAN

SECTION 1. PURPOSE. The purpose of this Coastal Bancorp, Inc. Incentive
-------
Stock Option Plan ("Incentive Plan") is to promote the growth and general
prosperity of the Company by permitting the Company to grant Options to purchase
shares of its Common Stock. The Incentive Plan is designed to help attract and
retain superior personnel for positions of responsibility with the Company, or
of any Subsidiary, and to provide key Employees with an additional incentive to
contribute to the success of the Company. The Company intends that Options
granted pursuant to the provisions of the Incentive Plan will qualify and will
be identified as "incentive stock options" within the meaning of Section 422 of
the Code. This Incentive Plan is Part I of the Coastal Bancorp, Inc. 1999 Stock
Compensation Program. Unless any provision herein indicates to the contrary,
this Incentive Plan shall be subject to the General Provisions of the Program.

SECTION 2. OPTION TERMS AND CONDITIONS. The terms and conditions of
------------------------------
Options granted under the Incentive Plan may differ from one another as the
Program Administrators shall, in their sole discretion, determine, as long as
all Options granted under the Incentive Plan satisfy the requirements of the
Incentive Plan.

SECTION 3. DURATION OF OPTIONS. Each Option and all rights thereunder
---------------------
granted pursuant to the terms of the Incentive Plan shall be exercisable at any
time on or after it vests and becomes exercisable and shall expire on the date
determined by the Program Administrators, but in no event shall any Option
granted under the Incentive Plan expire later than ten years from the date on
which the Option is granted, except that any Employee who owns more than 10% of
the combined voting power of all classes of stock of the Company, or of any
Subsidiary thereof, must exercise any Options within five years from the date of
grant. In addition, each Option shall be subject to early termination as
provided in the Incentive Plan.

SECTION 4. PURCHASE PRICE. The purchase price for shares acquired
---------------
pursuant to the exercise, in whole or in part, of any Incentive Stock Option
shall not be less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time of the grant of the Option; except that for
any Employee who owns more than 10% of the combined voting power of all classes
of stock of the Company, or of any Subsidiary, the purchase price shall not be
less than one hundred and ten percent (110%) of the Fair Market Value of a share
of Common Stock. All shares sold under the Incentive Plan shall be fully paid
and non-assessable.

SECTION 5. MAXIMUM AMOUNT OF OPTIONS IN ANY CALENDAR YEAR. The aggregate
----------------------------------------------
Fair Market Value (determined as of the time the Option is granted) of the
Common Stock with respect to which Incentive Stock Options, as defined in Code
Section 422(b), are exercisable for the first time by any Employee during any
calendar year (under the terms of this Plan and all such plans of the Company
and any Subsidiary thereof) shall not exceed $100,000. Any Option in excess of
the foregoing limitations shall be pursuant to the Company's Compensatory Stock
Option Plan (Plan II) and shall be clearly and specifically designated as not
being an Incentive Stock Option.

SECTION 6. EXERCISE OF INCENTIVE STOCK OPTIONS. Each Incentive Stock
---------------------------------------
Option shall become vested and exercisable in one or more installments during
its term, and the right to exercise may be cumulative as determined by the
Program Administrators; provided, however, that in the case of any Incentive
Stock Options exercisable within the first six months following the date the
Incentive Stock Option is granted, the shares of Common Stock received upon the
exercise of such Option may not be sold or disposed of by the Optionee for the
first six months following the date of grant, provided further, however, that in
the case of any Incentive Stock Option granted prior to the date that the
Program is approved by the requisite vote of the stockholders of the Company,
the shares of Common Stock received upon the exercise of such Option may not be
sold or disposed of by the Optionee for the first six months following the date
stockholder approval is received. In determining the number of shares of Common
Stock with respect to which Incentive Stock Options are vested and/or
exercisable, fractional shares will be rounded up to the nearest whole number if
the fraction is 0.5 or higher, and down if it is less. The purchase price of
any shares purchased shall be paid in full in cash or by certified or cashier's
check payable to the order of the Company or by shares of Common Stock
(including shares acquired pursuant to the exercise of an Option) or other
property, or by withholding some of the shares of Common Stock which are being
purchased upon exercise of an Option, if permitted by the Program
Administrators, or by a combination of cash, check or shares of Common Stock or
other property equal in Fair Market Value to the purchase price of the shares to
be acquired pursuant to the Option, at the time of exercise of the Option.

SECTION 7. ACCELERATION OF RIGHT OF EXERCISE OF INSTALLMENTS.
-------------------------------------------------------
Notwithstanding the first sentence of Section 6 of this Incentive Plan, in the
event the Company or its stockholders enter into an agreement to dispose of all
or substantially all of the assets or stock of the Company (or of Coastal Banc
ssb) by means of a sale, merger or other reorganization, liquidation or
otherwise, any Option granted pursuant to the terms of the Incentive Plan shall
become immediately exercisable with respect to the full number of shares subject
to that Option during the period commencing as of the date of the agreement to
dispose of all or substantially all of the assets or stock of the Company and
ending when the disposition of assets or stock contemplated by that agreement is
terminated or the Option is otherwise terminated in accordance with its
provisions or the provisions of this Incentive Plan, whichever occurs first;
provided, however, that no Option shall be immediately exercisable under this
Section 7 on account of any agreement to dispose of all or substantially all of
the assets or stock of the Company (or of Coastal Banc ssb) by means of a sale,
merger or other reorganization, liquidation or otherwise where the stockholders
of the Company immediately before the consummation of the transaction will own
at least 50% of the total combined voting power of all classes of stock entitled
to vote of the surviving entity, whether the Company or some other entity,
immediately after the consummation of the transaction. In the event the
transaction contemplated by the agreement referred to in this Section 7 is not
consummated, but rather is terminated, cancelled or expires, the Options granted
pursuant to the Incentive Plan shall thereafter be treated as if that agreement
had never been entered into.

Notwithstanding the first sentence of Section 6 of this Incentive Plan, in
the event of a change in control of the Company or threatened change in control
of the Company as determined by a vote of not less than a majority of the Whole
Board of Directors and a majority of the Continuing Directors of the Company, as
such terms are defined in the Company's Articles of Incorporation, all Incentive
Stock Options granted prior to such change in control or threatened change of
control shall become immediately exercisable. The term "control" for purposes
of this Section shall refer to the acquisition (subsequent to the approval of
the Program by the stockholders of the Company) of 10% or more of the voting
securities of the Company by any person or by persons acting as a group within
the meaning of Section 13(d) of the Exchange Act; provided, however, that for
purposes of this Incentive Plan, no change in control or threatened change in
control shall be deemed to have occurred if prior to the acquisition of, or
offer to acquire, 10% or more of the voting securities of the Company, the Whole
Board of Directors of the Company shall have adopted by not less than a
two-thirds vote a resolution specifically approving such acquisition or offer
for the specific purpose of preventing the acceleration of the vesting of such
Options. The term "person" for purposes of this Section refers to an individual
or a corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or any other form of
entity not specifically listed herein.

SECTION 8. WRITTEN NOTICE REQUIRED. Any Option granted pursuant to the
-------------------------
terms of the Incentive Plan shall be exercised when written notice of that
exercise has been given to the Company at its principal office by the person
entitled to exercise the Option and full payment for the shares with respect to
which the Option is exercised has been received by the Company.

SECTION 9. COMPLIANCE WITH SECURITIES LAWS. Shares of Common Stock shall
-------------------------------
not be issued with respect to any Option granted under the Incentive Plan unless
the exercise of that Option and the issuance and delivery of those shares
pursuant to that exercise shall comply with all relevant provisions of state and
federal law including, without limitation, the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or national quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to whom an Option has been granted under the Incentive Plan
to furnish evidence satisfactory to the Company, including a written and signed
representation letter and consent to be bound by any transfer restriction
imposed by law, legend, condition or otherwise, that the shares are being
purchased only for investment and without any present intention to sell or
distribute the shares in violation of any state or federal law, rule or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her Option restricting their
transferability as required by law or by this Section 9.

SECTION 10. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested by the
------------------------
Program Administrators when the Option is granted, must agree in writing as a
condition of receiving his or her Option, that he or she will remain in the
employ of the Company, or any parent or Subsidiary of the Company (or a
corporation or a parent or Subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies), as
the case may be, following the date of the granting of that Option for a period
specified by the Program Administrators, which period shall in no event exceed
three years. Nothing in the Plan or in any Option granted hereunder shall
confer upon any Optionee any right to continued employment by the Company, or
any Subsidiary thereof, or limit in any way the right of the Company or any
Subsidiary thereof, at any time to terminate or alter the terms of that
employment.

SECTION 11. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If an Optionee
--------------------------------------------
ceases to be employed by the Company, or any Subsidiary thereof (or a
corporation or a parent or Subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies), for
any reason other than death, Disability or Retirement, his or her Option shall
immediately terminate. Should an employee be re-hired within the mandatory 30
day exercise window, they will be allowed to not exercise their previously
granted options at their discretion.

SECTION 12. OPTION RIGHTS UPON DISABILITY OR RETIREMENT. If an Optionee
--------------------------------------------
becomes disabled within the meaning of Section 22(e)(3) of the Code while
employed by the Company or any Subsidiary thereof (or a corporation or a parent
or Subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies) or ceases to be
employed thereby due to his Retirement, the Option may be exercised, to the
extent exercisable on the date of termination of employment, at any time within
one year after the date of termination of employment due to Disability or
Retirement, unless either the Option or this Incentive Plan otherwise provides
for earlier termination.

SECTION 13. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as otherwise
---------------------------------------
limited by the Program Administrators at the time of the grant of an Option, if
an Optionee dies while employed by the Company or any Subsidiary thereof (or a
corporation or a Subsidiary of such corporation issuing or assuming a stock
option in a transaction to which Section 424(a) of the Code applies), or within
three months after ceasing to be an Employee thereof, his or her Option shall
expire one year after the date of death unless by its term it expires sooner.
During this one year or shorter period, the Option may be exercised, to the
extent that it remains unexercised on the date of death, by the person or
persons to whom the Optionee's rights under the Option shall pass by will or by
the laws of descent and distribution, but only to the extent that the Optionee
is entitled to exercise the Option at the date of death. However, in order for
the Option to continue to be treated as an Incentive Stock Option under Section
422 of the Code, the Option must be exercised no later than three months after
the date of termination of employment.

SECTION 14. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the
--------------------------
terms of this Incentive Plan may not be sold, pledged, hypothecated, assigned or
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee.

SECTION 15. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED SHARES.
------------------------------------------------------------
All Options granted pursuant to the terms of this Incentive Plan shall be
adjusted in the manner prescribed by Article 6 of the General Provisions of this
Program.

SECTION 16. NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
------------------------------------------
immediately notify the Company in writing of any sale, transfer, assignment or
other disposition (or action constituting a disqualifying disposition within the
meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two years after the grant
of such Incentive Stock Option or within one year after the acquisition of such
shares, setting forth the date and manner of disposition, the number of shares
disposed of and the price at which such shares were disposed of. The Company
shall be entitled to withhold from any compensation or other payments then or
thereafter due to the Optionee such amounts as may be necessary to satisfy any
withholding requirements of Federal or state law or regulation and, further, to
collect from the Optionee any additional amounts which may be required for such
purpose. The Program Administrators may, in their discretion, require shares of
Common Stock acquired by an Optionee upon exercise of an Incentive Stock Option
to be held in an escrow arrangement for the purpose of enabling compliance with
the provisions of this Section 16.

<PAGE>
COASTAL BANCORP, INC.
1999 STOCK COMPENSATION PROGRAM

PLAN II - COMPENSATORY STOCK OPTION PLAN

SECTION 1. PURPOSE. The purpose of this Coastal Bancorp, Inc.
-------
Compensatory Stock Option Plan ("Compensatory Plan") is to permit the Company to
grant Options to purchase shares of its Common Stock to selected Officers and
full-time, key Employees of the Company, or any Subsidiary thereof. The
Compensatory Plan is designed to help attract and retain superior personnel for
positions of substantial responsibility with the Company and its Subsidiaries
and to provide key Employees with an additional incentive to contribute to the
success of the Company. Any Option granted pursuant to this Compensatory Plan
shall be clearly and specifically designated as not being an Incentive Stock
Option, as defined in Section 422(b) of the Code. This Compensatory Plan is
Part II of the Company's 1999 Stock Compensation Program. Unless any provision
herein indicates to the contrary, this Compensatory Plan shall be subject to the
General Provisions of the Program.

SECTION 2. OPTION TERMS AND CONDITIONS. The terms and conditions of
------------------------------
Options granted under this Compensatory Plan may differ from one another as the
Program Administrators shall, in their discretion, determine as long as all
Options granted under the Compensatory Plan satisfy the requirements of the
Compensatory Plan.

SECTION 3. DURATION OF OPTIONS. Each Option and all rights thereunder
---------------------
granted pursuant to the terms of this Compensatory Plan shall expire on the date
determined by the Program Administrators, but in no event shall any Option
granted under the Compensatory Plan expire later than ten years and one month
from the date on which the Option is granted. In addition, each Option shall be
subject to early termination as provided in the Compensatory Plan.

SECTION 4. PURCHASE PRICE. The purchase price for shares acquired
---------------
pursuant to the exercise, in whole or in part, of any Non-Qualified Option shall
be established by the Program Administrators at the time of grant, but in no
event shall be less than the par value of the Common Stock at the time of the
grant of the Option.

SECTION 5. EXERCISE OF OPTIONS. Each Non-Qualified Option shall become
-------------------
vested and exercisable in one or more installments during its term and the right
to exercise may be cumulative as determined by the Program Administrators,
provided, however, that in the case of any Non-Qualified Option exercisable
within the first six months following the date such Option is granted, the
shares of Common Stock received upon the exercise of such Option may not be sold
or disposed of by the Optionee for the first six months following the date of
grant, provided further, however, that in the case of any Option granted prior
to the date that this Program is approved by the requisite vote of the
stockholders of the Company, the shares of Common Stock received upon the
exercise of such Option may not be sold or disposed of by the Optionee for the
first six months following the date stockholder approval is received. In
determining the number of shares of Common Stock with respect to which Options
are vested and/or exercisable, fractional shares will be rounded up to the
nearest whole number if the fraction is 0.5 or higher, and down if it is less.
The purchase price of any shares purchased shall be paid in full in cash or by
certified or cashier's check payable to the order of the Company or by shares of
Common Stock (including shares acquired pursuant to the exercise of an Option)
or other property or by withholding some of the shares of Common Stock which are
being purchased upon exercise of an Option, if permitted by the Program
Administrators, or by a combination of cash, check or shares of Common Stock or
other property equal in Fair Market Value to the purchase price of the shares to
be acquired pursuant to the Option, at the time of exercise of the Option.

SECTION 6. ACCELERATION OF RIGHT OF EXERCISE OF INSTALLMENTS.
-------------------------------------------------------
Notwithstanding the first sentence of Section 5 of this Compensatory Plan, if
the Company or its stockholders enter into an agreement to dispose of all or
substantially all of the assets or stock of the Company (or of Coastal Banc ssb)
by means of a sale, merger or other reorganization, liquidation, or otherwise,
any Option granted pursuant to the terms of this Compensatory Plan shall become
immediately exercisable with respect to the full number of shares subject to
that Option during the period commencing as of the date of the agreement to
dispose of all or substantially all of the assets or stock of the Company (or of
Coastal Banc ssb) and ending when that agreement is terminated, or the Option is
otherwise terminated in accordance with its provisions or the provisions of this
Compensatory Plan, whichever occurs first; provided, however, that no Option
shall be immediately exercisable under this Section 6 on account of any
agreement to dispose of all or substantially all of the assets or stock of the
Company by means of a sale, merger or other reorganization, liquidation or
otherwise where the stockholders of the Company immediately before the
consummation of the transaction will own at least 50% of the total combined
voting power of all classes of stock entitled to vote of the surviving entity,
whether the Company or some other entity, immediately after the consummation of
the transaction. In the event the transaction contemplated by the agreement
referred to in this Section 6 is not consummated but rather is terminated,
cancelled or expires, the Options granted pursuant to this Compensatory Plan
shall thereafter be treated as if that agreement had never been entered into.

Notwithstanding the first sentence of Section 5 of this Compensatory Plan,
in the event of a change in control of the Company, or threatened change in
control of the Company as determined by a vote of not less than a majority of
the Whole Board of Directors and a majority of the Continuing Directors of the
Company, as such terms are defined in the Company's Articles of Incorporation,
all Non-Qualified Options granted prior to such change in control or threatened
change in control shall become immediately exercisable. The term "control" for
purposes of this Section shall refer to the acquisition (subsequent to the
approval of the Program by the stockholders of the Company) of 10% or more of
the voting securities of the Company by any person or by persons acting as a
group within the meaning of Section 13(d) of the Exchange Act; provided,
however, that for purposes of this Compensatory Plan, no change in control or
threatened change in control shall be deemed to have occurred if prior to the
acquisition of, or offer to acquire, 10% or more of the voting securities of the
Company, the Whole Board of Directors of the Company shall have adopted by not
less than a two-thirds vote a resolution specifically approving such acquisition
or offer for the specific purpose of preventing the acceleration of the vesting
of such Options. The term "person" for purposes of this Section refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.

SECTION 7. WRITTEN NOTICE REQUIRED. Any Option pursuant to the terms of
------------------------
this Compensatory Plan shall be exercised when written notice of that exercise
has been given to the Company at its principal office by the person entitled to
exercise the Option and full payment for the shares with respect to which the
Option is exercised has been received by the Company.

SECTION 8. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued
---------------------------------
with respect to any Option granted under the Compensatory Plan unless the
exercise of that Option and the issuance and delivery of the shares pursuant
thereto shall comply with all relevant provisions of state and federal law,
including, without limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or national quotation system upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance. The Program Administrators may also require an
Optionee to whom an Option has been granted to furnish evidence satisfactory to
the Company, including a written and signed representation letter and consent to
be bound by any transfer restrictions imposed by law, legend, condition or
otherwise, that the shares are being purchased only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule or regulation. Further, each Optionee shall
consent to the imposition of a legend on the shares of Common Stock subject to
his or her Option restricting their transferability as required by law or by
this Section 8.

SECTION 9. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested by the
------------------------
Program Administrators, must agree in writing as a condition of the granting of
his or her Option, to remain in the employ of the Company or any Subsidiary
thereof (or a corporation or a parent or Subsidiary of such corporation issuing
or assuming a stock option in a transaction to which Section 424(a) of the Code
applies), following the date of the granting of that Option for a period
specified by the Program Administrators, which period shall in no event exceed
three years. Nothing in this Compensatory Plan or in any Option granted
hereunder shall confer upon any Optionee any right to continued employment by
the Company or any Subsidiary thereof, or limit in any way the right of the
Company or any Subsidiary at any time to terminate or alter the terms of that
employment.

SECTION 10. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If any Optionee
--------------------------------------------
under this Compensatory Plan ceases to be employed by the Company, or any
Subsidiary (or a corporation or a parent or Subsidiary of such corporation
issuing or assuming a stock option in a transaction to which Section 424(a) of
the Code applies), for any reason other than Disability, death or Retirement,
his or her Option shall immediately terminate, provided, however, that the
Program Administrators may, in their discretion, allow the Option to be
exercised, to the extent exercisable on the date of termination of employment,
at any time within a period of between three months and five years after the
date of termination of employment, unless either the Option or this Compensatory
Plan otherwise provides for earlier termination. Should an employee be re-hired
within the mandatory 30 day exercise window, they will be allowed to not
exercise their previously granted options at their discretion.

SECTION 11. OPTION RIGHTS UPON DISABILITY OR RETIREMENT. If an Optionee
--------------------------------------------
becomes disabled within the meaning of Section 22(e)(3) of the Code while
employed by the Company, or any Subsidiary thereof (or a corporation or a parent
or Subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies) or ceases to be
employed thereby due to his Retirement, the Program Administrators, in their
discretion, may allow the Option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to Disability or Retirement, unless either
the Option or this Compensatory Plan otherwise provides for earlier termination.

SECTION 12. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as otherwise
---------------------------------------
limited by the Program Administrators at the time of the grant of an Option, if
an Optionee dies while employed by the Company, or any Subsidiary thereof, (or a
corporation or a parent or Subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies), his
or her Option shall expire one year after the date of death unless by its terms
it expires sooner. During this one year or shorter period, the Option may be
exercised, to the extent that it remains unexercised on the date of death, by
the person or persons to whom the Optionee's rights under the Option shall pass
by will or by the laws of descent and distribution, but only to the extent that
the Optionee is entitled to exercise the Option at the date of death.

SECTION 13. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the
--------------------------
terms of this Compensatory Plan may not be sold, pledged, hypothecated, assigned
or transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee.

SECTION 14. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED SHARES.
------------------------------------------------------------
All Options granted pursuant to the terms of this Compensatory Plan shall be
adjusted in a manner prescribed by Article 6 of the General Provisions of the
Program.

<PAGE>
COASTAL BANCORP, INC.
1999 STOCK COMPENSATION PROGRAM

PLAN III - STOCK APPRECIATION RIGHTS PLAN

SECTION 1. PURPOSE. The purpose of this Coastal Bancorp, Inc. Stock
-------
Appreciation Rights Plan ("S.A.R. Plan") is to permit the Company to grant Stock
Appreciation Rights for its Common Stock to its full-time, key Employees. The
S.A.R. Plan is designed to help attract and retain superior personnel for
positions of substantial responsibility with the Company and any Subsidiary
thereof and to provide key Employees with an additional incentive to contribute
to the success of the Company. This S.A.R. Plan is Part III of the Coastal
Bancorp, Inc. 1999 Stock Compensation Program.

SECTION 2. TERMS AND CONDITIONS. The Program Administrators may, but
----------------------
shall not be obligated to, authorize, on such terms and conditions as they deem
appropriate in each case, the Company to grant rights to Optionees to surrender
an exercisable Option granted under Plan I or Plan II or any portion thereof, in
consideration for the payment by the Company of an amount equal to the excess of
the Fair Market Value of the shares of Common Stock subject to such Option, or
any portion thereof, surrendered, over the exercise price of the Option with
respect to such shares. Such payment, at the discretion of the Program
Administrators, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash or partly in cash and partly in shares of
Common Stock; provided that with respect to rights granted in tandem with
Incentive Stock Options, the Program Administrators shall establish the form(s)
of payment allowed the Optionee at the date of grant. The Program
Administrators shall not be authorized to make payment to any Optionee in shares
of the Company's Common Stock unless Section 83 of the Code would apply to the
Common Stock transferred to the Optionee. The Program Administrators may, but
shall not be obligated to, also authorize naked Stock Appreciation Rights in
accordance with Section 9 hereof. Notwithstanding the foregoing, the Company
may not permit the exercise and cancellation of a Stock Appreciation Right
issued pursuant to this S.A.R. Plan until the Company has been subject to the
reporting requirements of Section 13 of the Exchange Act, for a period of at
least one year prior to the exercise and cancellation of any such Stock
Appreciation Right.

SECTION 3. TIME LIMITATIONS. Any election by an Optionee to exercise the
----------------
Stock Appreciation Rights provided in this S.A.R. Plan shall be made during the
period beginning on the third business day following the release for publication
of quarterly or annual financial information required to be prepared and
disseminated by the Company pursuant to the requirements of the Exchange Act and
ending on the twelfth business day following such date. The required release of
information shall be deemed to have been satisfied when the specified financial
data appears on or in a wire service, financial news service or newspaper of
general circulation or is otherwise first made publicly available.

SECTION 4. EXERCISE OF STOCK APPRECIATION RIGHTS: EFFECT ON STOCK OPTIONS
---------------------------------------------------------------
AND VICE VERSA. Upon the exercise of a Stock Appreciation Right, the number of
- ---------------
shares of Common Stock available under the Option to which it relates shall
decrease by a number equal to the number of shares for which the Stock
Appreciation Right was exercised. Upon the exercise of an Option, any related
Stock Appreciation Right shall terminate as to any number of shares subject to
the right that exceeds the total number of shares for which the Option remains
unexercised.

<PAGE>
SECTION 5. TIME OF GRANT. With respect to Options granted under Plan I,
--------------
Stock Appreciation Rights must be granted concurrently with the Incentive Stock
Options to which they relate; with respect to Options granted under Plan II,
Stock Appreciation Rights may be granted concurrently or at any time thereafter
prior to the exercise or expiration of such Non-Qualified Options.

SECTION 6. NON-TRANSFERABLE. The holder of a Stock Appreciation Right may
----------------
not transfer or assign the right otherwise than by will or in accordance with
the laws of descent and distribution. Furthermore, in the event of the
termination of his or her service with the Company as an Officer and/or
Employee, the right may be exercised only within the period, if any, which the
Option to which it relates may be exercised.

SECTION 7. TANDEM INCENTIVE STOCK OPTION - STOCK APPRECIATION RIGHT.
-------------------------------------------------------------
Whenever an Incentive Stock Option authorized pursuant to Plan I and a Stock
Appreciation Right authorized hereunder are granted together and the exercise of
one affects the right to exercise the other, the following requirements shall
apply:

(a) The Stock Appreciation Right will expire no later than the
expiration of the underlying Incentive Stock Option;

(b) The Stock Appreciation Right may be for no more than the difference
between the exercise price of the underlying Option and the market price of the
stock subject to the underlying Option at the time the Stock Appreciation Right
is exercised;

(c) The Stock Appreciation Right is transferable only when the
underlying Incentive Stock Option is transferable and under the same conditions;

(d) The Stock Appreciation Right may be exercised only when the
underlying Incentive Stock Option is eligible to be exercised; and

(e) The Stock Appreciation Right may be exercised only when the market
price of the stock subject to the Option exceeds the exercise price of the stock
subject to the Option.

SECTION 8. TANDEM STOCK OPTION - LIMITED STOCK APPRECIATION RIGHT. The
--------------------------------------------------------
Program Administrators may provide that any tandem Stock Appreciation Right
granted pursuant to this Section 8 shall be a limited Stock Appreciation Right
("Limited Stock Appreciation Right"), in which event:

(a) The Limited Stock Appreciation Right shall be exercisable during
the period beginning on the first day following the expiration of an Offer (as
defined below) and ending on the thirtieth day following such date;

(b) Neither the Option tandem to the Limited Stock Appreciation Right
nor any other Stock Appreciation Right tandem to such Option may be exercised at
any time that the Limited Stock Appreciation Right may be exercised, provided
that this requirement shall not apply in the case of an Incentive Stock Option
tandem to a Limited Stock Appreciation Right if and to the extent that the
Program Administrators determine that such requirement is not consistent with
applicable statutory provisions regarding Incentive Stock Options and the
regulations issued thereunder;

(c) Upon exercise of the Limited Stock Appreciation Right, the Fair
Market Value of the shares to which the right relates shall be determined as the
highest price per share paid in any Offer that is in effect at any time during
the period beginning on the sixtieth day prior to the date on which the Limited
Stock Appreciation Right is exercised and ending on such exercise date;
provided, however, with respect to a Limited Stock Appreciation Right tandem to
an Incentive Stock Option, the Program Administrators shall determine Fair
Market Value of such shares in a different manner if and to the extent that the
Program Administrators deem necessary or desirable to conform with applicable
statutory provisions regarding Incentive Stock Options and the regulations
issued thereunder.

The term "Offer" shall mean any tender offer or exchange offer for shares
of the Company, provided that the person making the offer acquires shares of the
Company's capital stock pursuant to such offer.

SECTION 9. NAKED STOCK APPRECIATION RIGHT. The Program Administrators may
------------------------------
provide that any Stock Appreciation Right granted pursuant to this Section 9
shall be a naked Stock Appreciation Right ("Naked Right"), in which event:

(a) Participants shall be awarded Naked Rights for a period of up to
five years or such shorter period which shall not be less than six months, as
may be determined by the Program Administrators. Such designated period may
vary as among participants and as among awards to a participant. Subject to
compliance with Section 3 hereof, at the end of such designated period with
respect to a participant, such participant shall receive an amount equal to the
appreciation in market value of his or her Naked Rights as determined in
subparagraph (b) of this Section 9 (the "Right Award"). The Right Award shall
be payable in cash or in shares of Common Stock, as may be determined by the
Program Administrators. A participant may receive as many awards of Naked
Rights at various times as may be determined to be appropriate by the Program
Administrators.

(b) For purposes of determining the amount of a Right Award, the
Program Administrators shall determine the market value of Naked Rights held by
such participant at the end of the designated period for which such Naked Rights
have been held ("Valuation Period") and subtract therefrom the market value of
the same Naked Rights on the date awarded to such participant. The market value
of one Naked Right on a valuation date shall be determined by the Program
Administrators on the basis of such factors as they deem appropriate; and shall
be determined without regard to any restriction other than a restriction which,
by its terms, will never lapse. The Fair Market Value of shares of the Common
Stock shall be the Fair Market Value as set forth in Article 15(i) of the
General Provisions and shall be used to determine the market value of one Naked
Right. The market value of Naked Rights held by a participant on a valuation
date shall be determined by multiplying the number of Naked Rights held by such
participant by the market value of one Naked Right on such valuation date. The
measurement of appreciation shall be made separately with respect to each
separate award of Naked Rights.

(c) The Naked Rights shall be used solely as a device for the
measurement and determination of the amount to be paid to participants
hereunder. The Naked Rights shall not constitute or be treated as property or
as a trust fund of any kind. All amounts at any time attributable to the Naked
Rights shall be and remain the sole property of the Company and the
participants' rights hereunder are limited to the right to receive cash and
shares of Common Stock as herein provided.

(d) Notwithstanding the first sentence of subparagraph (a) of this
Section 9, in the event the Company or its stockholders enter into an agreement
to dispose of all or substantially all of the assets or stock of the Company or
of Coastal Banc ssb by means of a sale, merger or other reorganization,
liquidation or otherwise, any Naked Right granted pursuant to subparagraph (a)
of this Section 9 shall become immediately exercisable during the period
commencing as of the date of the agreement to dispose of all or substantially
all of the assets or stock of the Company or of Coastal Banc ssb and ending when
the disposition of assets or stock contemplated by that agreement is terminated
or the Naked Right is otherwise terminated in accordance with its provisions or
the provisions of this S.A.R. Plan, whichever occurs first; provided, however,
that no Naked Right shall be immediately exercisable under this subparagraph (d)
on account of any agreement to dispose of all or substantially all of the assets
or stock of the Company by means of a sale, merger or other reorganization,
liquidation or otherwise where the stockholders of the Company immediately
before the consummation of the transaction will own at least 50% of the total
combined voting power of all classes of stock entitled to vote of the surviving
entity, whether the Company or some other entity, immediately after the
consummation of the transaction. In the event the transaction contemplated by
the agreement referred to in this subparagraph (d) is not consummated, but
rather is terminated, cancelled or expires, the Naked Rights granted pursuant to
subparagraph (a) of this Section 9 shall thereafter be treated as if that
agreement had never been entered into.

Notwithstanding the first sentence of subparagraph (a) of this Section 9,
in the event of a change in control of the Company or threatened change in
control of the Company as determined by a vote of not less than a majority of
the Whole Board of Directors and a majority of the Continuing Directors of the
Company, as such terms are defined in the Company's Articles of Incorporation,
all Naked Rights granted prior to such change in control or threatened change of
control shall become immediately exercisable. The term "control" for purposes
of this Section shall refer to the acquisition (subsequent to the approval of
the Program by the stockholders of the Company) of 10% or more of the voting
securities of the Company by any person or by persons acting as a group within
the meaning of Section 13(d) of the Exchange Act; provided, however, no change
in control or threatened change in control shall be deemed to have occurred if
prior to the acquisition of, or offer to acquire, 10% or more of the voting
securities of the Company, the Whole Board of Directors of the Company shall
have adopted by not less than a two-thirds vote a resolution specifically
approving such acquisition or offer for the specific purpose of preventing the
acceleration of the vesting of such Naked Rights. The term "person" for
purposes of this paragraph refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.

(e) Any Naked Rights granted pursuant to subparagraph (a) of this
Section 9 shall be exercised when written notice of that exercise has been given
to the Company at its principal office by the person entitled to exercise the
Naked Right.

(f) Shares of Common Stock shall not be issued with respect to any
Naked Right granted under subparagraph (a) of this Section 9 unless the exercise
of that Naked Right and the issuance and delivery of those shares pursuant to
that exercise shall comply with all relevant provisions of state and federal law
including, if applicable, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
or national quotation system upon which the shares may then be listed, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance. The Program Administrators may also require an Employee to
whom a right has been granted under subparagraph (a) of this Section 9 ("Right
Holder") to furnish evidence satisfactory to the Company, including a written
and signed representation letter and consent to be bound by any transfer
restriction imposed by law, legend, condition or otherwise, that the shares are
being acquired without any present intention to sell or distribute the shares in
violation of any state or federal law, rule or regulation. Further, each Right
Holder shall consent to the imposition of a legend on any shares of Common Stock
so acquired restricting their transferability as required by law or by this
subparagraph (f).

(g) Each Right Holder, if requested by the Program Administrators when
a Naked Right is granted, must agree in writing as a condition of receiving his
or her Naked Right, that he or she will remain in the employ of the Company, or
any Subsidiary of the Company (or a corporation or a parent or Subsidiary of
such corporation issuing or assuming a Naked Right), as the case may be,
following the date of the granting of that Naked Right for a period specified by
the Program Administrators, which period shall in no event exceed three years.
Nothing in this Section 9 or in any Naked Right granted hereunder shall confer
upon any Right Holder any right to continued employment by the Company, or any
Subsidiary thereof, or limit in any way the right of the Company or any
Subsidiary thereof at any time to terminate or alter the terms of that
employment.

(h) If a Right Holder ceases to be employed by the Company, or any
Subsidiary thereof (or a corporation or a parent or Subsidiary of such
corporation issuing or assuming a Naked Right), for any reason other than death,
Disability or Retirement, his or her Naked Right shall immediately terminate;
provided, however, that the Program Administrators may, at the time a Naked
Right is granted, in their discretion, allow such Naked Right to be exercised to
the extent exercisable on the date of termination of employment at any time
within three months after the date of termination of employment, unless either
the Naked Right or this Section 9 otherwise provides for earlier termination.

(i) If a Right Holder becomes disabled within the meaning of Section
22(e)(3) of the Code while employed by the Company of any Subsidiary thereof (or
a corporation or a parent or Subsidiary of such corporation issuing or assuming
a Naked Right) or ceases to be employed thereby due to Retirement, his or her
Naked Rights may be exercised, to the extent exercisable on the date of
termination of employment, at any time within one year after the date of
termination of employment due to Disability or Retirement, unless either the
Naked Right or this Section 9 otherwise provides for earlier termination.

(j) Except as otherwise limited by the Program Administrators at the time
of the grant of a Naked Right, if a Right Holder dies while employed by the
Company or any Subsidiary thereof (or a corporation or a parent or Subsidiary of
such corporation issuing or assuming a Naked Right), or within three months
after ceasing to be an Employee thereof, his or her Naked Right shall expire one
year after the date of death unless by its term it expires sooner. During this
one year or shorter period, the Naked Right may be exercised, to the extent that
it remains unexercised on the date of death, by the person or persons to whom
the Right Holder's Naked Rights shall pass by will or by the laws of descent and
distribution, but only to the extent that the Right Holder is entitled to
exercise the Naked Right at the date of death.

<PAGE>
(k) Naked Rights granted pursuant to the terms of this Section 9 may not
be sold, pledged, hypothecated, assigned or transferred in any manner otherwise
than by will or the laws of descent or distribution and may be exercised during
the lifetime of a Right Holder only by that Right Holder.

(l) All Naked Rights granted pursuant to the terms of this Section 9 shall
be adjusted in the manner prescribed by Article 6 of the General Provisions of
this Program.

<PAGE>
COASTAL BANCORP, INC.
1999 STOCK COMPENSATION PROGRAM

PLAN IV - PERFORMANCE SHARE PLAN

SECTION 1. PURPOSE. The purpose of this Coastal Bancorp, Inc. Performance
--------
Share Plan ("Performance Plan") is to promote the growth and general prosperity
of the Company by permitting the Company to grant Performance Shares to help
attract and retain superior personnel for positions of substantial
responsibility with the Company and any Subsidiary and to provide key Employees
with an additional incentive to contribute to the success of the Company. This
Performance Plan is Part IV of the Coastal Bancorp, Inc. 1999 Stock Compensation
Program.

SECTION 2. TERMS AND CONDITIONS. The Program Administrators may grant
-----------------------
Performance Shares to any Employee eligible under Article 4 of the General
Provisions. Each Performance Share grant confers upon the recipient thereof the
right to receive a specified number of shares of Common Stock of the Company
contingent upon the achievement of specified performance objectives within a
specified period. The Program Administrators shall specify the performance
objective and the period of duration of the Performance Share grant at the time
that such Performance Share is granted. Any Performance Shares granted under
this Plan shall constitute an unfunded promise to make future payments to the
affected Employee upon the completion of specified conditions. The grant of an
opportunity to receive Performance Shares shall not entitle the affected
Employee to any rights to specific fund(s) or assets of the Company, or any
parent or Subsidiary thereof.

SECTION 3. CASH IN LIEU OF STOCK. In lieu of some or all of the shares of
----------------------
Common Stock earned by achievement of the specified performance objectives
within the specified period, the Program Administrators may distribute cash in
an amount equal to the Fair Market Value of the Common Stock at the time that
the Employee achieves the performance objective within the specified period.
Such Fair Market Value shall be determined by Article 15(i) of the General
Provisions, on the business day next preceding the date of payment. The Program
Administrators shall be authorized to make payment in shares of Common Stock
only if Section 83 of the Code would apply to the transfer of Common Stock to
the Employee.

SECTION 4. PERFORMANCE OBJECTIVE PERIOD. The duration of the period
-------------------------------
within which to achieve the performance objectives is to be determined by the
Program Administrators. The period may not be less than one year nor more than
five years from the date the performance share is granted.

SECTION 5. NON-TRANSFERABLE. A participating Employee may not transfer or
-----------------
assign a performance share.

SECTION 6. PERFORMANCE SHARE RIGHTS UPON DEATH OR TERMINATION OF
------------------------------------------------------------
EMPLOYMENT. If a participating Employee dies or terminates service with the
--
Company, or any Subsidiary thereof (or a corporation or a parent or Subsidiary
of such corporation issuing or assuming a Performance Share in a transaction to
which Section 424(a) of the Code applies,) prior to the expiration of the
performance objective period, any Performance Shares granted to him or her
during that period are terminated.

END OF 1999 STOCK COMPENSATION PROGRAM

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