Coastal Bancorp's 2000 profits rose 84%, to a record $17.4 million.

Still, chief executive officer Manuel J. Mehos says, the Houston company has to have major growth.

"Ultimately, we need to provide a bigger return," he said Wednesday. "The best thing for our shareholders is for us to get bigger. That can come" from selling the company "or a merger or equals, but we can't stay this size forever."

Mr. Mehos said he would prefer to grow through acquisitions. For the past year, however, Coastal has been busy "right-sizing," the CEO said: limiting its expenditures rather than buying banks. While its assets grew 4.8% last year, to $3.1 billion, noninterest expenses rose just 0.66%, to $58.2 million.

"Those are numbers the investing public loves to see even more than I do," he said.

Coastal's 1.12% ratio of nonperforming loans to loans receivable is higher than the industry average, Mr. Mehos said.

Of the $21.2 million of nonperforming loans on its books, 65% are first-lien mortgages the company purchased on the secondary market, he said. Since Coastal projects a higher rate of nonperformance in those loans, it factors a corresponding discount into the purchase price, he said.

The company's loan-loss provisions rose 38.3%, to $14.5 million. Coastal said the increase was in keeping with its plan to boost the provisions until they equal its nonperforming loans.

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