SECURITIES AND EXCHANGE COMMISSION

                                             WASHINGTON, D. C. 20549



                                             FORM 10-Q

                              QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                              SECURITIES EXCHANGE ACT OF 1934
                              FOR THE QUARTER ENDED September 30, 1998

                              Commission File Number 2-76003

                                                          BAY AREA BANCSHARES


                                                        California #94-2779021

                                     900 Veterans Blvd., Redwood City, CA 94063
                                     Telephone (650) 562-3238


         Theregistrant  (1) has filed all  reports  required  by  Section  13 or
            15(d) of the Securities Exchange Act during the preceding 12 months,
            and

                                x  Yes           No

         (2)  has been subject to such filing requirements for the past 90 days.
                                x  Yes           No
                                -----          -----  


          1,004,141 Shares of Common Stock Outstanding as of September 30, 1998


<PAGE>


Part 1 Item 1

<TABLE>
<CAPTION>


                                        BAY AREA BANCSHARES & SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEET
                                             (UNAUDITED, IN THOUSANDS)



                                                                                                                         
                                        

ASSETS                                                                          09/30/98                   12/31/97    
<S>                                                                             <C>                        <C>                  
Cash and due from banks                                                          $13,137                    $11,464         
Federal Funds Sold                                                                22,900                      7,500
              fixed assets
                                                                                                             
     Cash and cash equivalents                                                    36,037                     18,964               
Investment securities available for sale                                                                              
  (market value approximates book value)                                           1,601                      1,106
Investment securities held to maturity        
  (market value of $10,847 in 1998 and $14,683 in 1997)                           10,644                     14,482
Loans, net of reserve for possible loan losses
    of $2,001 in 1998 and $1,638 in 1997                                         100,683                     84,374    
Premises and equipment,net                                                           453                        653  
Real estate owned                                                                      0                          0
Interest receivable and other assets                                               2,187                      2,506


     Total assets                                                               $151,605                   $122,085
                                                                                                                        
                                                                                                                              
                         
LIABILITIES AND SHAREHOLDERS' EQUITY                               
Deposits                                                    
   Demand                                                                        $36,495                    $28,248       
   Interest-bearing transaction                                                   51,175                     41,758
   Savings                                                                         7,476                      6,399
   Time                                                                           37,906                     31,021  
     Total Deposits                                                              133,052                    107,426     
Interest payable and other liabilities                                             2,247                      1,671
Federal funds purchased                                                                0                          0                
Federal Home Loan Bank advances                                                    2,500                      1,000

     Total liabilities                                                           137,799                    110,097            
                                                                                                                                  
Shareholders' equity:                                                                                                     

   Common stock, no par value:   
     Authorized - 20,000,000 shares; issued & outstanding                          4,887                      4,736
      1,004,141  in 1998 and 977,035 in 1997
   Unrealized (loss) gain on securities held for sale                                  9                         (2)
   Additonal paid in capital                                                         870                        640
   Retained earnings                                                               8,040                      6,614

     Total shareholders' equity                                                   13,806                     11,988

     Total liabilities and shareholders' equity                                 $151,605                   $122,085


</TABLE>

                                                               (1)

<PAGE>




Part 1 Item 1

<TABLE>
<CAPTION>

                                         BAY AREA BANCSHARES & SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (UNAUDITED, DOLLARS IN THOUSANDS)

                                                                               Three Months               Three Months  
                                                                                 Ended                      Ended     
                                                                                09/30/98                   09/30/97  
<S>                                                                            <C>                          <C>
Interest Income: 
     Interest and fees on loans                                                   $2,715                     $2,148  
     Interest on investment securities                                               199                        252        
     Interest on federal funds sold                                                  223                        116             
     Interest on time deposits with other financial institutions                       0                          0  
             Total Interest Income                                                 3,137                      2,516   
Interest Expense:     
     Interest on interest-bearing transaction amounts                                396                        361               
     Interest on savings deposits                                                     77                         69 
     Interest on time deposits                                                       492                        340     
     Interest on short-term borrowing                                                 29                         14   
     Interest on notes payable and redeemable debentures                               0                          0      

             Total Interest Expense                                                  994                        784               

             Net interest income                                                   2,143                      1,732                
Provision for possible loan losses                                                    90                         60 
             Net interest income after provision for possible loan losses          2,053                      1,672       
Noninterest income:                                                                                                               
     Service charges on deposit accounts                                              70                         55                
     Net loss on sales of securities                                                   0                          0      
     Net gain on disposal of assets                                                    0                          0  
     Net gain on sale of loans held for sale                                           0                          0        
     Other  Mortgage Banking Revenue                                                  30                         24                
     ATM network revenue                                                             518                        536               
     Other                                                                            34                         34              

             Total noninterest income                                                652                        649       
Noninterest expense:                                                                                                
     Salaries and related benefits                                                   834                        642
     Occupancy                                                                       121                        116
     Equipment                                                                       189                        134      
     Professional fees                                                                91                         77 
     Stationery and supplies                                                          24                         30 
     Other                                                                           380                        506 

             Total noninterest expense                                             1,639                      1,505

Income before provision for income taxes                                           1,066                        816 
Provision for income taxes                                                           445                        346                

Net Income                                                                           621                        470  

Comprehensive income:  Unrealized gain (loss) on investment
     securities held-for- sale, net                                                    9                          0

Comprehensive Income                                                                $630                       $470


Earnings per share:                                                                                                                
     Average common and equivalent shares outstanding- Primary                   997,000                    885,000   



     Average common and equivalent shares outstanding- Fully Diluted           1,010,000                    960,000                

     Earnings Per Common Share                                                     $0.62                      $0.53   

     Earnings Per Common Share - Assuming Dilution                                 $0.61                      $0.49                

</TABLE>

                                                               (2)

<PAGE>




Part 1 Item 1

<TABLE>
<CAPTION>

                                         BAY AREA BANCSHARES & SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (UNAUDITED, DOLLARS IN THOUSANDS)


                                                                               Nine Months                Nine Months
                                                                                  Ended                      Ended
                                                                                 9/30/98                    9/30/97
<S>                                                                            <C>                          <C>
Interest Income:
     Interest and fees on loans                                                   $7,554                     $5,994
     Interest on investment securities                                               647                        732
     Interest on federal funds sold                                                  516                        319
     Interest on time deposits with other financial institutions                       0                          2

             Total Interest Income                                                 8,717                      7,047
Interest Expense:
     Interest on interest-bearing transaction amounts                              1,051                      1,049
     Interest on savings deposits                                                    219                        186
     Interest on time deposits                                                     1,392                        891
     Interest on short-term borrowing                                                 66                         14
     Interest on notes payable and redeemable debentures                               0                          0

             Total Interest Expense                                                2,728                      2,140

             Net interest income                                                   5,989                      4,907
Provision for possible loan losses                                                   160                        180

             Net interest income after provision for possible loan losses          5,829                      4,727
Noninterest income:
     Service charges on deposit accounts                                             192                        153
     Net loss on sales of securities                                                   0                          0
     Net gain on disposal of assets                                                    0                          0
     Net gain on sale of loans held for sale                                           0                         12
     Other  Mortgage Banking Revenue                                                 131                         99
     ATM network revenue                                                           1,448                      1,531
     Other                                                                            90                         83

             Total noninterest income                                              1,861                      1,878
Noninterest expense:
     Salaries and related benefits                                                 2,141                      1,798
     Occupancy                                                                       366                        348
     Equipment                                                                       436                        369
     Professional fees                                                               264                        190
     Stationery and supplies                                                          70                         88
     Other                                                                         1,458                      1,552

             Total noninterest expense                                             4,735                      4,345

Income before provision for income taxes                                           2,955                      2,260
Provision for income taxes                                                         1,233                        946

Net Income                                                                         1,722                      1,314

Comprehensive income:  Unrealized gain (loss) on investment
     securities held-for- sale, net                                                   11                         (3)

Comprehensive Income                                                              $1,733                     $1,311


Earnings per share:
     Average common and equivalent shares outstanding- Primary                   986,778                    865,000



     Average common and equivalent shares outstanding- Fully Diluted           1,020,000                    960,000


     Earnings Per Common Share                                                     $1.75                      $1.52

     Earnings Per Common Share - Assuming Dilution                                 $1.69                      $1.37


</TABLE>


                                                                (3)

<PAGE>


Part 1 Item 1

<TABLE>
<CAPTION>

                                                BAY AREA BANCSHARES
                                       CONSOLIDATED STATEMENT OF CASH FLOWS
                                         (UNAUDITED, DOLLARS IN THOUSANDS)

                                                                                Nine Months                Nine Months
                                                                                  Ended                      Ended
                                                                                  9/30/98                    9/30/97
<S>                                                                              <C>                        <C>
Cash flows from operating activities:

    Net Income                                                                    $1,722                     $1,314
    Adjustments to reconcile net income to net cash provided
    by operating activities:
                                                                                                                       
      Depreciation of premises and equipment                                         297                        275
      Provision for possible loan losses                                             160                        180
      Net gain loss on sale of assets                                                  0                          0
      Funding of loans held for sale                                                   0                       (947)
      Proceeds from the sale of loans held for sale                                    0                      1,682
      Net gain on sale of loans held for sale                                          0                        (12)
      Net loss on sale of investment securities                                        0                          0
      Net ammortization and accretion of investment premiums and discounts            82                         69
      Net decrease (increase) in interest receivable and other assets                319                        (22)
      Net  increase in interest payable and other liabilities                        576                        227
      Net  decrease in deferred loan fees                                           (122)                       (28)

          Total adjustments                                                        1,312                      1,424

          Net cash provided by operating activities                                3,034                      1,358

Cash flows from investing activities:
    Proceeds from sale of investment securities                                        0                        100
    Proceeds from the maturity of investment securities
        held for sale                                                                  0                      1,000
    Proceeds from the maturity of investment securities
        held to maturity                                                           1,890                      1,585
    Mortgage backed securities principal payments                                  3,008                        449
    Purchase of investment securities held to maturity                            (2,349)                    (3,733)
    Purchase of investment securities held for sale                                                               0
    Net increase in gross loans                                                  (15,691)                   (12,653)
    Proceeds from the sale of Real Estate Owned                                        0                        226
    Capital expenditures                                                             (97)                      (138)


                                   Net cash used in investing activities         (13,239)                   (13,164)

Cash flows from financing activities:
    Net  increase in demand deposits,transaction and savings                      18,741                      5,591
    Net increase in time deposits                                                  6,885                      8,883
    Additional Piad in Capital                                                       230                          0
    Net proceeds of Federal Home Loan Bank advances                                1,500                      1,000
    Proceeds from stock warrants and options exercised                               219                        263
    Cash Dividends paid                                                             (297)                      (236)

                                   Net cash  provided by financing activities     27,278                     15,501

Net  increase (decrease) in cash and cash equivalents                             17,073                      5,075

Cash and cash equivalents,beginning of period                                     18,964                     17,861

Cash and cash equivalents,end of period                                          $36,037                    $22,936


There were $0 and $499 in loans  transferred  to Real  Estate  Owned in 1998 and
1997 respectively.
</TABLE>

                                                                        (4)


                                           
BAY AREA BANCSHARES & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All  adjustments,  which in the opinion of  management  are necessary for a fair
statement of the Company's financial condition at September 30, 1998, results of
operations for the three and nine month periods ended September 30, 1998 and the
statement of cash flows for the nine month period ended  September 30, 1998 have
been  included.  These  adjustments  are of a normal and recurring  nature.  The
results of operations and statement of cash flows are not necessarily indicative
of the results for a full year's activity.

The accompanying  unaudited  financial  statements have been prepared on a basis
consistent  with  the  accounting  principles  and  policies  reflected  in  the
Company's Annual Report for the year ended December 31, 1997.

All references to the "Bank" are in reference to the Company's  sole, and wholly
owned, subsidiary Bay Area Bank.

New Statements of Financial Accounting Standards:

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  No. 130,  "Reporting  Comprehensive  Income"
("SFAS  130").  Under the  provisions  of SFAS 130,  the  Company is required to
report comprehensive income in its financial statements;  the term comprehensive
income describes the total of all components of  comprehensive  income including
net  income  as well as other  revenues,  expenses,  gains and  losses  that are
included in comprehensive  but excluded from earnings (net income).  The Company
started to report comprehensive income as part of the consolidated statements of
operations,  including other comprehensive  income items added separately to net
income resulting in total  comprehensive  income. SFAS 130 is effective with the
year-end 1998 financial  statements;  however, the total comprehensive income is
required in the financial  statements for interim periods beginning in 1998. The
Company  adopted SFAS 130 as of January 1, 1998;  the adoption of the  statement
did not have a material impact on the Company's financial statements.

In June of 1997, the Financial  Accounting  Standards  Board ("FASB") issued the
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related  Information" ("SFAS 131"). Under the provisions of
SFAS 131, an entity is required to report selected  information  about operating
segments in annual financial  statements and interim financial reports.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers. The Statement uses a "management approach"
to identify  operating  segments and defines an operating segment as a component
of an enterprise (I) for which discrete financial information is available; (ii)
that engages in business activities

                                                                  (5)

<PAGE>

that may earn  revenues  and incur  expenses  (including  revenues  and expenses
relating to transactions with other components of the same enterprise) and (iii)
whose  operating  results  are  regularly  reviewed  by the  enterprise's  chief
operating decision maker.  Reportable  segments  (aggregated if appropriate) are
operating  segments  that  meet  specified  quantitative   thresholds  based  on
revenues,  profit or loss and  assets,  using a ten  percent  rule.  SFAS 131 is
effective  for  fiscal  years  beginning   after  December  15,  1997.   Segment
information  that is  presented  for  comparative  purposes is to be restated to
conform to the requirements of SFAS 131 unless it is impracticable to do so. The
required interim  disclosures are not required to be made in the initial year of
application  but the information for the interim periods for the initial year is
required as comparative information in the second year of application.



BAY AREA BANCSHARES & SUBSIDIARIES

ITEM 2

Management's Discussion and Analysis of Financial Condition and Results of
Operations

This report may include forward-looking  statements as defined in section 27A of
the  Securities  Act of 1933,  as amended,  and  section  21E of the  Securities
Exchange Act of 1934, as amended, which includes statements such as projections,
plans and objectives and assumptions  about the future,  and such statements are
subject to the safe harbor created by those sections. Forward looking statements
involve  certain  risks and  uncertainties  that could cause  actual  results to
differ  materially  from those in  forward  looking  statements.  Such risks and
uncertainties  include changes in competition,  market interest rates,  economic
conditions and changes in the regulatory environment.

Item 2A  Financial Condition

Liquidity

Liquid assets (Cash, Federal Funds Sold and Investments) increased $13.7 million
or 39.8% to $48.3  million over the nine month period from  December 31, 1997 to
September  30, 1998.  At year-end,  total liquid assets as a percentage of total
assets was 28.3%, whereas on September 30, 1998 it had increased to 31.9%.

Cash & due from banks  increased $1.7 million over the first nine months of 1998
to $13.1  million at September  30,  1998.  During the first nine months of 1998
cash and due from banks averaged $11.3 million.  The portion of the total cash &
due from banks  representing  ATM  ("Automatic  Teller  Machine")  network  cash
inventory has averaged  approximately $2.7 million during 1998 and averaged $3.6
in the first three  quarters of 1997.  The  reduction in ATM cash is primarily a
result of more aggressive management of the cash inventory in the machines.


                                                                  (6)
<PAGE>

Both average and period end loans and deposits  outstanding are at record levels
for the  Company.  During the first nine months of 1998 gross loans  outstanding
has averaged $94.7 million as compared to $74.2 million in the first nine months
of 1997, an increase of 27.6%.  Gross loans were $102.7 million at September 30,
1998 a record level for the Company and a $16.7  million or 19.4%  increase over
the balance at December 31, 1997.

Deposits  have  averaged  $118.7  million in the first nine months of 1998 while
they averaged $98.6 million during the first nine months of 1997, an increase of
20.4%.  Deposits were $133.1 million at September 30, 1998, an increase of $25.7
million or 24% since year end 1997.

Management believes current liquid assets and current available credit lines are
adequate  to cover the  working  capital  requirements  of the  Company  and any
reasonable needs arising from deposit withdrawals.

Capital

Consolidated  equity  capital plus reserves  increased $2.2 million in the first
nine  months of 1998 from  $13.6  million  or  11.16% of total  gross  assets at
December 31, 1997 to $15.8  million or 10.43% of total gross assets at September
30, 1998. Bank capital plus reserves totaled $14.5 million on September 30, 1998
or 9.44% of total adjusted  assets as compared to capital plus reserves of $12.3
million or 10.03% of total  adjusted  assets at December 31, 1997.  At September
30, 1998 the Bank  maintained a tier one capital  ratio of 10.89% and a tier two
capital ratio of 12.14% as compared to 11.7% and 12.9%  respectively at December
31, 1997.

The Bank's capital level continues to exceed State and Federal Deposit Insurance
Corporation  requirements  and satisfies  the Federal  Reserve  Board's  current
risk-based  capital  Guidelines.  The Bank  declared no  dividends to the Parent
company in the first nine months of 1998.

The Company declared cash dividends to common  shareholders of $.10 per share in
September  of  1998.  The  third  quarter  dividend   represents   twenty  eight
consecutive   quarterly  cash  dividends  declared  by  the  Parent  company  to
shareholders.


Item 2B  Results of Operations

Results of Operations

Consolidated  operating  profits were $621,000  ($.61 per common share  assuming
dilution vs. $.49 in the prior year) for the third quarter of 1998,  the highest
third quarter earnings in the Company's  history.  This represents a $151,000 or
32.1% increase over the third quarter of 1997 when net income was $470,000.




                                                                   (7)
<PAGE>

The increase in third quarter  earnings in 1998 versus the third quarter of 1997
is a result of an increase in pretax  earnings of $250,000 which is comprised of
an increase in net  interest  income of $411,000 and an increase in other income
of $3,000 offset in part by an increase in  noninterest  expense of $134,000 and
an increase in loan loss provisions of $30,000.

Consolidated  operating profits were $1,722,000 ($1.69 per common share assuming
dilution  vs.  $1.37 in the prior year) for the first nine  months of 1998,  the
highest  nine months of earnings in the  Company's  history.  This  represents a
$408,000  or 31.1%  increase  over the first nine months of 1997 when net income
was $1,314,000.

The increase in nine month earnings in 1998 versus the first nine months of 1997
is a result of an increase in pretax  earnings of $695,000 which is comprised of
an increase in net  interest  income of  $1,082,000  and a decrease in loan loss
provisions  of $20,000,  offset in part by a decrease in other income of $17,000
and a increase in noninterest expense of $390,000.

The  growth in net  interest  income of 23.4% in the  third  quarter  of 1998 is
primarily  a result  of  growth  in total  earning  assets  offset  in part by a
decrease in net  interest  margin (Net  interest  margin is computed by dividing
annualizing  net interest income by average earning assets during the respective
period).  Average  earning  assets in the  third  quarter  of 1998  were  $131.1
million,  a $28.0 million or 27.1%  increase over the third quarter of 1997 when
earning assets averaged $103.2 million. Net interest margin in the third quarter
of 1998 was  approximately  6.54% as compared  to 6.72% in the third  quarter of
1997.

The growth in net  interest  income of 22.1% in the first nine months of 1998 is
primarily  a result  of  growth  in total  earning  assets  offset  in part by a
decrease in net interest margin. Average earning assets in the first nine months
of 1998 have been $121.8  million,  a $24.4  million or 25.0%  increase over the
first nine  months of 1997 when  earning  assets  averaged  $97.4  million.  Net
interest  margin in the first  nine  months of 1998 was  approximately  6.56% as
compared to 6.72% in the first nine months of 1997.

The modest decline in net interest margin that has occurred throughout the first
nine months of 1998 is a result of an  decrease  in the yield on earning  assets
and an  increase  in the cost of  deposits  and  advances.  The yield on earning
assets  decreased in the first nine months of 1998 to 9.55% as compared to 9.65%
in the first nine months of 1997.  The cost of the Bank's  deposits and advances
(including  demand  deposits),  which averaged  $120.2 million in the first nine
months of 1998,  rose to 3.03% as  compared to 2.89% in the first nine months of
1997,  when the deposits  and advances  averaged  $98.9  million.  For the third
quarter of 1997,  the Bank's  deposits and advances  averaged  $103.9 million in
comparison to $129.7 million for the third quarter of 1998, representing a $25.8
million increase.  Management  believes that further compression of net interest
margin may occur in the coming quarters as a result of competitive  pressures on
loan  pricing and a decline in the prime rate,  which is the index used to price
the majority of the Bank's loans.  If there is a further decline in net interest
margin  caused by  reduction  in  interest  earned on interest  earning  assets,
management plans to


                                                                  (8)

<PAGE>

offset it in part by  continued  growth in  earning  assets and a decline in the
cost of the Bank's sources of funds.

Loan loss  provisions  were $90,000 in the third  quarter of 1998 and $60,000 in
the third  quarter of 1997.  Loan loss  provisions  for the first nine months of
1998 were $160,000 as compared  $180,000 for the first nine months of 1997.  The
decrease in loan loss  provisions  thus far in 1998,  as compared to 1997,  is a
result of a decline in  nonperforming  assets  and a  continued  local  economic
expansion.  Non performing assets at September 30, 1998 were $145,000 or .09% of
total assets and 7.2% of loan loss reserves.  Non performing  assets at December
31, 1997 were  $373,000 or .31% of total  assets and 22% of loan loss  reserves.
There have been $72,000 in loans  charged off during the nine months of 1998 and
$275,000 in recoveries of loans  previously  charged off as compared to $113,000
in loans  charged off and $7,000 in recoveries in the first nine months of 1997.
Loan loss  reserves of $2.0 million at September  30, 1998  represent a ratio of
1.95% of gross loans  outstanding  as  compared to a loan loss  reserve of $1.64
million or 1.90% of gross loans at December 31, 1997.

The Bank's ATM revenues  were down $18,000 or 3.4% in the third  quarter of 1998
and fell $83,000 or 5.4% in the first nine months of 1998 in  comparison  to the
same periods in 1997.  Revenue per machine has averaged  $3,448 thus far in 1998
and a  decrease  of 2.7% over the  first  nine  months of 1997 in which  average
revenue per machine was $3,541.  In addition,  the average number of machines in
operation has declined from approximately 49 in the first nine months of 1997 to
47 in the first nine months of 1998.  The  reduction  in the  average  number of
machines in service was a result of certain  contracts  that expired and certain
unprofitable  sites that were closed,  primarily during 1997. The Bank continues
to  evaluate  potential  sites to  redeploy  some of the excess  machines in the
future.

The ATM  department  contributed  $235,000  to pretax  profits in the first nine
months of 1998 as compared to $249,000 in the first nine months of 1997. The ATM
department expects to realize  significant cost reductions in the future.  These
cost  reductions  include  $10,000 a month  savings as a result of a  consultant
contract  that was fully  amortized  in June of 1998,  an  expected  savings  of
approximately $6,000 per month as a result of new contractual terms with a major
service provider that began in July 1998 and a reduction of depreciation expense
as certain existing capital costs become fully depreciated resulting in a $7,000
a month  saving of  depreciation  on the existing  infrastructure  by January of
1999.

Non  interest  expense was up  $134,000 or 8.9% in the third  quarter of 1998 as
compared  to the third  quarter of 1997 and  $390,000 or 9.0% for the first nine
months  of 1998.  The  increase  in both  periods  was  comprised  primarily  of
additional  salaries and  benefits  which are up 19% in the first nine months of
1998.

The Company is actively  involved in  evaluating  and  addressing  any potential
effects on the Company's  operations  as a result of Year 2000 ("Y2K")  computer
programming  problems.  The Bank has  adopted  a Policy  and  Strategy  to guard
against any  disruption  of service  arising  from the date change at January 1,
2000. The primary elements of

                                                                  (9)

<PAGE>

the Policy and Strategy  address the Bank's  ability to become Y2K  compliant in
the following areas:  deposit data processing,  wire transfer  processing,  loan
data processing and documentation, ATM servicing and electronic data interchange
systems,  accounting  and  various   internal/environmental   systems,  such  as
voicemail and electronic mail systems and HVAC and office equipment.

The Bank's Year 2000  Strategy  contains  detailed  steps for  assessment of the
complexity of becoming Y2K compliant,  including  determining  (1) the effect of
Y2K on the Bank's main  computer  system,  and on each  subproduct  used by each
department  that  interfaces  with  the  main  computer  system;   (2)  hardware
requirements  for  all  applications  and  whether  new  hardware  needs  to  be
purchased; (3) whether the internal/environmental systems are Y2K compliant; and
(4) whether the services provided by outside vendors with respect to the payment
system  functions  are Y2K  compliant.  In  addition,  the  assessment  includes
reviewing  third-party contracts to determine whether vendors are required to be
Y2K  compliant  and  changing  contracts  or  vendors  as  necessary  to  assure
compliance, and reviewing the effect of Y2K on all large corporate borrowers and
assessing  those  borrowers'  ability to become Y2K  compliant  with  respect to
credit evaluations.

Once the above  assessment is completed,  the Bank will take the steps necessary
to replace  equipment or software as needed,  and to replace vendors of services
who cannot provide certification of compliance. This is being done in connection
with a planned upgrade of computer  equipment and products that would go forward
even if the year 2000 were not  approaching.  In connection  with the Policy and
Strategy described above, the Bank has adopted a formal testing plan, which sets
forth the specific  testing  methodology  guidelines  and types of testing to be
used, and sets forth the dates for which accuracy testing is to be conducted. In
addition to  evaluating  its own  systems,  the Loan  Committee  of the Board of
Directors has instructed bank management to include a Y2K exposure evaluation of
all new loans submitted.

The Bank's  primary data  processing  system  (which  consists of software  that
manages loans, deposits,  accounting and investments) is provided to the Bank by
a third party.  The programming  that controls the deposit function was upgraded
in  1997 in  order  to be year  2000  compliant.  The  lending,  accounting  and
investment programs are set to be upgraded in the fourth quarter of 1998.

The Bank will incur certain costs associated with the testing and determinations
necessary  to  address  Y2K  compliance.  These  costs  include  the cost of the
internal  testing that is being done,  and the costs of any outside  auditors or
other  personnel that will be necessary to evaluate the results of the tests. In
addition,  the Bank will be receiving the software  upgrades  referred to above,
and will be purchasing  new computer  hardware to achieve  compliance.  The Bank
currently  estimates that the cost of becoming  compliant will be  approximately
$239,000, all of which will be capitalized and amortized over several years. The
expenditures are not expected to have a material impact on the Bank's results of
operations.



                                                                 (10)
<PAGE>

Finally, the Bank does not expect that any of its major corporate customers will
have Y2K  problems  that  result  in any loan  losses  to the  Bank  from  those
customers,  based on the due  diligence  that the  Bank has  conducted  to date.
However,  it is  relatively  early  in the  time by which  many  businesses  are
determining  their exposure to this risk, and the Bank is continuing to evaluate
whether  any of its  customers  may  incur  problems  from the date  change.  In
addition, despite the Company's activities regarding the Y2K issue, there can be
no assurances that partial or total system interruptions and costs to update the
necessary  hardware and software would not have a material adverse effect on the
Company


PART II

ITEM 6
(a)  Exhibits.

3.1 Restated Articles of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 of the  Company's  Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).

3.2 Amendment to Restated  Articles of  Incorporation
(incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989).

3.3 Bylaws of the Company, as amended
(incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987).

3.4  Amendment to Bylaws of Company
(incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987).

27 Financial Data Schedule (filed herewith)

(b)  Form 8-K.

No Reports on Form 8-K were filed during the quarter ended September 30, 1998.






                                                                 (11)





<PAGE>



SIGNATURES


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





BAY AREA BANCSHARES
Registrant

Dated:  November 11, 1998





/s/ Robert R. Haight
----------------------------------------
Robert R. Haight
President and Chief Executive Officer






/s/ Anthony J. Gould
----------------------------------------
Anthony J. Gould
Chief Accounting Officer



<PAGE>