UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1997

                                       or

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to

                         Commission File Number 0-24842

                           MONTEREY BAY BANCORP, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S><C>

DELAWARE                                                                                          77-0381362
------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)
</TABLE>

36 BRENNAN STREET, WATSONVILLE, CALIFORNIA                                 95076
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                 (408) 722-3885
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes  X     No    .
                                              ---       ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest  practicable date:  3,593,750 shares of common
stock, par value $.01 per share, were outstanding as of May 12, 1997.


<PAGE>



                           MONTEREY BAY BANCORP, INC.
                                      Index


<TABLE>

<S><C>
PART I. FINANCIAL INFORMATION                                                                             Page
        ---------------------                                                                             ----

       Item 1.    Consolidated Statements of Financial Condition as of
                  March 31, 1997 and December 31, 1996.................................................     1

                  Consolidated Statements of Operations for the
                  Three Months Ended March 31, 1997 and 1996...........................................     2

                  Consolidated Statement of Stockholders' Equity for the
                  Three Months Ended March 31, 1997....................................................     3

                  Consolidated Statements of Cash Flows for the
                  Three Months Ended March 31, 1997 and 1996...........................................     4

                  Notes to Consolidated Financial Statements...........................................     6

       Item 2.    Management's Discussion and Analysis of Financial Condition
                  and Results of Operations............................................................     8

PART II. OTHER INFORMATION
         -----------------

       Item 1.    Legal Proceedings....................................................................     16

       Item 2.    Changes in Securities................................................................     16

       Item 3.    Defaults Upon Senior Securities......................................................     16

       Item 4.    Submission of Matters to a Vote of Security Holders..................................     16

       Item 5.    Other Information....................................................................     16

       Item 6.    Exhibits and Reports on Form 8-K.....................................................     16

SIGNATURES..............................................................................................    17
</TABLE>




<PAGE>


Item 1.  Financial Statements.
------------------------------

MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1997 AND DECEMBER 31, 1996 (Dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                              March 31,         December 31,
                                                                                1997                1996
                                                                           ----------------  -----------------
<S><C>
ASSETS
Cash and due from depository institutions                                     $      6,134       $      4,447
Overnight deposits                                                                     900                531
                                                                              ------------       ------------
     Total cash and cash equivalents                                                 7,034              4,978

Certificates of deposit                                                                199                199
Loans held for sale, at market                                                           -                130
Securities available for sale:
   Mortgage backed securities (amortized cost of $113,307 at March 31, 1997        111,685            116,610
      and $117,094 at December 31, 1996)
   Investment securities (cost of $48,315 at March 31, 1997
      and $50,322 at December 31, 1996)                                             47,702             49,955
Securities held to maturity:
   Mortgage backed securities (market value of $159 at March 31, 1997
      and $169 at December 31, 1996)                                                   167                173
   Investment securities (market value of $403 at March 31, 1997
      and $404 at December 31, 1996)                                                   405                404
Loans receivable held for investment (net of allowance for loan losses
   at March 31, 1997, $1,434; and at December 31, 1996, $1,311)                    234,398            233,208
Federal Home Loan Bank stock, at cost                                                5,102              5,040
Premises and equipment, net                                                          4,946              4,887
Accrued interest receivable                                                          3,083              2,556
Core deposit premiums, net                                                           3,774              3,979
Other assets                                                                         3,885              3,643
                                                                               -----------        -----------
TOTAL ASSETS                                                                   $   422,380        $   425,762
                                                                               ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
   Savings deposits                                                            $   317,288        $   318,145
   Federal Home Loan Bank advances                                                  44,407             46,807
   Securities sold under agreements to repurchase                                   13,000             13,000
   Accounts payable and other liabilities                                            2,313              2,051
                                                                               -----------        -----------
     Total liabilities                                                             377,008            380,003
                                                                               -----------        -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 2,000,000 shares authorized and unissued             -                  -
   Common stock, $.01 par value, 9,000,000 shares authorized;
       3,593,750 shares issued and outstanding at March 31, 1997                        36                 36
   Additional paid-in capital                                                       27,150             27,114
   Unearned shares held by employee stock ownership plan                            (1,783)            (1,840)
   Treasury stock                                                                   (4,355)            (4,374)
   Retained earnings, substantially restricted                                      25,627             25,320
   Unrealized gain (loss) on securities available for sale, net of taxes            (1,303)              (497)
                                                                               -----------        -----------
     Total stockholders' equity                                                     45,372             45,759
                                                                               -----------        -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $   422,380        $   425,762
                                                                               ===========        ===========
</TABLE>

See notes to consolidated financial statements.


                                       1

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                            March 31,
                                                                                    ---------------------------
                                                                                          1997         1996
<S><C>
INTEREST INCOME:
  Loans receivable                                                                     $  4,681     $  4,428
  Mortgage backed securities                                                              2,084          772
  Other investment securities                                                               871          593
                                                                                       --------     --------

     Total interest income                                                                7,636        5,793
                                                                                       --------     --------

INTEREST EXPENSE:
  Savings deposits                                                                        3,862        2,739
  FHLB advances and other borrowings                                                        830          838
                                                                                       --------     --------

     Total interest expense                                                               4,692        3,577
                                                                                       --------     --------

NET INTEREST INCOME BEFORE PROVISION
  FOR LOAN LOSSES                                                                         2,944        2,216

PROVISION FOR LOAN LOSSES                                                                   123           22
                                                                                       --------     --------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                                         2,821        2,194
                                                                                       --------     --------

NONINTEREST INCOME:
  Gain on sale of mortgage backed securities and
     investment securities, net                                                               -           70
  Commissions from annuity sales                                                             87           (1)
  Customer service charges                                                                  126           81
  Income (loss) from loan servicing                                                          59           (9)
  Other income                                                                               39           19
                                                                                       --------     --------

     Total                                                                                  311          160
                                                                                       --------     --------

GENERAL AND ADMINISTRATIVE EXPENSE:
  Compensation and employee benefits                                                      1,060          783
  Occupancy and equipment                                                                   259          223
  Deposit insurance premiums                                                                 50          137
  Data processing fees                                                                      168          128
  Stationery, telephone and office expenses                                                 130          101
  Advertising and promotion                                                                  66           31
  Amortization of core deposit premiums                                                     207           76
  Other expenses                                                                            397          350
                                                                                       --------     --------

     Total                                                                                2,337        1,829
                                                                                       --------     --------

INCOME BEFORE INCOME TAX EXPENSE                                                            795          525

INCOME TAX EXPENSE                                                                          324          206
                                                                                       --------     --------

NET INCOME                                                                             $    471     $    319
                                                                                       ========     ========

NET INCOME PER SHARE                                                                   $    .15     $    .10
                                                                                       ========     ========
</TABLE>

See notes to consolidated financial statements.


                                       2


<PAGE>



MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 (Amounts in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                            Unrealized
                                                                                               Gain
                                                                                              (Loss)
                                                                                           on Securities
                             Common Stock(1)                                               Available for
                            ----------------    Paid-In  Acquired   Treasury  Retained      Sale (Net of
                            Shares    Amount    Capital   by ESOP   Stock(2)  Earnings        Taxes)       Total
                            ------    ------    -------  --------   --------  --------     -------------   -----
<S><C>
  Balance at
     December 31,1996:       3,594   $    36    $27,114 $ (1,840)  $ (4,374)  $ 25,320     $   (497)    $   45,759

  Options exercised
     using treasury stock                                                19                                     19

  Dividends paid                                                                  (164)                       (164)

  Earned ESOP shares                                 36       57                                                93

  Change in unrealized
     gain (loss) on
     securities available
     for sale, net of taxes                                                                    (806)          (806)

  Net income                                                                       471                         471
                        ------------------------------------------------------------------------------------------
  Balance at
     March 31, 1997:         3,594  $     36    $27,150 $ (1,783)  $ (4,355)  $ 25,627     $ (1,303)    $   45,372
                        ==========================================================================================
</TABLE>

(1)      Number of shares of common  stock  includes  287,500  shares  which are
         pledged as security  for a loan to the Bank's  ESOP.  Shares  earned at
         March  31,  1997  and   December  31,  1996  were  64,688  and  57,500,
         respectively.

(2)      The Company had repurchased a total of 348,842 shares of Company common
         stock as of March 31, 1997.



See notes to consolidated financial statements.


                                       3


<PAGE>



MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                           March 31,
                                                                                 -------------------------------
                                                                                      1997            1996
                                                                                 --------------- ---------------
<S><C>
OPERATING ACTIVITIES:

  Net income                                                                        $      471       $      319
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
     Depreciation and amortization on premises and equipment                               105               91
     Amortization of core deposit premium                                                  207               76
     Amortization of premiums, net of discounts                                             84              200
     Loan origination fees deferred, net                                                    49               53
     Amortization of deferred loan fees                                                    (47)             (56)
     Provision for loan losses                                                             123               22
     Compensation expense related to ESOP shares released                                   93               73
     Gain on sale of mortgage backed securities and
        investment securities                                                                -              (70)
     Charge-off on loans transferred to real estate owned                                    -              (27)
     Loss on sale of fixed assets                                                            -                1
     Originations of loans held for sale                                                  (294)            (542)
     Proceeds from sales of loans originated for sale                                      424              634
     Change in income taxes payable and deferred income taxes                              352              217
     Change in other assets                                                                268              (89)
     Change in interest receivable                                                        (527)            (146)
     Change in accounts payable and other liabilities                                      (24)            (767)
                                                                                    ----------       ----------

       Net cash provided by (used in) operating activities                               1,284              (11)
                                                                                    ----------       ----------

INVESTING ACTIVITIES:

  Loans originated for portfolio                                                        (6,824)          (8,443)
  Principal payments on loans receivable                                                 5,493           10,778
  Proceeds from sales of mortgage backed securities available for sale                       -            8,427
  Principal paydowns on mortgage backed securities                                       3,731            3,839
  Purchases of investment securities available for sale                                      -           (7,031)
  Proceeds from maturities of investment securities                                      2,000            4,000
  Purchases of premises and equipment, net                                                (164)             (42)
  Purchases of FHLB stock                                                                  (62)            (173)
                                                                                    ----------       ----------

     Net cash provided by investing activities                                           4,174           11,355
                                                                                    ----------       ----------
</TABLE>


                                 - continued -


                                       4


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                          March 31,
                                                                                -------------------------------
                                                                                     1997             1996
                                                                                --------------   --------------
<S><C>
FINANCING ACTIVITIES:

  Net increase (decrease) in savings deposits                                      $    (857)       $  7,413
  Repayments of Federal Home Loan Bank advances, net                                  (2,400)        (16,988)
  Repayments of reverse repurchase agreements                                              -            (713)
  Dividends paid                                                                        (164)              -
  Options exercised using treasury stock                                                  19               -
                                                                                   ---------        --------
      Net cash (used in) financing activities                                         (3,402)        (10,288)
                                                                                   ---------        --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                              2,056           1,056

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       4,978           4,217
                                                                                   ---------        --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $   7,034        $  5,273
                                                                                   =========        ========


CASH PAID DURING THE PERIOD FOR:

  Interest on savings deposits and advances                                        $   4,685        $  3,700
   Income taxes                                                                            -               -

NONCASH INVESTING ACTIVITIES:

  Transfer of loans to real estate owned                                                   -             117
</TABLE>

See notes to consolidated financial statements.



                                       5

<PAGE>


                           MONTEREY BAY BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1997

           The accompanying  unaudited  consolidated  financial  statements have
been prepared in accordance with generally  accepted  accounting  principles and
with the  instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim
financial  information.  Accordingly,  the adequacy of the disclosure  contained
herein has been determined with the presumption  that the users of these interim
financial  statements have read or have access to the Company's Annual Report on
Form 10-K for the year  ended  December  31,  1996.  Only  material  changes  in
financial  condition and results of operations are discussed in the remainder of
Part I of this Quarterly Report.

           In the opinion of the  management of Monterey Bay Bancorp,  Inc. (the
"Company") and its subsidiary,  Monterey Bay Bank (the "Bank"), the accompanying
unaudited consolidated financial statements contain all adjustments  (consisting
of normal recurring accruals) necessary for a fair presentation of the Company's
consolidated  financial  condition at March 31, 1997 and December 31, 1996,  the
results of its  operations  for the three  months ended March 31, 1997 and 1996,
and its cash  flows for the three  months  ended  March 31,  1997 and 1996.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.  Results of operations for any interim period are not necessarily
indicative of the  operating  results that may be expected for any other interim
period or for the entire year.

           In October 1995, the Financial  Accounting  Standards  Board ("FASB")
issued  Statement of Financial  Standards No. 123 ("SFAS 123"),  Accounting  for
Stock  Based   Compensation,   which   established   accounting  and  disclosure
requirements  using a fair value  based  method of  accounting  for stock  based
employee  compensation  plans. Under SFAS 123, beginning in 1996 the Company had
the  option  to either  adopt  the new fair  value  based  accounting  method or
continue the  intrinsic  value based method and provide pro forma net income and
earnings per share as if the accounting provisions of SFAS 123 had been adopted.
The  Company has  adopted  only the  disclosure  requirements  of SFAS 123,  and
applies Accounting  Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," in accounting for its stock options.

           In June 1996,  FASB No. 125,  "Accounting for Transfers and Servicing
of  Financial  Assets and  Extinguishments  of  Liabilities,"  was issued.  This
statement   established  standards  for  when  transfers  of  financial  assets,
including  those  with  continuing  involvement  by the  transferor,  should  be
considered  a sale.  SFAS 125 also  established  standards  for when a liability
should be considered  extinguished.  In December 1996, the Financial  Accounting
Standards Board issued SFAS No. 127,  "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." SFAS 127 reconsidered  certain provisions
of SFAS 125 and deferred for one year the effective date of  implementation  for
transactions   related  to   repurchase   agreements,   dollar-roll   repurchase
agreements,  securities  lending,  and similar  transactions.  This statement is
effective for transfers of assets and  extinguishments of liabilities  occurring
after December 31, 1996, applied  prospectively.  SFAS Nos. 125 and 127 have not
had a material effect on the Bank's financial statements.

           In March 1997,  the FASB issued SFAS No. 128,  "Earnings  per Share,"
which  supersedes  APB No.  15,  "Earnings  per  Share."  SFAS  128  establishes
standards  for  computing  and  presenting  earnings  per share and  applies  to
entities  with  publicly  held  common  stock or  potential  common  stock (i.e.
securities  such as options,  warrants,  convertible  securities,  or contingent
stock  agreements).  The statement replaces the presentation of primary earnings
per share with a  presentation  of basic  earnings per share and  requires  dual
presentation  of basic and diluted  earnings


                                       6

<PAGE>


per share on the face of the income statement.  SFAS 128 is effective  for
financial  statements  issued for periods ending after December 31, 1997.
Earlier  application is not permitted;  however, restatement  of all
prior-period  earnings  per share  data  presented  will be required.  If the
Company had been  subject to the  requirements  of SFAS 128 at March 31, 1997,
basic earnings per common share and diluted earnings per common share would have
been $.16.

          In preparing  the  consolidated  financial  statements,  management is
required to make estimates and assumptions  that affect the reported  amounts of
assets and  liabilities  as of the dates of the balance  sheets and revenues and
expenses for the periods covered. Actual results could differ significantly from
those estimates and assumptions.



                                       7


<PAGE>


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

          Monterey  Bay  Bancorp,  Inc.  (the  "Company")  is a savings and loan
association holding company  incorporated in 1995 under the laws of the State of
Delaware.  The Company's  principal business activities consist of the operation
of its wholly owned subsidiary, Monterey Bay Bank ("the Bank"). Unless otherwise
specified herein, references to the business and operations of the Bank refer to
the business and operations of the Company.

          The Bank is a  community-oriented  savings  institution which attracts
deposits from the general  public in the areas in which its branches are located
and invests such deposits and other available funds in mortgage loans secured by
one-to-four  family  residences  and,  to a  lesser  extent,  in  multi  family,
commercial real estate,  construction,  land and other loans. At March 31, 1997,
the Bank operated  seven branch  offices  located in Santa Cruz,  Monterey,  and
Santa Clara counties, and one real estate loan office.

RESULTS OF OPERATIONS

          The Company recorded net income of $471,000 for the three months ended
March 31, 1997,  compared to $319,000 for the same period last year.  Net income
per share for the quarter  ended  March 31, 1997 was $.15,  compared to $.10 for
the similar period in 1996.

          The improvement in earnings for the three months ended March 31, 1997,
compared to the same period last year,  reflects  higher net interest income and
increased  noninterest  income,  partially  offset by an increase in general and
administrative expenses compared to the first quarter of 1996. Financial results
for the  quarter  ended March 31,  1997 were  impacted  by the cash  assumption,
during the fourth  quarter of 1996, of $102.1  million of savings  deposits (the
"Deposit  Assumption"),  on which the Company recorded a core deposit intangible
asset of $3.7 million. Cash proceeds from the Deposit Assumption were reinvested
in various mortgage backed securities and other investments, resulting in higher
net interest income for the quarter ended March 31, 1997,  compared to the first
quarter of 1996.  Also  impacting  financial  results for the three months ended
March  31,  1997  was the  Company's  purchase  of a  branch  site in  Capitola,
California,  which began  operations as a full service bank branch on January 6,
1997.  This  expansion   activity   resulted  in  an  increase  in  general  and
administrative expenses during the first quarter of 1997.

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

          A primary  component of the  Company's  ongoing  profitability  is net
interest income,  which represents the difference  between interest and dividend
income on interest earning assets (principally loans and investment  securities)
and the interest  expense,  or cost of funds,  on interest  bearing  liabilities
(principally  deposits  and, to a lesser  extent,  Federal Home Loan Bank (FHLB)
advances and reverse repurchase  agreements).  The Company's net interest income
and net  interest  margin,  which is defined as net interest  income  divided by
average  interest  earning  assets,  are affected by the general  interest  rate
environment,  asset growth,  asset and  liability  composition,  and  nonaccrual
loans.

          Net interest  income  before  provision  for loan losses rose 32.9% to
$2.9  million  for the first  quarter  of 1997 from $2.2  million  for the first
quarter of 1996.

          For the three months ended March 31, 1997,  the Company  recorded $7.6
million in total interest income,  an increase of $1.8 million,  or 31.0%,  from
$5.8 million  recorded in the first three months of 1996.  The increase in total
interest income was primarily  attributable to an increase of



                                       8

<PAGE>



$69.0 million,  or 150%, in the average balance of mortgage backed  securities,
and an increase of $15.0  million,  or 38%, in the average  balance of
investment  securities.  The higher average balances of mortgage backed
securities and investment  securities in the first  quarter of 1997,  compared
to the similar  period a year ago, were the result of securities purchases
resulting from the Deposit Assumption.

          The weighted  average yield on interest  earning  assets rose to 7.52%
for the first quarter of 1997,  compared to 7.35% for the first quarter in 1996.
The average  yield on loans  receivable  increased to 7.93% for the three months
ended March 31, 1997,  from 7.73% for the similar  period a year ago,  primarily
due to the  origination of higher  yielding  fixed and adjustable  rate mortgage
loans  during the latter  part of 1996 and the first  quarter of 1997.  Interest
income on loans  receivable  was positively  impacted by the declining  level of
nonaccrual  loans,  from $2.7 million at March 31, 1996 to $1.2 million at March
31, 1997. The average yield on mortgage backed securities  increased by 62 basis
points for the three  months ended March 31,  1997,  compared to the  comparable
period in 1996, primarily due to lower prepayments and a corresponding  decrease
in premium amortization during the first quarter of 1997.

           Interest  expense  for the  quarter  ended  March  31,  1997 was $4.7
million,  compared to $3.6 million for the quarter  ended March 31, 1996, a $1.1
million or 30.6%  increase.  This  increase  was due to a  substantially  higher
average  balance  of  savings  deposits  in  1997  resulting  from  the  Deposit
Assumption  and the opening of the Capitola  branch,  partially  offset by lower
rates  paid on  deposit  accounts.  As  compared  to the first  quarter of 1996,
interest expense on deposits in the first three months of 1997 increased by $1.2
million  due to higher  average  outstanding  balances  related  to the  Deposit
Assumption,  and declined  $102,000 due to lower rates paid on deposit accounts.
The Company's cost of deposits  declined to a weighted average rate of 4.92% for
the first quarter of 1997, from 5.01% for the  corresponding  period a year ago,
primarily due to a relatively stable market interest rate environment during the
most recent four  quarters  which has allowed  management  to retain and renew a
portion of its maturing  certificate  of deposit funds at lower market  interest
rates. The Company's cost of borrowings  increased to 5.89% for the three months
ended March 31, 1997,  from 5.80% for the similar  period in 1996. For the three
months  ended March 31,  1997,  the  Company's  cost of total  interest  bearing
liabilities was 5.07%, compared to 5.18% for the same period a year ago.

           The  Company's net interest  margin  increased to 2.90% for the first
quarter of 1997 compared to 2.81% for the first  quarter of 1996.  For the three
months ended March 31, 1997, the Company's net interest rate spread increased to
2.46%, from 2.17% for the three months ended March 31, 1996.



                                       9


<PAGE>



          The changes in net  interest  income for the three  months ended March
31, 1997  compared  with the  corresponding  periods in 1996 are analyzed in the
following table.  The table shows the changes by major component,  setting forth
changes  attributable to changes in volume,  changes  attributable to changes in
interest rates and the net effect of both (in thousands):

<TABLE>
<CAPTION>
                                                              Three Months Ended March 31,
                                                                 1997 Compared with 1996
                                                                    Increase (Decrease)
                                                      ---------------------------------------------
                                                      Volume              Rate                Net
                                                      ------              ----                ---
<S><C>
          Interest income:
               Loans                                  $   135            $  118           $   253
               Mortgage backed securities               1,147               165             1,312
               Investment securities                      230                48               278
                                                      -------            ------           -------
                                                        1,512               331             1,843
                                                      -------            ------           -------
          Interest expense:
               On customer deposits                     1,225              (102)            1,123
               On borrowings                              (16)                8                (8)
                                                      -------            ------           -------
                                                        1,209               (94)            1,115
                                                      -------            ------           -------

          Change in net interest income               $   303            $  425           $   728
                                                     ========            ======           =======
</TABLE>


           Average assets and liabilities  together with average  interest rates
earned and paid for the three  months  ended  March 31, 1997 are  summarized  as
follows (dollars in millions):

<TABLE>
<CAPTION>
                                                                 Three Months Ended March 31,
                                                                 ----------------------------
                                                                1997                         1996
                                                                ----                         ----
                                                         Average    Yield/            Average     Yield/
                                                         Balance     Rate             Balance      Rate
                                                         -------    ------            -------     ------
<S><C>
    Interest earning assets:
      Loans                                              $   236      7.93%           $   229       7.73%
      Mortgage backed securities                             115      7.26                 46       6.64
      Investment securities                                   55      6.30                 40       5.92
                                                         -------                      -------
         Total interest earning assets                       406      7.52                315       7.35
    Noninterest earning assets                                17                           11
                                                         -------                      -------
      Total assets                                       $   423                      $   326
                                                         =======                      =======

    Interest bearing liabilities:
      Deposits                                           $   318      4.92%           $   218       5.01%
      Borrowings                                              58      5.89                 58       5.80
                                                         -------                      -------
         Total interest bearing liabilities                  376      5.07                276       5.18
    Noninterest bearing liabilities                            2                            2
    Stockholders' equity                                      45                           48
                                                         -------                      -------
      Total liabilities and stockholders' equity         $   423                      $   326
                                                         =======                      =======

    Net interest rate spread                                          2.46%                         2.17%
    Net interest margin                                               2.90%                         2.81%
    Ratio of interest bearing assets to
       interest bearing liabilities                                    108%                          114%
</TABLE>


                                       10

<PAGE>


Interest Rate Sensitivity
-------------------------

         Interest rate risk is influenced by market forces.  However,  that risk
may be controlled by monitoring  and managing the repricing  characteristics  of
interest bearing assets and liabilities. The objective of the Company's interest
rate risk management  function is to evaluate the interest rate risk included in
certain balance sheet accounts,  determine the level of risk  appropriate  given
the  Company's  business  focus,  operating  environment,  capital and liquidity
requirements and performance  objectives,  establish prudent asset concentration
guidelines  and  manage the risk  consistent  with  Board  approved  guidelines.
Management  seeks to reduce  the  vulnerability  of its  earnings  to changes in
interest  rates and to manage the ratio of  interest  rate  sensitive  assets to
interest rate sensitive  liabilities  within  specified  maturities or repricing
dates.  The extent of the  movement of interest  rates,  higher or lower,  is an
uncertainty that could have a negative impact on the earnings of the Company.

           The primary analytical tool used by management to gauge interest rate
sensitivity is a simulation  model which  calculates the effects on market value
of equity and future net interest income resulting in changes in market interest
rates  that are up to two  percent  higher or two  percent  lower  than  current
levels.  Interest rate risk sensitivity estimated by management,  as measured by
the change in the market value of equity as a percentage of the present value of
assets from an immediate 200 basis point increase in interest  rates,  was 3.85%
at December 31, 1996 and  approximately  unchanged  from that level at March 31,
1997, indicating that the Company is vulnerable to increases in interest rates.

           During the first  quarter of 1997,  the Company  adopted a program to
reduce its exposure to interest  rate risk by  emphasizing  the  origination  of
current-index adjustable rate mortgage loans, selling a portion of its portfolio
of fixed rate  mortgage  backed  securities,  and  seeking  to better  match the
maturities of assets with deposits and borrowings. Management believes that this
strategy,  although  possibly  sacrificing  short-term  profits  compared to the
yields obtainable through fixed rate investments, reduces the Company's exposure
to the  risk of  interest  rate  fluctuations  and  thereby  enhances  long-term
profitability.

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

           The Company establishes provisions for loan losses, which are charged
to  operations,  in order to maintain the  allowance  for loan losses at a level
which is  deemed  to be  appropriate  based  upon an  assessment  of prior  loss
experience,  the volume and type of lending presently  conducted by the Company,
industry standards,  past due loans, economic conditions in the Company's market
area generally and other factors related to the  collectibility of the Company's
loan  portfolio.  For the quarter  ended March 31, 1997,  the provision for loan
losses  amounted to $123,000  compared to $22,000 for the  corresponding  period
during 1996. The Company increased its provision for loan losses in anticipation
of implementing its strategy to moderately  increase the amount of construction,
commercial real estate, and multifamily  lending in its primary market area. The
provision  resulted in a total allowance for loan losses of $1,434,000,  or .61%
of total loans,  at March 31, 1997,  compared to an allowance for loan losses of
$1,311,000,  or .56% of total loans, at December 31, 1996.  Nonperforming assets
declined to $1.2 million, or .28% of total assets at March 31, 1997, compared to
$1.4  million,  or .33% of total assets at December 31, 1996.  (See  "-Financial
Condition.")

                                       11


<PAGE>


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

         Noninterest  income  increased  to $311,000  for the three months ended
March  31,  1997,  compared  to  $160,000  for the same  period a year  earlier.
Customer service charges increased by 55.6% to $126,000 during the first quarter
of 1997 from $81,000 for the first  quarter of 1996,  reflecting  a  significant
period  to period  growth in the  number of  customer  checking  accounts.  This
resulted  primarily from an active marketing campaign to increase the number and
outstanding  balances of  transaction-related  customer  deposit  accounts.  The
Company recorded commission income of $87,000 from the sale of insurance, mutual
funds, and annuity products for the three months ended March 31, 1997,  compared
to a loss of  $1,000  for  the  similar  period  a year  ago.  The  increase  in
commission  income  reflects the  implementation  by  management  of a strategic
business  plan to increase  sales of these  products.  The Company has hired new
management experienced in the brokerage industry to oversee these operations.

         At March 31, 1997,  the Company was servicing  loans for others with an
unpaid principal balance of $60.1 million, compared to $61.3 million at December
31, 1996.  Income from loan servicing  increased to $59,000 for the three months
ended March 31, 1997, compared to a loss of $9,000 for the similar period a year
ago.  The first  quarter 1996 loss from loan  servicing  was due to the negative
impact of a guaranteed yield maintenance agreement on loans serviced for another
financial institution. The agreement expired in 1996.

General and Administrative Expenses
-----------------------------------

           General and  administrative  expenses were $2.3 million for the first
quarter of 1997,  compared to $1.8  million for the first three  months of 1996.
The increases in 1997 were partially  attributable  to higher  compensation  and
employee  benefits,  as new  employees  were  hired  to  support  the  Company's
expansion into the Capitola branch location,  to support the Deposit Assumption,
and to support its new product  lines and  services.  In  addition,  general and
administrative  expenses  for the first  quarter of 1997  included  higher  data
processing costs, increased advertising expenses, higher stationery,  telephone,
and  office  expenses,  and  increased  core  deposit  intangible  amortization,
partially  offset by reduced deposit  insurance  premiums,  compared to the same
period a year earlier.

FINANCIAL CONDITION

           Total  assets of the Company  were $422.4  million at March 31, 1997,
compared to $425.8  million at December 31, 1996, a decline of $3.4 million,  or
 .8%.  Mortgage  backed  securities and investment  securities  decreased by $7.2
million,  or 4%, due to principal  paydowns  and  maturities.  Loans  receivable
increased  by $1.2 million to $234.4  million.  During the first three months of
1997, the Company funded $7.3 million of portfolio  loans, of which $3.7 million
were single family,  owner occupied home loans and $3.6 million were  commercial
real  estate,  construction  and  land  loans.  Substantially  all of the  loans
originated by the Company during the first quarter of 1997 were  adjustable rate
loans indexed to current market indices.  All of the Company's loans are secured
by real estate located within the state of California.  The majority are secured
by real estate in Santa Cruz,  Monterey,  Santa Clara,  and San Benito counties;
therefore,  the  Company's  credit  risk is  primarily  related to the  economic
conditions of this region.

           At March 31, 1997,  nonaccrual loans totaled $1.2 million, or .50% of
loans  receivable,  compared to $1.4  million,  or .59% of loans  receivable  at
December  31,  1996.  The  Company's  nonaccrual  loans  are  secured  by one-to
four-family  residences  located  within its primary  market area.  At March 31,
1997, the Company had three restructured loans totaling $351,000, all

                                       12


<PAGE>


performing in accordance  with their  revised  contractual  terms.  The Company
had no real estate owned at March 31, 1997 or December 31, 1996.

           The Office of Thrift Supervision regulations require all institutions
to  classify  their  problem  assets  in one of three  categories,  substandard,
doubtful,  and loss, and provide specific or general  valuation  allowances when
necessary  and  appropriate.  (Assets  that do not  warrant  classification  but
deserve  special  attention are  designated as "special  mention" and require no
valuation  allowances.)  Management  monitors the Company's assets regularly and
classifies  any problem  assets.  The  Company's  classified  assets  consist of
foreclosed  residential  properties,  nonperforming  assets, and assets that are
performing  in  accordance  with  their  contractual  terms  but  are  adversely
classified because they exhibit one or more well-defined weaknesses.

           The following  schedule  presents the Company's  classified assets at
March 31, 1997 and December 31, 1996 (in thousands):

<TABLE>
<CAPTION>
                                                                 March 31,            December 31,
                                                                      1997                    1996
                                                                 ---------            ------------
<S><C>
        Assets classified as:
                    Substandard                                  $   3,566               $   4,944
                    Doubtful                                             -                       -
                    Loss                                                 -                       1
                                                                 ---------               ---------
                    Total classified assets                      $   3,566               $   4,945
                                                                 =========               =========

        Classified assets as a
           percentage of total assets                                  .84%                   1.16%
</TABLE>

           At March 31, 1997,  assets  classified as  substandard  included $1.2
million  of loans past due 90 days or more,  $1.8  million of loans less than 90
days  delinquent but identified as having risk  characteristics  indicating that
the collection of interest and/or  principal may not occur under the contractual
terms of the loan agreements,  and $620,000 of performing loans on property with
delinquent real estate taxes. At December 31, 1996,  substandard  loans included
$1.4 million of loans past due 90 days or more, $2.9 million of performing loans
with  identified  risk  characteristics,  and  $622,000 of  performing  loans on
property with delinquent real estate taxes.

           During  the  three  months  ended  March  31,  1997,   the  Company's
liabilities  decreased by $3.0 million to $377.0 million, from $380.0 million at
December 31, 1996. The decrease in  liabilities  was primarily  attributable  to
decreases  in  borrowings,  from $59.8  million at  December  31,  1996 to $57.4
million at March 31,  1997.  The  Company  utilizes  FHLB  advances  and reverse
repurchase agreements as part of its asset and liability management objectives.

           During  the three  months  ended  March 31,  1997,  savings  deposits
decreased  to $317.3  million,  a decline of  $800,000  from  $318.1  million at
December  31, 1996.  Certificate  of deposit  accounts  declined by $2.1 million
during the quarter,  but were largely  offset by increases in customer  checking
accounts and money market accounts. The Company's management continues to pursue
its  strategy  of  increasing  low  cost  transaction  accounts  (consisting  of
checking,  passbook,  and money  market  accounts) by actively  marketing  those
accounts.

           At March 31, 1997,  shareholders' equity was $45.4 million,  compared
to $45.8  million at December 31, 1996.  During the three months ended March 31,
1997,  the Company  paid a cash  dividend  of $.05 per share on its  outstanding
common stock,  reducing  stockholders' equity by $164,000.  Unrealized losses on
securities  available for sale resulted in a decrease of approximately


                                       13


<PAGE>


$806,000 in equity.  These  reductions in  stockholders'  equity were partially
offset by first quarter net income of $471,000, an increase in earned ESOP
shares, and the exercise of stock options using treasury stock. Tangible book
value per share of Monterey Bay Bancorp,  Inc. common stock was $13.76 at March
31, 1997,  compared to $13.87 at December 31, 1996.

Recent Legislative Developments
-------------------------------

          On  September  30,  1996,  the  President  signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which among other things,  imposed
a special one-time assessment on SAIF member  institutions,  including the Bank,
to recapitalize the SAIF. The special assessment was recognized as an expense in
the third  quarter of 1996 and was tax  deductible.  The Bank recorded a pre-tax
expense of $1.4 million as a result of the FDIC special assessment.

          The  Funds  Act  also  spreads  the  obligations  for  payment  of the
Financing Corporation ("FICO") bonds across all SAIF and BIF members.  Beginning
on January 1, 1997, BIF deposits are assessed for FICO payments at a rate of 20%
of the rate assessed on SAIF deposits.  Based on current  estimates by the FDIC,
BIF  deposits  will be assessed a FICO payment of 1.3 basis  points,  while SAIF
deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro rata
sharing of the FICO  payments  between  BIF and SAIF  members  will occur on the
earlier of January  1, 2000 or the date the BIF and SAIF are  merged.  The Funds
Act  specifies  that the BIF and SAIF will be merged on January 1, 1999 provided
no savings associations remain as of that time.

          As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments  to 0 to  27  basis  points  effective  January  1,  1997,  a  range
comparable to that of BIF members.  However,  SAIF members will continue to make
the higher FICO payments described above. Management cannot predict the level of
FDIC insurance  assessments on an on-going  basis,  whether the savings  charter
will be eliminated, or whether the BIF and SAIF will eventually be merged.

           The Company paid deposit insurance  premiums of $50,000 for the first
quarter  of 1997,  compared  to  $137,000  for the first  quarter  of 1996.  The
decrease in 1997 compared to 1996 was  primarily  due to the federally  mandated
reduction in deposit insurance  premiums,  offset by a higher average balance of
savings deposits in the first quarter of 1997.

Capital and Regulatory Standards
--------------------------------

           The  following  schedule  presents  the  prescribed  minimum  capital
requirements  for the Bank at March 31, 1997, the actual amount of capital,  and
the amount of excess (dollars in thousands):

<TABLE>
<CAPTION>
                                                    Minimum                 Actual
                                                Requirement                 Amount                  Excess
                                                -----------                 ------                  ------
<S><C>
       Risk-based capital                          $ 15,011               $ 36,789                $ 21,778
       % of risk-weighted assets                      8.00%                 19.61%                  11.61%

       Core capital                                $ 12,417               $ 35,359                $ 22,941
       % of risk-weighted assets                      3.00%                  8.54%                   5.54%

       Tangible capital                            $  6,205               $ 35,088                $ 28,883
       % of risk-weighted assets                      1.50%                  8.48%                   6.98%
</TABLE>

           The OTS has  incorporated  an interest rate risk  component  into its
regulatory  capital rule, under which savings  associations  with "above normal"
interest  rate  risk  exposure  would  be  subject  to a  deduction  from  total
risk-based capital. In August 1994, the OTS issued a final regulation adding


                                       14

<PAGE>


the  interest  rate  risk  component  to  its  risk-based  capital  standard.
Implementation of the final  regulation has been delayed.  The delay provides an
opportunity to assess any further guidance from other federal banking agencies
regarding their planned implementation of a capital deduction.

           The regulation will require a savings institution to maintain capital
in an amount equal to one-half the difference between the institution's measured
interest  rate  risk and 2% of the  market  value of the  institution's  assets.
Interest rate risk is to be measured on the market value of its assets, based on
a  hypothetical  200 basis  point  change in  interest  rates.  The credit  risk
component of the  risk-based  capital  standard  will remain  unchanged at 8% of
risk-weighted assets. Institutions with measured interest rate risk less than or
equal to 2% will not be required to maintain additional capital. If the Bank had
been subject to adding an interest rate risk component to its risk-based capital
standard  at March 31,  1997,  the Bank would have  continued  to  substantially
exceed minimum risk based capital requirements.

           OTS prompt corrective action ("PCA") regulations include five capital
tiers   ranging   from   well-capitalized   to   critically    undercapitalized.
Well-capitalized  institutions  are not subject to any  PCA-related  constraints
under these regulations.  As the following table shows, under these regulations,
the Bank met the definition of a well capitalized  institution at March 31, 1997
and December 31, 1996.

<TABLE>
<CAPTION>
                                                          Total           Tier One      Leverage (Core
                                                       Risk-Based        Risk-Based        Capital)
                                                      Capital Ratio    Capital Ratio         Ratio
                                                      -------------    -------------    --------------
<S><C>
         Minimum requirements:
         Well capitalized                                10.00%             6.00%            5.00%

         Bank capital ratios:
         December 31, 1996                               19.22%            18.52%            8.36%
         March 31, 1997                                  19.61%            18.84%            8.54%
</TABLE>


Liquidity
---------

           The  Company's  primary  sources of cash flows are savings  deposits,
loan  repayments and  borrowings.  The cash needs of the Company are principally
related to loan disbursements, savings withdrawals and noninterest expenses. The
Company's  liquidity  position  refers to the extent to which the Company's cash
flows are sufficient to meet its current and long-term cash requirements.

           The  Company,  like other  savings  associations,  is required  under
applicable  federal   regulations  to  maintain  specified  levels  of  "liquid"
investments  in qualifying  types of United States  Treasury and federal  agency
securities and other  investments,  generally having maturities of five years or
less. The OTS has the authority to raise or lower the required  liquidity  level
in  order  to  promote  a stable  supply  of  mortgage  credit.  Currently,  the
regulatory  requirement  for liquid assets each month is 5% of an  institution's
average  daily  balance of net  withdrawable  accounts  and  certain  short-term
borrowings  during  the  preceding  calendar  quarter.  At March 31,  1997,  the
Company's liquidity ratio was 5.56%, compared to 7.74% at December 31, 1996.


                                       15



<PAGE>


                           PART II. OTHER INFORMATION

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

               The Company is  involved as  plaintiff  or  defendant  in various
legal actions incident to its business,  none of which is believed by management
to be material to the financial condition of the Company.

Item 2.    Changes in Securities.
           ----------------------

               None.

Item 3.    Defaults Upon Senior Securities.
           --------------------------------

               None.

Item 4.    Submission of Matters to a Vote of Security Holders.
           ----------------------------------------------------

               None.

Item 5.    Other Information.
           ------------------

               On March 20, 1997,the Board of Directors of the Company increased
               the number of directors to ten and  on  March  31,  1997  elected
               Nicholas C. Brase as a  director to a term expiring in 1998.

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

           (a) Exhibit  3(i) -  Certificate  of  Incorporation  of Monterey  Bay
               Bancorp,  Inc.,   incorporated  by  reference  to  the  Company's
               Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,
               1995.

               Exhibit   3(ii)  -  Bylaws  of  Monterey   Bay   Bancorp,   Inc.,
               incorporated  by reference to the Company's  Quarterly  Report on
               Form 10-Q for the quarter ended March 31, 1995.

               Exhibit  11.0  -  Computation  of  per  share   earnings   (filed
               herewith).

               Exhibit 27.0 - Financial data schedule.

           (b) Reports on Form 8-K:

               None.


                                       16

<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.



                                    MONTEREY BAY BANCORP, INC.

Date      May 12, 1997              By /s/ Marshall G. Delk
    -------------------------          --------------------
                                       Marshall G. Delk, President and
                                       Chief Operating Officer

Date      May 12, 1997               By /s/ Deborah R. Chandler
    -------------------------           -----------------------
                                        Deborah R. Chandler,
                                        Senior Vice President, Treasurer
                                        and Chief Financial Officer


                                       17