UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-Q

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

For the quarterly period ended June 30, 2000

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: 0-24802

                           MONTEREY BAY BANCORP, INC.
             (Exact Name Of Registrant As Specified In Its Charter)


             DELAWARE                                   77-0381362
  (State Or Other Jurisdiction Of        (I.R.S. Employer Identification Number)
  Incorporation Or Organization)


              567 Auto Center Drive, Watsonville, California 95076
               (Address Of Principal Executive Offices)(Zip Code)

                                (831) 768 - 4800
              (Registrant's Telephone Number, Including Area Code)

                             WWW.MONTEREYBAYBANK.COM
                          (Registrant's Internet Site)

                            INFO@MONTEREYBAYBANK.COM
                     (Registrant's Electronic Mail Address)

Indicate  by check mark  whether  the  registrant  (1) has filed all the 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:  3,315,054  shares of common
stock, par value $0.01 per share, were outstanding as of August 9, 2000.



                                       1


<PAGE>


                    MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                       PAGE

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

            Item 1.   Financial Statements

                      Consolidated Statements Of Financial Condition As Of
                      June 30, 2000 (unaudited) And December 31, 1999                                  3 - 4

                      Consolidated Statements Of Operations (unaudited) For The Three
                      And Six Months Ended June 30, 2000 And June 30, 1999                             5 - 6

                      Consolidated Statement Of Stockholders' Equity (unaudited) For The
                      Six Months Ended June 30, 2000                                                     7

                      Consolidated Statements Of Cash Flows (unaudited) For The Six
                      Months Ended June 30, 2000 And June 30, 1999                                     8 - 9

                      Notes To Consolidated Financial Statements (unaudited)                          10 - 15

            Item 2.   Management's Discussion And Analysis Of Financial Condition
                      And Results Of Operations                                                       16 - 40

            Item 3.   Quantitative And Qualitative Disclosure About Market Risk                         40

PART II.    OTHER INFORMATION

            Item 1.   Legal Proceedings                                                                 41

            Item 2.   Changes In Securities                                                             41

            Item 3.   Defaults Upon Senior Securities                                                   41

            Item 4.   Submission Of Matters To A Vote Of Security Holders                             41 - 42

            Item 5.   Other Information                                                                 42

            Item 6.   Exhibits And Reports On Form 8-K                                                  42

                      (a)  Exhibits

                              (10.16)  Employment Agreement Between Monterey Bay Bancorp, Inc.
                                       And Mark R. Andino

                              (27)  Financial Data Schedule

                      (b)  Reports On Form 8-K

Signature Page                                                                                          43
</TABLE>


                                       2


<PAGE>



Item 1.  Financial Statements

MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                        June 30,         December 31,
                                                                                            2000                 1999
                                                                                            ----                 ----
<S>                                                                                     <C>               <C>
ASSETS

Cash and cash equivalents                                                               $ 21,859             $ 12,833
Securities available for sale, at estimated fair value:
     Investment securities (amortized cost of $7,690 and $11,456 at
          June 30, 2000 and December 31, 1999, respectively)                               7,470               11,463
     Mortgage backed securities (amortized cost of $48,926 and $59,710
          at June 30, 2000 and December 31, 1999, respectively)                           46,715               57,716
Securities held to maturity, at amortized cost:
     Mortgage backed securities (estimated fair value of $60
          at December 31, 1999)                                                               --                   60
Loans held for sale                                                                           --                   --
Loans receivable held for investment (net of allowances for loan losses of
     $4,156 at June 30, 2000 and $3,502 at December 31, 1999)                            376,243              360,686
Investment in capital stock of the Federal Home Loan Bank, at cost                         2,918                3,213
Accrued interest receivable                                                                2,704                2,688
Premises and equipment, net                                                                7,160                7,042
Core deposit premiums and other intangible assets, net                                     2,569                2,918
Real estate acquired via foreclosure, net                                                     96                   96
Other assets                                                                               4,658                4,112
                                                                                        --------             --------
TOTAL ASSETS                                                                            $472,392             $462,827
                                                                                        ========             ========

<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>



                                       3



<PAGE>




MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                  June 30,      December 31,
                                                                                      2000              1999
                                                                                      ----              ----
<S>                                                                               <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Non-interest bearing demand deposits                                              $ 17,473          $ 17,316
Interest bearing NOW accounts                                                       35,863            31,385
Savings deposits                                                                    15,513            15,312
Money market deposits                                                               92,014            81,245
Certificates of deposit                                                            226,592           222,144
                                                                                 ---------         ---------

   Total deposits                                                                  387,455           367,402
                                                                                 ---------         ---------

Advances from the Federal Home Loan Bank                                            40,582            49,582
Securities sold under agreements to repurchase                                          --             2,410
Accounts payable and other liabilities                                               3,035             2,630
                                                                                 ---------         ---------

     Total liabilities                                                             431,072           422,024
                                                                                 ---------         ---------


Commitments and contingencies

STOCKHOLDERS' EQUITY

Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued)             --                --
Common stock, $0.01 par value, 9,000,000 shares authorized;
     4,492,085 issued at June 30, 2000 and December 31, 1999;
     3,315,054 outstanding at June 30, 2000 and
     3,422,637 outstanding at December 31, 1999                                         45                45
Additional paid-in capital                                                          28,236            28,237
Retained earnings, substantially restricted                                         31,552            30,473
Unallocated ESOP shares                                                             (1,035)           (1,150)
Treasury shares designated for compensation plans, at cost (68,653 shares
     at June 30, 2000 and 126,330 shares at December 31, 1999)                        (661)           (1,376)
Treasury stock, at cost (1,177,031 shares at June 30, 2000 and
     1,069,448 shares at December 31, 1999)                                        (15,386)          (14,257)
Accumulated other comprehensive loss, net of taxes                                  (1,431)           (1,169)
                                                                                 -----------       ----------

     Total stockholders' equity                                                     41,320            40,803
                                                                                 ---------         ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                       $ 472,392         $ 462,827
                                                                                 =========         =========



<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>


                                       4

<PAGE>




MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
----------------------------------------------------------------------------------------------------------------------

                                                             FOR THE THREE MONTHS               FOR THE SIX MONTHS
                                                                     ENDED JUNE 30,                  ENDED JUNE 30,
                                                         ---------------------------      ---------------------------
                                                                2000             1999            2000             1999
                                                                ----             ----            ----             ----
<S>                                                      <C>              <C>             <C>              <C>
INTEREST AND DIVIDEND INCOME:
   Loans receivable                                         $ 8,117          $ 6,596         $15,853          $12,892
   Mortgage backed securities                                   917            1,229           1,876            2,757
   Investment securities and cash equivalents                   377              348             732              749
                                                         ----------       ----------      ----------       ----------

         Total interest income                                9,411            8,173          18,461           16,398
                                                         ----------       ----------      ----------       ----------

INTEREST EXPENSE:
   Deposit accounts                                           4,198            3,758           8,038            7,672
   FHLB advances and other borrowings                           661              510           1,379            1,047
                                                         ----------       ----------      ---- -----       ----------

         Total interest expense                               4,859            4,268           9,417            8,719
                                                         ----------       ----------      ----------       ----------

NET INTEREST INCOME BEFORE PROVISION
     FOR LOAN LOSSES                                          4,552            3,905           9,044            7,679

PROVISION FOR LOAN LOSSES                                       775              200           1,025              420
                                                         ----------       -----------      ----------      ----------

NET INTEREST INCOME AFTER PROVISION
     FOR LOAN LOSSES                                          3,777            3,705           8,019            7,259
                                                         ----------       -----------      ----------      ----------

NON-INTEREST INCOME:
   Gain (loss) on sale of mortgage backed securities
      and investment securities, net                              2              285             (77)             503
   Commissions from sales of noninsured products                183              139             390              271
   Customer service charges                                     312              243             592              476
   Income from loan servicing                                    24               48              61               65
   Other income                                                  62               63             118              147
                                                         ----------       ----------      ----------       ----------
         Total non-interest income                              583              778           1,084            1,462
                                                         ----------       ----------      ----------       ----------



<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>

                                       5

<PAGE>




MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Continued)
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------

                                                                 FOR THE THREE MONTHS               FOR THE SIX MONTHS
                                                                     ENDED JUNE 30,                   ENDED JUNE 30,
                                                         -----------------------------    -----------------------------
                                                                2000             1999            2000             1999
                                                                ----             ----            ----             ----
<S>                                                      <C>             <C>               <C>               <C>

GENERAL & ADMINISTRATIVE EXPENSE:
   Compensation and employee benefits                         1,627            1,362           3,087            2,721
   Occupancy and equipment                                      319              286             631              571
   Deposit insurance premiums                                    46               41              93               83
   Data processing fees                                         278              245             566              488
   Legal and accounting expenses                                132              121             342              228
   Supplies, postage, telephone, and office expenses            170              146             358              287
   Advertising and promotion                                     98              108             199              165
   Amortization of intangible assets                            175              174             349              349
   Other expense                                                524              407           1,081              821
                                                            -------          -------         -------          -------

         Total general & administrative expense               3,369            2,890           6,706            5,713
                                                            -------          -------         -------          -------

INCOME BEFORE INCOME TAX EXPENSE                                991            1,593           2,397            3,008

INCOME TAX EXPENSE                                              437              691           1,044            1,302
                                                            -------          -------         -------          -------

NET INCOME                                                  $   554          $   902         $ 1,353          $ 1,706
                                                            =======          =======         =======          =======


EARNINGS PER SHARE:

     BASIC EARNINGS PER SHARE                               $  0.18          $  0.28         $  0.44          $  0.53
                                                            =======          =======         =======          =======

     DILUTED EARNINGS PER SHARE                             $  0.18          $  0.27         $  0.43          $  0.51
                                                            =======          =======         =======          =======

<FN>

See Notes to Consolidated Financial Statements
</FN>
</TABLE>

                                                           6

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
(Dollars And Shares In Thousands)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------


                                                                                      Treasury
                                                                                        Shares
                                                                                        Desig-                 Accum-
                                                                                         nated                 ulated
                                                                                           For                  Other
                                                            Addi-              Unal-      Com-                Compre-
                                         Common Stock      tional       Re-  located      pen-                hensive      Income
                                         ------------     Paid-In    tained     ESOP    sation    Treasury    Income /     ------
                                        Shares   Amount   Capital  Earnings   Shares     Plans       Stock     (Loss)       Total
                                        ------   ------   -------  --------   ------     -----       -----     ------       -----
<S>                                     <C>      <C>      <C>       <C>        <C>        <C>       <C>       <C>           <C>
Balance At December 31, 1999             3,423      $45  $ 28,237  $ 30,473  $(1,150)  $(1,376)   $(14,257)   $(1,169)   $ 40,803

Purchase of treasury stock                (120)                                                     (1,251)                (1,251)

Director fees paid using treasury
     stock                                  12                 12                                      122                    134

Dividends paid ($0.08 per share)                                       (274)                                                 (274)

Amortization of stock
     compensation                                             (13)               115       715                                817

Comprehensive income:
     Net income                                                       1,353                                                 1,353

     Other comprehensive income:
          Change in net unrealized loss
             on securities available for
             sale, net of taxes of $(216)                                                                        (307)       (307)

          Reclassification adjustment for
             losses on securities available
             for sale included in income,
             net of taxes of $32                                                                                   45          45
                                                                                                                            -----

     Other comprehensive income, net                                                                                         (262)
                                                                                                                            -----

Total comprehensive income                                                                                                  1,091
                                                                                                                            -----

Balance at June 30, 2000               -------  -------  --------  --------  --------   -------   ---------   --------   --------
                                         3,315      $45  $ 28,236  $ 31,552  $(1,035)   $ (661)   $(15,386)   $(1,431)   $ 41,320
                                       =======  =======  ========  ========  ========   =======   =========   ========   ========


<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>



                                                                  7


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Dollars In Thousands)
--------------------------------------------------------------------------------------------------------------------------

                                                                                              FOR THE SIX MONTHS
                                                                                                  ENDED JUNE 30,
                                                                                       --------------------------
                                                                                              2000          1999
                                                                                              ----          ----
<S>                                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                                 $ 1,353       $ 1,706

Adjustments  to reconcile net income to net cash provided by (used in) operating
activities:

Depreciation and amortization of premises and equipment                                        218           237
Amortization of intangible assets                                                              349           349
Amortization of purchase premiums, net of accretion of discounts                                39           207
Amortization of deferred loan fees                                                            (142)          (70)
Provision for loan losses                                                                    1,025           420
Provision for losses on real estate acquired via foreclosure                                    --            12
Federal Home Loan Bank stock dividends                                                        (111)          (90)
Gross ESOP expense before dividends received on unallocated shares                             163           242
Compensation expense associated with stock compensation plans                                  151           167
Loss (gain) on sale of investment and mortgage-backed securities                                77          (503)
Gain on sale of loans                                                                          (11)           --
Gain on sale of real estate acquired via foreclosure                                            --           (11)
Origination of loans held for sale                                                          (1,097)       (5,390)
Proceeds from sales of loans held for sale                                                   1,108         7,277
Increase in accrued interest receivable                                                        (16)          (18)
(Increase) decrease in other assets                                                           (546)           45
Increase (decrease) in accounts payable and other liabilities                                  405          (416)
Other, net                                                                                    (437)         (627)
                                                                                            -------       -------

     Net cash provided by operating activities                                               2,528         3,537
                                                                                            -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in loans held for investment                                                  (15,557)      (37,747)
Purchases of investment securities available for sale                                           --            (7)
Proceeds from sales of investment securities available for sale                              3,730         8,005
Purchases of mortgage backed securities available for sale                                  (6,032)           --
Principal repayments on mortgage backed securities                                           4,259        14,002
Proceeds from sales of mortgage backed securities available for sale                        12,572        16,920
Redemptions of FHLB stock                                                                      406            --
Purchases of premises and equipment                                                           (336)       (1,048)
                                                                                            -------       -------

     Net cash (used in) provided by investing activities                                      (958)          125
                                                                                            -------       -------


<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>

                                                          8


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Dollars In Thousands)
<CAPTION>
--------------------------------------------------------------------------------------------------------------

                                                                                         FOR THE SIX MONTHS
                                                                                             ENDED JUNE 30,
                                                                                     -----------------------
                                                                                         2000          1999
                                                                                         ----          ----
<S>                                                                                    <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits                                                    20,053        (7,059)
(Repayments) proceeds of FHLB advances, net                                            (9,000)       (1,100)
(Repayments) proceeds of securities sold under agreements to repurchase, net           (2,410)       (1,960)
Cash dividends paid to stockholders                                                      (274)         (246)
Purchases of treasury stock                                                            (1,251)           --
Sales of treasury stock                                                                   122           346
Sales of treasury stock for stock compensation plans                                      216            --
                                                                                      -------       -------

     Net cash provided by (used in) financing activities                                7,456       (10,019)
                                                                                      -------       -------

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS                                      9,026        (6,357)

CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         12,833        16,951
                                                                                      -------       -------

CASH & CASH EQUIVALENTS AT END OF PERIOD                                              $21,859       $10,594
                                                                                      =======       =======

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid during the period for:
     Interest on deposits and borrowings                                              $ 9,217       $ 8,747
     Income taxes                                                                       2,050         1,664

SUPPLEMENTAL DISCLOSURES OF NON CASH
INVESTING AND FINANCING ACTIVITIES

Loans transferred to held for investment, at market value                                 202           171

Real estate acquired in settlement of loans                                                --           280



<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>


                                                          9

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------


NOTE 1:  Basis Of Presentation

         The accompanying  consolidated unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required  by  generally  accepted  accounting  principles  for annual
financial statements.  In the opinion of management,  all necessary adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation  have been  included.  The results of operations  for the six month
period ended June 30, 2000 are not  necessarily  indicative  of the results that
may be expected for the entire fiscal year or any other interim period.

         Monterey Bay Bancorp, Inc. ("MBBC") is the holding company for Monterey
Bay  Bank  ("Bank").  The  Bank  maintains  a  subsidiary,   Portola  Investment
Corporation  ("Portola").  These  three  companies  are  referred to herein on a
consolidated  basis  as  the  "Company".   The  Company's  headquarters  are  in
Watsonville,  California. The Company offers a broad range of financial services
to  both  consumers  and  small   businesses.   All   significant   intercompany
transactions and balances have been eliminated.  Certain  reclassifications have
been made to prior year's  consolidated  financial  statements to conform to the
current presentation.

         These unaudited  consolidated  financial statements and the information
under the heading  "Item 2.  Management's  Discussion  And Analysis Of Financial
Condition And Results Of Operations" and the information under the heading "Item
3. Quantitative And Qualitative Disclosure About Market Risk" have been prepared
with presumption that users of this interim financial  information have read, or
have access to, the most recent audited  consolidated  financial  statements and
notes thereto of Monterey Bay Bancorp,  Inc. for the fiscal year ended  December
31, 1999  included in the  Company's  Annual  Report on Form 10-K for the fiscal
year ended December 31, 1999.

         The preparation of the  consolidated  financial  statements of Monterey
Bay Bancorp,  Inc. and  subsidiary  requires  management  to make  estimates and
assumptions  that affect the reported  amounts of assets and liabilities and the
reported  revenues and expenses for the periods  covered.  These  estimates  are
based  on  information  available  as of the date of the  financial  statements.
Therefore, actual results could significantly differ from those estimates.



                                       10


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
--------------------------------------------------------------------------------


NOTE 2.  Computation Of Earnings Per Share

         The Company  calculates  earnings per share ("EPS") in accordance  with
Statement Of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per
Share".   All  of  the  Company's  net  income  has  been  available  to  common
stockholders during the periods covered in this Form 10-Q.

         Basic  earnings  per share are  computed by dividing  net income by the
weighted average common shares outstanding for the period.  Diluted earnings per
share  reflect  the  potential  dilution  that  could  occur if options or other
contracts to issue common stock were exercised and converted into common stock.

         There was no  difference  in the  numerator,  net  income,  used in the
calculation  of basic  earnings per share and diluted  earnings  per share.  The
denominator  used in the  calculation  of basic  earnings  per share and diluted
earnings per share for the three and six month  periods  ended June 30, 2000 and
1999 is reconciled in the following  table.  The following table also reconciles
the  calculation  of the  Company's  Basic EPS and  Diluted  EPS for the periods
indicated.
<TABLE>
<CAPTION>

                                                      For The Three Months             For The Six Months
                                                           Ended June 30,                  Ended June 30,
                                                  ---------------------------     ---------------------------
(In Whole Dollars And Whole Shares)
                                                          2000          1999              2000          1999
                                                          ----          ----              ----          ----
<S>                                                  <C>            <C>             <C>           <C>
Net income                                          $  554,000    $  902,000        $1,353,000    $1,706,000
                                                    ==========    ==========        ==========    ==========

Average shares issued                                4,492,085     4,492,085         4,492,085     4,492,085

Less weighted average:
   Uncommitted ESOP shares                            (166,211)     (202,149)         (170,703)     (206,641)
   Non-vested stock award shares                       (71,322)      (98,046)          (71,664)      (98,387)
   Treasury shares                                  (1,179,399)     (956,700)       (1,142,929)     (962,491)
                                                    -----------   -----------       -----------   -----------

Sub-total                                           (1,416,932)   (1,256,895)       (1,385,296)   (1,267,519)
                                                    -----------   -----------       -----------   -----------

Weighted average BASIC shares outstanding            3,075,153     3,235,190         3,106,789     3,224,566

Add dilutive effect of:
   Stock options                                         1,250        81,796             6,581        85,108
   Stock awards                                              0         6,219               244         6,340
                                                    -----------   -----------       -----------   -----------
Sub-total                                                1,250        88,015             6,825        91,448
                                                    -----------   -----------       -----------   -----------

Weighted average DILUTED shares outstanding          3,076,403     3,323,205         3,113,614     3,316,014
                                                    ==========    ==========        ==========    ==========

Earnings per share:

   BASIC EPS                                            $ 0.18        $ 0.28            $ 0.44        $ 0.53
                                                    ==========    ==========        ==========    ==========

   DILUTED EPS                                          $ 0.18        $ 0.27            $ 0.43        $ 0.51
                                                    ==========    ==========        ==========    ==========
</TABLE>

                                                     11


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

--------------------------------------------------------------------------------


NOTE 3:  Other Comprehensive Income

         Currently,  the Company's only source of other comprehensive  income is
derived from  unrealized  gains and losses on the  portfolios of investment  and
mortgage backed securities classified as available for sale.

         Reclassification  adjustments, as defined by SFAS No. 130, for realized
net gains  (losses)  included in other  comprehensive  income for investment and
mortgage backed  securities  classified as available for sale for the six months
ended June 30, 2000 and 1999 are summarized as follows:

                                             Six Months Ended June 30,
                                           ----------------------------
                                                2000              1999
                                                ----              ----

                                                (Dollars In Thousands)

Gross reclassification adjustment              $ (77)           $  503
Tax benefit (expense)                             32              (209)
                                                -----            -----

Reclassification adjustment, net of tax        $ (45)           $  294
                                               ======           ======

         A  reconciliation  of the net unrealized  gain or loss on available for
sale securities recognized in other comprehensive income is as follows:
<TABLE>
<CAPTION>


                                                                     Six Months Ended June 30,
                                                                   ----------------------------
                                                                         2000             1999
                                                                         ----             ----
<S>                                                                    <C>              <C>
                                                                        (Dollars In Thousands)

Holding loss arising during the period, net of tax                     $ (307)          $ (884)
Reclassification adjustment, net of tax                                    45             (294)
                                                                         -----            -----

Net unrealized loss recognized in other comprehensive income           $ (262)         $(1,178)
                                                                       =======         ========
</TABLE>



NOTE 4:  Cash & Cash Equivalents

         For the purposes of reporting cash flows and the statement of financial
condition,  cash & cash  equivalents  includes  cash on hand,  amounts  due from
banks, federal funds sold,  securities purchased under agreements to resell with
original  maturities of 90 days or less,  certificates  of deposit with original
maturities of 90 days or less,  investments in money market mutual funds, and US
Treasury securities with original maturities of 90 days or less.



                                       12

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
--------------------------------------------------------------------------------


NOTE 5:  Stock Option Plans

         The Company  maintains the Amended 1995 Incentive Stock Option Plan and
the 1995 Stock  Option Plan For Outside  Directors.  Under  these  plans,  stock
options  typically  vest over a five year time  period.  All  outstanding  stock
options  under both of these plans vest upon a change in control of the Company.
The following tables summarize the combined status of these Plans:
<TABLE>
<CAPTION>

                                                                  Stock                            Stock       Average
                                                                Options            Stock         Options      Exercise
                                Stock           Stock      Cumulatively          Options       Available      Price Of
                              Options         Options        Vested And     Cumulatively      For Future        Vested
Date                       Authorized     Outstanding       Outstanding        Exercised          Grants       Options
----                       ----------     -----------       -----------        ---------          ------       -------
<S>                           <C>             <C>               <C>               <C>             <C>            <C>
December 31, 1999             512,036         362,597           239,853           80,150          69,289         $9.51
March 31, 2000                512,036         419,236           231,100           80,150          12,650         $9.51
June 30, 2000                 757,929         474,236           245,282           80,150         203,543         $9.79
</TABLE>


Activity during the three and six months ended June 30, 2000 included:

                       Three Months Ended           Six Months Ended
                            June 30, 2000              June 30, 2000
                            -------------              -------------
Granted                            55,000                    121,865
Canceled                                0                     10,226
Exercised                               0                          0
Vested                             14,182                     15,655

         The exercise price of individual vested stock options ranged from a low
of $9.10 per share to a high of $16.60 per share as of June 30, 2000.

         A proposal to amend the 1995  Incentive  Stock Option Plan was approved
by stockholders at the Company's Annual Meeting of Stockholders  held on May 25,
2000. The proposal included,  among other factors,  an increase in the number of
shares  reserved  for issuance to 660,000  shares  (exclusive  of 97,929  shares
reserved under the 1995 Stock Option Plan For Outside Directors) and a change in
the minimum  exercise  price of all new option grants to 110% of the fair market
value of the Company's common stock on the date of grant.



                                       13


<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
--------------------------------------------------------------------------------


NOTE 6:  Stock Award Plans

         The Company  maintains  two stock award  plans:  a  Performance  Equity
Program  ("PEP") for Officers and a Recognition  and Retention  Plan ("RRP") for
Outside Directors. Awards under these plans typically vest over a five year time
period. Awards under the RRP are time-based, while awards under the PEP are both
time-based and  performance-based.  All outstanding stock awards under the plans
vest in the event of a change in control of the Company.  The  following  tables
summarize the status of these plans:
<TABLE>
<CAPTION>

PEP:                                                                                        Stock
                                                                           Stock           Awards
                                       Stock             Stock            Awards        Available
                                      Awards            Awards      Cumulatively       For Future
Date                              Authorized       Outstanding            Vested           Grants
----                              ----------       -----------            ------           ------
<S>                                  <C>                <C>               <C>              <C>
December 31, 1999                    141,677            30,864            79,038           31,775
March 31, 2000                       141,677            59,212            79,038            3,427
June 30, 2000                        141,677            57,263            81,737            2,677
</TABLE>


     Activity during the three and six months ended June 30, 2000 included:

                     Three Months Ended          Six Months Ended
                          June 30, 2000             June 30, 2000
                          -------------             -------------
Granted                             750                    29,744
Canceled                              0                       646
Vested                            2,699                     2,699


<TABLE>
<CAPTION>

RRP:                                                                                        Stock
                                                                           Stock           Awards
                                       Stock             Stock            Awards        Available
                                      Awards            Awards      Cumulatively       For Future
Date                              Authorized       Outstanding            Vested           Grants
----                              ----------       -----------            ------           ------
<S>                                   <C>                <C>              <C>                   <C>
December 31, 1999                     38,010             9,541            28,469                0
March 31, 2000                        38,010             8,713            29,297                0
June 30, 2000                         38,010             8,713            29,297                0
</TABLE>


     Activity during the three and six months ended June 30, 2000 included:

                     Three Months Ended          Six Months Ended
                          June 30, 2000             June 30, 2000
                          -------------             -------------
Granted                               0                         0
Canceled                              0                         0
Vested                                0                       828




                                       14

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
--------------------------------------------------------------------------------


NOTE 7:  Commitments

         At June  30,  2000,  commitments  maintained  by the  Company  included
commitments  to originate  $15.5 million in various types of loans.  The Company
maintained  no firm  commitments  to  purchase  loans or  securities,  to assume
borrowings, or to sell loans or securities at June 30, 2000.

NOTE 8:  Recent Accounting Pronouncements

         SFAS  No.  133  "Accounting  for  Derivative  Instruments  and  Hedging
Activities", was issued in June 1998 and amended by SFAS No. 138, issued in June
2000. The standard defines derivatives, requires that all derivatives be carried
at fair value,  and provides for hedge  accounting  when certain  conditions are
met.  The  requirements  of SFAS No.  133 as  amended  by SFAS  No.  138 will be
effective  for the  Company in the first  quarter of the fiscal  year  beginning
January 1, 2001.  Management  does not  expect the  adoption  of SFAS No. 133 as
amended  by SFAS  No.  138 to  have a  significant  impact  upon  the  Company's
financial statements.




                                       15

<PAGE>




Item 2.  Management's Discussion And Analysis Of Financial Condition And Results
         Of Operations

Forward-looking Statements

         Discussions  of  certain  matters  in  this  Report  on Form  10-Q  may
constitute  forward-looking  statements within the meaning of the Section 27A of
the  Securities  Act of 1933, as amended,  and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange  Act"), and as such, may involve
risks and uncertainties.  Forward-looking statements, which are based on certain
assumptions  and  describe  future  plans,  strategies,  and  expectations,  are
generally  identifiable  by the  use  of  words  such  as  "believe",  "expect",
"intend",  "anticipate",  "estimate",  "project", or similar expressions.  These
forward-looking  statements  relate to, among other things,  expectations of the
business environment in which Monterey Bay Bancorp,  Inc. operates,  projections
of  future   performance,   potential   future  credit   experience,   perceived
opportunities in the market, and statements  regarding the Company's mission and
vision. The Company's actual results,  performance,  and achievements may differ
materially from the results,  performance, and achievements expressed or implied
in such forward-looking statements due to a wide range of factors. These factors
include,  but are not limited to, changes in interest  rates,  general  economic
conditions,  legislative and regulatory changes, monetary and fiscal policies of
the US Government, real estate valuations, competition in the financial services
industry,  and other risks  detailed  in the  Company's  reports  filed with the
Securities  and Exchange  Commission  ("SEC") from time to time,  including  the
Annual  Report on Form 10-K for the fiscal year ended  December  31,  1999.  The
Company does not undertake, and specifically disclaims any obligation, to update
any forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.

General

         Monterey Bay  Bancorp,  Inc.  (referred to herein on an  unconsolidated
basis as  "MBBC"  and on a  consolidated  basis as the  "Company")  is a unitary
savings  and loan  holding  company  incorporated  in 1994 under the laws of the
state  of  Delaware.  MBBC  currently  maintains  a single  subsidiary  company,
Monterey Bay Bank (the "Bank"),  a federally  chartered savings & loan. MBBC was
organized  as the  holding  company for the Bank in  connection  with the Bank's
conversion from the mutual to stock form of ownership in 1995.

         At June 30,  2000,  the  Company  had $472.4  million in total  assets,
$376.2 million in net loans  receivable,  and $387.5 million in total  deposits.
The Company is subject to regulation by the Office of Thrift Supervision ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC").  The principal executive
offices  of the  Company  and the Bank are  located  at 567 Auto  Center  Drive,
Watsonville,  California,  95076,  telephone number (831) 768 - 4800,  facsimile
number (831) 722 - 6794. The Company may also be contacted via  electronic  mail
at: INFO@MONTEREYBAYBANK.COM. The Bank is a member of the Federal Home Loan Bank
of San  Francisco  ("FHLB")  and its  deposits  are  insured  by the FDIC to the
maximum extent permitted by law.

         The  Company  conducts  business  from  eight  branch  offices  and its
administrative  facilities.  In addition,  the Company  supports  its  customers
through 24 hour  telephone  banking and ATM access  through an array of networks
including STAR, CIRRUS,  and PLUS.  Through its network of banking offices,  the
Bank  emphasizes   personalized   service  focused  upon  two  primary  markets:
households and small  businesses.  The Bank offers a wide  complement of lending
and deposit  products.  The Bank also supports its customers by functioning as a
federal tax depository,  selling and purchasing foreign banknotes, issuing debit
cards,  providing domestic and international  collection services, and supplying
various forms of electronic funds transfer. Through its wholly-owned subsidiary,
Portola  Investment  Corporation  ("Portola"),  the Bank provides,  on an agency
basis,  mortgage  life  insurance,  fire  insurance,  and a large  selection  of
non-FDIC insured  investment  products  including  annuities,  mutual funds, and
individual securities.

         The Company's  revenues are primarily derived from interest on its loan
and  mortgage  backed  securities  portfolios,  interest  and  dividends  on its
investment  securities,  and fee income associated with the provision of various
customer  services.  Interest paid on deposits and  borrowings  constitutes  the
Company's  largest type of expense.  The Company's  primary sources of funds are
deposits,  principal and interest payments on its asset portfolios,  and various
sources of wholesale  borrowings  including  FHLB advances and  securities  sold
under  agreements  to  repurchase.  The  Company's  most  significant  operating
expenditures are its staffing expenses and the costs associated with maintaining
its branch network.



                                       16
<PAGE>



Recent Developments

         Congress, the SEC, and the Federal Administration  continue to consider
a series of issues that may impact the financial  services  industry,  including
the Company. These issues include:

o    the potential reform of bankruptcy legislation

o    the possible  privatization  of or reduced  government  support for certain
     government  sponsored  enterprises,  most  notably  the  Federal  Home Loan
     Mortgage   Corporation   ("FHLMC")  and  the  Federal   National   Mortgage
     Association ("FNMA")

o    new capital and membership rules for the FHLB System

o    the potential merger of the bank and thrift deposit insurance funds

o    a possible  increase in (e.g.  from $100,000 to $200,000 per  depositor) or
     broadening of (e.g. all public agency deposits)  federal deposit  insurance
     coverage

o    potential  new  federal  regulations  involving  the  privacy  of  customer
     information  (the State of California  has also  recently been  considering
     this issue)

o    the possible  elimination of prohibitions on the payment of interest by the
     Federal Reserve on bank reserves and by insured depository  institutions on
     commercial demand deposits

o    various topics related to the growing  presence and impact of the Internet,
     from the  validity  of  electronic  signatures  to  controls  over  digital
     certificates representing monetary value to taxation

o    potential   changes  in  the   methodology   used  by  insured   depository
     institutions to account for loan loss reserves

         In addition,  legislators  and regulators  continue to develop new laws
and rules as a result of implementing the landmark Gramm-Leach-Bliley Act, which
modified laws that had governed and controlled the financial  services  industry
for more  than 50  years.  The  Company  is  unable  to  predict  what,  if any,
legislation  or  regulation  might be enacted and the  potential  impact of such
legislation or regulation upon the Company's  financial  condition or results of
operations.

         Since  mid-1999,  the Federal Reserve has implemented six interest rate
increases totaling 175 basis points in the target federal funds rate in response
to various US economic trends,  including low unemployment,  strong expansion in
gross domestic  product,  and increases in the consumer  price index.  While the
Company,  through its strategic plan and asset / liability  management  program,
has been able to increase  its net  interest  income  during  this time  period,
additional  future  increases  in interest  rates could  unfavorably  impact the
Company due to a number of factors,  including  the potential  negative  impacts
upon the demand for loans and upon  delinquencies.  With  further  increases  in
general market interest rates, delinquencies might rise due to larger demands on
customer  cash  flows  associated  with  variable  rate loans and due to reduced
customer  income  should  the  higher  general  market  interest  rates slow the
economy. Future actions by the Federal Reserve and the impacts from such actions
are beyond the Company's ability to predict and control.

         During  the second  quarter of 2000,  Mr.  Louis  Resetar,  Jr. and Mr.
Donald K.  Henrichsen  retired from the Board of Directors and became  Directors
Emeritus. Mr. Josiah T. Austin's one year term on the Board of Directors expired
in May, 2000. However, the Board of Directors appointed Mr. Austin to a new term
on the  Board  effective  July 27,  2000  through  the next  annual  meeting  of
stockholders.  In May,  2000, Mr. C. Edward Holden joined the Company as its new
Chief  Executive  Officer  and was  named  to the  Board  of  Directors  as Vice
Chairman.  Mr.  Eugene R. Friend  retired as Chief  Executive  Officer  upon the
appointment of Mr. Holden, and continues to serve the Company as Chairman of the
Board.



                                       17

<PAGE>


Overview Of Business Activity

         During the first half of 2000,  the Company  continued  in its business
strategy of evolving  away from its  traditional  savings and loan roots  toward
more of a community banking  orientation.  Management has targeted this strategy
because of the belief  that it  presents  the  opportunity  to better  serve the
Greater Monterey Bay Area while also enhancing shareholder value.

         During  the first six months of 2000,  progress  was  realized  in loan
volume and mix,  deposit  volume  and  composition,  and fee income  generation,
particularly  resulting from the sale of non-FDIC  insured  investment  products
through Portola. To further enhance  non-interest  income, the Company adopted a
revised  fee and  service  charge  schedule  effective  July 1,  2000.  This new
schedule is designed to provide  avenues for  customers to moderate fees via the
use of electronic  features,  while also  generating  increased  revenue for the
Company in  conjunction  with those  services  which  require a higher  level of
manual support.

         The Company  neared  29,000  deposit  accounts at the end of the second
quarter of 2000,  representing a new high. The Company regularly  encourages and
supports its employees'  contributions  to community  organizations  targeted at
improving the quality of life in the Greater Monterey Bay Area and helping those
individuals and groups in need of assistance.  In addition, the Company provides
direct  financial  support  to a  range  of  local  organizations,  including  a
substantial pledge this year to foster education.

         The  Company's  hiring  of a Chief  Executive  Officer  with  extensive
commercial banking experience  constituted another step in progressing along its
strategic  plan.  The  new  Chief  Executive  Officer  materially  augments  the
management   team's  knowledge  of  designing,   implementing,   and  profitably
delivering  a  broader  range  of  financial  products  and  services  to  small
businesses.

         During the first half of 2000, the Company  continued to pursue several
tactical and strategic  objectives.  These objectives  include collection of the
$5.0 million  non-accrual  loan extended by MBBC, the  introduction  of Internet
Banking to the Company's  customer base, and the signing of a contract for a new
core data processing system. The Company's Internet Banking product is currently
undergoing employee testing, with introduction to customers planned for later in
the year.  The  Company  has been  negotiating  a  contract  for a new core data
processing  system,  with  the goal of being  able to offer a  broader  range of
financial products and services,  particularly for small businesses,  before the
end of 2001.  The new core data  processing  system is also being  pursued as an
avenue to improve the Company's  productivity and thereby enhance its efficiency
ratio.

         Thus far in 2000, the Company's  primary market areas  continued to see
high  demand for  housing,  strong real estate  price  appreciation,  population
increases,  and economic expansion. The Company's primary market areas have also
benefited  from the  ongoing  growth in  employment,  geography,  and  financial
capacity of the adjacent,  technology  oriented  Silicon  Valley area of the San
Francisco Bay Area. A significant  proposal was recently  circulated  that would
lead to the addition of approximately  20,000 new technology related jobs in the
Coyote  Valley area in the Highway 101 corridor  stretching  south from San Jose
toward Morgan Hill.

         By the end of the second quarter,  however,  housing  related  activity
began to slow in the Company's market areas,  likely at least in part due to the
impact of general market  interest rate increases by the Federal  Reserve.  As a
result, the Company's loan pipeline experienced some weakening at the end of the
second quarter versus that experienced earlier in the year.

         At its July 27, 2000  meeting,  the Board of  Directors  determined  to
indefinitely suspend the declaration and payment of cash dividends. The Board of
Directors  concluded  that, at this time,  the payment of cash dividends did not
represent the best use of the Company's capital.

         The  Company  intends to  continue  pursuing  this  business  strategy,
explained  in greater  detail in the  Company's  Annual  Report on Form 10-K for
1999,  while  seeking  avenues  for further  growth in market  share and product
diversification.  Management believes that the continued consolidation occurring
in the  financial  services  industry  will  present  opportunities  to  acquire
personnel, branches, and customers from institutions being sold.



                                       18

<PAGE>



Changes In Financial Condition From December 31, 1999 To June 30, 2000

         Total assets  increased $9.6 million,  or 2.1%,  from $462.8 million at
December 31, 1999 to $472.4  million at June 30,  2000.  This rise in assets was
primarily fueled by a strong deposit performance.

         Cash & cash equivalents rose from $12.8 million at December 31, 1999 to
$21.9  million  at June 30,  2000.  The  Company  received  payoffs  on  several
comparatively large loans late in the second quarter,  with the associated funds
maintained in interest  bearing cash  equivalents  at June 30, 2000. The Company
intends to reinvest  these funds into loans or securities and thereby reduce the
balance of cash & cash equivalents in order to increase asset yield.

         Investment and mortgage backed securities  available for sale decreased
from $69.2 million at December 31, 1999 to $54.2  million at June 30, 2000.  The
Company sold $12.6  million in mortgage  backed  securities  and $3.7 million in
investment  securities  in 2000.  These sales,  which were  concentrated  in the
second quarter, were conducted to:

o    generate cash for funding loan originations

o    reduce the  Company's  sensitivity  to changes in general  market  interest
     rates, via the sale of higher duration securities

o    shift  the  Bank's  asset  allocation   towards  those  assets,   including
     securities, which qualify under the Qualified Thrift Lender test

Security purchases during 2000 have been concentrated in low duration, high cash
flow,  primarily Agency  collateralized  mortgage  obligations in order to avoid
adding long term, fixed rate assets to the balance sheet and in order to furnish
a recurring source of cash in future periods for lending. Management anticipates
continuing  the above pattern of security  purchases and sales during the second
half of 2000, subject to business and market conditions.

         Net loans  receivable  held for investment  rose from $360.7 million at
December  31, 1999 to $376.2  million at June 30, 2000 on the  strength of $68.0
million in credit  commitments  during the first half of 2000.  The  increase in
loans  was  concentrated  in  the  commercial  &  industrial  real  estate  loan
portfolio,  as the Company  continued the  diversification  of its balance sheet
away from the historical  concentration in residential  mortgage related assets.
Residential  loans as a percentage  of gross loans  declined from 43.4% to 42.0%
during the first half of 2000.  At the same time,  commercial & industrial  real
estate loans increased from 18.6% to 23.9% of gross loans.

         During the second quarter of 2000, the Company  augmented its "Business
Express" line of credit product aimed at relatively small  businesses  operating
in the Company's  local  communities  with  increased  marketing for $100,000 to
$250,000  business  lines of  credit  among  more  established  and / or  larger
commercial  enterprises.  Outstanding  balances  of  business  lines  of  credit
increased  from $1.0  million at December  31, 1999 to $1.4  million at June 30,
2000.

         The Company's  increasing volume of commercial & industrial real estate
loans has reduced the Bank's  qualified  thrift  lender test  results,  with the
qualified thrift lender ratio declining from 70.4% at December 31, 1999 to 68.2%
at June 30, 2000.  Because the regulatory  limit for the Qualified Thrift Lender
ratio is 65.0%, management is considering a number of alternatives, including:

o    sales of non-qualified assets, including securities

o    altering loan pricing and marketing to encourage  increased  origination of
     qualified credits

o    moderately  leveraging  the balance  sheet  through the  addition of assets
     which qualify under the test

o    applying for a commercial bank charter



                                       19


<PAGE>


         Additional  information regarding the composition of the Company's loan
portfolio is presented in the following table:
<TABLE>
<CAPTION>

                                                                  June 30,       December 31,
                                                                      2000               1999
                                                                      ----               ----
<S>                                                                <C>               <C>
(Dollars In Thousands)

Held for investment:
   Loans secured by real estate:
      Residential one to four unit                                $168,497           $168,465
      Multifamily five or more units                                44,798             42,173
      Commercial and industrial                                     95,711             72,344
      Construction                                                  64,668             79,034
      Land                                                          13,797             13,930
                                                                  --------           --------

   Sub-total loans secured by real estate                          387,471            375,946

   Other loans:
      Home equity lines of credit                                    4,652              3,968
      Loans secured by deposits                                        511                385
      Consumer lines of credit, unsecured                              149                202
      Business term loans                                            6,718              6,670
      Business lines of credit                                       1,387              1,027
                                                                  --------           --------

   Sub-total other loans                                            13,417             12,252

   Sub-total gross loans held for investment                       400,888            388,198

   (Less) / Plus:
      Undisbursed construction loan funds                          (20,375)           (23,863)
      Unamortized purchase premiums, net of purchase discounts         109                134
      Deferred loan fees and costs, net                               (223)              (281)
      Allowance for estimated loan losses                           (4,156)            (3,502)
                                                                  --------           --------

Loans receivable held for investment, net                         $376,243           $360,686
                                                                  ========           ========

Held for sale:
   Residential one to four unit                                    $    --            $    --
                                                                  ========           ========
</TABLE>


         Although  there  were no loans  held for  sale at June  30,  2000,  the
Company  continues to originate fixed rate  residential  loans for sale into the
secondary market on a servicing released basis. This practice allows the Company
to provide a full range of  residential  loan products to its customers  without
adding to the  Company's  sensitivity  to rising  interest  rates.  The  Company
generally  sells the  loans on a  servicing  released  (versus  retained)  basis
because of  management's  belief that servicing  released sales present a better
financial return.

         Premises and equipment  increased slightly in 2000 primarily due to the
Company's remodeling of one branch in order to sub-lease space to a tenant later
this year.

         Intangible  assets  declined by $349 thousand  during the first half of
2000  in  conjunction  with  periodic   amortization.   Under  OTS  regulations,
intangible assets net of associated  deferred tax liabilities  reduce regulatory
capital,  resulting in lower  regulatory  capital ratios than would otherwise be
the case.



                                       20

<PAGE>



         Total deposits  increased from $367.4 million at December 31, 1999 to a
record $387.5 million at June 30, 2000. Key trends within the deposit  portfolio
included:

o    Checking  account  balances  continued to rise during the second quarter of
     2000,  and have now  increased  $4.6 million year to date.  The Company has
     targeted  increases  in checking  account  balances as a source of low cost
     funds and  non-interest  income.  Initiatives  employed  by the  Company in
     expanding  the checking  account base have included the  introduction  of a
     new,  highly  tiered  SuperNOW  product,  an  internal  employee  incentive
     campaign to generate new checking accounts,  ongoing  advertising  support,
     and checking  account  options  viewed as desirable by consumers  including
     imaged  statements and debit card access.  The Company plans to augment its
     sales  and  marketing  of  checking   accounts   later  in  2000  with  the
     introduction of Internet Banking.

o    Customers reacted  positively to the Bank's new "Money Market Plus" deposit
     account, which provides competitive,  highly tiered rates for liquid funds.
     In  conjunction  with this product,  total money market  deposits rose from
     $81.2 million at December 31, 1999 to $92.0 million six months later.

o    Certificate of deposit  balances rose $4.4 million during the first half of
     2000, as the Company continued two key sales efforts for this product line.
     Premium CD rates are made available to customers for whom the Bank is their
     primary  financial  services  provider.   The  Company  also  promotes  "CD
     Specials" of various terms and with various minimum balance requirements in
     response to  competitive  actions and in order to attract funds  consistent
     with its asset / liability management program.

o    Transaction  accounts constituted 41.5% of total deposits at June 30, 2000,
     up from 39.5% six months earlier. This change in deposit mix is integral to
     the Company's  strategic plan, as transaction  accounts provide for a lower
     cost of funds versus most other funding sources,  furnish opportunities for
     cross-selling  other products and services to customers,  are less interest
     rate sensitive than many other funding sources, and generate fee income.

         During the second quarter of 2000,  the Bank  commenced  limited direct
marketing of certificates  of deposit to targeted  potential  customer  segments
identified  as  presenting a propensity  to invest in that product line. At June
30, 2000, this program had attracted $443 thousand in new funds.

         The Bank  recently  became  eligible  for  participation  in a  deposit
placement program sponsored by the State of California.  The Company anticipates
acquiring relatively attractively priced funding, in the form of certificates of
deposit, via this program in future periods.

         The  Company's  ratio of  loans  to  deposits  declined  from  98.2% at
December  31,  1999 to 97.1% at June 30,  2000,  as the  strong  deposit  growth
eclipsed  the  expansion  in  loans.  In light of this  ratio,  the  Company  is
exploring  various  strategic  alternatives  for  increasing  its funding  base,
including new sites for traditional  stand-alone branches and sites for branches
domiciled within larger retail outlets.  No assurance can, however,  be provided
that the Company will be successful  in obtaining  additional  distribution  and
sales locations.

         Borrowings  declined  from $52.0  million at December 31, 1999 to $40.6
million at June 30,  2000,  all of which was then  comprised  of FHLB  advances.
During the first quarter of 2000,  MBBC repaid all of its securities  sold under
agreements  to  repurchase  in  conjunction  with  the  sale  of the  associated
securities.  Over the past six months,  the Company has used deposit inflows and
cash flows from the amortization and sale of securities to repay $9.0 million in
FHLB  advances.  The next scheduled  maturity of the Company's  borrowings is in
January, 2001.


                                       21

<PAGE>




         Total stockholders' equity increased from $40.8 million at December 31,
1999 to $41.3  million at June 30, 2000.  Factors  contributing  to the increase
included:

o    $1.35 million in 2000 year to date net income

o    continued   amortization   of  deferred   stock   compensation,   including
     accelerated  amortization  of certain shares during the most recent quarter
     in  conjunction  with the  settlement  of  certain  non-qualified  benefits
     obligations payable in Company common stock

o    the election by certain  Directors to have their  Directors  fees paid with
     common stock


The above factors more than offset:

o    the repurchase of 120,000 of the Company's common shares on the open market
     for $1.25 million during the first quarter of 2000

o    the payment of $274  thousand in cash  dividends  (equivalent  to $0.08 per
     share) during the first quarter of 2000

o    a  reduction  in the fair market  value of the  portfolios  of  investments
     designated as available for sale


     The  Company's  tangible  book value per share was $11.69 at June 30, 2000.
This figure will be favorably  impacted  during the third quarter of 2000 by the
vesting of a  particularly  large  volume of deferred  stock  compensation.  The
vesting of deferred  stock  compensation  decreases  the  contra-equity  balance
associated  with  those  programs,  thereby  increasing  the  book  value of the
Company.


                                       22

<PAGE>



Interest Rate Risk Management And Exposure

         In an effort to limit the Company's  exposure to interest rate changes,
management  monitors  and  evaluates  interest  rate  risk on a  regular  basis,
including  participation  in the OTS Net  Portfolio  Value Model and  associated
regulatory reporting. Management acknowledges that interest rate risk and credit
risk compose the two greatest  financial  exposures  faced by the Company in the
normal  course of its  business.  The Company is not  directly  exposed to risks
associated with commodity prices or fluctuations in foreign currency values.

         In  recent  quarters,  the  Company  has  maintained  a  net  liability
sensitivity in regards to net portfolio value,  also referred to as market value
of portfolio  equity.  This means that the fair value of the Company's assets is
more  volatile  than that of its  liabilities.  This net  liability  sensitivity
primarily arises from the longer term, fixed rate real estate loans and mortgage
related  securities  maintained on the Company's  balance  sheet,  for which the
Company's only current match funding  sources are demand deposit  accounts,  non
interest bearing  liabilities,  a segment of core deposit transaction  accounts,
certain  borrowings,  and capital. A net liability  sensitive position typically
translates to improved net  portfolio  value during  periods of falling  general
market  interest  rates.  Conversely,  this position  presents the likelihood of
reductions in net portfolio value during increasing rate environments.  However,
in addition to the overall  direction of general market interest rates,  changes
in relative rates (i.e.  the slope of the term structure of interest  rates) and
relative  credit  spreads  also  impact net  portfolio  value and the  Company's
profitability.

         Factors  impacting the Company's net liability  sensitivity  during the
first half of 2000 and forecast to affect the  Company's  interest rate exposure
throughout 2000 include:

         Factors reducing net liability sensitivity:

              o   The $15.6 million rise in transaction  account balances during
                  the first half of 2000, as  transaction  deposit  accounts are
                  typically less interest rate sensitive than many other sources
                  of funding. The Company intends to continue pursuing growth in
                  transaction  deposits  throughout  2000 as an integral part of
                  its business strategy.

              o   The sale of $10.5  million in high  duration  mortgage  backed
                  securities  during the first half of 2000.  Further such sales
                  are possible later in 2000  depending  upon market  conditions
                  and cash needs.

              o   The continued  amortization and prepayment of long term, fixed
                  rate loans and mortgage  backed  securities  combined with the
                  sale of most  new,  long  term,  fixed  rate  loans  into  the
                  secondary  market and the focus of new  security  purchases in
                  lower duration instruments.

              o   The pending conversion during the last two quarters of 2000 of
                  approximately  $30.4 million in previously  purchased "hybrid"
                  residential loans from fixed rate to floating rate.

              o   The  Company's  pricing  for new  loan  originations  has been
                  skewed to encourage adjustable rate lending and hybrid lending
                  with shorter initial fixed rate periods (e.g. 3 years versus 5
                  to 7 years).

              o   The  recent   introduction   of  a  new,   Prime-based   owner
                  construction  loan product that continues to effectively serve
                  that target market while also generating  relatively  interest
                  sensitive assets.

         Factors increasing net liability sensitivity:

              o   Slowing  prepayments  on  certain  fixed  rate  whole loan and
                  mortgage  related  security   positions  in  conjunction  with
                  reduced consumer  refinance  activity.  The slower  prepayment
                  rates  increase the average  lives of these assets and provide
                  less  periodic  cash flow for  reinvestment  into  alternative
                  assets that would likely be more interest rate sensitive.

              o   The reduced duration of the Company's  borrowings,  as few new
                  borrowings have been added and the existing  portfolio  moves,
                  over time,  towards the maturity dates of the individual  FHLB
                  advances.


                                       23

<PAGE>




Liquidity

         Liquidity is actively managed to ensure  sufficient funds are available
to meet ongoing needs of both the Company in general and the Bank in particular.
Liquidity management includes projections of future sources and uses of funds to
ensure  the   availability   of  sufficient   liquid  reserves  to  provide  for
unanticipated circumstances. The Company's primary sources of funds are customer
deposits, principal and interest payments on loans and securities, FHLB advances
and other borrowings,  and, to a lesser extent, proceeds from sales of loans and
securities.  While maturities and scheduled amortization of loans and securities
are  predictable  sources of funds,  deposit flows and  prepayments  on mortgage
related assets are  significantly  influenced by general market  interest rates,
economic conditions, and competition.

         At June 30, 2000, the Company maintained $21.9 million in cash and cash
equivalents,  untapped  borrowing  capacity  in  excess of $125  million  at the
FHLB-SF,  and  significant  excess  collateral  in both  loans  and  securities;
collateral  which is available for either  liquidation or secured  borrowings in
order to meet future liquidity requirements. During 2000, MBBC and the Bank each
entered into several  Master  Repurchase  Agreements to permit  securities  sold
under   agreements  to  repurchase   transactions   with  a  greater  number  of
counterparties. In addition, at June 30, 2000, the Bank maintained $25.5 million
in unsecured  federal  funds lines of credit from four  correspondent  financial
institutions.  However, there can be no assurance that funds from these lines of
credit will be available at all times,  or that the line will be  maintained  in
future periods.  The Bank has recently  completed the steps necessary to be able
to issue  wholesale "DTC"  certificates  of deposit through two large,  national
investment banking firms as an additional source of liquidity.

         Federal  regulations  currently require thrift institutions to maintain
an  average  daily  balance  of liquid  assets  (including  cash,  certain  cash
equivalents,  certain mortgage-related  securities,  certain mortgage loans with
the  security  of a  first  lien  on  residential  property,  and  specified  US
Government,  state,  and federal agency  obligations)  equal to at least 4.0% of
either (i) the average daily balance of its net withdrawable accounts plus short
term borrowings (the "liquidity base") during the preceding calendar quarter, or
(ii) the  amount  of the  liquidity  base at the end of the  preceding  calendar
quarter.  This liquidity requirement may be changed from time to time by the OTS
to an amount  within a range of 4.0% to 10.0% of such  accounts  and  borrowings
depending upon economic conditions and the deposit flows of thrift institutions.
In addition, the Bank must comply with a general non-quantitative requirement to
maintain a safe and sound level of liquidity.

         Throughout the first six months of 2000, the regulatory liquidity ratio
of the Bank  exceeded  regulatory  requirements,  with the average ratio for the
second quarter equaling 6.97%. The Company's  strategy  generally is to maintain
its regulatory  liquidity  ratio near the required  minimum in order to maximize
borrowing capacity by pledging loans and securities and in order to maximize its
yield through alternative investments.

         At June 30, 2000,  MBBC had cash & cash  equivalents  of $557 thousand.
Following  the sale of its security  portfolio  during the first quarter of 2000
and the use of those  proceeds  largely to  repurchase  shares,  MBBC's  primary
sources of funds are annual  (December)  payments  from the Bank in  conjunction
with  the  ESOP,  the  sale  of  Treasury  shares  in  conjunction   with  stock
compensation  plans, and payments on the $5.0 million  commercial  business term
loan  primarily  secured  by  stock in an  insured  depository  institution  and
maintained  on  non-accrual  status at June 30, 2000. As this  non-accrual  loan
nears its late 2000 maturity,  MBBC may encounter  higher  operating  costs, and
cash outflows,  in conjunction with its collection  efforts for the debt. Due to
additional capital requirements implemented by the OTS for the Bank, the Bank is
currently  limited in its ability to pay  dividends to MBBC.  As a result of the
foregoing,  MBBC may be  constrained  in its  ability  to pay  stockholder  cash
dividends  and / or  repurchase  additional  shares  of  common  stock in future
periods.


                                       24

<PAGE>


Capital Resources And Regulatory Capital Compliance

         The Federal Deposit  Insurance Act of 1991 ("FDICIA")  required the OTS
to implement a system providing for regulatory  sanctions  against  institutions
that are not adequately  capitalized.  The severity of these sanctions increases
to the extent that an  institution's  capital falls further below the adequately
capitalized  thresholds.  Under  FDICIA,  the OTS issued  the Prompt  Corrective
Action ("PCA")  regulations which  established  specific capital ratios for five
separate capital categories as set forth below:
<TABLE>
<CAPTION>

                                                  Core Capital            Core Capital            Total Capital
                                                  To Adjusted                  To                       To
                                                  Total Assets            Risk-weighted           Risk-weighted
                                                (Leverage Ratio)             Assets                   Assets
                                                ----------------             ------                   ------

<S>                                               <C>                      <C>                     <C>
Well capitalized                                  5% or above              6% or above             10% or above
Adequately capitalized                            4% or above              4% or above             8% or above
Undercapitalized                                    Under 4%                Under 4%                 Under 8%
Significantly undercapitalized                      Under 3%                Under 3%                 Under 6%
Critically undercapitalized                      Ratio of tangible equity to adjusted total assets of 2% or less
</TABLE>

         The following  table  summarizes the capital ratios  required by FDICIA
for an institution to be considered well  capitalized and the Bank's  regulatory
capital at June 30, 2000 as compared to such ratios.
<TABLE>
<CAPTION>

                                           Core Capital              Core Capital To             Total Capital To
                                           To Adjusted                Risk-weighted               Risk-weighted
                                           Total Assets                   Assets                      Assets
                                      -----------------------     -----------------------     -----------------------
                                         Balance     Percent         Balance     Percent         Balance     Percent
                                         -------     -------         -------     -------         -------     -------
                                                                  (Dollars In Thousands)

<S>                                      <C>           <C>           <C>          <C>            <C>          <C>
Bank regulatory capital                  $34,697       7.43%         $34,697      10.26%         $38,653      11.43%
Well capitalized requirement              23,338       5.00%          20,290       6.00%          33,817      10.00%
                                          ------       -----          ------       -----          ------      ------

Excess                                   $11,359       2.43%         $14,407       4.26%         $ 4,836       1.43%
                                         =======       =====         =======       =====         =======       =====

Adjusted assets (1)                     $466,763                    $338,172                    $338,172
                                        ========                    ========                    ========


-------------------------------------
<FN>
(1) The above line for  "adjusted  assets"  refers to the term  "adjusted  total
assets" as defined in 12 C.F.R.  Section  567.1(a)  for purposes of core capital
requirements, and refers to the term "risk-weighted assets" as defined in C.F.R.
Section 567.1(bb) for purposes of risk-based capital requirements.
</FN>
</TABLE>

         The Bank  has  been  informed  by the OTS  that it is to  maintain  its
regulatory capital ratios at levels no less than those in effect at December 31,
1999 until further notice (see "Special  Residential Loan Pool").  The following
table   demonstrates  the  Bank's  compliance  with  this   institution-specific
regulatory capital requirement.

                                           June 30, 2000      December 31, 1999
                                           -------------      -----------------

Core capital to adjusted total assets              7.43%                  7.11%
Core capital to risk-weighted assets              10.26%                  9.58%
Total capital to risk-weighted assets             11.43%                 10.56%


                                       25


<PAGE>


         The Bank is also subject to OTS capital regulations under the Financial
Institutions  Reform,  Recovery,  and  Enforcement  Act of 1989  ("FIRREA")  and
amendments thereto. These regulations require the Bank to maintain: (a) tangible
capital  of  at  least  1.5%  of  adjusted  total  assets  (as  defined  in  the
regulations),  (b) core  capital of at least 4.0% of adjusted  total  assets (as
defined  in the  regulations),  and  (c)  total  capital  of at  least  8.0%  of
risk-weighted assets (as defined in the regulations).

         The following  table  summarizes  the regulatory  capital  requirements
under FIRREA for the Bank. As indicated in the table,  the Bank's capital levels
at June 30, 2000 exceeded all three of the currently  applicable  minimum FIRREA
capital requirements.

                                                                 Percent Of
                                                                   Adjusted
(Dollars In Thousands)                                                Total
                                                Amount               Assets
                                                ------               ------

Tangible Capital
----------------
Regulatory capital                             $34,697                7.43%
Minimum required                                 7,001                1.50%
                                                 -----                -----

Excess                                         $27,696                5.93%
                                               =======                =====

Core Capital
------------
Regulatory capital                             $34,697                7.43%
Minimum required                                18,671                4.00%
                                                ------                -----

Excess                                         $16,026                3.43%
                                               =======                =====


                                                                 Percent Of
                                                                      Risk-
                                                                   weighted
                                                Amount               Assets
                                                ------               ------
Risk-based Capital
------------------
Regulatory capital                             $38,653               11.43%
Minimum required                                27,054                8.00%
                                                ------                -----

Excess                                         $11,599                3.43%
                                               =======                =====


         At June 30, 2000, the Bank's  regulatory  capital  levels  exceeded the
thresholds  required to be classified as a "well capitalized"  institution.  The
Bank's  regulatory  capital ratios  detailed above do not reflect the additional
capital (and assets) maintained by MBBC. Management believes that, under current
regulations  and  institution-specific  requirements,  the Bank will continue to
meet its minimum capital requirements. However, events beyond the control of the
Bank,  such as  changing  interest  rates or a downturn  in the  economy or real
estate  markets  in the  areas  where  the  Bank has  most of its  loans,  could
adversely affect future earnings and,  consequently,  the ability of the Bank to
meet its future minimum regulatory capital requirements.

                                       26

<PAGE>




Asset Quality / Credit Profile

Non-performing Assets

         The following  table sets forth  information  regarding  non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>

(Dollars In Thousands)                                                    June 30, 2000       December 31, 1999
                                                                          -------------       -----------------
<S>                                                                             <C>                     <C>
Outstanding Balances Before Valuation Reserves
----------------------------------------------
Non-accrual loans                                                               $ 6,364                 $ 6,888
Loans 90 or more days delinquent and accruing interest                               --                      --
Restructured loans in compliance with modified terms                                970                   1,294
                                                                                -------                 -------

Total gross non-performing loans                                                  7,334                   8,182

Investment in foreclosed real estate before valuation reserves                       96                      96
Repossessed consumer assets                                                          --                      --
                                                                                -------                 -------

Total gross non-performing assets                                               $ 7,430                 $ 8,278
                                                                                =======                 =======

Gross non-accrual loans to total loans                                            1.67%                   1.89%

Gross non-performing loans to total loans                                         1.93%                   2.25%

Gross non-performing assets to total assets                                       1.57%                   1.79%

Allowance for loan losses                                                        $4,156                  $3,502

Valuation allowances for foreclosed real estate                                  $   --                  $   --
</TABLE>


         Non-accrual  loans  at  June  30,  2000  consisted  of two  residential
mortgages  totaling $228 thousand,  two commercial real estate loans to a single
borrower  totaling $1.1 million,  and a $5.0 million term business loan extended
by MBBC primarily secured by the common stock of a depository  institution.  The
borrower for this business term loan is current in its  payments.  However,  the
loan has been  maintained  on  non-accrual  status due to concern  regarding the
borrower's potential sources of funds to repay the loan at maturity in December,
2000.  The Company has  established  a $200 thousand  specific  reserve for this
loan.  Real estate  acquired via  foreclosure  at June 30, 2000 consisted of one
residential property.

Criticized And Classified Assets

         The  following  table  presents  information  concerning  the Company's
inventory  of  criticized  ("OAEM")  and  classified  ("substandard"  and lower)
assets.  The category "OAEM" refers to "Other Assets Especially  Mentioned",  or
those assets which present indications of potential future credit deterioration.


(Dollars In Thousands)      OAEM     Substandard    Doubtful    Loss      Total
                            ----     -----------    --------    ----      -----

December 31, 1999         $7,940          $8,574        $ --   $ 200    $16,714
March 31, 2000            $5,116          $7,815        $ --   $ 200    $13,131
June 30, 2000             $3,048          $9,925        $ --   $ 200    $13,173


         Classified  assets as a percent of stockholders'  equity increased from
21.5%  at  December  31,  1999 to  24.5%  at June  30,  2000.  The  increase  in
substandard  loans during the second quarter of 2000 primarily  stemmed from the
internal credit downgrade (from "OAEM") of a $1.9 million commercial real estate
loan. This loan is secured by two retail buildings in Monterey,  California. The
downgrade resulted from poor operating cash flows stemming from vacancies, which
in turn was  primarily  associated  with property  management  rather than local
market conditions.  A specific reserve for this loan is not required at June 30,
2000 primarily due to a loan to value ratio below 60%.


                                       27

<PAGE>



Impaired Loans

         At June 30, 2000, the Company  maintained  total gross impaired  loans,
before  specific  reserves,  of $7.3  million,  constituting  12  credits.  This
compares to gross  impaired  loans of $8.2 million at December 31, 1999.  Of the
total impaired loans at June 30, 2000, $1.0 million were either fully current or
exhibited  only  minor  delinquency  and were  therefore  maintained  on accrual
status.  Interest is accrued on  impaired  loans on a monthly  basis  except for
those  loans that are 90 or more days  delinquent  or those loans which are less
than 90 days delinquent but where management has identified  concerns  regarding
the  collection of the credit.  For the six months ended June 30, 2000,  accrued
interest on impaired  loans was $6 thousand  and  interest of $357  thousand was
received in cash.  If all  non-accrual  loans had been  performing in accordance
with their original loan terms, the Company would have recorded  interest income
of $435 thousand during the six months ended June 30, 2000,  instead of interest
income actually recognized on cash payments of $322 thousand.

Special Residential Loan Pool

         During 1998,  the Bank purchased a $40.0 million  residential  mortgage
pool comprised of loans that presented a borrower credit profile and / or a loan
to value ratio outside of (less favorable  than) the Bank's normal  underwriting
criteria.  To mitigate its credit risk for this  portfolio,  the Bank obtained a
scheduled  principal / scheduled  interest  loan  servicing  agreement  from the
seller.  Further,  this  agreement  also  contained  a warranty by the seller to
absorb any  principal  losses on the  portfolio  in  exchange  for the  seller's
retention  of a portion of the loans'  yield  through loan  servicing  fees.  In
obtaining these favorable loan servicing terms, the Bank functionally aggregated
the credit  risk for this loan pool into a single  borrower  credit  risk to the
seller / servicer of the loans.  The Bank was  subsequently  informed by the OTS
that  structuring the purchase in this manner made the transaction an "extension
of credit" by the Bank to the seller / servicer,  which,  by virtue of its size,
violated the OTS' "Loans To One Borrower" regulation.

         At June 30, 2000,  the  outstanding  balance of this mortgage loan pool
was $31.45 million, with slightly more than $1.0 million receivable during July,
2000 based upon prepayments and scheduled  principal for June, 2000. At December
31, 1999, the outstanding principal balance of this mortgage loan pool was $35.0
million, with $1.2 million in principal receivable during January, 2000. Because
the  residential  loans contain a  substantial  upward rate reset feature in the
year  2000,  the  Bank  anticipates  that the pool  will  continue  experiencing
significant  prepayments,  particularly  during the fourth  quarter of 2000 when
there is a  concentration  of interest rate reset dates.  The Bank  continues to
report to the OTS in this regard on a monthly basis.

         Through the July 20, 2000  regularly  scheduled  remittance  date,  the
seller / servicer performed per the loan servicing  agreement,  making scheduled
principal  and  interest  payments to the Bank while also  absorbing  all credit
losses on the loan  portfolio.  However,  during the second quarter of 2000, the
Company  determined  to allocate  additional  reserves for this loan pool due to
concerns  regarding  the future  capacity  of the seller / servicer to honor the
credit guaranty and because of the present delinquency and credit profile of the
loan pool.  The Company  continues  to monitor  the  financial  performance  and
condition of the seller / servicer on a monthly basis. In addition,  the Company
regularly  analyzes the payment  performance and credit profile of the remaining
outstanding  loans.  Recent  information  acquired by the Company in conjunction
with a review of  foreclosure  activity for the loan pool suggested that certain
loans may have incorporated relatively high original appraisals.

         During the first  quarter  of 2000,  the Bank was  informed  by the OTS
that:

1.   all loans  associated  with this loan pool would be required to be assigned
     to the 100% risk based capital category in calculating  regulatory  capital
     ratios that incorporate risk weighted assets

2.   the Bank's regulatory  capital position at December 31, 1999 and thereafter
     was mandated to reflect the above requirement

3.   until further notice, the Bank's regulatory capital ratios were required to
     be maintained at levels no lower than the levels at December 31, 1999


                                       28

<PAGE>



         Because  remaining  a  "well  capitalized"   financial  institution  is
integral to the Bank's  business  strategy and due to the planned  generation of
additional  regulatory  capital in 2000  through a  combination  of net  income,
amortization  of deferred stock  compensation,  and  amortization  of intangible
assets,  management does not foresee that the  aforementioned  requirements will
have a material adverse impact upon the Company in 2000. However, depending upon
the tenure of and any potential modification of the additional requirements,  as
determined by the OTS, such  requirements  could present an  unfavorable  impact
upon MBBC's  liquidity  and ability to pay cash  dividends to  stockholders  and
conduct share repurchases, as a result of potential restrictions upon the Bank's
ability to pay dividends to MBBC.

Allowance For Loan Losses

         The  allowance for loan losses is  established  through a provision for
loan losses based on  management's  evaluation of the risks inherent in the loan
portfolio.  In  determining  levels of risk,  management  considers a variety of
factors, including, but not limited to, asset classifications,  economic trends,
industry experience and trends, geographic concentrations,  estimated collateral
values,  historical  loan  loss  experience,   and  the  Company's  underwriting
policies.  The allowance  for loan losses is maintained at an amount  management
considers adequate to cover losses in loans receivable which are deemed probable
and estimable.  While  management  uses the best  information  available to make
these  estimates,  future  adjustments  to  allowances  may be necessary  due to
economic,  operating,  regulatory,  and other  conditions that may be beyond the
Company's control. In addition, various regulatory agencies, as an integral part
of their examination process,  periodically review the Bank's allowance for loan
losses.  Such  agencies  may  require  the Bank to  recognize  additions  to the
allowance based on judgements different from those of management.

         The following  table presents  activity in the Company's  allowance for
loan losses during the six months ended June 30, 2000 and June 30, 1999:
<TABLE>
<CAPTION>

                                                                                        Six Months Ended June 30,
                                                                               ----------------------------------
                                                                                        2000                 1999
                                                                                        ----                 ----
Allowance For Loan Losses                                                                (Dollars In Thousands)
-------------------------
<S>                                                                                  <C>                  <C>
Balance at beginning of year                                                         $ 3,502              $ 2,780

   Charge-offs:  Residential one to four unit real estate loans                         (371)                (113)

   Recoveries                                                                             --                   --

   Provision for loan losses                                                           1,025                  420
                                                                                     -------              -------
Balance at March 31                                                                  $ 4,156              $ 3,087
                                                                                     =======              =======

Ratio of net charge-offs during the period to average gross loans
   outstanding during the period net of undisbursed loan funds                         0.20%                0.07%


       Additional ratios applicable to the allowance for loan losses include:

                                                                               June 30, 2000      December 31, 1999
                                                                               -------------      -----------------

Allowance for loan losses as a percent of non-performing loans                        56.67%                 42.80%

Allowance for loan losses as a percent of gross loans receivable
     net of undisbursed loan funds                                                     1.09%                  0.96%

Allowance for loan losses as a percent of classified assets                           41.05%                 39.91%
</TABLE>

                                       29

<PAGE>




         As subsequently discussed (see "Provision For Loan Losses"), the higher
provision  for loan losses  recorded  during the first half of 2000 versus prior
year resulted from several factors,  including a $371 thousand charge-off during
the second quarter of 2000, additional reserves for the Special Residential Loan
Pool described  above, an increase in classified  assets,  growth in the size of
the loan portfolio,  and from the portfolio's  continuing  diversification  away
from  its  historic   concentration  in  residential  real  estate.   Management
anticipates  that further growth in loans receivable and ongoing emphasis on the
origination  of  construction  and  commercial  real estate loans will result in
future  provisions  and in an  increase in the ratio of the  allowance  for loan
losses to loans  outstanding.  Experience across the financial services industry
indicates that  construction  and commercial  real estate loans present  greater
risks than residential real estate loans, and therefore should be accompanied by
suitably higher levels of reserves.

Comparison Of Operating Results For The Three Months And Six Months
Ended June 30, 2000 and June 30, 1999

General

         For the quarter ended June 30, 2000, the Company reported net income of
$554 thousand,  equivalent to $0.18 basic and diluted  earnings per share.  This
compares to net income of $902  thousand,  or $0.28 basic earnings per share and
$0.27 diluted earnings per share,  during the second quarter of 1999. Net income
during the first quarter of 2000 (the  immediately  preceding  quarter) was $799
thousand, equivalent to $0.25 basic and diluted earnings per share.

         For the six months ended June 30, 2000, the Company reported net income
of $1.35 million, equivalent to $0.44 basic earnings per share and $0.43 diluted
earnings per share. This compares to net income of $1.71 million, or $0.53 basic
earnings per share and $0.51 diluted  earnings per share,  during the first half
of 1999.

         Primary factors which constrained  earnings during 2000 versus the same
periods in 1999 included:

o    increased provisions for loan losses

o    less favorable results on the sale of securities

o    higher operating costs

The above  factors more than offset a strong  expansion in net interest  income,
increased levels of various types of non-interest  income,  and other beneficial
impacts  arising  from  the  Company's   progress  in  achieving  its  strategic
transformation into a community commercial bank.

Interest Rate Environment

         The table below  presents an overview of the interest rate  environment
during the most recent six quarters.  Market  interest rates  generally  trended
upward during this time period,  with an  acceleration  starting in mid 1999, as
the Federal Reserve  commenced what has become six separate  increases  totaling
175 basis points in its target  federal  funds rate.  The  Treasury  yield curve
became steeper  during 1999,  after starting the year with just a 63 basis point
yield  differential  between a three month  Treasury bill and a 30 year Treasury
bond.  Then, in 2000, the Treasury curve inverted at the longer end, with the 30
year Treasury  bond often  presenting a lower yield to maturity than most of the
Treasury curve. This inversion  stemmed from a number of factors,  including the
US Government's  repurchasing of longer dated Treasury securities in conjunction
with the growing  federal  budget  surplus.  By the end of the second quarter of
2000, various economic statistics suggested that the rate increases  implemented
by the Federal  Reserve,  combined with higher energy  prices,  were slowing the
economy,  particularly  interest  sensitive  sectors  such as  housing  and real
estate. The market reaction to these reports, combined with a diminishing supply
of  Treasury  securities,  led to the entire  Treasury  curve  providing  a bond
equivalent  yield below the Federal  Reserve's  targeted  federal  funds rate of
6.50% at June 30, 2000. Note that the 11th District Cost Of Funds Index ("COFI")
is by nature a lagging  index that trails  changes in more  responsive  interest
rate indices such as those associated with the Treasury or LIBOR markets.



                                       30

<PAGE>

<TABLE>
<CAPTION>


Index                   12/31/98    3/31/99   6/30/99    9/30/99  12/31/99    3/31/00   6/30/00
-----                   --------    -------   -------    -------  --------    -------   -------
<S>                        <C>        <C>       <C>        <C>       <C>        <C>       <C>
3 month Treasury bill      4.46%      4.47%     4.76%      4.85%     5.31%      5.89%     5.86%
6 month Treasury bill      4.54%      4.52%     5.03%      4.96%     5.73%      6.14%     6.22%
1 year Treasury bill       4.52%      4.71%     5.05%      5.18%     5.96%      6.24%     6.06%
2 year Treasury note       4.53%      4.98%     5.52%      5.60%     6.24%      6.48%     6.36%
5 year Treasury note       4.54%      5.10%     5.65%      5.76%     6.34%      6.32%     6.18%
30 year Treasury bond      5.09%      5.62%     5.97%      6.05%     6.48%      5.84%     5.90%
Prime rate                 7.75%      7.75%     7.75%      8.25%     8.50%      9.00%     9.50%
COFI                       4.66%      4.52%     4.50%      4.61%     4.85%      5.00%     5.36%
</TABLE>


Net Interest Income

         Net interest income rose $647 thousand (16.6%) from $3.9 million during
the quarter  ended June 30, 1999 to $4.6  million  during the most recent  three
months. Net interest income for the first half of 2000 totaled $9.0 million,  up
17.8% from $7.7  million  during the first six months of 1999.  These  increases
resulted from a larger average balance sheet and improved spreads. The Company's
average margin on total assets improved from 3.41% during the first half of 1999
to 3.86% for the first six months of 2000. The Company's average margin on total
assets has remained  relatively  constant thus far in 2000 despite  increases in
general market  interest rates  engineered by the Federal  Reserve in large part
due to the  Company's  interest  rate  risk  management  program  (see  Item  2.
"Interest Rate Risk Analysis And  Exposure").  Actions by management  under this
program  included  locking in a  significant  volume of funding in late 1999 and
early 2000, with associated maturities  distributed throughout the current year,
with a concentration at near the middle of 2000.

         The following  factors  contributed  toward the  improvement in spreads
realized  in  2000  versus  1999,   coincident   with  the   Company's   ongoing
implementation of its strategic plan:

o        Average loans as a percentage of average  total assets  increased  from
         71.3%  during  the  first  half of 1999 to 79.7%  during  the first six
         months of 2000. This change in assets mix was  particularly  beneficial
         to the Company's  spreads  because loans are, by a significant  margin,
         the Company's highest yielding asset category.

o        Transaction  deposit accounts comprised a greater percentage of average
         total assets during the first half of 2000 (32.3%) than during the same
         period a year  earlier  (28.9%).  This  change in funding  mix was also
         particularly  beneficial  to  the  Company's  spreads,  as  transaction
         deposit  accounts  present a significantly  lower cost of funds than do
         certificates of deposit and wholesale borrowings.

o        The average rate on interest  earning  assets was 8.25% during the half
         of 2000,  up 67 basis  points from a year  earlier.  In  contrast,  the
         Company's  average  cost of interest  bearing  liabilities  was just 13
         basis points higher during the first half of 2000 than during the first
         six months of 1999.  The Company was able to constrain the average cost
         of its funding in a rising general market interest rate  environment by
         the shift in the deposit  mix and by having a portion of its  wholesale
         borrowings locked in at a fixed rate for an extended period of time.

o        The increase in the average rate on interest earning assets during 2000
         was fostered by the  Company's  shift in loan mix toward more  interest
         sensitive  types  of  loans  (e.g.  commercial  real  estate)  and more
         interest  sensitive  products  across all types of loans.  The  Company
         recently  introduced new  adjustable  rate loan products and new hybrid
         loan products  with three year initial fixed rates for income  property
         loans,  aiming to shift  business  away  from,  for  example,  the less
         interest rate  sensitive 5 year fixed rate balloon and 5 year fixe rate
         hybrid products.

                                       31

<PAGE>



         The following  table presents the average  annualized  rate earned upon
each major category of interest earning assets, the average annualized rate paid
for each major category of interest bearing  liabilities,  and the resulting net
interest  spread,  net interest  margin,  and average  interest  margin on total
assets for the three months ended June 30, 2000 and 1999.  Annualized rates were
calculated by using the day counts (e.g. 30/360,  actual/365) applicable to each
major category of financial instruments.
<TABLE>
<CAPTION>

                                      Three Months Ended June 30, 2000          Three Months Ended June 30, 1999
                                   ----------------------------------------  ----------------------------------------
(Dollars In Thousands)                 Average                     Average       Average                     Average
                                       Balance      Interest          Rate       Balance      Interest          Rate
                                       -------      --------          ----       -------      --------          ----
<S>                                  <C>            <C>              <C>       <C>              <C>            <C>
Assets
------
Interest earning assets:
   Cash equivalents (1)              $   7,933      $    125         6.34%     $   9,544      $    112         4.71%
   Investment securities (2)             9,259           177         7.69%        12,906           195         6.06%
   Mortgage backed securities (3)       52,406           917         7.00%        74,728         1,229         6.58%
   Loans receivable, net (4)           379,860         8,117         8.55%       329,914         6,596         8.00%
   FHLB stock                            3,023            75         9.98%         3,118            41         5.27%
                                      --------      --------                    --------      --------
Total interest earning assets          452,481         9,411         8.32%       430,210         8,173         7.60%
Non-interest earnings assets            20,980      --------                      18,839      --------
                                      --------                                  --------
Total assets                         $ 473,461                                 $ 449,049
                                     =========                                 =========

Liabilities & Equity
--------------------
Interest bearing liabilities:
   NOW accounts                      $  35,548           140         1.58%     $  23,159            89         1.54%
   Savings accounts                     15,429            68         1.77%        15,459            69         1.79%
   Money market accounts                89,272         1,025         4.62%        83,123           862         4.16%
   Certificates of deposit             227,228         2,965         5.25%       229,299         2,738         4.79%
                                      --------      --------                    --------      --------
   Total interest-bearing deposits     367,477         4,198         4.59%       351,040         3,758         4.29%
   FHLB advances                        45,885           660         5.79%        33,593           461         5.50%
   Other borrowings (5)                     44             1         6.38%         3,399            49         5.78%
                                      --------      --------                    --------      --------
Total interest-bearing liabilities     413,406         4,859         4.73%       388,032         4,268         4.41%
Demand deposit accounts                 17,221      --------                      17,591      --------
Other non-interest bearing liabilities   3,079                                     1,508
                                      --------                                  --------
Total liabilities                      433,706                                   407,131

Stockholders' equity                    39,755                                    41,918
                                      --------                                  --------
Total liabilities & equity           $ 473,461                                 $ 449,049
                                     =========                                 =========

Net interest income                                 $  4,552                                  $  3,905
                                                    ========                                  ========
Interest rate spread (6)                                             3.59%                                     3.19%
Net interest earning assets             39,075                                    42,178
Net interest margin (7)                                4.02%                                     3.63%
Net interest income /
     average total assets                              3.85%                                     3.48%
Interest earnings assets /
     interest bearing liabilities         1.09                                      1.11



Average balances in the above table were calculated using average daily figures.
---------------------------------
<FN>
(1)  Includes federal funds sold, money market fund investments,  banker's  acceptances,  commercial  paper,  interest
     earning deposit accounts, and securities purchased under agreements to resell.
(2)  Includes investment securities both available for sale and held to maturity.
(3)  Includes mortgage backed securities, including CMO's, both available for sale and held to maturity.
(4)  In  computing  the  average  balance  of loans  receivable,  non-accrual  loans and loans held for sale have been
     included.  Amount is net of deferred loan fees,  premiums and discounts,  and  undisbursed  loan funds.  Interest
     income on loans includes amortized loan fees of $66,000 and $37,000 in 2000 and 1999, respectively.
(5)  Includes federal funds purchased and securities sold under agreements to repurchase.
(6)  Interest  rate spread  represents  the  difference  between the average rate on interest  earning  assets and the
     average rate on interest bearing liabilities.
(7)  Net interest  margin equals net interest  income before  provision for estimated  loan losses  divided by average
     interest earning assets.
</FN>
</TABLE>


                                                          32

<PAGE>


         The following  table presents the average  annualized  rate earned upon
each major category of interest earning assets, the average annualized rate paid
for each major category of interest bearing  liabilities,  and the resulting net
interest  spread,  net interest  margin,  and average  interest  margin on total
assets for the six months  ended June 30, 2000 and 1999.  Annualized  rates were
calculated by using the day counts (e.g. 30/360,  actual/365) applicable to each
major category of financial instruments.
<TABLE>
<CAPTION>

                                       Six Months Ended June 30, 2000            Six Months Ended June 30, 1999
                                   ----------------------------------------  ----------------------------------------
(Dollars In Thousands)                 Average                     Average       Average                     Average
                                       Balance      Interest          Rate       Balance      Interest          Rate
                                       -------      --------          ----       -------      --------          ----
<S>                                    <C>            <C>            <C>         <C>            <C>            <C>
Assets
------
Interest earning assets:
   Cash equivalents (1)              $   7,448     $     225         6.08%     $   7,774      $    182         4.72%
   Investment securities (2)            10,360           386         7.49%        15,853           490         6.22%
   Mortgage backed securities (3)       53,382         1,876         7.03%        84,413         2,757         6.53%
   Loans receivable, net (4)           373,185        15,853         8.50%       321,365        12,892         8.02%
   FHLB stock                            3,136           121         7.76%         3,097            77         5.00%
                                      --------      --------                    --------      --------
Total interest earning assets          447,511        18,461         8.25%       432,502        16,398         7.58%
Non-interest earnings assets            20,565      --------                      18,469      --------
                                      --------                                  --------
Total assets                         $ 468,076                                 $ 450,971
                                     =========                                 =========

Liabilities & Equity
--------------------
Interest bearing liabilities:
   NOW accounts                      $  33,462           261         1.57%     $  21,908           164         1.51%
   Savings accounts                     15,317           136         1.79%        15,380           137         1.80%
   Money market accounts                85,746         1,898         4.45%        75,716         1,554         4.14%
   Certificates of deposit             225,907         5,743         5.11%       238,768         5,817         4.91%
                                      --------      --------                    --------      --------
   Total interest-bearing deposits     360,432         8,038         4.48%       351,772         7,672         4.40%
   FHLB advances                        47,749         1,369         5.76%        34,322           939         5.52%
   Other borrowings (5)                    333            10         6.04%         3,854           108         5.65%
                                      --------      --------                    --------      --------
Total interest-bearing liabilities     408,514         9,417         4.64%       389,948         8,719         4.51%
Demand deposit accounts                 16,763      --------                      17,525      --------
Other non-interest bearing liabilities   3,085                                     1,882
                                      --------                                  --------
Total liabilities                      428,362                                   409,355

Stockholders' equity                    39,714                                    41,616
                                      --------                                  --------

Total liabilities & equity           $ 468,076                                 $ 450,971
                                     =========                                 =========

Net interest income                                   $9,044                                   $ 7,679
                                                      ======                                   =======
Interest rate spread (6)                                             3.61%                                     3.07%
Net interest earning assets             38,997                                    42,554
Net interest margin (7)                                4.04%                                     3.55%
Net interest income /
     average total assets                              3.86%                                     3.41%
Interest earnings assets /
     interest bearing liabilities         1.10                                      1.11


Average balances in the above table were calculated using average daily figures.
--------------------------------------------
<FN>
(1)  Includes federal funds sold, money market fund investments,  banker's  acceptances,  commercial  paper,  interest
     earning deposit accounts, and securities purchased under agreements to resell.
(2)  Includes investment securities both available for sale and held to maturity.
(3)  Includes mortgage backed securities, including CMO's, both available for sale and held to maturity.
(4)  In  computing  the  average  balance  of loans  receivable,  non-accrual  loans and loans held for sale have been
     included.  Amount is net of deferred loan fees,  premiums and discounts,  and  undisbursed  loan funds.  Interest
     income on loans includes amortized loan fees of $142,000 and $70,000 in 2000 and 1999, respectively.
(5)  Includes federal funds purchased and securities sold under agreements to repurchase.
(6)  Interest  rate spread  represents  the  difference  between the average rate on interest  earning  assets and the
     average rate on interest bearing liabilities.
(7)  Net interest  margin equals net interest  income before  provision for estimated  loan losses  divided by average
     interest earning assets.
</FN>
</TABLE>


                                                          33

<PAGE>




Rate / Volume Analysis

         The following  tables utilize the figures from the preceding two tables
to present a comparison of interest income and interest  expense  resulting from
changes in volumes and the rates on average  interest earning assets and average
interest  bearing  liabilities  for the periods  indicated.  Changes in interest
income or interest  expense  attributable  to volume  changes are  calculated by
multiplying the change in volume by the prior period average  interest rate. The
changes in interest  income or interest  expense  attributable  to interest rate
changes are calculated by  multiplying  the change in interest rate by the prior
year  period  volume.  The  changes  in  interest  income  or  interest  expense
attributable to the combined impact of changes in volume and changes in interest
rate are calculated by multiplying the change in rate by the change in volume.

                                             Three Months Ended June 30, 2000
                                                       Compared To
                                            Three Months Ended June 30, 1999
                                         ---------------------------------------
                                                                Volume
(Dollars In Thousands)                     Volume       Rate    / Rate     Net
                                           ------       ----    ------     ---
Interest-earning assets
-----------------------
Cash equivalents                          $ (19)     $  39     $  (7)   $   13
Investment securities                       (55)        52       (15)      (18)
Mortgage backed securities                 (367)        79       (24)     (312)
Loans receivable, net                       999        454        68     1,521
FHLB Stock                                   (1)        36        (1)       34
                                          -----      -----     -----     -----

     Total interest-earning assets          557        660        21     1,238
                                          -----      -----     -----     -----

Interest-bearing liabilities
----------------------------
NOW Accounts                                 48          2         1        51
Savings accounts                             --         (1)       --        (1)
Money market accounts                        64         95         4       163
Certificates of deposit                     (24)       263       (12)      227
                                          -----      -----     -----     -----
Total interest-bearing deposits              88        359        (7)      440
FHLB advances                               169         25         5       199
Other borrowings                            (48)         5        (5)      (48)
                                          -----      -----     -----     -----

     Total interest-bearing liabilities     209        389        (7)      591
                                          -----      -----     -----     -----

Increase in net interest income           $ 348      $ 271     $  28     $ 647
                                          =====      =====     =====     =====


                                       34


<PAGE>



                                               Six Months Ended June 30, 2000
                                                        Compared To
                                               Six Months Ended June 30, 1999
                                             -----------------------------------
                                                              Volume
(Dollars In Thousands)                       Volume     Rate  / Rate        Net
                                             ------     ----  ------        ---
Interest-earning assets
-----------------------
Cash equivalents                              $  (8)   $  53   $  (2)    $   43
Investment securities                          (171)     101     (34)      (104)
Mortgage backed securities                   (1,014)     210     (77)      (881)
Loans receivable, net                         2,079      760     122      2,961
FHLB Stock                                        1       43      --         44
                                              ------   -----   ------     -----
     Total interest-earning assets              887    1,167       9      2,063
                                              ------   -----   ------     -----
Interest-bearing liabilities
----------------------------
NOW Accounts                                     87        7       3         97
Savings accounts                                 (1)      (1)      1         (1)
Money market accounts                           208      121      15        344
Certificates of deposit                        (316)     251      (9)       (74)
                                              ------   ------  ------      -----
Total interest-bearing deposits                 (22)     378      10        366
FHLB advances                                   370       43      17        430
Other borrowings                                (99)       8      (7)       (98)
                                              ------   ------  ------     -----
     Total interest-bearing liabilities         249      429      20        698
                                              -----    -----   -----      -----
Increase (decrease) in net interest income    $ 638    $ 738   $ (11)    $1,365
                                              =====    =====   ======    ======

Interest Income

         Interest  income  increased  from $8.2 million and $16.4 million during
the three and six months ended June 30, 1999 to $9.4  million and $18.5  million
during the three and six months ended June 30, 2000. This increase was primarily
due to:

o        a shift in asset mix towards  relatively  higher  yielding loans versus
         securities,  coincident  with the  Company's  strategic  plan of better
         supporting its local communities with the delivery of credit

o        a generally  higher  interest  rate  environment  in 2000 versus  1999,
         leading to greater  amounts of interest income on adjustable rate loans
         and new asset originations and purchases

o        a larger  average  balance  sheet during the three and six months ended
         June 30, 2000 compared to the same periods during the prior year

         Interest income on loans rose from $6.6 million during the three months
ended June 30, 1999 to $8.1 million during the most recent quarter.  For the six
months ended June 30, 2000,  interest income on loans totaled $15.9 million,  up
23.0%  from  $12.9  million  during the first  half of 1999.  The  expansion  in
interest  income on loans  during 2000 versus 1999 was due to a  combination  of
greater volumes and higher rates.  The greater volume stemmed from the Company's
strong loan demand over the past year combined  with a reduction in  residential
loan prepayment rates during 2000 as higher general market interest rates slowed
customer  refinance  activity.  The  higher  rates  on loans  resulted  from two
factors:

o        a loan mix  which  has  become  less  concentrated  in  lower  yielding
         residential mortgages,  in favor of higher yielding income property and
         other non-residential loans

o        the upward repricing of adjustable rate loans within the Company's loan
         portfolio in conjunction with higher general market interest rates


                                       35

<PAGE>



         Interest  income on cash  equivalents  rose from $112 thousand and $182
thousand for the three and six months  ended June 30, 1999 to $125  thousand and
$225  thousand  for the same periods in 2000.  This  increase  occurred  despite
reductions in average  volumes,  as the Company earned higher  average  interest
rates.  The higher  average  interest rates stemmed from both the higher general
interest  rate  environment  in  2000  and  from  the  Company's  enhanced  cash
management  practices in 2000. These enhanced cash management practices included
utilizing  a wider  range of short  term  investment  products  shopped  among a
greater   number  of   counterparties.   In   particular,   the  Company  earned
comparatively  attractive  rates of  return  during  2000 on  certain  overnight
repurchase   agreements   collateralized   with  whole  loans   conducted   with
counterparties presenting a strong credit profile.

         Interest  income on investment  securities  declined from $195 thousand
and $490  thousand  during the three and six months  ended June 30, 1999 to $177
thousand  and $386  thousand  during the same  periods in 2000.  This  reduction
occurred as higher  interest rates,  particularly on LIBOR based,  variable rate
corporate trust preferred securities,  were insufficient to offset the impact of
lower average  volumes  stemming from the Company's  strategic  plan of shifting
assets into loans.

         Interest  income on mortgage  backed  securities fell from $1.2 million
and $2.8  million  during the three and six months  ended June 30,  1999 to $0.9
million and $1.9 million  during the same periods in 2000.  This  reduction  was
primarily caused by a reduction in volume, as the Company used the proceeds from
prepayments  and sales of mortgage  backed  securities to reinvest into the loan
portfolio  and, in 2000,  repay FHLB advances.  All securities  purchased by the
Company in 2000 have been mortgage backed securities,  primarily short term, low
duration, Agency collateralized mortgage obligations,  as these assets provide a
steady stream of cash for reinvestment into loans, are relatively liquid, can be
easily  used in  collateralized  borrowings,  count under the  Qualified  Thrift
Lender test, and support the Company's interest rate risk management objectives.

         Interest  income on FHLB  stock  increased  from $41  thousand  and $77
thousand during the three and six months ended June 30, 1999 to $75 thousand and
$121 thousand  during the same periods in 2000.  This increase  largely  stemmed
from higher effective dividend rates, which in turn resulted from two factors:

o        the higher general market interest rate environment in 2000 versus 1999

o        the FHLB-SF decision to pay particularly high dividend rates during the
         first half of 2000 in conjunction with its capital management plan


Interest Expense

         Interest  expense on  deposits  increased  from $3.8  million  and $7.7
million  during the three and six months ended June 30, 1999 to $4.2 million and
$8.0 million during the same periods in 2000.  These  increases were due to both
higher average volumes and greater  interest rates.  The higher volumes occurred
in conjunction with the Company's plan to replace relatively expensive wholesale
borrowings with deposits,  while being cognizant of the elasticity of demand for
deposits  and  effective  marginal  costs of funds.  The higher  general  market
interest rate environment in 2000 led the Company to raise interest rates across
most of its deposit product line in order to remain  competitive with both other
financial  institutions and non-bank  competitors  including money market mutual
funds.  The increase in interest expense during 2000 was,  however,  slowed by a
favorable change in deposit mix. For example,  CD's represented 59.1% of average
total  deposits  during the second  quarter of 2000,  down from 62.2% during the
second quarter of 1999.

         During 2000, the Company was  particularly  successful in promoting its
Money Market Plus account, its new Interest Checking Plus account, and its "40+"
NOW account.  These  products  present  attractive  benefits to  consumers.  For
example,  customers  earn  progressively  higher  interest  rates on their Money
Market Plus and  Interest  Checking  Plus  accounts as their  balances  increase
through the products'  multiple tiers.  Customers  utilizing a "40+" NOW account
obtain free Bank image checks and other free  services.  The Company  intends to
introduce new transaction account products and services later in 2000 to further
reduce the concentration of CD's in the deposit portfolio.


                                       36

<PAGE>


         At June 30,  2000,  the  Company's  weighted  average  nominal  cost of
deposits  was 4.48%,  or 88 basis points below the COFI Index for the same date.
The Company  utilizes a comparison  of its cost of deposits and cost of funds to
COFI as one measure of relative performance.

         Interest  expense on  borrowings  increased  from $0.5 million and $1.0
million  during the three and six months ended June 30, 1999 to $0.7 million and
$1.4  million  during  the same  periods  in 2000.  This rise was due to both an
increase in average volume and a rise in average interest rate. Average balances
increased to partially  fund the growth in the loan  portfolio,  while  interest
rates on maturing / rollover and new borrowings increased over the past eighteen
months in conjunction with higher rates in the Treasury and LIBOR markets.

Provision For Loan Losses

         Provision for loan losses totaled $775 thousand during the three months
ended June 30, 2000, up from $200 thousand during the second quarter of 1999 and
$250 thousand  during the first  quarter of 2000.  Provision for loan losses for
2000 year to date total $1,025 thousand,  significantly  above the $420 thousand
recorded  during  the first half of 1999.  The  significantly  higher  provision
during the second  quarter of 2000 stemmed from multiple  factors,  as discussed
below.

         During  the second  quarter of 2000,  the  Company  recorded  its first
charge-off of the year.  The $371 thousand  charge-off  represented a relatively
unusual 100% loss on a residential mortgage.  The subject home was impacted by a
significant landslide, which was sufficiently extensive to both damage the house
and  eliminate  any land value.  The Company  plans to pursue  recovery  through
financial  participation  in any proceeds from  litigation  being pursued by the
borrower.

         Additional  reserve  allocations were made during the second quarter of
2000 for the Special  Residential Loan Pool which the Company purchased in 1998.
While the seller has met all its contractual obligations through July, 2000, the
Company determined to allocate additional reserves due to concerns regarding the
future  capacity  of the seller to honor its  credit  guaranty  and the  present
delinquency profile of the mortgage pool.

         Loans rated "substandard" by the Company increased from $7.8 million at
March 31, 2000 to $9.9 million at June 30, 2000. The Company allocates a greater
percentage of reserves  against loans  classified  as  substandard  versus those
loans receiving a more favorable internal credit rating.

         The size of the Company's  loan portfolio  increased  during the second
quarter of 2000, and the mix of loans continued to evolve away from its historic
concentration  in  relatively  lower risk  residential  mortgages.  The  Company
allocates reserves in accordance with both loan portfolio size and mix, with the
recent  growth in  commercial  &  industrial  real  estate  loans in  particular
generating a greater internal requirement for loan loss reserves.

         Other  factors  contributing  to the higher  provision  for loan losses
recorded during 2000 included:

o        the  increasing  concentration  of the  portfolio  in  relatively  less
         seasoned  credits,  because  of the  Company's  growth  rate in  recent
         periods

o        higher  concentrations  of credit  exposure  as a result  of  increased
         income  property  lending,  as these  loans  generally  are larger than
         residential mortgages

         Commercial & industrial  real estate loans  typically  present  greater
credit,  concentration,  and event risks than home mortgages,  thereby requiring
proportionately  greater  reserve  levels.  Newer loans  typically  present more
credit exposure than seasoned loans with many years of prompt payment experience
and amortized principal balances.

         The Company's  ratio of loan loss  reserves to gross loans  outstanding
increased from 0.96% at December 31, 1999 to 1.09% at June 30, 2000. The Company
anticipates that this ratio will continue climbing throughout 2000 to the extent
that the Company is successful in its strategic plan of increasing  total assets
while expanding construction, income property, and small business lending.


                                       37

<PAGE>




Non-interest Income

         Non-interest  income declined from $0.8 million and $1.5 million during
the first three and six months of 1999 to $0.6 million and $1.1  million  during
the same  periods in 2000.  This  reduction  was  primarily  caused by differing
results on the sale of securities. During the first half of 1999, a pre-tax gain
of $503 thousand was realized on the sale of  securities,  versus a $77 thousand
pre-tax  loss  during  2000,  generating  an  aggregate  $580  thousand  pre-tax
variance.

         In contrast,  non-interest  income from the Company's  core  operations
showed  strong  improvement  over the past  year.  Commissions  from the sale of
non-FDIC insured products increased from $139 thousand during the second quarter
of 1999 to $183 thousand during the most recent three months. For the first half
of 2000,  commissions  from the sale of  non-FDIC  insured  investment  products
totaled $390 thousand,  up 43.9% from $271 thousand  during the first six months
of 1999.  Fee income from customer  service  charges  increased  28.4% from $243
thousand  during the second  quarter of 1999 to $312 thousand  during the second
quarter of 2000. Year to date results are similar, with customer service charges
increasing from $476 thousand during the first half of 1999 to $592 thousand for
2000. The Company's  growing base of transaction  accounts  continues to bolster
non-interest  income,  as does  increased  debit  card  activity  by the  Bank's
customers. The Company plans to have an additional remote ATM in operation prior
to the  conclusion  of the  third  quarter  of 2000 as an  additional  source of
non-interest income.

         The Company  recently  surveyed  competitor  pricing and  reviewed  its
operations  to better align its  customer  service  charges with its costs.  The
Company implemented a new fee and service charge schedule effective July 1, 2000
as a means of further increasing the percentage of its income derived from fees.

General & Administrative Expense

         General &  administrative  expenses  rose from $2.9 million  during the
second  quarter of 1999 to $3.4  million  during the most recent  three  months.
General & administrative  expenses  increased from $5.7 million during the first
half of 1999 to $6.7 million  during the first six months of 2000. The Company's
ratio of general & administrative expense to average total assets increased from
2.57% during the quarter  ended June 30, 1999 to 2.85% for the most recent three
months. A similar increase in this ratio was registered for the first six months
of 2000 versus 1999.  Higher  expense  levels were realized in most areas of the
Company's  operations,  spurred by increased  business volumes and several other
factors, as discussed below.

         Compensation  and employee  benefits  expense was $265 thousand  higher
during the second quarter of 2000 than during the second  quarter of 1999.  June
30 year to date  compensation  and employee  benefits  expense was $366 thousand
higher in 2000 than in 1999. Factors leading to these increases included:

o        a larger average employee base in 2000, with 13.2% more FTE employed at
         June 30, 2000 versus June 30, 1999

o        higher expenses for performance  based incentive and commission  plans,
         including  $125 thousand in accrued costs for a new program  introduced
         in 2000 associated with performance based cash incentives  payable,  to
         the extent earned, in early 2001

o        the need to increase selected  compensation levels during 2000 in order
         to attract and retain qualified staff in a competitive  environment for
         labor

o        the addition of new Chief  Financial  and Chief  Executive  Officers in
         2000

o        $34 thousand in  non-recurring  costs during the second quarter of 2000
         associated  with  the  settlement  of  certain  non-qualified  benefits
         obligations payable in Company stock


                                       38

<PAGE>




         Occupancy  and  equipment  expenses  increased in 2000 versus the prior
year in part in conjunction  with the hiring of a new facility  manager in 2000.
The new  facility  manager  identified  deferred  maintenance  items for several
buildings that were addressed in 2000.

         Data processing  costs increased in conjunction with a larger number of
customer  accounts,  as the  Company  incurs  certain  expenses on a per account
basis. Due to the expiration of the Company's  primary data processing  contract
during the second quarter of 2000, the Company  anticipates  continuing to incur
greater data processing costs throughout 2000. The Company intends to convert to
a more technologically robust core processing platform sometime during 2001, and
is currently  negotiating  a software  license  with the  preferred  vendor.  In
anticipation of this new systems environment,  the Company has commenced phasing
out its passbook based deposit  products in favor of statement  based  products.
Management believes that statement based products integrate far more effectively
with new electronic  delivery channels,  present a lower likelihood of operating
losses,  and provide a more regular  opportunity for customer  communication and
marketing.

         Legal and accounting costs were $11 thousand greater in the most recent
quarter than they were during the second quarter of 1999.  June 30, 2000 year to
date legal and  accounting  costs totaled $114 thousand above their level of one
year  earlier.  During  2000,  the Company  has  incurred  higher  costs for its
co-sourced  internal audit program and in conjunction  with the attestation work
of its  independent  auditors.  During  the past six  months,  the  Company  has
incurred  significant  legal costs in regards to several  issues,  including the
Special  Residential  Loan Pool, a now settled  employment  related matter,  the
administration  and collection of the $5.0 million  non-accrual loan extended by
MBBC, and preparation for a potential change in charter for the Bank as a result
of the Bank's  approaching  the  regulatory  threshold for the Qualified  Thrift
Lender test.

         Other operating  expense increased from $407 thousand during the second
quarter of 1999 to $524  thousand  during the most recent  three  months.  Other
operating  expense  totaled  $821  thousand  during  the  first  half  of  1999,
increasing to $1.1 million during 2000.  Expenses for consulting  increased from
$15  thousand  during the first six months of 1999 to $103  thousand  during the
first half of 2000. During 2000, the Company has retained  consultants to assist
in a number of areas,  including systems  conversions,  compensation and benefit
planning, and loan credit review.  Charitable  contributions  increased from $29
thousand  during the first six months of 1999 to $56  thousand  during the first
half of 2000, as the Company  increased its commitments to improving the quality
of life and helping the less  advantaged  in local  communities  throughout  the
Greater Monterey Bay Area.

         As detailed in the Company's  Proxy Statement for the Annual Meeting of
Stockholders  held  on May  25,  2000,  the  Director  Emeritus  Program  allows
individual  Directors meeting certain service requirements to retire between the
ages of 65 and 72;  receiving upon retirement  certain  benefits and recognition
including a cash payment equal to the then current annual Director retainer fee.
Two Directors  retired from the Board during the second quarter of 2000, and the
Company is accruing  additional  expense  under this program in order to provide
benefits to eligible  Directors  in future  periods.  A total of $39 thousand in
expense has been recorded for this program in 2000.

         During the second  quarter of 2000,  the Company made the final payment
to the investment banking firm that had been retained in 1999. The conclusion of
this contract will reduce ongoing expense by $8 thousand per month.  The Company
also recently  terminated  all of its directly  owned  universal  life insurance
policies.  The surrender of these policies will reduce future periodic operating
costs and provide additional cash for lending and investment.


                                       39

<PAGE>




         During the six months ended June 30,  2000, a range of other  operating
costs,  including supplies,  postage, and correspondent bank service charges all
rose from their levels of one year  earlier in  conjunction  with the  Company's
maintaining  a larger volume of customer  accounts.  The Company is currently in
the  process of  re-evaluating  its  correspondent  banking  and branch  support
operations,  with the  intent to seek  alternatives  providing  better  customer
service combined with lower costs to the Bank.

Income Taxes

         Income tax expense  declined in 2000 versus 1999 due to reduced pre-tax
income.  The  Company's  effective  book tax rate during the first six months of
2000 was  slightly  higher  than for the  comparable  period  in 1999 due to the
increased  effect of various  permanent  differences in light of lower levels of
pre-tax income.

Item 3.  Quantitative And Qualitative Disclosures About Market Risk

         For a current  discussion of the nature of market risk  exposures,  see
"Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations - Interest Rate Risk Management And Exposure". Readers should also
refer to the quantitative and qualitative  disclosures  (consisting primarily of
interest rate risk) in the  Company's  Annual Report on Form 10-K for the fiscal
year ended  December 31,  1999.  There has been no  significant  change in these
disclosures since the filing of that document.


                                       40

<PAGE>



PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         The Company is not involved in any material  pending legal  proceedings
         other than routine legal  proceedings  occurring in the ordinary course
         of business.  Such other routine legal proceedings in the aggregate are
         believed by management  to be  immaterial  to the  Company's  financial
         condition or results of operations.

Item 2.  Changes In Securities

         None.


Item 3.  Defaults Upon Senior Securities

         Not applicable.


Item 4.  Submission Of Matters To A Vote Of Security Holders

         a)   TheCompany's  annual meeting of  stockholders  was held on May 25,
              2000.

         b)   Not applicable.

         c)   At the Company's  annual meeting of  stockholders  held on May 25,
              2000, the Company's stockholders approved the following:

              1.)The election of the following  individuals as Directors for the
                 term of three years each:

                 Name                                    For           Withheld
                 ------------------------------   ------------    --------------
                 Ms. Diane S. Bordoni              2,010,305            757,246
                 Mr. Eugene R. Friend              2,045,327            722,224
                 Mr. McKenzie Moss                 1,993,146            774,405


              In  addition  to  the  above  three  individuals,   the  following
              Directors were in office as of July 27, 2000:

              Mr. Josiah T. Austin
              Mr. P. W. Bachan
              Mr. Edward K. Banks
              Mr. Nicholas C. Biase
              Mr. Marshall G. Delk
              Mr. Steven Franich
              Mr. Stephen G. Hoffmann
              Mr. C. Edward Holden
              Mr. Gary L. Manfre

                                       41



<PAGE>


PART II - OTHER INFORMATION (Continued)

               2.) Approval of amendments to the 1995 Incentive Option Plan:

                                                                        Broker
                     For          Against          Abstain            Non-Vote
              -----------     ------------     ------------      --------------
               1,198,379          810,295           28,452             730,425


               3.)  The  appointment  of  Deloitte & Touche  LLP as  independent
                    auditors of the Company for the fiscal year ending  December
                    31, 2000.
                                                                        Broker
                     For          Against          Abstain            Non-Vote
              -----------     ------------     ------------      --------------
               2,688,451           62,276           16,824               --


         d)   Not applicable.


Item 5.  Other Information

         None.

Item 6.  Exhibits And Reports On Form 8-K

         A.  Exhibits

                  10.16  Employment Agreement Between Monterey Bay Bancorp, Inc.
                         And Mark R. Andino

                  27     Financial Data Schedule

         B.  Reports On Form 8-K

                  The  Company  filed no reports on Form 8-K during the  quarter
ended June 30, 2000.


                                       42

<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.
                                                                    (Registrant)



Date:    August 11, 2000              By:      /s/ C. Edward Holden
                                               --------------------
                                               C. Edward Holden
                                               Chief Executive Officer

Date:    August 11, 2000              By:      /s/ Marshall G. Delk
                                               --------------------
                                               Marshall G. Delk
                                               President
                                               Chief Operating Officer

Date:    August 11, 2000              By:      /s/ Mark R. Andino
                                               ------------------
                                               Mark R. Andino
                                               Senior Vice President
                                               Chief Financial Officer
                                               (Principal Financial & Accounting
                                                Officer)


                                       43