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 March 31, 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:  3,308,523  share of common
stock, par value $0.01 per share, were outstanding as of May 3, 2000.

                                       1

<PAGE>


<TABLE>
                    MONTEREY BAY BANCORP, INC. AND SUBSIDIARY
<CAPTION>
                                      INDEX

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

                 Item 1.   Financial Statements

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

                           Consolidated Statements Of Operations (unaudited) For The Three
                           Months Ended March 31, 2000 And March 31, 1999                                   5 - 6

                           Consolidated Statement Of Stockholders' Equity (unaudited) For The
                           Three Months Ended March 31, 2000                                                  7

                           Consolidated Statements Of Cash Flows (unaudited) For The Three
                           Months Ended March 31, 2000 And March 31, 1999                                   8 - 9

                           Notes To Consolidated Financial Statements (unaudited)                          10 - 14

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

                           And Results Of Operations                                                       15 - 32

                 Item 3.   Quantitative And Qualitative Disclosure About Market Risk                         32

PART II. OTHER INFORMATION

                 Item 1.   Legal Proceedings                                                                 33

                 Item 2.   Changes In Securities                                                             33

                 Item 3.   Defaults Upon Senior Securities                                                   33

                 Item 4.   Submission Of Matters To A Vote Of Security Holders                               33

                 Item 5.   Other Information                                                                 33

                 Item 6.   Exhibits And Reports On Form 8-K                                                  33

                           (a)  Exhibits

                           (10.15)  Employment Agreement Between Monterey Bay Bancorp, Inc.
                                    And C. Edward Holden

                           (27)  Financial Data Schedule

                           (b)  Reports On Form 8-K

Signature Page                                                                                               34
</TABLE>

                                       2
<PAGE>


<TABLE>
Item 1.  Financial Statements

MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

Cash and cash equivalents                                                                   $ 16,707       $ 12,833
Securities available for sale, at estimated fair value:
     Investment securities (amortized cost of $11,461 and $11,456 at
          March 31, 2000 and December 31, 1999, respectively)                                 11,140         11,463
     Mortgage backed securities (amortized cost of $60,501 and $59,710
          at March 31, 2000 and December 31, 1999, respectively)                              58,667         57,716
Securities held to maturity, at amortized cost:
     Mortgage backed securities (estimated fair value of $46 and $60
          at March 31, 2000 and December 31, 1999, respectively)                                  46             60
Loans held for sale                                                                              344             --
Loans receivable held for investment (net of allowances for loan losses of
     $3,752 at March 31, 2000 and $3,502 at December 31, 1999)                               368,733        360,686
Investment in capital stock of the Federal Home Loan Bank, at cost                             3,258          3,213
Accrued interest receivable                                                                    2,765          2,688
Premises and equipment, net                                                                    6,979          7,042
Core deposit premiums and other intangible assets, net                                         2,743          2,918
Real estate acquired via foreclosure, net                                                         96             96
Other assets                                                                                   3,841          4,112
                                                                                            --------       --------
TOTAL ASSETS                                                                                $475,319       $462,827
                                                                                            ========       ========

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

                                                         3

<PAGE>


<TABLE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

LIABILITIES

Demand deposits                                                                       $  16,179      $  17,316
NOW accounts                                                                             34,878         31,385
Savings deposits                                                                         16,109         15,312
Money market deposits                                                                    89,839         81,245
Certificates of deposit                                                                 224,992        222,144
                                                                                      ---------      ---------
   Total deposits                                                                       381,997        367,402
                                                                                      ---------      ---------

Advances from the Federal Home Loan Bank                                                 49,582         49,582
Securities sold under agreements to repurchase                                               --          2,410
Accounts payable and other liabilities                                                    3,370          2,630
                                                                                      ---------      ---------
     Total liabilities                                                                  434,949        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 March 31, 2000 and December 31, 1999;
     3,308,523 outstanding at March 31, 2000 and
     3,422,637 outstanding at December 31, 1999                                              45             45
Additional paid-in capital                                                               28,290         28,237
Retained earnings, substantially restricted                                              30,998         30,473
Unallocated ESOP shares                                                                  (1,093)        (1,150)
Treasury shares designated for compensation plans, at cost (104,238 shares
     at March 31, 2000 and 126,330 shares at December 31, 1999)                          (1,152)        (1,376)
Treasury stock, at cost (1,183,562 shares at March 31, 2000 and
     1,069,448 shares at December 31, 1999)                                             (15,450)       (14,257)
Accumulated other comprehensive income, net of taxes                                     (1,268)        (1,169)
                                                                                      ---------      ---------
     Total stockholders' equity                                                          40,370         40,803
                                                                                      ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $ 475,319      $ 462,827
                                                                                      =========      =========

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

                                                       4

<PAGE>

<TABLE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Dollars In Thousands, Except Per Share Amounts)
---------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                      FOR THE THREE MONTHS
                                                                                          ENDED MARCH 31,
                                                                                     --------------------------
                                                                                        2000               1999
                                                                                     -------            -------
<S>                                                                                  <C>                <C>
INTEREST AND DIVIDEND INCOME:
   Loans receivable                                                                  $ 7,736            $ 6,296
   Mortgage backed securities                                                            959              1,528
   Investment securities and cash equivalents                                            355                401
                                                                                     -------            -------
         Total interest income                                                         9,050              8,225
                                                                                     -------            -------

INTEREST EXPENSE:
   Deposit accounts                                                                    3,839              3,914
   FHLB advances and other borrowings                                                    718                537
                                                                                     -------            -------
         Total interest expense                                                        4,557              4,451
                                                                                     -------            -------

NET INTEREST INCOME BEFORE PROVISION
     FOR ESTIMATED LOAN LOSSES                                                         4,493              3,774
PROVISION FOR ESTIMATED LOAN LOSSES                                                      250                220
                                                                                     -------            -------
NET INTEREST INCOME AFTER PROVISION
     FOR ESTIMATED LOAN LOSSES                                                         4,243              3,554
                                                                                     -------            -------

NON-INTEREST INCOME:
   (Loss) gain on sale of mortgage backed securities
      and investment securities, net                                                     (79)               217
   Commissions from sales of noninsured products                                         207                132
   Customer service charges                                                              280                233
   Income from loan servicing                                                             37                 17
   Other income                                                                           56                 85
                                                                                     -------            -------
         Total non-interest income                                                       501                684
                                                                                     -------            -------

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

                                                       5

<PAGE>


MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Continued)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Dollars In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------

                                                            FOR THE THREE MONTHS
                                                               ENDED MARCH 31,
                                                              -----------------
                                                                2000       1999
                                                              ------     ------

GENERAL AND ADMINISTRATIVE EXPENSE:
   Compensation and employee benefits                          1,460      1,360
   Occupancy and equipment                                       312        285
   Deposit insurance premiums                                     47         42
   Data processing fees                                          289        243
   Legal and accounting expenses                                 209        106
   Supplies, postage, telephone, and office expenses             189        141
   Advertising and promotion                                     101         57
   Amortization of intangible assets                             175        174
   Other expense                                                 555        414
                                                              ------     ------
         Total general & administrative expense                3,337      2,822
                                                              ------     ------

INCOME BEFORE INCOME TAX EXPENSE                               1,407      1,416
INCOME TAX EXPENSE                                               608        612
                                                              ------     ------

NET INCOME                                                    $  799     $  804
                                                              ======     ======
EARNINGS PER SHARE:
     BASIC EARNINGS PER SHARE                                 $ 0.25     $ 0.25
                                                              ======     ======
     DILUTED EARNINGS PER SHARE                               $ 0.25     $ 0.24
                                                              ======     ======

See Notes to Consolidated Financial Statements

                                        6

<PAGE>

<TABLE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
(Dollars And Shares In Thousands)
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                                             Shares
                                                                                                                             Desig-
                                                                                                                              nated
                                                                                                                                For
                                                                                  Addi-                        Unal-           Com-
                                                        Common Stock             tional           Re-        located           pen-
                                                  -----------------------       Paid-In        tained           ESOP         sation
                                                    Shares         Amount       Capital      Earnings         Shares          Plans
                                                  --------       --------      --------      --------       --------       --------
<S>                                                  <C>         <C>           <C>           <C>            <C>            <C>
Balance At December 31, 1999                         3,423       $     45      $ 28,237      $ 30,473       $ (1,150)      $ (1,376)
Purchase of treasury stock                            (120)            --            --            --             --             --
Director fees paid using
  treasury stock                                         6             --            21            --             --             --
Dividends paid ($0.08 per share)                        --             --            --          (274)            --             --
Amortization of stock
  compensation                                          --             --            32            --             57            224
Comprehensive income:
  Net income                                            --             --            --           799             --             --
  Other comprehensive income:
    Change in net unrealized
      loss on securities
      available for sale, net
      of taxes of $(101)                                --             --            --            --             --             --
  Reclassification adjustment
    for losses on securities
    available for sale included
    in income, net of taxes
    of $33                                              --             --            --            --             --             --
  Other comprehensive
    income, net                                         --             --            --            --             --             --
Total comprehensive income                              --             --            --            --             --             --
                                                  --------       --------      --------      --------       --------       --------
Balance at March 31, 2000                            3,309       $     45      $ 28,290      $ 30,998       $ (1,093)      $ (1,152)
                                                  ========       ========      ========      ========       ========       ========
</TABLE>



                                                           Accum-
                                                           ulated
                                                            Other
                                                          Compre-
                                           Treasury       hensive
                                              Stock        Income         Total
                                           --------      --------      --------
Balance At December 31, 1999               $(14,257)     $ (1,169)     $ 40,803
Purchase of treasury stock                   (1,251)           --        (1,251)
Director fees paid using
  treasury stock                                 58            --            79
Dividends paid ($0.08 per share)                 --            --          (274)
Amortization of stock
  compensation                                   --            --           313
Comprehensive income:
  Net income                                     --            --           799
  Other comprehensive income:
    Change in net unrealized
      loss on securities
      available for sale, net
      of taxes of $(101)                         --          (145)         (145)
  Reclassification adjustment
    for losses on securities
    available for sale included
    in income, net of taxes
    of $33                                       --            46            46
                                                                       --------
  Other comprehensive
    income, net                                  --            --           (99)
                                                                       --------
Total comprehensive income                       --            --           700
                                           --------      --------      --------
Balance at March 31, 2000                  $(15,450)     $ (1,268)     $ 40,370
                                           ========      ========      ========

================================================================================

See Notes to Consolidated Financial Statements

                                       7

<PAGE>


<TABLE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Dollars In Thousands)
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                FOR THE THREE MONTHS
                                                                                                   ENDED MARCH 31,
                                                                                             --------------------------
                                                                                                 2000              1999
                                                                                             --------          --------
<S>                                                                                          <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                                   $    799          $    804

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

Depreciation and amortization of premises and equipment                                           111               119
Amortization of intangible assets                                                                 175               174
Amortization of purchase premiums, net of accretion of discounts                                   13                86
Amortization of deferred loans fees                                                               (76)              (33)
Provision for loan losses                                                                         250               220
Federal Home Loan Bank stock dividends                                                            (44)              (50)
Gross ESOP expense before dividends received on unallocated shares                                 86               122
Compensation expense associated with stock compensation plans                                      47                72
Loss (gain) on sale of investment and mortgage-backed securities                                   79              (217)
Gain on sale of real estate acquired via foreclosure                                               --               (10)
Origination of loans held for sale                                                               (864)           (2,455)
Proceeds from sales of loans held for sale                                                        521             4,195
Increase in accrued interest receivable                                                           (77)              (59)
Decrease in other assets                                                                          270             1,314
Increase (decrease) in accounts payable and other liabilities                                     742              (454)
Other, net                                                                                       (151)             (289)
                                                                                             --------          --------
     Net cash provided by operating activities                                                  1,881             3,539
                                                                                             --------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in loans held for investment                                                      (8,047)          (18,938)
Purchases of investment securities available for sale                                              --             3,807
Proceeds from sales of investment securities available for sale                                    --               251
Purchases of mortgage backed securities available for sale                                     (6,032)               --
Principal repayments on mortgage backed securities                                              1,463             8,023
Proceeds from sales of mortgage backed securities available for sale                            3,702                --
Purchases of premises and equipment                                                               (48)              (36)
                                                                                             --------          --------
     Net cash used in investing activities                                                     (8,962)           (6,893)
                                                                                             --------          --------

<FN>

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

                                                            8

<PAGE>


<TABLE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(Dollars In Thousands)
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                FOR THE THREE MONTHS
                                                                                                   ENDED MARCH 31,
                                                                                             --------------------------
                                                                                                 2000              1999
                                                                                             --------          --------
<S>                                                                                            <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits                                                            14,595            (1,978)
Proceeds (repayments) of FHLB advances, net                                                        --            (1,600)
Repayments of securities sold under agreements to repurchase, net                              (2,410)             (320)
Cash dividends paid to stockholders                                                              (274)             (246)
Purchases of treasury stock                                                                    (1,251)               --
Sales of treasury stock                                                                            79               278
Sales of stock for stock compensation plans                                                       216                --
                                                                                             --------          --------

     Net cash provided by (used in) financing activities                                       10,955            (3,866)
                                                                                             --------          --------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS                                              3,874            (7,220)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                 12,833            16,951
                                                                                             --------          --------

CASH & CASH EQUIVALENTS AT END OF PERIOD                                                     $ 16,707          $  9,731
                                                                                             ========          ========

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid during the period for:
     Interest on deposits and borrowings                                                     $  4,381          $  4,465
     Income taxes                                                                                 550               411


SUPPLEMENTAL DISCLOSURES OF NON CASH
INVESTING AND FINANCING ACTIVITIES

Real estate acquired in settlement of loans                                                        --               280


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

                                                            9

<PAGE>


NOTE 1:  Basis Of Presentation

         The accompanying  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 complete  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 three month period ended March
31, 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>


NOTE 2.  Computation Of Earnings Per Share
<TABLE>
         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. The following table
reconciles  the  calculation  of the  Company's  Basic and  Diluted  EPS for the
periods indicated.
<CAPTION>
                                                           For The Three  Months
                                                              Ended March 31,
                                                     ----------------------------------
(In Whole Dollars And Whole Shares)                         2000                  1999
                                                     -----------           -----------
<S>                                                  <C>                   <C>
Net income                                           $   799,000           $   804,000
                                                     ===========           ===========

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

Less weighted average:
   Uncommitted ESOP shares                              (175,195)             (211,133)
   Non-vested stock award shares                         (72,007)              (98,729)
   Treasury shares                                    (1,106,459)             (968,282)
                                                     -----------           -----------
Sub-total                                             (1,353,661)           (1,278,144)
                                                     -----------           -----------

Weighted average BASIC shares outstanding              3,138,424             3,213,941

Add dilutive effect of:
   Stock options                                          11,912                88,421
   Stock awards                                              489                 6,461
                                                     -----------           -----------
Sub-total                                                 12,401                94,882
                                                     -----------           -----------
Weighted average DILUTED shares outstanding            3,150,825             3,308,823
                                                     ===========           ===========
Earnings per share:
   BASIC EPS                                         $      0.25           $      0.25
                                                     ===========           ===========
   DILUTED EPS                                       $      0.25           $      0.24
                                                     ===========           ===========
</TABLE>


                                       11
<PAGE>





NOTE 3:  Other Comprehensive Income

         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 three months
ended March 31, 2000 and 1999 are summarized as follows:

                                                           Three Months Ended
                                                                 March 31,
                                                            ------------------
                                                             2000         1999
                                                            -----        -----
                                                          (Dollars In Thousands)

Gross reclassification adjustment                           $ (79)       $ 217
Tax benefit (expense)                                          33          (90)
                                                            -----        -----
Reclassification adjustment, net of tax                     $ (46)       $ 127
                                                            =====        =====


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



                                                           Three Months Ended
                                                                 March 31,
                                                            ------------------
                                                             2000         1999
                                                            -----        -----
                                                          (Dollars In Thousands)

Holding loss arising during the period, net of tax          $(145)       $ (97)
Reclassification adjustment, net of tax                        46         (127)
                                                            -----        -----
Net unrealized loss recognized in other
   comprehensive income                                     $ (99)       $(224)
                                                            =====        =====


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>


NOTE 5:  Stock Option Plans
<TABLE>
         The Company maintains the 1995 Incentive Stock Option Plan and the 1995
Stock Option Plan For Outside  Directors.  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:
<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>
          12/31/99          512,036          362,597          239,853           80,150            69,289            $9.51
           3/31/00          512,036          419,236          231,100           80,150            12,650            $9.51
</TABLE>


Activity during the three months ended March 31, 2000 included:

Granted                            66,865
Canceled                           10,226
Exercised                               0
Vested                              1,473

         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 March 31, 2000.

         At the April 27, 2000 meeting of the Board of Directors,  an additional
33,085 shares were authorized for the 1995 Incentive Stock Option Plan.

         The Company's  Annual Meeting of  Stockholders is scheduled for May 25,
2000. As set forth in the  Company's  Proxy  Statement,  a proposal to amend the
1995  Incentive  Stock  Option  Plan has been  submitted  to  stockholders.  The
Company's  Board of Directors  recommends  the approval of this  proposal.  This
proposal  contains,  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>


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:

PEP:                                                                      Stock
                                                          Stock          Awards
                          Stock            Stock         Awards       Available
                         Awards           Awards   Cumulatively      For Future
            Date     Authorized      Outstanding         Vested          Grants
            ----     ----------      -----------         ------          ------
        12/31/99        141,677           30,864         79,038          31,775
         3/31/00        141,677           59,212         79,038           3,427

         Activity during the three months ended March 31, 2000 included:

Granted            28,994
Canceled              646
Vested                  0


RRP:                                                                      Stock
                                                           Stock         Awards
                           Stock            Stock         Awards      Available
                          Awards           Awards   Cumulatively     For Future
            Date      Authorized      Outstanding         Vested         Grants
            ----      ----------      -----------         ------         ------
        12/31/99          38,010            9,541         28,469              0
         3/31/00          38,010            8,713         29,297              0

         Activity during the three months ended March 31, 2000 included:

Granted                   0
Canceled                  0
Vested                  828

NOTE 7:  Commitments And Contingencies

         At March 31,  2000,  the Company  maintained  commitments  to sell $344
thousand in residential fixed rate mortgage loans on a servicing  released basis
and to originate $10.1 million in various types of loans. The Company maintained
no commitments to purchase loans or securities, to assume borrowings, or to sell
securities at March 31, 2000.

NOTE 8:  Recent Accounting Pronouncements

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  The
Statement   establishes   accounting  and  reporting  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
securities or contracts, and hedging activities.  As originally issued, SFAS No.
133 is effective for all fiscal  quarters of fiscal years  beginning  after June
15, 1999. In July, 1999, the FASB issued SFAS No. 137, Accounting For Derivative
Instruments  And Hedging  Activities  - Deferral Of The  Effective  Date Of FASB
Statement  No. 133. In general,  SFAS No. 137 delays for one year the  effective
date of SFAS No. 133. The Company  anticipates  adopting  SFAS No. 133 effective
January 1, 2001.  Because the Company did not maintain any  derivatives at March
31,  2000,  the impact of the  adoption  of SFAS No. 133 is not  expected  to be
material.


                                       14
<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"),  formerly  Watsonville  Federal Savings and Loan
Association.  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 March 31,  2000,  the  Company had $475.3  million in total  assets,
$369.1 million in net loans  receivable,  and $382.0 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.


                                       15
<PAGE>


Recent Developments

         Congress and the Federal  Administration  continue to consider a series
of issues  that may  impact  the  financial  services  industry,  including  the
Company.  These issues include the potential  reform of bankruptcy  legislation,
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"),
new capital rules for the FHLB System, and new federal regulations involving the
privacy of customer information.  The FDIC recently held hearings to discuss the
potential merger of the bank and thrift federal deposit  insurance  funds,  with
some parties  requesting  the  consideration  of an increase in federal  deposit
insurance  limits. 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 five 25 basis point
increases  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
continue increasing 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.

         On May 1,  2000.  C.  Edward  Holden  assumed  the  position  of  Chief
Executive  Officer of both  Monterey  Bay  Bancorp,  Inc. and Monterey Bay Bank,
succeeding  Eugene R. Friend.  Mr. Friend will continue as Chairman of the Board
of  Monterey  Bay  Bancorp,   Inc.  and  Monterey  Bay  Bank  until  the  annual
stockholders'  meeting in 2001, after which he will retire. Mr. Holden, 52 years
of age, has worked in the commercial  banking  industry for over 25 years,  most
recently as Executive Vice President and Senior Lending  Officer for The Pacific
Bank in San Francisco. Mr. Holden has a BS degree in mechanical engineering from
the  University Of California at Santa Barbara and an MBA from the University Of
California at Los Angeles.

         The pending  acquisitions  of two local  competing  insured  depository
institutions appear to be moving closer to consummation. Coast Bancorp, Inc. and
San Benito Bank are in the process of being  purchased  by Greater Bay  Bancorp,
Inc.  and  Pacific  Capital  Bancorp,  Inc.,  respectively.  These  transactions
continue  the  consolidation  trend that has occurred in the  Company's  primary
marketplaces  over the past several years.  The Company is currently  evaluating
the potential impacts of these acquisitions, with management considering various
alternatives to acquire business currently served by the impacted institutions.


Overview Of Business Activity

         During the most recent quarter,  the Company  continued in its business
strategy of evolving  away from its  traditional  savings and loan roots  toward
more of a  community  banking  orientation.  Progress  was  realized  during the
quarter  in  loan  mix,  deposit   composition,   and  fee  income   generation,
particularly  resulting from the sale of non-FDIC  insured  investment  products
through Portola.  In addition,  the Company continued to grow its customer base,
with  deposit  accounts  surpassing  28,000 for the first time in the  Company's
history.   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.

         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.


                                       16
<PAGE>


         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.

         During the first  quarter of 2000,  the Company  also  continued in its
program of working to enhance shareholder value through capital management.  The
Company repurchased 120,000 shares of its common stock on the open market during
the quarter and paid an $0.08 per share cash dividend,  in addition to expanding
total assets.

         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.  In that  regard,  the Company  intends to launch its  Internet
Banking  service  later  this  year.  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.

Changes In Financial Condition From December 31, 1999 To March 31, 2000

         Total assets  increased $12.5 million,  or 2.7%, from $462.8 million at
December 31, 1999 to $475.3  million at March 31, 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
$16.7 million at March 31, 2000. This increase was associated with  management's
plan to build short term funds in preparation for the maturity of a $4.0 million
FHLB  advance  during  April,  2000  and in  order  to  cover  customer  deposit
withdrawals  which  typically  occur in April in  conjunction  with property and
income tax payments.  In addition,  during the first  quarter of 2000,  the Bank
invested  in  two  certificates  of  deposit  placed  with  minority  controlled
financial institutions as part of its ongoing commitment to community investment
and assisting individuals in its market areas with low to moderate incomes.

         Investment and mortgage backed securities  available for sale increased
slightly  from $69.2  million at December 31, 1999 to $69.8 million at March 31,
2000. While the balance was relatively constant, the mix in securities continued
to shift toward shorter term collateralized  mortgage  obligations and away from
longer  term,  fixed  rate,  traditional  Agency  pass-through  mortgage  backed
securities.  Management  has targeted the lower  duration  instruments as better
suited to the Company's strategic plan, providing greater periodic cash flow for
reinvestment  into loans and  reducing  the  Company's  exposure to increases in
general market interest rates.

         Net loans  receivable  held for investment  rose from $360.7 million at
December  31, 1999 to $368.7  million at March 31, 2000 on the strength of $29.3
million in credit  commitments  during the  quarter.  The  increase in loans was
concentrated  in the commercial & industrial  real estate and  multifamily  loan
portfolios,  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 42.5%
during the first  quarter of 2000.  The  Company  also  continued  to market its
"Business Express" line of credit product aimed at small businesses operating in
the  Company's   local   communities   during  the  most  recent  three  months,
contributing to a rise in business line of credit loans outstanding.

         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 69.5%
at March 31, 2000.  Because the regulatory limit for the qualified thrift lender
ratio is  65.0%,  management  is  considering  a number  of  alternatives,  from
restructuring certain portions of the balance sheet to applying for a commercial
bank charter.


                                       17
<PAGE>

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

<CAPTION>
                                                                 March 31,  December 31,
                                                                      2000         1999
                                                                 ---------    ---------
<S>                                                              <C>          <C>
(Dollars In Thousands)

Held for investment:
   Loans secured by real estate:
      Residential one to four unit                               $ 167,970    $ 168,465
      Multifamily five or more units                                45,030       42,173
      Commercial and industrial                                     82,652       72,344
      Construction                                                  71,630       79,034
      Land                                                          15,051       13,930
                                                                 ---------    ---------
   Sub-total loans secured by real estate                          382,333      375,946

   Other loans:
      Home equity lines of credit                                    4,128        3,968
      Loans secured by deposits                                        348          385
      Consumer lines of credit, unsecured                              153          202
      Business term loans                                            6,584        6,670
      Business lines of credit                                       1,489        1,027
                                                                 ---------    ---------
   Sub-total other loans                                            12,702       12,252

   Sub-total gross loans held for investment                       395,035      388,198

   (Less) / Plus:
      Undisbursed construction loan funds                          (22,411)     (23,863)
      Unamortized purchase premiums, net of purchase discounts         137          134
      Deferred loan fees and costs, net                               (276)        (281)
      Allowance for estimated loan losses                           (3,752)      (3,502)
                                                                 ---------    ---------
Loans receivable held for investment, net                        $ 368,733    $ 360,686
                                                                 =========    =========
Held for sale:
   Residential one to four unit                                  $     344    $      --
                                                                 =========    =========

</TABLE>


         Net loans  available for sale  increased from none at December 31, 1999
to $344  thousand at March 31, 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.

         Intangible   assets   declined  by  $175,000   during  the  quarter  in
conjunction with periodic amortization. Under OTS regulations, intangible assets
net of associated deferred tax liabilities reduce regulatory capital,  resulting
in lower capital ratios than would otherwise be the case.


                                       18
<PAGE>


         Total deposits  increased from $367.4 million at December 31, 1999 to a
record $382.0 million at March 31, 2000. Key trends within the deposit portfolio
included:

o    Checking account balances rose $2.4 million during the quarter. The Company
     continues to target  increases in checking  account balances as a source of
     low cost funds and non-interest  income.  During 2000,  management plans to
     accelerate  growth in this area through the  introduction  of a new, highly
     tiered SuperNOW  product,  the installation of an additional  off-site ATM,
     advertising  targeted at competitor  branch  locations  being closed due to
     acquisitions,  an internal  employee  incentive  campaign,  and the planned
     launch 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 $89.8 million three months later.

o    Certificate of deposit  balances rose $2.8 million during the first quarter
     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 41.1% of total deposits at March 31, 2000,
     up from 39.5% three 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.

         The  Company's  ratio of  loans  to  deposits  declined  from  98.2% at
December  31,  1999 to 96.6% at March 31,  2000,  as the strong  deposit  growth
during the quarter  eclipsed  the  expansion in loans.  If the recent  favorable
demand for loans  continues,  the Company expects this ratio to remain in excess
of approximately  95.0%.  Moreover,  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 $49.6
million at March 31, 2000,  all of which was then  comprised  of FHLB  advances.
During  the  first  quarter,  MBBC  repaid  all of  its  securities  sold  under
agreements  to  repurchase  in  conjunction  with  the  sale  of the  associated
securities.  FHLB  advances  which  matured  in  early  2000  were  renewed  and
distributed  throughout  the year in order to lock in funding costs for a period
of time in light of continued  increases in interest  rates  implemented  by the
Federal Reserve.

         Total stockholders'  equity declined from $40.8 million at December 31,
1999 to $40.4  million at March 31, 2000.  Factors  contributing  to the decline
included:

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

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

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

The above factors more than offset:

o    $799 thousand in net income for quarter

o    continued amortization of the Company's deferred stock compensation

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

     The Company's tangible book value per share was $11.37 at March 31, 2000.


                                       19
<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  quarter  of 2000 and  forecast  to affect  the  Company's  interest  rate
exposure throughout 2000 include:

         Factors reducing net liability sensitivity:

            o    The $11.7 million rise in transaction  account  balances during
                 the first quarter 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 $3.7  million  in high  duration  mortgage  backed
                 securities  during the first quarter of 2000. The Company plans
                 to make further such sales 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 new,  long term,  fixed rates loans into the  secondary
                 market  and  the  focus  of new  security  purchases  in  lower
                 duration instruments.

            o    The pending  conversion  during the last three quarters of 2000
                 of approximately $32.0 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.

         Factors increasing net liability sensitivity:

            o    Slowing  prepayment speeds on certain fixed rate whole loan and
                 mortgage related security positions in conjunction with reduced
                 consumer  refinance  activity.  The  slower  prepayment  speeds
                 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.


                                       20
<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 March 31, 2000,  the Company  maintained  $16.7  million in cash and
cash equivalents,  untapped borrowing capacity of $108.7 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.  In addition,  during the first quarter of 2000,
the Bank was  granted  a $10.0  million  federal  funds  line of  credit  from a
correspondent  financial  institution.  However,  there can be no assurance that
funds from this new line of credit will be available  at all times,  or that the
line will be maintained in future periods.

         The Bank is  working  to  further  enhance  its  liquidity  by  seeking
additional  federal  funds  lines of  credit  from  correspondent  banks  and by
pledging  certain  multifamily  loans to the  FHLB-SF  in order to  bolster  its
borrowing  capacity.  However,  there can be no assurance  that the Bank will be
successful in obtaining  additional  federal funds lines of credit. In addition,
during the first  quarter of 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.

         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 three months of 2000,  the  regulatory  liquidity
ratio of the Bank exceeded regulatory  requirements,  with the average ratio for
the quarter equaling 6.67%. 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 March 31, 2000,  MBBC had cash & cash  equivalents of $528 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 March 31, 2000.  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.


                                       21
<PAGE>


Capital Resources And Regulatory Capital Compliance
<TABLE>
         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:
<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>
<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 March 31, 2000 as compared to such ratios.
<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>
Bank regulatory capital                 $ 33,512       7.14%        $ 33,512      10.03%        $ 37,064      11.09%
Well capitalized requirement              23,468       5.00%          20,047       6.00%          33,411      10.00%
                                        --------       -----        --------      ------        --------      ------

Excess                                  $ 10,044       2.14%        $ 13,465       4.03%        $  3,653       1.09%
                                        ========       =====        ========      ======        ========       =====

Adjusted assets (1)                     $469,356                    $334,109                    $334,109
                                        ========                    ========                    ========
<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.

                                            March 31, 2000    December 31, 1999
                                            --------------    -----------------

Core capital to adjusted total assets                7.14%                7.11%
Core capital to risk-weighted assets                10.03%                9.58%
Total capital to risk-weighted assets               11.09%               10.56%


                                       22
<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 March 31, 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                               $33,512                7.14%
Minimum required                                   7,040                1.50%
                                                 -------                -----
Excess                                           $26,472                5.64%
                                                 =======                =====
Core Capital
Regulatory capital                               $33,512                7.14%
Minimum required                                  18,774                4.00%
                                                 -------                -----
Excess                                           $14,738                3.14%
                                                 =======                =====

                                                                   Percent Of
                                                                        Risk-
                                                                     Weighted
                                                  Amount               Assets
                                                 -------               ------
Risk-based Capital
Regulatory capital                               $37,064               11.09%
Minimum required                                  26,729                8.00%
                                                 -------               ------
Excess                                           $10,335                3.09%
                                                 =======               ======

         At March 31, 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.


                                       23
<PAGE>


Asset Quality / Credit Profile

Non-performing Assets

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

<CAPTION>
(Dollars In Thousands)                                                                   March 31,         December 31,
                                                                                              2000                 1999
                                                                                            ------               ------
<S>                                                                                         <C>                  <C>
Outstanding Balances Before Valuation Reserves
Non-accrual loans                                                                           $5,198               $6,888
Loans 90 or more days delinquent and accruing interest                                          --                   --
Restructured loans in compliance with modified terms                                         1,277                1,294
                                                                                            ------               ------

Total gross non-performing loans                                                             6,475                8,182

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

Total gross non-performing assets                                                           $6,571               $8,278
                                                                                            ======               ======

Gross non-accrual loans to total loans                                                        1.39%                1.89%
Gross non-performing loans to total loans                                                     1.74%                2.25%
Gross non-performing assets to total assets                                                   1.38%                1.79%
Allowance for loan losses                                                                   $3,752               $3,502
Valuation allowances for foreclosed real estate                                             $   --               $   --
</TABLE>

         Non-accrual  loans at March 31, 2000  consisted of a three  residential
mortgages and a $5.0 million term business loan primarily  secured by the common
stock of a depository institution.  The borrower for this 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.  The Company has established a $200 thousand specific reserve for this
loan.  Real estate  acquired via  foreclosure at March 31, 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

         Classified  assets as a percent of  stockholders'  equity declined from
21.5% at December  31, 1999 to 19.9% at March 31, 2000.  Real estate  markets in
the Company's  primary  business areas were  generally  vibrant during the first
quarter of 2000, with strong demand for most types of property  leading to price
appreciation, low loan delinquencies, and limited foreclosures.


                                       24
<PAGE>


Impaired Loans

         At March 31, 2000, the Company  maintained  total gross impaired loans,
before  specific  reserves,  of $6.5  million,  constituting  11  credits.  This
compares to gross  impaired  loans of $8.2 million at December 31, 1999.  Of the
total impaired  loans at March 31, 2000,  $1.3 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 three months ended March 31, 2000, accrued
interest on impaired  loans was $7 thousand  and  interest of $148  thousand was
received in cash.  If all  non-accrual  loans has been  performing in accordance
with their original loan terms, the Company would have recorded  interest income
of $133  thousand  during the three  months  ended  March 31,  2000,  instead of
interest income actually recognized on cash payments of $121 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 March 31, 2000, the  outstanding  balance of this mortgage loan pool
was $32.8 million,  with $0.8 million  receivable  during April, 2000 based upon
prepayments and scheduled  principal for March,  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. The Bank continues to report to the OTS in this regard on a monthly
basis.

         Through  March 31, 2000,  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.  Management
believes that the seller / servicer has both the capacity and intent to continue
performing per the terms of the loan servicing  agreement and therefore does not
anticipate realizing credit losses on this residential mortgage pool.

         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

         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.


                                       25
<PAGE>


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.
<TABLE>
         The following  table presents  activity in the Company's  allowance for
loan losses during the three months ended March 31, 2000 and March 31, 1999:
<CAPTION>
                                                                           Three Months Ended March 31,
                                                                           --------------------------
                                                                             2000              1999
                                                                            -------           -------
<S>                                                                         <C>               <C>
Allowance For Loan Losses                                                    (Dollars In Thousands)
-------------------------
Balance at beginning of year                                                $ 3,502           $ 2,780
   Charge-offs:  Residential one to four unit real estate loans                  --              (113)
   Recoveries                                                                    --                --
   Provision for loan losses                                                    250               220
                                                                            -------           -------
Balance at March 31                                                         $ 3,752           $ 2,887
                                                                            =======           =======

Ratio of net charge-offs during the period to average gross loans
   outstanding during the period net of undisbursed loan funds                 0.00%             0.14%
</TABLE>


<TABLE>
         Additional ratios applicable to the allowance for loan losses include:
<CAPTION>
                                                                     March 31, 2000      December 31, 1999
                                                                     --------------      -----------------
<S>                                                                       <C>                 <C>
Allowance for loan losses as a percent of non-performing loans            57.94%              42.80%

Allowance for loan losses as a percent of gross loans receivable
     net of undisbursed loan funds                                         1.01%               0.96%

Allowance for loan losses as a percent of classified assets               46.81%              39.91%
</TABLE>

         The provision for loan losses recorded during the first quarter of 2000
primarily  resulted  from 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.


                                       26
<PAGE>


Comparison Of Operating Results For The Three  Months Ended  March 31, 2000  and
March 31, 1999

General

         For the quarter ended March 31, 2000,  the Company  reported net income
of $799 thousand, equivalent to $0.25 basic and diluted earnings per share. This
compares to net income of $804  thousand,  or $0.25 basic earnings per share and
$0.24 diluted  earnings per share during the first  quarter of 1999.  Net income
during the fourth quarter of 1999 (the immediately  preceding  quarter) was $645
thousand, equivalent to $0.20 basic and diluted earnings per share.

Interest Rate Environment

         The table below  presents an overview of the interest rate  environment
during the most recent five 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  five  separate 25 basis point
increases 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 the 2 year
Treasury note. 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.  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.

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

Net Interest Income

         Net interest income rose $719 thousand (19.1%) from $3.8 million during
the quarter  ended March 31, 1999 to $4.5  million  during the most recent three
months.  This increase  stemmed from a larger average balance sheet and improved
spreads. For example, the Company's average spread on total assets expanded from
3.33%  during the quarter  ended March 31, 1999 to 3.88%  during the most recent
three months.  The  following  factors  contributed  toward the  improvement  in
spreads:

o        Average loans as a percentage of average  total assets  increased  from
         69.1%  during  the  first  quarter  of 1999 to 79.2%  during  the first
         quarter 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 deposits  during the most recent quarter  (39.3%) than during the
         same  quarter a year  earlier  (32.9%).  This change in deposit 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.

o        The average rate on interest  earning assets was 8.18% during the first
         quarter of 2000, up 61 basis points from a year  earlier.  In contrast,
         the Company's  average cost of interest bearing  liabilities was just 3
         basis points  higher  during the first  quarter of 2000 than during the
         first  three  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.


                                       27
<PAGE>


<TABLE>
         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 periods indicated.  Annualized rates were calculated by using the
day counts  (e.g.  30/360,  actual/365)  applicable  to each major  category  of
financial instruments.
<CAPTION>
                                         Three Months Ended March 31,2000         Three Months Ended March 31, 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)                $  6,959      $     99         5.75%       $  6,005     $     70         4.64%
   Investment securities (2)             11,465           210         7.31%         18,799          294         6.26%
   Mortgage backed securities (3)        54,358           959         7.06%         94,097        1,528         6.50%
   Loans receivable, net (4)            366,511         7,736         8.44%        312,815        6,296         8.05%
   FHLB stock                             3,248            46         5.70%          3,076           37         4.76%
                                       --------      --------                     --------     --------
Total interest earning assets           442,541         9,050         8.18%        434,792        8,225         7.57%
                                                     --------                                  --------
Non-interest earnings assets             20,150                                     18,102
                                       --------                                   --------
Total assets                           $462,691                                   $452,894
                                       ========                                   ========
Liabilities & Equity
Interest bearing liabilities:
   NOW accounts                        $ 31,377           121         1.55%       $ 20,657           75         1.44%
   Savings accounts                      15,205            68         1.80%         15,301           68         1.76%
   Money market accounts                 82,220           873         4.27%         68,309          692         4.02%
   Certificates of deposit              224,585         2,777         4.97%        248,239        3,079         4.92%
                                       --------      --------                     --------     --------
   Total interest-bearing deposits      353,387         3,839         4.37%        352,506        3,914         4.41%
   FHLB advances                         49,614           708         5.74%         35,050          478         5.41%
   Other borrowings(5)                      622            10         6.47%          4,310           59         5.46%
                                       --------      --------                     --------     --------
Total interest-bearing liabilities      403,623         4,557         4.54%        391,866        4,451         4.51%
Demand deposit accounts                  16,304                                     17,457
Other non-interest bearing                3,090                                      2,256
                                       --------                                   --------
liabilities
Total liabilities                       423,017                                    411,579
Stockholders' equity                     39,674                                     41,315
                                       --------                                   --------
Total liabilities & equity             $462,691                                   $452,894
                                       ========                                   ========
Net interest income                                  $  4,493                                  $  3,774
                                                     ========                                  ========
Interest rate spread (6)                                              3.64%                                     3.06%
Net interest earning assets              38,917                                     42,928
Net interest margin (7)                                  4.06%                                     3.47%
Net interest income /
     average total assets                                3.88%                                     3.33%
Interest earnings assets /
     interest bearing liabilities          1.10                                       1.11
<FN>
Average balances in the above table were calculated using average daily figures.
-----------------------------
(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 $76,000 and $33,000 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>


                                       28
<PAGE>


Rate / Volume Analysis

<TABLE>
         The following  table  utilizes the figures from the preceding  table 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.

<CAPTION>
                                                                          Three Months Ended March 31, 2000
                                                                                     Compared To
                                                                           Three Months Ended March 31, 1999
                                                                 ------------------------------------------------------
                                                                                                 Volume
                                                                  Volume            Rate          /Rate             Net
                                                                 -------         -------        -------         -------
<S>                                                              <C>             <C>            <C>             <C>
(Dollars In Thousands)

Interest-earning assets
-----------------------
Cash equivalents                                                 $    11         $    17        $     1         $    29
Investment securities                                               (115)             49            (18)            (84)
Mortgage backed securities                                          (646)            132            (55)           (569)
Loans receivable, net                                              1,081             305             54           1,440
FHLB Stock                                                             2               7             --               9
                                                                 -------         -------        -------         -------
     Total interest-earning assets                                   333             510            (18)            825
                                                                 -------         -------        -------         -------
Interest-bearing liabilities
----------------------------
NOW Accounts                                                          39               6              1              46
Savings accounts                                                      (1)              1             --              --
Money market accounts                                                140              43             (2)            181
Certificates of deposit                                             (291)             31            (42)           (302)
                                                                 -------         -------        -------         -------
Total interest-bearing deposits                                     (113)             81            (43)            (75)
FHLB advances                                                        197              29              4             230
Other borrowings                                                     (50)             11            (10)            (49)
                                                                 -------         -------        -------         -------
     Total interest-bearing liabilities                               34             121            (49)            106
                                                                 -------         -------        -------         -------
Increase (decrease) in net interest income                       $   299         $   389        $    31         $   719
                                                                 =======         =======        =======         =======
</TABLE>


                                                           29

<PAGE>


Interest Income

         Interest  income  increased  from $8.2 million during the quarter ended
March 31,  1999 to $9.1  million  during the three  months  ended March 31, 2000
primarily due to significantly higher interest income on loans.

         Interest  income on loans rose from $6.3 million during the first three
months  of 1999  to  $7.7  million  during  the  most  recent  quarter  due to a
combination of greater volumes and higher rates. The greater volume stemmed from
the  Company's  continuing  to  experience  strong loan demand  combined  with a
reduction in  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
         construction loans

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

         Interest  income on cash  equivalents and FHLB stock increased from $70
thousand to $99 thousand and from $37  thousand to $46  thousand,  respectively,
from the first  quarter of 1999 to the first quarter of 2000 due to both greater
average balances and higher yields. The higher yields primarily stemmed from the
increase in general market interest rates,  particularly the federal funds rate.
In addition,  yields on cash  equivalents  were bolstered during the most recent
quarter by the Company's  improving the  sophistication  of its cash  management
function,  conducting a broader  range of business  (e.g.  securities  purchased
under agreements to resell) with an expanded number of counterparties.

         Interest income on investment  securities  decreased from $294 thousand
during the first quarter of 1999 to $210 thousand  during the first three months
of 2000. This decline was caused by the impact of a smaller  portfolio more than
offsetting  higher yields stemming from adjustable  rate  investments.  Over the
past year, the Company has sold investment securities in order to fund a portion
of the growth in its net loans receivable.

         Interest  income  on  mortgage  backed  securities  declined  from $1.5
million  during  the first  quarter  of 1999 to $959  thousand  during the first
quarter of 2000,  as the effect of lower  average  balances more than offset the
impact of higher yields. Similar to investment securities,  the Company has been
using amortization and sales of mortgage backed securities over the past year to
fund loan originations.  Yields on mortgage backed securities were higher in the
most recent  quarter versus one year earlier due to a combination of the sale of
lower  coupon   instruments  in  prior  periods  and  due  to  reduced   premium
amortization in 2000 stemming from slower prepayment speeds.

Interest Expense

         Interest expense on deposits declined slightly from $3.9 million during
the first  quarter  of 1999 to $3.8  million  during  the first  quarter of 2000
despite a small increase in average interest bearing deposits and higher average
effective  rates across all deposit product lines stemming from the higher level
of general  market  interest  rates.  This  reduction  in  interest  expense was
achieved  through  a shift in  deposit  composition  away from  certificates  of
deposit toward lower cost transaction accounts.

         During  the  first  quarter  of  2000,  the  Company  was  particularly
successful  in  promoting  its highly  tiered  Money Market 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 accounts as their  balances  increase  through the product's  tiers.
Customers  utilizing a "40+" NOW account obtain free Bank image checks and other
free services from the Bank.

         Interest expense on borrowings  increased from $537 thousand during the
first three months of 1999 to $718 thousand during the first quarter of 2000 due
to both higher average balances and greater average rates. Balances increased to
partially  fund  the  growth  in the loan  portfolio,  while  interest  rates on
maturing  /  rollover  and  new  borrowings  increased  over  the  past  year in
conjunction with higher rates in the Treasury and LIBOR markets.


                                       30
<PAGE>


         Interest  expense  levels may be more  volatile  later in 2000,  as the
Company has a particularly  large volume of  certificates  of deposit  repricing
during the summer months.

Provision For Loan Losses

         Provision for loan losses totaled $250 thousand during the three months
ended March 31, 2000, up from $220 thousand during the first quarter of 1999 and
$150  thousand  during  the  fourth  quarter  of 1999.  The first  quarter  2000
provision level resulted from multiple factors, the primary of which were:

o        the increasing size of the loan portfolio

o        the  continued   diversification   of  the  loan  portfolio  away  from
         residential  mortgages  toward  other  types  of real  estate  lending,
         particularly commercial & industrial real estate loans

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 risk than mortgages secured by homes,  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.  Factors which moderated the Company's reserve  requirement
during  the most  recent  quarter  were a  decline  in  non-accrual  loans and a
reduction in classified  assets.  The  Company's  ratio of loan loss reserves to
loans  outstanding  increased  from 0.96% at December 31, 1999 to 1.01% at March
31,  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.

Non-interest Income

         Non-interest  income  declined  from  $684  thousand  during  the first
quarter of 1999 to $501  thousand  during the most  recent  three  months.  This
reduction was primarily  caused by differing  results on the sale of securities.
During the first  quarter of 1999, a pre-tax gain of $217  thousand was realized
on the sale of  securities,  versus a $79 thousand  pre-tax loss during the most
recent  quarter.  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 $132 thousand during the first
quarter of 1999 to $207 thousand  during the most recent three months,  with the
Company  experiencing  a record  sales  month in March,  2000.  Fee income  from
customer  service  charges  expanded  20.2% from $233 thousand  during the first
quarter of 1999 to $280 thousand during the first quarter of 2000. The Company's
growing base of transaction accounts continues to bolster 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  intends to implement 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.


                                       31
<PAGE>


General & Administrative Expense

         General &  administrative  expenses  rose from $2.8 million  during the
first  quarter of 1999 to $3.3  million  during the most  recent  three  months.
Increased   expense  levels  were  realized  in  most  areas  of  the  Company's
operations,  spurred by increased  business  volumes.  Compensation and employee
benefits  expense was $100 thousand higher during the first quarter of 2000 than
during the first quarter of 1999.  Factors  leading to this increase  included a
larger employee base,  expenses for  performance  based incentive and commission
plans, the need to increase selected compensation levels in order to attract and
retain  qualified staff in a very  competitive  environment  for labor,  and the
initial  accrual  for the new  Director  Emeritus  Program.  As  detailed in the
Company's  Proxy  Statement for the Annual Meeting of Stockholders to be 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 current  Directors will
leave the Board following the May, 2000 shareholders meeting.

         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.

         Legal and  accounting  costs  were $103  thousand  greater  in the most
recent quarter than they were during the first quarter of 1999. During 2000, the
Company has incurred higher costs for its co-sourced  internal audit program and
in  conjunction  with several  legal topics,  including the pool of  residential
loans  guaranteed by a seller / servicer (see "Special  Residential  Loan Pool")
and a now settled employment related matter.

         Advertising  and  promotion  was $44 thousand  higher  during the first
quarter of 2000 than during the first quarter of 1999.  During the first quarter
of 2000,  the  Company  conducted  a number of  promotional  campaigns  aimed at
increasing  demand  for its  products  and  services  for small  businesses  and
targeted toward attracting deposit inflows to fund the growing loan portfolio.

         During the quarter  ended March 31,  2000,  a range of other  operating
costs,  including  supplies,  postage,  check printing,  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  was almost  constant  between the first  quarter of
1999 and the first quarter of 2000,  as pre-tax  income during those periods was
also  similar.  The  Company's  effective  book tax rate  during the first three
months of 1999 and 2000 was substantially the same.

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.


                                       32
<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

         None.

Item 5.  Other Information

         On May 1,  2000.  C.  Edward  Holden  assumed  the  position  of  Chief
         Executive  Officer of both Monterey Bay Bancorp,  Inc. and Monterey Bay
         Bank, succeeding Eugene R. Friend. Mr. Friend will continue as Chairman
         Of The Board of Monterey Bay Bancorp,  Inc. and Monterey Bay Bank until
         the annual  stockholders'  meeting in 2001, after which he will retire.
         Mr.  Holden,  52 years of age,  has  worked in the  commercial  banking
         industry for over 25 years,  most recently as Executive  Vice President
         and Senior Lending  Officer for The Pacific Bank in San Francisco.  Mr.
         Holden has a BS degree in mechanical engineering from the University Of
         California  at  Santa  Barbara  and  an  MBA  from  the  University  Of
         California at Los Angeles.  In connection with Mr. Holden's  Employment
         Agreement,  the Company  agreed to grant Mr. Holden options to purchase
         55,000  shares of common  stock.  These  options vest ratably over five
         years and in the event of a change in control of the Company.

         At the April 27, 2000 meeting of the Board of Directors,  an additional
         33,085 shares were authorized for the 1995 Incentive Stock Option Plan.

Item 6.  Exhibits And Reports On Form 8-K

         A.  Exhibits

                  10.15  Employment Agreement Between Monterey Bay Bancorp, Inc.
                         And C. Edward Holden

                  27     Financial Data Schedule

         B.  Reports On Form 8-K

                  The  Company  filed no reports on Form 8-K during the  quarter
                  ended March 31, 2000.


                                       33
<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:    May 10, 2000                         By:      /s/ C. Edward Holden
                                                       -------------------------
                                                       C. Edward Holden
                                                       Chief Executive Officer


Date:    May 10, 2000                         By:      /s/ Marshall G. Delk
                                                       -------------------------
                                                       Marshall G. Delk
                                                       President
                                                       Chief Operating Officer


Date:    May 10, 2000                         By:      /s/ Mark R. Andino
                                                       -------------------------
                                                       Mark R. Andino
                                                       Senior Vice President
                                                       Chief Financial Officer
                                                       (Principal Financial &
                                                        Accounting Officer)