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, 2002

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:  3,483,718  shares of common
stock, par value $0.01 per share, were outstanding as of May 9, 2002.


                                       1
<PAGE>
                    MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                            ----
PART I.          FINANCIAL INFORMATION
<S>              <C>                                                                                       <C>
                 Item 1.   Financial Statements

                           Condensed Consolidated Statements Of Financial Condition (unaudited)
                           As Of March 31, 2002 And December 31, 2001                                       3 - 4

                           Condensed Consolidated Statements Of Income (unaudited) For The
                           Three Months Ended March 31, 2002 And March 31, 2001                             5 - 6

                           Condensed Consolidated Statement Of Stockholders' Equity (unaudited) For
                           The Three Months Ended March 31, 2002                                              7

                           Condensed Consolidated Statements Of Cash Flows (unaudited) For The
                           Three Months Ended March 31, 2002 And March 31, 2001                             8 - 9

                           Notes To Condensed Consolidated Financial Statements (unaudited)                10 - 15

                 Item 2.   Management's Discussion And Analysis Of Financial Condition
                           And Results Of Operations                                                       16 - 46

                 Item 3.   Quantitative And Qualitative Disclosure About Market Risk                         46

PART II.         OTHER INFORMATION

                 Item 1.   Legal Proceedings                                                                 46

                 Item 2.   Changes In Securities                                                             46

                 Item 3.   Defaults Upon Senior Securities                                                   46

                 Item 4.   Submission Of Matters To A Vote Of Security Holders                               47

                 Item 5.   Other Information                                                                 47

                 Item 6.   Exhibits And Reports On Form 8-K                                                  47

                           (a)  Exhibits

                           (b)  Reports On Form 8-K

Signature Page                                                                                               48
</TABLE>


                                       2
<PAGE>
Item 1.  Financial Statements

MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
MARCH 31, 2002 AND DECEMBER 31, 2001
(Dollars In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                       March 31,         December 31,
                                                                                            2002                 2001
                                                                                        --------             --------
<S>                                                                                    <C>                   <C>
ASSETS

Cash and cash equivalents                                                               $ 12,402             $ 13,079
Securities available for sale, at estimated fair value:
     Investment securities (amortized cost of $7,710 and $7,707 at
          March 31, 2002 and December 31, 2001, respectively)                              7,270                7,300
     Mortgage backed securities (amortized cost of $32,740 and $30,358 at
          March 31, 2002 and December 31, 2001, respectively)                             32,916               30,644
Loans held for sale, at lower of cost or market                                              661                  713
Loans receivable held for investment (net of allowances for loan losses of
     $6,958 at March 31, 2002 and $6,665 at December 31, 2001)                           469,437              465,887
Investment in capital stock of the Federal Home Loan Bank, at cost                         3,044                2,998
Accrued interest receivable                                                                2,892                2,915
Premises and equipment, net                                                                7,490                7,618
Core deposit intangibles, net                                                              1,344                1,514
Other assets                                                                               4,769                4,723
                                                                                         -------              -------
TOTAL ASSETS                                                                            $542,225             $537,391
                                                                                         =======              =======
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       3
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Continued)
MARCH 31, 2002 AND DECEMBER 31, 2001
(Dollars In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                        March 31,        December 31,
                                                                                            2002                 2001
                                                                                        --------             --------
<S>                                                                                    <C>                   <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Non-interest bearing demand deposits                                                    $ 23,581             $ 21,062
Interest bearing NOW checking accounts                                                    43,004               42,557
Savings deposits                                                                          18,824               19,127
Money market deposits                                                                    111,775              105,828
Certificates of deposit                                                                  238,630              243,765
                                                                                        --------             --------

   Total deposits                                                                        435,814              432,339
                                                                                        --------             --------

Advances from the Federal Home Loan Bank and other borrowings                             53,600               53,800
Accounts payable and other liabilities                                                     1,038                1,090
                                                                                        --------             --------

     Total liabilities                                                                   490,452              487,229
                                                                                        --------             --------

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, 2002 and December 31, 2001;
     3,483,718 outstanding at March 31, 2002 and
     3,456,097 outstanding at December 31, 2001                                               45                   45
Additional paid-in capital                                                                28,772               28,584
Retained earnings, substantially restricted                                               37,678               36,473
Unallocated ESOP shares                                                                     (633)                (690)
Treasury shares designated for compensation plans, at cost (16,486 shares
     at March 31, 2002 and 17,969 shares at December 31, 2001)                              (159)                (173)
Treasury stock, at cost (1,008,367 shares at March 31, 2002 and
     1,035,988 shares at December 31, 2001)                                              (13,775)             (14,006)
Accumulated other comprehensive loss, net of taxes                                          (155)                 (71)
                                                                                        --------             --------

     Total stockholders' equity                                                           51,773               50,162
                                                                                        --------             --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $542,225             $537,391
                                                                                        ========             ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       4
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(Dollars In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------

                                                            FOR THE THREE MONTHS
                                                               ENDED MARCH 31,
                                                          ----------------------
                                                           2002            2001
                                                           ----            ----
INTEREST AND DIVIDEND INCOME:
   Loans receivable                                      $ 8,314        $ 8,890
   Mortgage backed securities                                312            808
   Investment securities and cash equivalents                129            297
                                                          ------          -----
         Total interest income                             8,755          9,995
                                                          ------          -----
INTEREST EXPENSE:
   Deposit accounts                                        2,813          4,684
   Advances from the FHLB and other borrowings               592            559
                                                          ------          -----
         Total interest expense                            3,405          5,243
                                                          ------          -----
NET INTEREST INCOME BEFORE PROVISION
     FOR LOAN LOSSES                                       5,350          4,752

PROVISION FOR LOAN LOSSES                                    325            500
                                                          ------          -----
NET INTEREST INCOME AFTER PROVISION
     FOR LOAN LOSSES                                       5,025          4,252
                                                          ------          -----
NON-INTEREST INCOME:
   Customer service charges                                  351            408
   Gain on sale of mortgage backed securities                 43             34
   Commissions from sales of noninsured products              41            117
   Gain on sale of loans                                      27              5
   Income from loan servicing                                 14              2
   Other income                                               36             77
                                                          ------          -----
         Total non-interest income                           512            643
                                                          ------          -----

See Notes to Condensed Consolidated Financial Statements


                                       5
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Continued)
THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(Dollars In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------

                                                            FOR THE THREE MONTHS
                                                               ENDED MARCH 31,
                                                          ----------------------
                                                            2002           2001
                                                            ----           ----
NON-INTEREST EXPENSE:
   Compensation and employee benefits                      1,905          1,658
   Occupancy and equipment                                   424            350
   Deposit insurance premiums                                 51             49
   Data processing fees                                      136            442
   Legal and accounting expenses                             119            184
   Supplies, postage, telephone, and office expenses         168            190
   Advertising and promotion                                  77             31
   Amortization of intangible assets                         170            170
   Consulting                                                 22            242
   Other expense                                             394            526
                                                           -----          -----
         Total non-interest expense                        3,466          3,842
                                                           -----          -----

INCOME BEFORE PROVISION FOR
     INCOME TAXES                                          2,071          1,053

PROVISION FOR INCOME TAXES                                   866            451
                                                           -----          -----

NET INCOME                                                $1,205         $  602
                                                           =====          =====
EARNINGS PER SHARE:

     BASIC EARNINGS PER SHARE                             $ 0.36         $ 0.19
                                                           =====          =====
     DILUTED EARNINGS PER SHARE                           $ 0.35         $ 0.18
                                                           =====          =====

See Notes to Condensed Consolidated Financial Statements


                                       6
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002
(Dollars And Shares In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   Treasury
                                                                                    Shares
                                                                                    Desig-
                                                                                     nated              Accum-
                                                                                      For               ulated
                                                         Addi-              Unal-     Com-               Other
                                      Common Stock      tional            located     pen-              Compre-
                                      ------------     Paid-In  Retained    ESOP     sation  Treasury   hensive
                                     Shares   Amount   Capital  Earnings   Shares    Plans    Stock       Loss     Total
                                     ------   ------   -------  --------   ------    -----    -----       ----     -----
<S>                                   <C>      <C>    <C>       <C>        <C>       <C>     <C>         <C>    <C>
Balance at December 31, 2001          3,456    $  45  $ 28,584  $ 36,473   $ (690)   $ (173) $(14,006)   $ (71) $ 50,162

Purchase of treasury stock               (5)                                                      (81)               (81)

Exercise of stock options                30                 78                                    285                363

Director fees paid using treasury         3                 19                                     27                 46
stock

Amortization of stock compensation                          91                 57        14                          162

Comprehensive income:
   Net income                                                      1,205                                           1,205

   Other comprehensive income:
     Change in net unrealized loss
       on securities available for
       sale, net of taxes of ($41)                                                                         (59)      (59)

     Reclassification adjustment for
       gains on securities available
       for sale included in income,
       net of taxes of ($18)                                                                               (25)      (25)
                                                                                                                   -----

   Other comprehensive income, net                                                                                   (84)
                                                                                                                   -----

Total comprehensive income                                                                                         1,121
                                                                                                                   -----
                                      -----     ----   -------   -------    -----     -----   -------     ----   -------
Balance at March 31, 2002             3,484    $  45  $ 28,772  $ 37,678   $ (633)   $ (159) $(13,775)   $(155) $ 51,773
                                      =====     ====   =======   =======    =====     =====   =======     ====   =======
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       7
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(Dollars In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                FOR THE THREE MONTHS
                                                                                                   ENDED MARCH  31,
                                                                                               ----------------------
                                                                                                 2002          2001
                                                                                                 ----          ----
<S>                                                                                            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                                    $  1,205       $   602

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

Depreciation and amortization of premises and equipment                                            180           114
Amortization of intangible assets                                                                  170           170
Amortization of purchase premiums, net of accretion of purchase discounts                          205            (8)
Amortization of deferred loan fees and costs, net                                                  (26)          (78)
Provision for loan losses                                                                          325           500
Federal Home Loan Bank stock dividends                                                             (46)          (48)
Gross ESOP expense before dividends received on unallocated shares                                 144            57
Compensation expense associated with stock compensation plans                                       15            30
Director retainer fees paid in stock                                                                46            61
Gain on sale of mortgage-backed and investment securities                                          (43)          (34)
Gain on sale of loans                                                                              (27)           (5)
Loss on sale of fixed assets                                                                         8            --
Origination of loans held for sale                                                              (3,497)       (1,920)
Proceeds from sales of loans held for sale                                                       3,576         1,048
Decrease (increase) in accrued interest receivable                                                  23          (141)
Increase in other assets                                                                           (46)         (255)
Decrease in accounts payable and other liabilities                                                 (52)         (306)
Other, net                                                                                        (203)         (494)
                                                                                                ------        ------
     Net cash provided by (used in) operating activities                                         1,957          (707)
                                                                                                ------        ------


CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in loans held for investment                                                       (3,550)      (22,615)
Purchases of investment securities available for sale                                           (4,854)           --
Proceeds from maturities of investment securities available for sale                             4,850            --
Purchases of mortgage backed securities available for sale                                     (14,456)      (14,424)
Principal repayments on mortgage backed securities available for sale                            9,231         7,660
Proceeds from sales of mortgage backed securities available for sale                             2,732         2,907
Purchases of premises and equipment                                                                (60)         (782)
                                                                                                ------        ------
     Net cash used in investing activities                                                      (6,107)      (27,254)
                                                                                                ------        ------
</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                       8
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(Dollars In Thousands)
--------------------------------------------------------------------------------

                                                        FOR THE THREE MONTHS
                                                           ENDED MARCH 31,
                                                        --------------------
                                                          2002          2001
                                                          ----          ----
CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in deposits                                 3,475         7,724
Proceeds (repayments) from FHLB advances, net               --        10,000
(Repayments) proceeds of other borrowings, net            (200)           26
Purchases of treasury stock                                (81)           --
Sales of treasury stock for exercise of stock options      279           833
                                                        ------        ------

     Net cash provided by financing activities           3,473        18,583
                                                        ------        ------

NET DECREASE IN CASH & CASH EQUIVALENTS                   (677)       (9,378)

CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD          13,079        25,159
                                                        ------        ------

CASH & CASH EQUIVALENTS AT END OF PERIOD               $12,402       $15,781
                                                        ======        ======

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid during the period for:
     Interest on deposits and borrowings               $ 3,196       $ 5,204
     Income taxes                                      $   800       $   200


See Notes to Condensed Consolidated Financial Statements


                                       9
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

NOTE 1:  Basis Of Presentation

         The accompanying  condensed consolidated unaudited financial statements
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America ("GAAP") 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 GAAP for annual  financial  statements.  In the  opinion of  Management,  all
necessary   adjustments,   consisting  only  of  normal  recurring  adjustments,
necessary for a fair presentation have been included.  The results of operations
for the three month period ended March 31, 2002 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  incorporated  in the State of
Delaware and 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  businesses.  All
significant intercompany transactions and balances have been eliminated.

         Monterey  Bay  Bancorp,  Inc.  operates as a single  business  segment.
Consequently, no segment information is provided in this Form 10-Q.

         These unaudited  condensed  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  the  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, 2001 included in the Company's  Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.

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


                                       10
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

NOTE 2.  Computation Of Earnings Per Share

         All  of  the  Company's  net  income  has  been   available  to  common
stockholders during the periods covered in this Form 10-Q.

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

         There was no  difference  in the  numerator,  net  income,  used in the
calculation  of basic  earnings per share and diluted  earnings  per share.  The
denominator  used in the  calculation  of basic  earnings  per share and diluted
earnings per share for the three month  periods ended March 31, 2002 and 2001 is
reconciled  in the  following  table.  The  following  table also  presents  the
calculation  of the  Company's  Basic  EPS  and  Diluted  EPS  for  the  periods
indicated.


                                                     For The Three Months
                                                        Ended March 31,
                                                    -----------------------
(In Whole Dollars And Whole Shares)
                                                      2002           2001
                                                      ----           ----

Net income                                         $1,205,000    $  602,000
                                                    =========     =========

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

Less weighted average:
   Uncommitted ESOP shares                           (103,320)     (139,258)
   Non-vested stock award shares                      (17,075)      (33,615)
   Treasury shares                                 (1,023,303)   (1,091,971)
                                                    ---------     ---------
Sub-total                                          (1,143,698)   (1,264,844)
                                                    ---------     ---------

Weighted average BASIC shares outstanding           3,348,387     3,227,241

Add dilutive effect of:
   Stock options                                      115,534        46,729
   Stock awards                                         1,365           589
                                                    ---------     ---------
Sub-total                                             116,899        47,318
                                                    ---------     ---------
Weighted average DILUTED shares outstanding         3,465,286     3,274,559
                                                    =========     =========
Earnings per share:

   BASIC                                               $ 0.36        $ 0.19
                                                        =====         =====
   DILUTED                                             $ 0.35        $ 0.18
                                                        =====         =====


                                       11
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

NOTE 3:  Other Comprehensive Income

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

         Reclassification  adjustments  for realized net gains included in other
comprehensive income for investment and mortgage backed securities classified as
available for sale for the three month periods ended March 31, 2002 and 2001 are
summarized as follows:

                                                            Three Months Ended
                                                                March 31,
                                                            ------------------
                                                            2002          2001
                                                            ----          ----
(Dollars In Thousands)

Gross reclassification adjustment                          $  43         $  34
Tax expense                                                  (18)          (14)
                                                            ----          ----
Reclassification adjustment, net of tax                    $  25         $  20
                                                            ====          ====


         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,
                                                            ------------------
                                                            2002          2001
                                                            ----          ----
(Dollars In Thousands)

Holding (loss) gain arising during the period, net of tax  $ (59)        $ 279
Reclassification adjustment, net of tax                      (25)          (20)
                                                            ----          ----
Net unrealized (loss) gain recognized in
     other comprehensive income                            $ (84)        $ 259
                                                            ====          ====


                                       12
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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


NOTE 4:  Stock Option Plans

         The Company  maintains the Amended 1995 Incentive Stock Option Plan and
the 1995 Stock  Option Plan For Outside  Directors.  Under  these  plans,  stock
options  typically  vest over a five year time period,  although  other  vesting
periods are  permitted  under the Amended 1995  Incentive  Stock Option Plan and
have been  utilized  by the Company  from time to time.  All  outstanding  stock
options  under both of these plans vest upon a change in control of the Company.
The following tables summarize the combined status of these plans:

<TABLE>
<CAPTION>

                                                              Stock                             Stock       Average
                                                             Options            Stock          Options      Exercise
                             Stock           Stock         Cumulatively        Options        Available     Price Of
                            Options         Options         Vested And       Cumulatively    For Future      Vested
Date                       Authorized     Outstanding       Outstanding       Exercised        Grants        Options
----                       ----------     -----------       -----------       ---------       --------       -------
<S>                         <C>             <C>               <C>              <C>             <C>          <C>
December 31, 2001           757,929         425,104           255,224          195,761         137,064      $ 10.88
March 31, 2002              757,929         390,999           238,390          225,566         141,364      $ 11.07

</TABLE>

Activity during the three months ended March 31, 2002 included:

                                         Three Months Ended
                                           March 31, 2002
                                           --------------
Granted                                         5,500
Canceled                                        9,800
Exercised                                      29,805
Vested                                         12,971

         The exercise price of individual vested stock options ranged from a low
of $8.19 per share to a high of $16.60 per share as of March 31, 2002.


                                       13
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

NOTE 5:  Stock Award Plan

         The  Company  maintains  the  Performance  Equity  Program  ("PEP") for
officers and  employees.  Awards under the PEP  typically  vest over a five year
time period,  although from time to time the Company has utilized unallocated or
forfeited  PEP  shares  for  immediately  vested  stock  grants  in lieu of cash
compensation.  Awards under the PEP are both  time-based and  performance-based.
All  outstanding  stock  awards  under  the PEP vest in the event of a change in
control of the Company. The following table summarizes the status of this plan:

<TABLE>
<CAPTION>

                                                                                           Stock
                                                                         Stock            Awards
                                     Stock            Stock              Awards          Available
                                    Awards           Awards           Cumulatively      For Future
Date                              Authorized       Outstanding           Vested           Grants
----                              ----------       -----------          -------           ------
<S>                                 <C>               <C>                <C>                <C>
December 31, 2001                   141,677          17,969             123,708             --
March 31, 2002                      141,677          16,486             125,191             --

</TABLE>

         Activity during the three months ended March 31, 2002 included:

                       Three Months Ended
                         March 31, 2002
                         --------------
Granted                        --
Canceled                       --
Vested                       1,483






                                       14
<PAGE>
MONTEREY BAY BANCORP, INC. AND SUBSIDIARY

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

NOTE 6:  Commitments & Contingencies

         At March 31, 2002,  commitments maintained by the Company included firm
commitments to originate  $27.4 million in various types of loans,  and optional
commitments  to sell $1.7  million  in fixed  rate  residential  mortgages  on a
servicing released basis. The Company maintained no firm commitments to purchase
loans or securities,  to assume  borrowings,  or to sell securities at March 31,
2002.

NOTE 7:  Recent Accounting Pronouncements

Business Combinations and Goodwill and Other Intangible Assets

         Effective  January 1, 2002, the Company adopted  Statement of Financial
Accounting  Standards ("SFAS") No. 141, "Business  Combinations" which addresses
the elimination of pooling accounting treatment in business combinations and the
financial  accounting and reporting for acquired  goodwill and other  intangible
assets at acquisition and SFAS No. 142,  "Goodwill and Other Intangible  Assets"
which  addresses  financial  accounting and reporting for acquired  goodwill and
other  intangible  assets at  acquisition  in  transactions  other than business
combinations  covered by SFAS No. 141, and the accounting  treatment of goodwill
and other  intangible  assets after  acquisition and initial  recognition in the
financial  statements.  The adoption of these statements did not have any impact
on the Company's consolidated financial position, results of operations, or cash
flows,  as the  Company  had no  goodwill  as of  January 1, 2002 and all of the
Company's intangible assets, comprised of core deposit intangibles,  have finite
lives and are continuing to be amortized.

Impairment or Disposal of Long-Lived Assets

         Effective   January  1,  2002,  the  Company   adopted  SFAS  No.  144,
"Accounting For The Impairment Or Disposal Of Long-Lived  Assets".  SFAS No. 144
supersedes SFAS No. 121, "Accounting For The Impairment Of Long-Lived Assets And
For  Long-Lived  Assets To Be  Disposed  Of" and the  accounting  and  reporting
provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting The
Results Of  Operations  -  Reporting  The  Effects Of Disposal Of A Segment Of A
Business,  And  Extraordinary,  Unusual and  Infrequently  Occurring  Events And
Transactions".  SFAS No. 144 unifies the accounting  treatment for various types
of  long-lived  assets to be disposed  of, and  resolves  implementation  issues
related to SFAS No. 121. The adoption of SFAS No. 144 did not have any effect on
the Company's financial position,  results of operations,  or cash flows, as the
Company had no long-lived  assets that were considered  impaired or that were to
be disposed of as of January 1, 2002.


NOTE 8:  Reclassifications

         Certain  amounts in the December 31, 2001 and March 31, 2001  financial
statements  have been  reclassified  to conform to the March 31, 2002  financial
statement presentation.


                                       15
<PAGE>
Item 2. Management's  Discussion And Analysis Of Financial Condition And Results
Of Operations

Forward-looking Statements

         Discussions  of  certain  matters  in  this  Report  on Form  10-Q  may
constitute  forward-looking  statements within the meaning of the Section 27A of
the  Securities  Act of 1933, as amended,  and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange  Act"), and as such, may involve
risks and uncertainties.  Forward-looking statements, which are based on certain
assumptions  and  describe  future  plans,  strategies,  and  expectations,  are
generally identifiable by the use of words or phrases such as "believe", "plan",
"expect",  "intend",  "anticipate",   "estimate",  "project",  "forecast",  "may
increase",  "may fluctuate",  "may improve" and similar expressions or future or
conditional  verbs  such  as  "will",  "should",  "would",  and  "could".  These
forward-looking  statements  relate to, among other things,  expectations of the
business environment in which Monterey Bay Bancorp, Inc. operates, opportunities
and   expectations   regarding   technologies,    anticipated   performance   or
contributions   from  new  and  existing   employees,   projections   of  future
performance,  potential future credit  experience,  possible changes in laws and
regulations, potential risks and benefits arising from the implementation of the
Company's strategic and tactical plans,  perceived  opportunities in the market,
potential actions of significant  stockholders and investment banking firms, 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,  the demand
for the Company's  products and services,  accounting  principles or guidelines,
legislative  and  regulatory  changes,  monetary  and fiscal  policies of the US
Government,  US Treasury, and Federal Reserve, real estate markets,  competition
in the financial  services  industry,  attracting  and retaining key  personnel,
performance of new employees,  regulatory actions, changes in and utilization of
new  technologies,  consumer  and  business  response to news events or economic
trends,  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, 2001.  These
factors should be considered in evaluating the forward-looking  statements,  and
undue  reliance  should not be placed on such  statements.  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.

Availability Of Information

          This Report on Form 10-Q is available at the following Internet sites:

o    www.sec.gov

o    www.montereybaybank.com

Additional  corporate  information  regarding  Monterey  Bay  Bancorp,  Inc. and
Monterey  Bay Bank is also  available  at the  www.montereybaybank.com  Internet
site. This Internet site is not a part of this Report on Form 10-Q.

General

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


                                       16
<PAGE>
         At March 31,  2002,  the  Company had $542.2  million in total  assets,
$470.1 million in net loans  receivable,  and $435.8 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 full service branch offices in
its primary market area in Central California, one loan production office in Los
Angeles, 11 automated teller machines ("ATM's") including two stand-alone ATM's,
and its administrative  facilities in Watsonville,  California. In addition, the
Company  supports its customers  through  bilingual  (English / Spanish) 24 hour
telephone  banking,  Internet banking,  electronic bill payment,  and ATM access
through an array of  networks  including  STAR,  CIRRUS,  and PLUS.  Through its
network  of  banking  offices,  the  Bank  emphasizes  personalized  service  in
assisting  individuals,  families,  community  organizations,  and businesses in
attaining  their  financial  objectives.  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,  term,  universal,  and whole life insurance and a large  selection of
non-FDIC insured  investment  products  including fixed and variable  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   typically
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.

Critical Accounting Policies

         The Company's  financial  statements  are prepared in  accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP").  The Company's significant accounting policies are presented in Note 1
to the Consolidated  Financial Statements contained in the Company's 2001 Annual
Report on Form 10-K.  The Company  follows  accounting  policies  typical to the
community commercial banking industry and in compliance with various regulations
and  guidelines as  established  by the  Financial  Accounting  Standards  Board
("FASB") and the Bank's primary federal regulator, the OTS.

         The Company's most significant  management  accounting  estimate is the
appropriate  level for the  allowance  for loan  losses.  The Company  follows a
methodology for  calculating  the  appropriate  level for the allowance for loan
losses.  However,  various factors,  many of which are beyond the control of the
Company, could lead to significant revisions in the amount of allowance for loan
losses in future  periods,  with a  corresponding  impact  upon the  results  of
operations.  In addition, the calculation of the allowance for loan losses is by
nature inexact,  as the allowance  represents  Management's best estimate of the
loan losses inherent in the Company's  credit  portfolios at the reporting date.
These loan  losses will occur in the  future,  and as such cannot be  determined
with absolute certainty at the reporting date.

         Other estimates that the Company utilizes in its accounting include the
expected  useful  lives  of  depreciable  assets,  such as  buildings,  building
improvements,  equipment,  and furniture. The useful lives of various technology
related  hardware  and  software  can be subject to change  due to  advances  in
technology  and  the  general  adoption  of  new  standards  for  technology  or
interfaces among computer or telecommunication systems.


                                       17
<PAGE>
         The Company applies Accounting  Principles Board ("APB") Opinion No. 25
and related  interpretations in accounting for stock options.  Under APB No. 25,
compensation  cost for stock  options is measured as the excess,  if any, of the
fair market  value of the  Company's  stock at the date of grant over the amount
the employee or director  must pay to acquire the stock.  Because the  Company's
stock  option  Plans  provide for the  issuance of options at a price of no less
than  the  fair  market  value at the date of  grant,  no  compensation  cost is
required to be recognized for the stock option Plans.

         Had compensation costs for the stock option Plans been determined based
upon  the  fair  value  at the date of  grant  consistent  with  SFAS  No.  123,
"Accounting For Stock Based Compensation", the Company's net income and earnings
per share would have been  reduced.  The amount of the  reduction for the fiscal
years 1999 through 2001 is  disclosed in Note 18 to the  Consolidated  Financial
Statements  contained  in the 2001  Annual  Report on Form 10-K,  based upon the
assumptions listed therein.

         GAAP  itself  may change  over time,  impacting  the  reporting  of the
Company's financial  activity.  Although the economic substance of the Company's
transactions  would not change,  alterations  in GAAP could affect the timing or
manner of accounting or reporting.

Recent Developments

         Recent  regulatory,  financial  industry,  and other  developments have
included the following:

o    Federal  legislation  reforming the  bankruptcy  code remains in conference
     between  the House of  Representatives  and the Senate.  This  legislation,
     depending upon its final form, if any, could potentially assist the Bank in
     collecting on certain credits.

o    Congress  continues  to  debate  lifting  restrictions  on the  payment  of
     interest on  business  checking  accounts  and easing  restrictions  on the
     number of certain  transactions  for MMDA  accounts  at insured  depository
     institutions.  The potential payment of interest on sterile reserves at the
     Federal Reserve banks is also being considered.  Depending on the nature of
     such changes eventually approved,  if any, there could be various favorable
     and / or unfavorable impacts upon the Company.

o    The FHLB-San  Francisco  has submitted its proposed new capital plan to its
     primary  regulator.  The Company does not believe that this  proposed  plan
     would materially impact the Bank's balance of FHLB capital stock owned. The
     Federal   Housing   Finance  Board  is  analyzing  the  potential  to  ease
     restrictions  on  membership  in more than one Federal Home Loan Bank.  The
     easing of these  restrictions,  if any, depending upon their nature,  could
     present a range of impacts  upon the  individual  Federal  Home Loan Banks,
     including the FHLB-San Francisco.

o    A possible  increase in (e.g.  from $100,000 to $130,000 per depositor,  or
     special limits for  retirement  accounts) or broadening of (e.g. all public
     agency deposits) federal deposit insurance coverage,  which may be combined
     with a new formula for FDIC insurance premiums,  is under evaluation at the
     FDIC and in  Congress.  The  impetus  for  this  legislation  has  recently
     increased  due to the ratio of reserves  to deposits in the Bank  Insurance
     Fund ("BIF")  falling to 1.26%,  or just 1 basis point above the  statutory
     limit.  Congress also continues to discuss the potential  merger of the BIF
     and Savings Association Insurance Fund ("SAIF") of the FDIC.

o    The State of  California  is facing a  significant  budget  deficit  and is
     pursuing the issuance of a substantial  volume of bonds in order to replace
     monies  from the general  fund  expended  in  conjunction  with the State's
     energy market. The potential  imposition of new fees or taxes or higher tax
     rates by the State of California  could impact the  Company's  business and
     earnings. The possible suspension,  curtailment,  or elimination of various
     State  programs could also affect the Company.  In addition,  the State has
     not yet adopted  legislation  placing the State tax code in conformity with
     recent  changes  in  federal  tax  laws,  including  in  regards  to limits
     applicable to certain tax advantaged savings plans such as IRA's and 401(k)
     plans.  The Company is unable to predict  what,  if any,  actions  might be
     taken by the State of California  and the possible  impact of those actions
     upon  the  Company's   consolidated   financial  condition  or  results  of
     operations.


                                       18
<PAGE>
Overview Of Business Activity

         During  the  first   quarter  of  2002,   the  Company   continued  the
implementation of its strategic plan of transforming the Bank from a 76 year old
savings & loan into a community  focused  commercial  bank serving the financial
needs of individuals,  families, organizations, and businesses. The Bank focuses
on building longstanding customer  relationships,  investing the time and energy
to get to know customers well and understand their financial objectives. Another
key aspect of the Company's transformation strategy is a significant increase in
the community involvement and contributions made by the Bank, its Directors, and
its employees. These efforts are facilitated by the Bank's Director of Community
Relations.  The  Company  seeks to  differentiate  itself  from its  competition
through  various means,  particularly  by providing a superior level of customer
service.

         Key accomplishments during the first quarter of 2002 included:

o    record quarterly net income of $1.21 million and diluted earnings per share
     of $0.35

o    the  attainment  of record  levels of total assets,  loans,  deposits,  and
     stockholders' equity at March 31, 2002

o    progress in shifting the composition of the loan and deposit portfolios

o    an expansion in the net interest margin

o    continued  maintenance  of  favorable  credit  quality as  measured  by net
     charge-offs, although a rise in non-accrual loans (all real estate secured)
     was experienced

o    increases in local commercial banking business

o    the hiring of additional  individuals with significant  commercial  banking
     experience in order to speed the  implementation  of the strategic plan and
     augment customer service

o    an expansion of the Bank's quality customer service program,  with periodic
     measurement provided by "mystery shoppers" and customer surveys

o    the  opening  of a loan  production  office  in  Los  Angeles  focusing  on
     construction and income property lending

The Los Angeles loan  production  office is managed by an  individual  with many
years of local  lending  experience  and  expertise in the type of  relationship
banking conducted by the Company.

         The Company  continued its focus on stockholder  value during the first
quarter of 2002,  increasing  its  tangible  book value per share from $14.08 at
December 31, 2001 to $14.48 at March 31,  2002.  The Company  repurchased  5,000
shares of common stock at $16.25 per share during the first  quarter of 2002. At
March 31, 2002, there were 109,035  remaining  shares  authorized for repurchase
under the Company's current stock repurchase program.


                                       19
<PAGE>
         The Company's  Directors and Officers continued to be net purchasers of
the  Company's  common  stock during the first  quarter of 2002.  Similar to its
practice in 2001, the Company intends to pursue  opportunities  to utilize stock
based  compensation  in lieu of certain cash  compensation in 2002 as a means of
aligning  employee   interests  with  improvements  in  stockholder  value.  The
Company's  Directors  continued to receive  their  retainer fees in common stock
during the first quarter of 2002,  and plan to continue  doing so throughout the
year.  The Company is working  with its  investment  banker to add coverage by a
second equity  analyst  during the second  quarter.  In addition,  a significant
number of the  Bank's  employees  have an  ownership  interest  in the  Company,
through one or more of the following:

o    direct stock purchases

o    the Employee Stock Ownership Plan ("ESOP")

o    incentive stock options

o    stock grant awards

o    stock  purchased  with funds  contributed by employees to the Bank's 401(k)
     Plan

         The Board of Directors and Management have targeted the  transformation
strategy  into a community  focused  commercial  bank based on their belief that
this  approach  presents  the best  current  opportunity  to  enhance  long term
stockholder value.

         The  Company's  strategic  plan  envisions  a greater  amount of income
property,  construction, and business lending funded with a higher percentage of
transaction deposit accounts.  The strategic plan also includes  improvements in
the  Company's  efficiency  ratio and return on  stockholders'  equity,  two key
measures of financial  performance  where the Company has lagged high performing
peer institutions.  However, the pace of the Company's conversion from a savings
& loan into a locally focused community bank will be impacted in coming quarters
by multiple factors, many of which are outside the Company's control,  including
the strength of the California and national economies,  competition,  regulatory
and  legislative  changes,  and  trends  in real  estate  values.  The  State of
California budget deficit and issues stemming from the availability and price of
energy in California could also unfavorably impact the Company and / or slow its
strategic  transformation.  The  strategy  being  pursued  by the  Company  also
presents  various types of tactical  implementation  risks. The Bank is under no
immediate  pressure to pursue a change in charter at this time, as its Qualified
Thrift Lender  ("QTL") ratio was 73.8% at March 31, 2002,  compared to a minimum
requirement of 65.0% to retain its federal thrift charter.


Changes In Financial Condition From December 31, 2001 To March 31, 2002

         Total assets increased $4.8 million from $537.4 million at December 31,
2001 to a record $542.2 million at March 31, 2002.

         Cash & cash  equivalents  decreased  from $13.1 million at December 31,
2001 to  $12.4  million  at  March  31,  2002 due to the  Company's  using  cash
equivalents to fund expansions in the security and loan portfolios.


Securities

         Investment securities available for sale were little changed during the
first three months of 2002,  totaling $7.3 million at both December 31, 2001 and
March 31, 2002. At both these dates, the Company's investment security portfolio
was  identically  composed of two floating rate corporate  trust preferred bonds
rated "A-" or better by Standards & Poors. The slight decrease in balance during
2002  resulted  from  the  mark to  market  adjustment  for  available  for sale
securities,  which reflects increased credit spreads and reduced demand for long
term corporate bonds repricing based upon three month LIBOR.


                                       20
<PAGE>
         The average balance of investment  securities  during the first quarter
of 2002 was increased by the purchase of Agency debentures which had been called
for redemption by the issuer.  The Company acquired these bonds, which typically
have a remaining term of ten to fourteen days, as a higher yielding  alternative
to federal funds sold, repurchase agreements,  and other short term investments.
The Company owned no Agency debentures at March 31, 2002.

         Mortgage  backed  securities  available for sale  increased  from $30.6
million at December  31, 2001 to $32.9  million at March 31,  2002.  The Company
purchased  relatively low duration Agency  collateralized  mortgage  obligations
("CMO's")  during the first quarter of 2002 to serve as  collateral  for certain
deposits  and to invest  available  liquidity.  The low duration was targeted in
conjunction with the Company's asset / liability management program and in order
to provide cash flows later in the year to fund anticipated loan production.

         Prepayments on mortgage  backed  securities  were high during the first
quarter of 2002 due to a  combination  of the  historically  low  interest  rate
environment, high levels of borrower refinance activity, and the payoff and / or
pay down of various CMO's,  particularly short term planned amortization classes
("PAC's") or  sequential  classes that the Company had  purchased  over the past
year in anticipation of funding requirements for expanded lending in 2002.

         During the first  quarter of 2002,  the Company sold a somewhat  higher
duration  private label CMO with $2.7 million in par value in  conjunction  with
its interest  rate risk  management  program.  At March 31, 2002,  the Company's
mortgage backed security  portfolio was entirely comprised of Agency securities.
The vast majority of the Company's  mortgage backed securities at March 31, 2002
were relatively low duration bonds.  Management  believes that allocating  asset
duration to new loans versus securities facilitates better community support and
derives a higher  yield for the same level of  exposure to future  increases  in
general market interest rates.


Loans

         Loans held for sale totaled $661 thousand at March 31, 2002,  down from
$713  thousand at December  31, 2001.  The Company  sells most of its long term,
fixed  rate  residential  mortgage  production  into the  secondary  market on a
servicing  released  basis,  and purchases more interest rate sensitive loans as
part of its interest rate risk  management  program.  All loans held for sale at
March 31, 2002 were matched with optional commitments to deliver such loans into
the secondary market.

         Loans  held for  investment,  net,  increased  from  $465.9  million at
December 31, 2001 to a record  $469.4  million at March 31,  2002.  The increase
resulted from a combination of strong internal loan originations,  including the
first loans from the new Los Angeles loan production  office, and from purchases
of  individual  income  property  loans from  correspondent  banks.  The Company
follows its customary  underwriting  policies in evaluating loan purchases.  The
increase in loans held for  investment,  net,  was  restrained  during the first
quarter by the Company's  decision to reduce its lending  concentration in loans
secured by hotel / motel / resort properties.

         Total net loans as a percentage of total assets were 86.7% at March 31,
2002. The Company has targeted  increasing this ratio as part of its strategy of
supporting  its  interest  margin,  fostering  economic  activity  in its  local
communities, and effectively utilizing the Bank's capital.

         The product mix in the loan portfolio  shifted during the first quarter
in conformity with the Company's strategic plan. Residential loans declined from
42.3% of gross loans at  December  31, 2001 to 39.9% of gross loans at March 31,
2002. In contrast,  construction  loans  increased from 7.9% to 9.2%, land loans
increased from 2.5% to 3.3%, and commercial  loans rose from 1.8% to 2.4%.  This
change  in loan mix was  facilitated  by the  commercial  business  relationship
officers the Company hired last year and by the new Los Angeles loan  production
office,  which concentrates on income property and construction  lending. To the
extent economic and competitive conditions permit, the Company plans to continue
decreasing  the  percentage  of its  loan  portfolio  allocated  to  residential
mortgages in favor of other  generally  higher  yielding and more  interest rate
sensitive types of loans.


                                       21
<PAGE>
         The Company's  commercial banking group continued to generate increased
business  during the first  quarter of 2002.  At March 31, 2002,  this group had
attracted $6.3 million in deposits, $7.6 million in commercial real estate loans
(e.g. owner / user), and $11.8 million in business term loans and balances drawn
against  business lines of credit.  The commercial  banking group's total credit
commitments  at March 31, 2002 were $27.6 million.  In addition,  the commercial
lending  pipeline at March 31, 2002 pointed  toward the  continued  expansion of
commercial banking customer relationships during the second quarter of 2002.

         The Company  ended the first quarter of 2002 with a total loan pipeline
in excess of $65.0 million,  including a significant  volume of construction and
income property loans.  The Company  anticipates  further growth in total assets
during the second quarter of 2002, and intends to continue expanding the balance
sheet throughout 2002 to more extensively meet the credit needs of its customers
and local communities.

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

(Dollars In Thousands)                                                     March 31,   December 31,
                                                                                2002           2001
                                                                           ---------      ---------
<S>                                                                        <C>            <C>
Held for investment:
   Loans secured by real estate:
      Residential one to four unit                                         $ 194,545      $ 204,829
      Multifamily five or more units                                         106,796        103,854
      Commercial and industrial                                              106,298        109,988
      Construction                                                            45,074         38,522
      Land                                                                    16,279         11,924
                                                                           ---------      ---------

   Sub-total loans secured by real estate                                    468,992        469,117

   Other loans:
      Home equity lines of credit                                              7,652          6,608
      Loans secured by deposits                                                  188            202
      Consumer lines of credit, unsecured                                        149            170
      Commercial term loans                                                    3,945          3,163
      Commercial lines of credit                                               7,857          5,680
                                                                           ---------      ---------

   Sub-total other loans                                                      19,791         15,823

   Sub-total gross loans held for investment                                 488,783        484,940

   (Less) / Plus:
      Undisbursed construction loan funds                                    (12,609)       (12,621)
      Unamortized purchase premiums, net of purchase discounts                   565            435
      Deferred loan fees and costs, net                                         (344)          (202)
      Allowance for loan losses                                               (6,958)        (6,665)
                                                                           ---------      ---------

Loans receivable held for investment, net                                  $ 469,437      $ 465,887
                                                                           =========      =========

Held for sale:
   Residential one to four unit                                            $     661      $     713
                                                                           =========      =========
</TABLE>


                                       22
<PAGE>
FHLB Stock

         The Company's  investment in the capital stock of the FHLB-SF increased
by $46  thousand  in the  first  quarter  of 2002  due to stock  dividends.  The
Company's  investment  in FHLB stock will  increase  more  significantly  in the
second quarter of 2002 due to a mandatory purchase  requirement of $216 thousand
associated with the growth in the Bank's balance sheet.


Premises and Equipment

         Premises and  equipment,  net,  decreased from $7.6 million at December
31,  2001 to $7.5  million  at March 31,  2002,  as  periodic  depreciation  and
amortization  exceeded new purchases.  Because the Company acquired  significant
new  hardware  and  software  during 2001 in support of the new core  processing
system,  fixed asset  acquisitions  in 2002 are  expected to be  moderate.  This
expectation  could,  however,  change in the event the Company is  successful in
opening  a  de  novo  branch  or  acquiring  a  branch  from  another  financial
institution.  Fixed asset  requirements  for the new Los Angeles loan production
office were not significant.


Core Deposit Intangibles

         Core deposit  intangibles,  net,  declined by $170 thousand  during the
first three months of 2002 in conjunction with periodic amortization.  Under OTS
regulations,   intangible  assets,  including  core  deposit  premiums,   reduce
regulatory  capital,  resulting in lower  regulatory  capital  ratios than would
otherwise be the case.


Deposits

         Total deposits  increased from $432.3 million at December 31, 2001 to a
record $435.8 million at March 31, 2002. Key trends within the deposit portfolio
included:

o    Non-interest  bearing  demand  deposits  increased  from  $21.1  million at
     December  31,  2001 to $23.6  million  at March  31,  2002.  This  rise was
     supported by:

     A.  balances maintained by commercial banking customers

     B.  the accumulation of liquid funds by certain customers in advance of the
         payment of property and income taxes in April

     C.  the Company's  targeting  demand deposit  balances as part of its sales
         management program

     D.  an increase in official checks outstanding (outstanding checks drawn on
         the Bank's own account are accounted for as demand deposits)

o    Interest bearing NOW checking account balances increased from $42.6 million
     at  December  31, 2001 to $43.0  million at March 31,  2002.  NOW  accounts
     balances  during the first quarter of 2002 were also favorably  impacted by
     the  accumulation  of funds for tax  payments  and by the  Company's  sales
     program.  During  the  first  quarter  of  2002,  the  Company  experienced
     particularly  aggressive advertising and price competition for consumer NOW
     deposits from one large  national  thrift.  This thrift paid interest rates
     far above market and significantly in excess of the federal funds rate. The
     Company has been reluctant to match these prices,  and has instead  focused
     on  competing  based  upon  service,  convenience,  flexible  access  (e.g.
     bilingual telephone banking,  Internet banking, ATM access, debit card, and
     in-branch service), and overall business relationships.


                                       23
<PAGE>
o    Savings deposits decreased from $19.1 million at December 31, 2001 to $18.8
     million at March 31, 2002. While the Company continues to offer traditional
     statement  savings  products,  its sales focus has instead  concentrated on
     checking  and  money  market  accounts  due to  the  greater  features  and
     flexibility offered by those products.

o    Money market deposits increased from $105.8 million at December 31, 2001 to
     $111.8 million at March 31, 2002.  Money market deposit balances during the
     first quarter of 2002 were  positively  impacted by Bank  advertising,  the
     accumulation of funds by certain  customers for tax payments in April,  and
     by certain  customers  waiting to commit funds to  certificates  of deposit
     given the historically low interest rate environment.  In addition,  during
     the first quarter of 2002, the Company offered  interest rates on its Money
     Market Plus product  that were in excess of many money market  mutual funds
     and money market accounts  offered  through  securities  firms.  The Bank's
     sales staff was trained to highlight this differential,  and to explain the
     many attractive attributes of the Money Market Plus product, including:

     A.  access via telephone  banking,  Internet banking,  ATM's, bank by mail,
         check writing, and in-branch service

     B.  extensively  tiered  interest  rates,  whereby  earnings on the account
         increase as each successively higher balance tier is attained

     C.  FDIC insurance to the maximum amount permitted by law

     D.  combined statement with other Bank products

     E.  automatic transfers and direct deposit

o    Certificate of deposit  balances  decreased from $243.8 million at December
     31, 2001 to $238.6 million at March 31, 2002. This decline in part resulted
     from certain customers delaying  committing funds to fixed term, fixed rate
     certificates  of  deposit  due  to  the   historically  low  interest  rate
     environment.  During the first  quarter  of 2002,  the  Company  priced its
     longer term (18 to 60 months)  certificates of deposit attractively as part
     of  its  asset  /  liability   management  program  and  to  encourage  the
     development of longer term customer  relationships.  In addition,  early in
     the second  quarter of 2002,  the  Company  conducted  a print  advertising
     campaign for 24 to 30 month  certificates  of deposits that  attracted some
     new customers. Certificate of deposit balances during the second quarter of
     2002 will also be favorably  affected by the receipt of an additional  $3.0
     million deposit from the State of California and the planned  acceptance of
     certain brokered deposit funds.

         Transaction accounts increased from 43.6% of total deposits at December
31, 2001 to 45.2% of total deposits at March 31, 2002. Continuing 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,  generate
fee income,  furnish opportunities for cross-selling other products and services
to customers,  and are typically  less interest rate  sensitive  than many other
funding  sources.  The  Company  continues  to  focus  its  marketing,   product
development,  and sales efforts on attracting new deposit transaction  accounts,
including  those from  businesses.  The  Company  recently  introduced  Internet
banking for commercial business  customers,  complementing the existing consumer
Internet  banking  product.  The Company is also developing new deposit products
and additional cash  management  services for  businesses,  with  implementation
anticipated later in 2002.


                                       24
<PAGE>
         The Company's ratio of loans to deposits was 107.87% at March 31, 2002,
nearly  constant  from December 31, 2001. In light of this ratio and the size of
the loan pipeline at March 31, 2002, the Company is exploring  various strategic
and tactical alternatives for increasing its funding base, including:

o    pursuing   opportunities  for  additional  branch  locations  (de  novo  or
     acquisition)

o    introducing new deposit products and related services

o    modifying  staff  incentive  programs to more  strongly  focus on expanding
     deposit relationships

o    directing a higher  percentage of the advertising  and promotion  budget to
     deposit generation

o    accepting  brokered  deposits,  which  the  Company  has  not  historically
     utilized,  but  anticipates  using in a limited  manner  commencing  in the
     second quarter of 2002

o    increased  business lending with associated  compensating  customer deposit
     balances

o    relationship loan pricing for income property owners maintaining  operating
     accounts with the Company

o    serving  the  depository  needs  of  customers  at  the  Los  Angeles  loan
     production office in part through a correspondent banking relationship


Borrowings

         Borrowings  decreased  slightly from $53.8 million at December 31, 2001
to $53.6 million at March 31, 2002.  All of the Company's FHLB advances at March
31,  2002 were fixed  rate,  fixed term  borrowings  without  call or put option
features.  Early in the  second  quarter  of 2002,  the  Company  prepaid a $5.0
million  FHLB  advance  due in the third  quarter of 2002 in order to extend the
term structure of that debt in conjunction  with the Company's asset / liability
management program.


Other Liabilities

         Other  liabilities  decreased  slightly from December 31, 2001 to March
31, 2002, as an increase in accrued  interest on FHLB advances due to the timing
of interest payment dates was offset by a decrease in deferred compensation. The
Company   recently   paid  out  all  deferred   compensation   and  settled  all
non-qualified  retirement plan obligations via lump sum payments.  These actions
accelerated  the  realization of deferred tax assets for the Company and reduced
operating costs slightly.


                                       25
<PAGE>
Stockholders' Equity

         Total stockholders' equity increased from $50.2 million at December 31,
2001 to a record $51.8 million at March 31, 2002.  Factors  contributing  to the
increase included:

o    $1.2 million in 2002 year to date net income

o    continued amortization of deferred stock compensation,  including both ESOP
     and PEP shares

o    the ongoing payment of Director retainer fees with Company common stock

o    the  exercise  of 29,805  vested  stock  options  by former  employees  and
     Directors, generating $363 thousand in additional stockholders' equity

         The above factors more than offset the impacts of  depreciation  in the
portfolio of securities  classified as available for sale and the  repurchase of
5,000 shares of the Company's  common stock at $16.25 per share. The Company did
not  declare or pay any cash  dividends  during the first  quarter of 2002.  The
Board of Directors  continues to believe that alternative uses for the Company's
capital, at this time, are more attractive than the payment of a cash dividend.


Interest Rate Risk Management And Exposure

         The table below  presents an overview of the interest rate  environment
during the 15 months ended March 31, 2002.  The 12 MTA and 11th District Cost Of
Funds Index  ("COFI") are by nature  lagging  indices that trail changes in more
responsive  interest rate indices such as those  associated with the Treasury or
LIBOR markets.

<TABLE>
<CAPTION>

Index / Rate (1)        12/31/00    3/31/01   6/30/01    9/30/01  12/31/01    3/31/02
----------------        --------    -------   -------    -------  --------    -------
<S>                        <C>        <C>       <C>        <C>       <C>        <C>
3 month Treasury bill      5.89%      4.28%     3.65%      2.37%     1.72%      1.78%
6 month Treasury bill      5.70%      4.13%     3.64%      2.35%     1.79%      2.10%
2 year Treasury note       5.09%      4.18%     4.24%      2.85%     3.02%      3.72%
5 year Treasury note       4.97%      4.56%     4.95%      3.80%     4.30%      4.84%
10 year Treasury note      5.11%      4.92%     5.41%      4.59%     5.05%      5.40%
Target federal funds       6.50%      5.00%     3.75%      3.00%     1.75%      1.75%
Prime rate                 9.50%      8.00%     6.75%      6.00%     4.75%      4.75%
3 month LIBOR              6.40%      4.88%     3.84%      2.59%     1.88%      2.03%
12 month LIBOR             6.00%      4.67%     4.18%      2.64%     2.44%      3.00%
1 Year CMT (2)             5.60%      4.30%     3.58%      2.82%     2.22%      2.57%
12 MTA (2)                 6.11%      5.71%     5.10%      4.40%     3.48%      2.91%
COFI (2)                   5.62%      5.20%     4.50%      3.97%     3.07%      2.65%
</TABLE>

-----------------------------------------------------------------
(1)  Indices / rates are spot values unless otherwise noted.
(2)  These indices / rates are monthly averages.


                                       26
<PAGE>
         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  believes  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.

         The Company has  recently  maintained  a  relatively  balanced,  though
slightly net liability sensitive, exposure to changes in general market interest
rates as measured by potential  prospective changes in net portfolio value, also
referred to as market value of portfolio  equity.  These  potential  prospective
changes in net portfolio value are calculated  based upon immediate,  sustained,
and parallel shifts in the term structure of interest  rates,  often referred to
as the "yield curve". In other words, these calculations highlight that the fair
value of the Company's  assets exhibits  almost the same,  though slightly less,
volatility  as  does  its  liabilities.  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.

         As highlighted in the above table, beginning in early 2001, the Federal
Reserve  commenced  decreasing  its benchmark  interest rates in response to the
slowing national economy, increases in unemployment, falling equity values, weak
manufacturing  activity,  and other negative or unfavorable  economic  trends or
statistics.  By the end of 2001,  the Federal  Reserve had cut interest rates 11
times for a total of 475  basis  points,  representing  one of the  largest  and
fastest  series of rate decreases  ever  experienced  in the United States.  The
Federal  Reserve  continued  cutting  interest rates  throughout 2001 in part in
response to the onset of the first national economic recession in many years. In
addition  to  cutting   interest  rates,   the  Federal  Reserve  also  fostered
significant  expansion in the money supply, with a particular increase following
the events of September 11, 2001.

         The eleven rate cuts in 2001 led to nominal  levels of  interest  rates
that were the lowest in decades,  with the target federal funds rate  decreasing
to 1.75%.  The Prime Rate  followed the target  federal funds rate down in 2001,
while the COFI and 12 MTA indices lagged the more responsive  Treasury and LIBOR
rates  throughout 2001. The low nominal level of interest rates in effect in the
latter  part of 2001 and in the first  quarter of 2002  presented  a  particular
challenge to the Company,  as the rates on its NOW and Savings deposit  accounts
were  already  at low levels and could not be  decreased  to the same  extent as
declines in many capital  markets  interest  rates.  The Company  addressed this
issue  through  its asset /  liability  management  program,  whereby  decisions
regarding  pricing,  promotion,  and  incentives  are  integrated  with tactical
transactions to moderate the Company's exposure to changes in interest rates.

         Various  interest  rates  commenced  increasing in the first quarter of
2002 once the capital markets assumed,  and the Federal Reserve later confirmed,
that benchmark interest rates would not continue being cut. In addition,  higher
energy  prices and concerns  about the impact of interest  rates staying at such
low levels for an extended period of time began to raise worries about potential
future inflation, leading to a rise in longer term interest rates. By the end of
the first quarter, the Treasury curve had become significantly steeper, with the
differential  between  federal  funds and the 2 year  Treasury Note at 197 basis
points. Steep yield curves are generally beneficial for financial  institutions,
including  the Bank,  as  greater  income is derived  from  short term  maturity
mismatches and as customer demand often shifts toward  adjustable  mortgages due
to the rate differential between adjustable and fixed rate loans.

         The  analytical  results of the  Company's  interest rate risk modeling
have been  empirically  validated over the past several years,  as the Company's
interest  margin has remained  stable or expanded  during periods of both rising
and falling general market interest rates. The expansion in interest margin over
the past several years has been significantly  impacted by the implementation of
the Company's  strategic  plan, in addition to being  influenced by the interest
rate environment.


                                       27
<PAGE>
         The Company  plans to maintain its  relatively  balanced  interest rate
risk profile by avoiding  adding  significant  volumes of long term,  fixed rate
assets to the balance sheet.  Long term,  fixed rate assets are relatively  more
challenging to match fund, and therefore can expose the Company to interest rate
risk in rising  interest  rate  environments.  During the first three  months of
2002,  the Company  continued to sell the majority of its long term,  fixed rate
residential  loan production into the secondary  market on a servicing  released
basis. The low interest rate environment contributed to continued prepayments on
the Company's  existing  portfolios of residential fixed rate mortgages held for
investment  and  higher  duration  mortgage  backed  securities   classified  as
available for sale.  Mortgage backed security purchases during the first quarter
of 2002 were primarily low duration CMO's with limited  extension risk and above
market coupon rates.  The Company also sold one relatively  higher duration CMO.
Loan purchases during the first quarter of 2002 were generally either adjustable
rate or fixed rate for a short period of time, then converting to adjusting rate
("hybrid  mortgages").  During the past six months,  the Company had prepaid and
extended a total of $15.0  million in FHLB  advances  in order to  increase  the
duration of its funding and therefore  moderate its net  liability  sensitivity.
These and other  tactical and  strategic  actions were  conducted as part of the
interest rate risk management  program in general,  and  specifically to prepare
the  Company for what  Management  believes  is a likely  eventual  return to an
increasing interest rate environment commencing later in 2002.

         The strategic plan of  transforming  the Bank into a community  focused
financial  services  provider  by nature  presents  a lower  interest  rate risk
profile than  historically  experienced  by the Bank when the balance  sheet was
highly concentrated in residential  mortgages (including long term, fixed rate),
which  present  greater  embedded  optionality  than many other  types of loans.
Serving the financial needs of local businesses is by nature asset sensitive, as
primarily  variable rate commercial loans are in part funded with demand deposit
balances. Growth in the Company's business banking thus helps offset some of the
interest rate risk (net  liability  sensitivity)  typically  present in mortgage
lending.


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.

         OTS  regulations  require that the Bank maintain a safe and sound level
of  liquidity  at all  times.  Management  believes  that  having a  surplus  of
available  liquidity at all times is prudent and  fundamental  to effective Bank
management.

         At March 31,  2002,  the  Company  had $12.4  million  in cash and cash
equivalents,  available  borrowing  capacity in excess of $160.0  million at the
FHLB-SF,  and a  significant  volume  of  residential  mortgages  that  could be
securitized,  liquidated,  or used in collateralized borrowings in order to meet
future liquidity requirements.

         The State of California is the Bank's  largest single  depositor,  with
$19.0  million in  certificates  of  deposit  placed in the Bank as of March 31,
2002.  Should the State of California  not renew these  certificates  of deposit
upon  maturity,  replacement  funding would likely be more costly.  The maturity
dates for the State of California certificates of deposit are staggered to avoid
a concentration of repricing and funding risk.


                                       28
<PAGE>
         MBBC and the Bank have each  entered  into  several  Master  Repurchase
Agreements to permit securities sold under agreements to repurchase transactions
with a number  of  counterparties.  In  addition,  at March 31,  2002,  the Bank
maintained  $25.5  million in unsecured  federal funds lines of credit from four
correspondent  financial  institutions.  However, there can be no assurance that
funds from these lines of credit  will be  available  at all times,  or that the
lines will be maintained in future periods.  The Bank is able to issue wholesale
"DTC"  certificates of deposit through two large,  national  investment  banking
firms as an additional source of liquidity.  The Bank intends to add the ability
to issue DTC  certificates of deposit through an additional  investment  banking
firm during the second  quarter of 2002. At March 31, 2002,  the Bank had no DTC
certificates of deposit outstanding.

         At  March  31,  2002,  MBBC  on a stand  alone  basis  had  cash & cash
equivalents of $4.7 million.  In addition,  MBBC had no outstanding balance on a
$3.0 million revolving line of credit.


Capital Resources And Regulatory Capital Compliance

         Federal banking  regulatory  agencies  maintain a system  providing for
regulatory  sanctions  against  financial  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.
OTS Prompt Corrective Action ("PCA") regulations require specific capital ratios
for five separate capital categories as set forth below:
<TABLE>
<CAPTION>

                                    Core Capital            Core Capital            Total Capital
                                    To Adjusted                  To                       To
                                    Total Assets            Risk-weighted           Risk-weighted
                                  (Leverage Ratio)             Assets                   Assets
                                  ----------------             ------                   ------
<S>                                 <C>                      <C>                     <C>
Well capitalized                    5% or above              6% or above             10% or above
Adequately capitalized              4% or above              4% or above             8% or above
Undercapitalized                      Under 4%                Under 4%                 Under 8%
Significantly undercapitalized        Under 3%                Under 3%                 Under 6%
Critically undercapitalized        Ratio of tangible equity to adjusted total assets of 2% or less
</TABLE>

         As of  March  31,  2002,  the  most  recent  notification  from the OTS
categorized  the Bank as "well  capitalized".  There are no conditions or events
since  that  notification  that  Management  believes  have  changed  the Bank's
category.  The following  table  summarizes the capital  ratios  required for an
institution  to be  considered  "well  capitalized"  and the  Bank's  regulatory
capital at March 31, 2002 as compared to such ratios.

<TABLE>
<CAPTION>

                                           Core Capital              Core Capital To             Total Capital To
                                           To Adjusted                Risk-weighted               Risk-weighted
(Dollars In Thousands)                     Total Assets                   Assets                      Assets
                                        ---------------------       ---------------------      ---------------------
                                         Balance     Percent         Balance     Percent         Balance     Percent
                                         -------     -------         -------     -------         -------     -------
<S>                                      <C>           <C>           <C>          <C>            <C>          <C>
Bank regulatory capital                 $ 45,695       8.45%        $ 45,695      11.72%        $ 50,587      12.97%
Well capitalized requirement              27,047       5.00%          23,403       6.00%          39,005      10.00%
                                         -------       ----          -------      -----           ------      -----

Excess                                  $ 18,648       3.45%        $ 22,292       5.72%        $ 11,582       2.97%
                                         =======       ====          =======      =====          =======      =====

Adjusted assets (1)                     $540,943                    $390,045                    $390,045
                                         =======                     =======                     =======
</TABLE>
---------------------------------------------
(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.


                                       29
<PAGE>
         Other  OTS  capital  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)  (unless  the Bank has been  assigned  the  highest
composite  rating under the Uniform  Financial  Institutions  Rating System,  in
which case  3.00%),  and (c) total  capital  of at least  8.0% of  risk-weighted
assets (as defined in the regulations).

         The following table summarizes these  regulatory  capital  requirements
for the Bank. As indicated in the table,  the Bank's capital levels at March 31,
2002 exceeded all three of the currently  applicable  minimum regulatory capital
requirements.

                                                       Percent Of
                                                         Adjusted
(Dollars In Thousands)                                      Total
                                      Amount               Assets
                                      ------               ------
Tangible Capital
----------------
Regulatory capital                   $45,695                8.45%
Minimum required                       8,114                1.50%
                                      ------                ----
Excess                               $37,581                6.95%
                                      ======                ====

Core Capital
------------
Regulatory capital                   $45,695                8.45%
Minimum required                      21,638                4.00%
                                      ------                ----
Excess                               $24,057                4.45%
                                      ======                ====

                                                       Percent Of
                                                            Risk-
                                                         weighted
                                      Amount               Assets
                                      ------                ----
Risk-based Capital
------------------
Regulatory capital                   $50,587               12.97%
Minimum required                      31,204                8.00%
                                      ------                ----
Excess                               $19,383                4.97%
                                      ======                ====


         At March 31, 2002, 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.


                                       30
<PAGE>
Asset Quality / Credit Profile


Non-performing Assets

         The following  table sets forth  information  regarding  non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>
(Dollars In Thousands)                                           March 31, 2002       December 31, 2001
                                                                 --------------       -----------------
<S>                                                                     <C>                     <C>
Outstanding Balances Before Valuation Reserves
Non-accrual loans                                                       $ 4,547                 $ 2,252
Loans 90 or more days delinquent and accruing interest                       --                      --
Restructured loans in compliance with modified terms                         --                      --
                                                                             --                      --
                                                                         ------                  ------
Total gross non-performing loans                                          4,547                   2,252
                                                                         ======                  ======

Investment in foreclosed real estate before valuation reserves               --                      --
Repossessed consumer assets                                                  --                      --
                                                                             --                      --
                                                                         ------                  ------
Total gross non-performing assets                                       $ 4,547                $  2,252
                                                                         ======                  ======

Gross non-accrual loans to total loans                                    0.95%                   0.48%
Gross non-performing loans to total loans                                 0.95%                   0.48%
Gross non-performing assets to total assets                               0.84%                   0.42%
Allowance for loan losses                                               $ 6,958                $  6,665
Allowance for loan losses to non-performing loans                       153.02%                 295.96%
Valuation allowances for foreclosed real estate                         $   --                 $    --
</TABLE>

         Non-accrual  loans at March  31,  2002 are  detailed  in the  following
table:

(Dollars In Thousands)                        Number       Principal Balance
                                                  Of          Outstanding At
Category Of Loan                               Loans          March 31, 2002
----------------                              ------       -----------------

Residential mortgage one to four units           3              $ 1,224
Commercial & industrial real estate              3                3,323
                                               -----              -----
Total                                            6              $ 4,547
                                               =====              =====

         Non-accrual  loans  increased from $2.3 million at December 31, 2001 to
$4.5 million at March 31, 2002  primarily due to the placement of a $2.3 million
commercial  real  estate  mortgage  on  non-accrual  status.  This  credit  is a
participation  loan where the Bank is not the lead  financial  institution.  The
loan is secured by a first deed of trust on a hotel / resort  located within the
Company's primary market area and is guaranteed by the borrower.  The hotel is a
relatively new development  that was  experiencing  limited cash flow. The hotel
was also adversely  impacted by the decline in tourism and travel  following the
events of September 11, 2001 and the onset of the national  economic  recession.
The Company is currently  working with the lead bank and the borrower to address
collection.  At March 31, 2002, the Company established a $754 thousand specific
reserve  for this  loan,  based  upon  estimated  net  proceeds  to the  Company
following  foreclosure  and sale. The market value of the hotel is  particularly
volatile at this time, given the uncertainty  regarding the economy, the tourism
industry, and the outlook for business travel activity.

         Non-accrual  loans  at March  31,  2002  also  included  a  residential
mortgage with a principal  balance of $846 thousand and a commercial real estate
mortgage also with a principal  balance of $846 thousand.  There are significant
junior  mortgages from other lenders  secured by the real estate  collateral for
both of these loans.  The home securing the residential  loan is listed for sale
and the borrower has agreed to resume  payments.  The $846  thousand  commercial
real estate mortgage was reinstated  (paid current) in April 2002.  Based upon a
review of comparable  recent market sales,  the Company,  at this time, does not
anticipate incurring a loss on either of these two loans.


                                       31
<PAGE>
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, 2001         $ 6,207       $ 5,098       $ --   $  --    $11,305
March 31, 2002            $ 3,296       $ 4,386       $ --   $ 754    $ 8,436

         Classified  assets as a percent of stockholders'  equity decreased from
10.2% at December 31, 2001 to 9.9% at March 31, 2002.

         The $754 thousand  asset  classified as "Loss" in the above table as of
March 31, 2002 is  associated  with the  specific  reserve for the $2.3  million
commercial  real  estate  mortgage  secured  by a hotel / resort  located in the
Company's primary market area, as described above under "Non-performing Assets".
The remainder of this $2.3 million loan is classified as substandard.  March 31,
2002  substandard  assets in the above table also  include the  Company's  other
non-accrual  loans and $366 thousand in commercial loans to a corporation  whose
sole stockholder recently declared personal  bankruptcy.  These $366 thousand in
loans were  current in their  payments as of March 31, 2002 and the borrower has
indicated his intent to continue making payments per the terms of the loans.

         Criticized  loans decreased during the first quarter of 2002 due to the
upgrade of several  income  property  loans  where the  borrower  was current in
payments and had  documented  the intent and capacity to continue  making timely
loan  payments.  The  largest  OAEM  loan at March 31,  2002 was a $1.3  million
mortgage,  current in its payments at March 31, 2002, secured by a motel located
in the Silicon  Valley area of the San Francisco Bay Area. The motel's cash flow
has been unfavorably impacted by the economic  difficulties being experienced in
the technology  industry and by a reduction in business  travel in general.  The
second largest OAEM loan at March 31, 2002 was a $986 thousand  mortgage secured
by an apartment complex in the Silicon Valley area. This loan was current in its
payments  at March  31,  2002;  however,  rents in the  subject  area  have been
adversely affected by the economic difficulties in the technology industry.


Impaired Loans

         At March 31, 2002, the Company had total gross impaired  loans,  before
specific reserves, of $4.5 million,  constituting six credits. Specific reserves
on these $4.5 million in impaired loans totaled $754 thousand.  This compares to
total  gross  impaired  loans of $2.3  million,  with no specific  reserves,  at
December  31,  2001.  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,
2002,  accrued  interest on impaired loans was zero and interest of $41 thousand
was  received in cash.  The average  balance of impaired  loans during the first
quarter of 2002 was $2.6 million.  If all non-accrual  loans had been performing
in accordance  with their  original loan terms,  the Company would have recorded
interest  income of $134 thousand  during the three months ended March 31, 2002,
instead of interest income actually recognized,  based on cash payments,  of $41
thousand.


Hotel / Motel / Resort Loans

         At March 31,  2002,  the Company had 16 real estate  loans  outstanding
that are secured by hotel / motel / resort properties. The aggregate outstanding
balance for these loans at March 31, 2002 was $22.0  million.  This  compares to
$30.8  million  in  hotel / motel / resort  loans at  December  31,  2001.  This
decrease in part resulted from the Company's not repricing certain hotel / motel
/ resort loans to reflect the decline in general  market  interest  rates during
2001, thereby leading the borrowers to refinance with other lenders.


                                       32
<PAGE>
         Various reports have indicated that travel industry  businesses such as
hotels / motels /  resorts  have been  particularly  adversely  impacted  by the
national  economic  recession  in 2001,  and by reduced  business  and  pleasure
travel.  The Company's  recent review of its hotel / motel / resort loans has in
general  confirmed  reduced  occupancy rates and lower effective room rates than
experienced in 1999 and 2000, leading to decreased or in some cases negative net
cash flow from the properties. The Company cannot predict when or to what degree
the  hospitality   industry  will  recover,  but  intends  to  continue  closely
monitoring its hotel / motel / resort loan portfolio.  The Company increased its
formula general  valuation reserve factors for these loans in the fourth quarter
of  2001  to  reflect  the  inherent  loss  in this  portfolio.  The  return  of
unfavorable economic trends, the occurrence of additional terrorist activity, or
other factors could lead to additional reserve  requirements for these loans and
thus impact the levels of future provisions for loan losses.


Special Residential Loan Pool

         During 1998,  the Bank purchased a $40.0 million  residential  mortgage
pool  comprised  of loans  secured by homes  throughout  the nation  (but with a
concentration in California) 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 at purchase a scheduled  principal / scheduled  interest loan servicing
agreement from the seller.  Further,  this agreement also contains a guaranty 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.

         At March 31, 2002, the outstanding  principal  balance of this mortgage
loan pool was $4.5  million,  comprised  of 44  mortgages,  with  $396  thousand
received  during  April,  2002  (normal  monthly  remittance  cycle)  based upon
prepayments and scheduled  principal for March,  2002. At December 31, 2001, the
outstanding  principal balance of this mortgage loan pool was $5.6 million.  The
loans in this  mortgage  pool bear  interest  rates  significantly  in excess of
current  market rates for similar new loans  extended to borrowers with moderate
or better credit profiles.  This rate  differential  contributed to the level of
prepayments realized on the portfolio during the first quarter of 2002.

         Through the April 20, 2002  regularly  scheduled  remittance  date, the
seller 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. At March 31, 2002, the Company categorized all loans within this
mortgage pool as performing based upon the continued payment  performance of the
seller.

         As of the April 20, 2002  remittance  and  reporting  date for activity
through March 31, the mortgage pool included one foreclosed property. The seller
continued to advance  scheduled  interest and principal  payments to the Company
for this mortgage, that had a principal balance of $59 thousand.

         Despite  the  performance  of the  seller,  however,  the  Company  has
allocated  certain  reserves  to this  mortgage  pool at March  31,  2002 due to
concerns  regarding the potential losses by the seller in honoring the guaranty,
the present delinquency  profile of the pool, and the differential  between loan
principal  balances and current appraisals for foreclosed loans and loans in the
process of foreclosure.

         The  Company  continues  to  monitor  the  financial   performance  and
condition  of the seller on a monthly  basis.  The  earnings  and capital of the
seller  experienced  favorable results during 2001 and early 2002,  supported by
the strong mortgage  refinance  market.  In addition,  the Company  analyzes the
payment  performance and credit profile of the remaining  outstanding loans on a
monthly basis.

         Because  of the  relatively  small  remaining  balance  of the  Special
Residential Loan Pool, the continued  capacity and intent by the seller to honor
its guarantee, and the establishment of what the Company believes to be adequate
loan loss  reserves to address the inherent loss in the  portfolio,  the Company
does not plan to  continue  reporting  on the Special  Residential  Loan Pool in
future reports in the absence of significant events.


                                       33
<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,  including unused  commitments to provide  financing.  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  that are deemed probable and estimable.  While  Management
uses the best information available to make these estimates,  future adjustments
to allowances may be necessary due to economic, operating, regulatory, and other
conditions  that may be beyond  the  Company's  control.  In  addition,  various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the Bank's  allowance  for loan losses.  Such  agencies may
require the Bank to recognize  additions to the  allowance  based on  judgements
different from those of Management.

         The  allowance  for loan losses is comprised of three  primary types of
allowances:

1.       Formula Allowance

Formula  allowances  are based upon loan loss factors that reflect  Management's
estimate of the  inherent  loss in various  segments of or pools within the loan
portfolio.  The  loss  factor  is  multiplied  by the  portfolio  segment  (e.g.
multifamily  permanent mortgages) balance (or credit commitment,  as applicable)
to  derive  the  formula  allowance   amount.   The  loss  factors  are  updated
periodically by the Company to reflect current information that has an effect on
the amount of loss inherent in each segment.  The formula allowance at March 31,
2002 was $5.5 million, compared to $6.0 million at December 31, 2001.

2.       Specific Allowance

Specific  allowances are  established  in cases where  Management has identified
significant  conditions or  circumstances  related to an  individually  impaired
credit. In other words,  these allowances are specific to the loss inherent in a
particular loan. The amount for a specific allowance is calculated in accordance
with SFAS No. 114,  "Accounting  By Creditors  For  Impairment  Of A Loan".  The
Company had $754 thousand in specific  allowance at March 31, 2002,  compared to
none at December 31, 2001.

3.       Unallocated Allowance

The Company  maintains an  unallocated  loan loss  allowance  that is based upon
Management's  evaluation  of  conditions  that are not directly  measured in the
determination of the formula and specific allowances. The evaluation of inherent
loss  with  respect  to  these  conditions  is  subject  to a higher  degree  of
uncertainty  because they are not identified  with specific  problem  credits or
historical  performance of loan portfolio segments.  The conditions evaluated in
connection  with the  unallocated  allowance  at March  31,  2002  included  the
following, which existed at the balance sheet date:

o    General  business and  economic  conditions  affecting  the  Company's  key
     lending areas

o    Real estate values in California

o    Loan volumes and concentrations

o    Seasoning of the loan portfolio

o    Status of the current business cycle

o    Specific industry or market conditions within portfolio segments

The unallocated allowance at March 31, 2002 was $738 thousand,  compared to $668
thousand at December 31, 2001.


                                       34
<PAGE>
         The following  table presents  activity in the Company's  allowance for
loan losses during the three months ended March 31, 2002 and March 31, 2001:


                                       Three Months Ended March 31,
                                       ----------------------------
                                          2002              2001
                                         -------          -------
Allowance For Loan Losses                (Dollars In  Thousands)
-------------------------

Balance at beginning of year             $ 6,665          $ 5,364

   Charge-offs:
      Consumer lines of credit                (8)            --
      Commercial term loans                  (30)            --
      Commercial lines of credit            --                (25)
                                          ------           ------
   Total charge-offs                         (38)             (25)

   Recoveries:
      Consumer lines of credit                 4             --
      Commercial lines of credit               2             --
                                          ------           ------
   Total recoveries                            6             --

   Provision for loan losses                 325              500
                                          ------           ------

Balance at March 31                      $ 6,958          $ 5,839
                                          ======           ======

Annualized ratio of net charge-offs
  during the period to average loans
  receivable, net, outstanding during
  the period                                0.03%            0.02%


         Additional ratios applicable to the allowance for loan losses include:

                                      March 31, 2002   December 31, 2001
                                      --------------   -----------------

Allowance for loan losses as a
   percent of non-performing loans        153.02%          295.96%

Allowance  for  loan  losses  as a
  percent  of gross  loans  receivable
  net of undisbursed loan funds and
  unamortized yield adjustments             1.46%            1.41%

Allowance for loan losses as a
  percent of classified assets            135.37%          130.74%


         The $5.5  million  in  formula  allowance  at March 31,  2002  included
amounts for the Special Residential Loan Pool. The decrease in formula allowance
from December 31, 2001 resulted in part from:

o    the reduction in the Special Residential Loan Pool

o    a decrease in criticized assets

o    the shift in loan loss  reserves for the $2.3  million,  non-accrual  hotel
     loan in the  Company's  primary  market  area  from  formula  allowance  to
     specific allowance


                                       35
<PAGE>
         The $738 thousand in unallocated  allowance at March 31, 2002 reflected
the  Company's  consideration  of the  following  factors,  as well as the  more
general  factors  listed  above  in  conjunction  with  the  definition  of  the
unallocated allowance:

o    The adverse  impacts of the weak  technology  industry upon commercial real
     estate  values.  The  Company's  primary  lending  area is near the Silicon
     Valley area of the San Francisco  Bay Area,  which has been impacted by the
     slump in various technology and technology related businesses.  This impact
     could be in the range of $100 thousand to $800 thousand.

o    Recent  reports of selected areas of soft or declining  apartment  rents in
     Northern  California  resulting  from reduced  employment,  weakness in the
     technology  industry,  and the  national  recession.  The soft or declining
     rents could lead to  decreased  multifamily  property  values.  This impact
     could be in the range of $100 thousand to $400 thousand.

         As subsequently  discussed (see "Provision For Loan Losses"), the lower
provision for loan losses  recorded during the first three months of 2002 versus
the same period in the prior year resulted from multiple factors,  including the
Company's  concerns  in the  first  quarter  of  2001  regarding  the  State  of
California energy crisis and the negative trends in national economic growth and
activity.

         Management anticipates that should the Company accomplish its strategic
plan and be successful in:

o    generating further growth in loans receivable held for investment

o    emphasizing the origination, purchase, and participation of income property
     real estate loans

o    expanding the construction loan portfolio

o    continuing expansion of commercial business lending

future  provisions will result and the ratio of the allowance for loan losses to
loans  outstanding  will  increase.  Experience  across the  financial  services
industry indicates that commercial business,  construction,  and income property
loans present greater risks than  residential  real estate loans,  and therefore
should be accompanied by suitably higher levels of reserves.


                                       36
<PAGE>
Comparison  Of  Operating  Results For The Three Months Ended March 31, 2002 and
March 31, 2001


General

         During the first  quarter of 2002,  the Company  reported net income of
$1.21 million,  equivalent to $0.35 diluted earnings per share. This compares to
net income of $602 thousand,  or $0.18 diluted  earnings per share, for the same
period in 2001.  Net income  during the first  quarter of 2001 was  impacted  by
(pre-tax)  operating  costs  of  $408  thousand  for  the  Bank's  core  systems
conversion  that was  implemented  in March 2001.  Net income during the quarter
ended December 31, 2001 (the immediately  preceding  quarter) was $1.14 million,
equivalent to $0.33 diluted earnings per share.

         The  Company   realized  some  of  the  financial   benefits  from  its
transformation  strategy  during the first three  months of 2002.  Net  interest
income  rose,  due to both a larger  average  balance  sheet fueled by increased
deposits and loans and due to expanded spreads resulting from the planned change
in  balance  sheet  composition.  Mortgage  banking  income  benefited  from the
historically low interest rate environment  during the first quarter of 2002 and
from  efficiencies  arising from new technology.  The Company  realized  certain
other operating efficiencies from the new technology environment implemented and
better  optimized over the past year. The Company  maintained  favorable  credit
quality during the first quarter of 2002,  thus avoiding  significant  operating
costs for collections and foreclosures.


Interest Rate Environment

         The table  presented  above under  "Interest  Rate Risk  Management And
Exposure" furnishes an overview of the interest rate environment during the most
recent five quarters. Market interest rates have varied considerably during this
time period,  generally  falling  throughout  2001, with certain  interest rates
rising in the first  quarter of 2002.  In  addition,  the slope of the  Treasury
curve  shifted from  inverted at the beginning of 2001, to flatter by the end of
the first quarter of 2001, to positively sloped by mid 2001. Since mid 2001, the
Treasury curve has generally  become  progressively  more steeply sloped (i.e. a
greater differential between short term and longer term interest rates).

         Financial  institutions,  including the Bank,  generally benefit from a
positively  sloped term structure of interest  rates,  whereby  higher  duration
assets may be funded at a favorable  spread with shorter term  liabilities,  and
whereby  fixed rate  assets  appreciate  in market  price as they move nearer to
maturity.  In addition,  steep yield  curves  often lead to  increased  customer
demand for adjustable rate mortgages due to the rate  differential to long term,
fixed rate mortgages.

         As a result of the interest rate  environment  over the past 15 months,
yields and rates for most assets and liabilities were substantially lower in the
first quarter of 2002 compared to the first quarter of 2001.


                                       37
<PAGE>
Net Interest Income

         Net  interest  income  increased  from $4.8  million  during  the first
quarter of 2001 to $5.4  million  during  the first  quarter of 2002 due to both
expanded  spreads and greater  average  balances of interest  earning assets and
liabilities.  The Company's ratio of net interest income to average total assets
was 3.98% for the first  three  months of 2002,  up from  3.83%  during the same
period  in 2001.  The  increased  spread  in part  stemmed  from  the  Company's
continued implementation of its strategic plan.

         Margins were  hampered  during the early part of 2001 by the  Company's
offering  higher than  normal  relative  retail  deposit  pricing to  facilitate
customer  retention  following  the core  systems  conversion.  The Company also
maintained  higher levels of  non-interest  earning  correspondent  bank account
balances  than usual  during  March 2001 as a  liquidity  cushion to address any
potential  operational  or financial  settlement  issues  arising  following the
implementation  of the new computer  system.  This additional  liquidity was not
utilized.

         During the first quarter of 2002,  the Company  experienced  difficulty
decreasing its NOW and Savings deposit rates at the same pace as the declines in
certain  indices (e.g.  COFI, 12 MTA) utilized for adjustable rate loans, as the
NOW and Savings rates were already at low nominal  levels at the end of 2001. In
addition,  the spread  derived  from  investing  the  Company's  demand  deposit
balances was lower in the first quarter of 2002 than the same period in 2001 due
to the  significantly  lower general  interest rate  environment.  However,  net
interest  income during the first quarter of 2002  benefited  from lifetime rate
floors on certain  loans and  prepayment  penalties  received on certain  income
property loans.

         Other factors  influencing  net interest  income during the first three
months of 2002 compared to the same period in 2001 included:

o    Average net loans as a percentage  of average  total assets  improved  from
     81.2% during the first three months of 2001 to 86.1% during the first three
     months of 2002.  Because  loans  constitute  by far the  Company's  highest
     yielding  type of asset,  this change in asset mix  favorably  affected net
     interest income.

o    Average demand  deposits as a percentage of average total assets  increased
     from 3.3%  during the first  three  months of 2001 to 4.0% during the first
     three months of 2002.  Increases in interest free funding  favorably impact
     the Company's spreads.

         The Company  plans to continue  increasing  its net interest  margin by
continuing the transformation into a community  commercial bank,  increasing the
percentage of total assets  constituted  by loans,  decreasing the percentage of
the loan  portfolio  comprised of  residential  mortgages,  and  increasing  the
percentage of the deposit portfolio composed of transaction  accounts.  However,
no assurance can be provided that the Company will be successful in this regard,
as interest  rates and new  business  activity  are  influenced  by many factors
beyond the control of the  Company,  such as actions by the Federal  Reserve and
competition.


                                       38
<PAGE>
         The following  table presents the average  annualized  rate earned upon
each major category of interest earning assets, the average annualized rate paid
for each major category of interest bearing  liabilities,  and the resulting net
interest  spread,  net interest  margin,  and average  interest  margin on total
assets for the three months ended March 31, 2002 and 2001.
<TABLE>
<CAPTION>
                                      Three Months Ended March 31, 2002         Three Months Ended March 31, 2001
                                   ----------------------------------------  ----------------------------------------
(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)              $   5,761        $   25         1.74%     $   8,642       $   124         5.74%
   Investment securities                 7,788            57         2.93%         7,363           133         7.23%
   Mortgage backed securities (2)       31,373           312         3.98%        48,956           808         6.60%
   Loans receivable, net (3)           462,480         8,314         7.19%       402,656         8,890         8.83%
   FHLB stock                            3,019            47         6.23%         2,922            40         5.48%
                                      --------         -----                    --------        ------
Total interest earning assets          510,421         8,755         6.86%       470,539         9,995         8.50%
                                                       -----                                    ------
Non-interest earnings assets            26,952                                    25,551
                                      --------                                  --------
Total assets                         $ 537,373                                 $ 496,090
                                      ========                                  ========
Liabilities & Equity
--------------------
Interest bearing liabilities:
   NOW accounts                      $  41,682            41         0.39%     $  40,658           141         1.39%
   Savings accounts                     19,023            26         0.55%        17,279            73         1.69%
   Money market accounts               107,640           593         2.20%        90,144         1,044         4.63%
   Certificates of deposit             240,440         2,153         3.58%       244,493         3,426         5.61%
                                      --------         -----                    --------        ------
   Total interest-bearing deposits     408,785         2,813         2.75%       392,574         4,684         4.77%
   FHLB advances                        53,682           589         4.39%        40,799           547         5.36%
   Other borrowings (4)                    213             3         5.63%           170            12        28.24%
                                      --------         -----                    --------        ------
Total interest-bearing liabilities     462,680         3,405         2.94%       433,543         5,243         4.84%
                                                       -----                                    ------
Demand deposit accounts                 21,260                                    16,341
Other non-interest bearing               1,988                                     2,226
                                      --------                                  --------
liabilities
Total liabilities                      485,928                                   452,110
Stockholders' equity                    51,445                                    43,980
                                      --------                                  --------
Total liabilities & equity           $ 537,373                                 $ 496,090
                                      ========                                  ========

Net interest income                                   $5,350                                   $ 4,752
                                                       =====                                    ======
Interest rate spread (5)                                             3.92%                                     3.66%
Net interest earning assets             47,741                                    36,996
Net interest margin (6)                                4.19%                                     4.04%
Net interest income /
     average total assets                              3.98%                                     3.83%
Interest earnings assets /
     Interest bearing liabilities         1.10                                      1.09
</TABLE>
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 mortgage backed securities and collateralized mortgage obligations.
(3) 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 and costs,  net,   of  $26,000  and
    $78,000 in 2002 and 2001, respectively.
(4) Includes  federal  funds  purchased,  securities  sold  under  agreements to
    repurchase, and borrowings drawn on MBBC's line of credit.
(5) Interest rate spread represents the difference  between the average  rate on
    interest   earning  assets  and  the   average  rate  on  interest   bearing
    liabilities.
(6) Net interest  margin equals net interest  income before   provision for loan
    losses divided by average interest earning assets.


                                       39
<PAGE>
Rate / Volume Analysis

         The most  significant  impact upon the  Company's  net interest  income
between periods is derived from the interaction of changes in the volumes of and
rates   earned  or  paid  on   interest-earning   assets  and   interest-bearing
liabilities.  The following  table utilizes the figures from the preceding table
to present a comparison of interest income and interest  expense  resulting from
changes  in the  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.
<TABLE>
<CAPTION>
                                                  Three Months Ended March 31, 2002
                                                            Compared To
                                                  Three Months Ended March 31, 2001
                                            ----------------------------------------------
                                                                      Volume
(Dollars In Thousands)                       Volume        Rate        /Rate         Net
                                             ------       ------       ------       ------
<S>                                         <C>          <C>          <C>          <C>
Interest-earning assets
Cash equivalents                            $   (41)     $   (86)     $    28      $   (99)
Investment securities                             8          (79)          (5)         (76)
Mortgage backed securities                     (290)        (321)         115         (496)
Loans receivable, net                         1,321       (1,651)        (246)        (576)
FHLB Stock                                        1            5            1            7
                                             ------       ------       ------       ------
     Total interest-earning assets              999       (2,132)        (107)      (1,240)
                                             ------       ------       ------       ------

Interest-bearing liabilities
NOW Accounts                                      4         (101)          (3)        (100)
Savings accounts                                  7          (49)          (5)         (47)
Money market accounts                           203         (547)        (107)        (451)
Certificates of deposit                         (57)      (1,237)          21       (1,273)
                                             ------       ------       ------       ------
Total interest-bearing deposits                 157       (1,934)         (94)      (1,871)
FHLB advances                                   173          (99)         (32)          42
Other borrowings                                  3          (10)          (2)          (9)
                                             ------       ------       ------       ------
     Total interest-bearing liabilities         333       (2,043)        (128)      (1,838)
                                             ------       ------       ------       ------

Increase in net interest income             $   666      $   (89)     $    21      $   598
                                             ======       ======       ======       ======
</TABLE>


Interest Income

         Interest  income  decreased  from $10.0 million during the three months
ended  March 31,  2001 to $8.8  million  during  the same  period in 2002.  This
decrease was primarily due to the much lower interest rate  environment  present
in 2002. The effect of lower general market  interest rates more than offset the
impact of an 8.5% rise in average  interest  earning assets and a shift in asset
mix  towards  loans,  coincident  with the  Company's  strategic  plan of better
supporting its local communities with the delivery of credit.


                                       40
<PAGE>
         Interest  income on loans  decreased from $8.9 million during the three
months ended March 31, 2001 to $8.3 million  during the same period in 2002. The
effect of lower  interest  rates more than  offset the impact of a 14.9% rise in
average net loan  balances  outstanding.  The greater  volume  stemmed  from the
Company's  strategic  plan of  increasing  the  percentage  of the balance sheet
comprised  of  loans  through   internal   originations,   loan  purchases  from
correspondent banks, and loan participations;  with the latter primarily sourced
through other  California  community  banks. The Company plans to increase total
loans to  approximately  90.0% of total  assets over time.  Management  believes
stockholder value is maximized through the extension and effective management of
credit.

         Interest  income on cash  equivalents  decreased from $124 thousand for
the three  months  ended March 31, 2001 to $25  thousand  for the same period in
2002. This decline was due to:

o    lower average rates  resulting  from the interest rate cuts  implemented by
     the Federal Reserve in 2001

o    lower average volumes stemming from:

     A.  the Company's  redeploying  funds from cash equivalents into loans as a
         result of the demand for credit

     B.  the  Company's  purchasing  short term  investment  securities  (called
         Agency  debentures)  during  the  first  quarter  of  2002  in  lieu of
         investing in cash equivalents

         Interest  income on investment  securities  declined from $133 thousand
during the three  months  ended March 31, 2001 to $57  thousand  during the same
period in 2002.  The  reduced  interest  income  resulted  from lower  yields on
variable rate corporate trust preferred  securities that reprice quarterly based
upon 3 month LIBOR,  which was significantly  lower in the first three months of
2002 than during the same period in 2001. This impact was only partially  offset
by interest income earned on short term Agency  debentures  purchased during the
first quarter of 2002 as a vehicle for investing short term excess liquidity.

         Interest income on mortgage  backed  securities fell from $808 thousand
during the three  months ended March 31, 2001 to $312  thousand  during the same
period in 2002.  This decrease was caused by  reductions  in average  volume and
average rates. Over the past year, the Company has reduced the percentage of its
balance  sheet  allocated  to  securities  in favor  of  increased  lending.  In
addition,  the mix of the Company's  mortgage backed securities has changed over
the past  two  years,  with an  increase  in  lower  duration,  high  cash  flow
instruments  and a reduction in higher  duration,  lower cash flow securities in
order to better support greater funding requirements stemming from the Company's
increased  lending.  The  Company  also  purchased  additional  adjustable  rate
mortgage  backed  securities  during 2001,  which  adjusted  downward in rate in
conjunction with the decline in interest rates during 2001.

         Interest  income on FHLB stock  increased from $40 thousand  during the
three  months  ended  March 31, 2001 to $47  thousand  during the same period in
2002. The FHLB-SF declared a particularly high fourth quarter 2001 dividend rate
of 5.99% during the first  quarter of 2002.  This rate was above that accrued by
the Company in 2001,  and therefore  increased the Company's  reported  yield on
FHLB stock during the first quarter of 2002.


                                       41
<PAGE>
Interest Expense

         Interest  expense  decreased from $5.2 million during the quarter ended
March 31, 2001 to $3.4 million  during the quarter  ended March 31, 2002, as the
effect of the lower interest rate  environment  more than offset the impact of a
rise in average interest bearing liabilities.

         Interest expense on deposits decreased from $4.7 million in the quarter
ended March 31, 2001 to $2.8  million  during the quarter  ended March 31, 2002.
This decline was due to the effect of a significant decrease in average interest
rate more than  offsetting the impact of a rise in average  balances.  The large
decrease in average rates resulted from the lower interest rate  environment and
a shift in the  composition  of the deposit  portfolio.  Relatively  higher cost
certificates  of deposit  decreased from 59.8% of average total deposits  during
the first quarter of 2001 to 55.9% during the first quarter of 2002.  Relatively
lower cost transaction  deposit accounts  experienced a complementary  increase,
with money market deposits  experiencing a significant  rise from 22.0% to 25.0%
of average total deposits. This change in deposit mix is a fundamental component
of the Company's strategic plan.

         At March 31,  2002,  the  Company's  weighted  average  nominal cost of
deposits was 2.51%,  down from 2.87% at December  31, 2001.  The Company paid an
average rate of just 0.39% on its NOW deposits and 0.55% on its savings deposits
during  the first  quarter  of 2002,  highlighting  the  limited  ability of the
Company  to  further  reduce  the cost of this  funding  should  general  market
interest rates decline in future periods.

         The Company has worked to more uniformly  distribute its certificate of
deposit  maturities by month in order to facilitate  cash  management  and avoid
concentrated  exposure to capital  market events at any one point in time.  This
objective has been  accomplished  through the use of "odd term"  certificates of
deposit  such as 7, 8, and 19 months,  augmented  by ongoing  sales and periodic
print  advertising  of longer term  certificates  of deposit.  For example,  the
Company conducted two rounds of print advertising  throughout its primary market
area  early in the  second  quarter  of 2002  promoting  24  month  and 30 month
certificates  of deposit.  At March 31, 2002,  the weighted  average cost of the
certificate  of deposit  portfolio  was 3.43%,  with 27.0% of the  portfolio (by
balance) scheduled to reprice during the second quarter of 2002.

         During  the second  quarter  of 2002,  the  Company  plans to  continue
promoting its Money Market Plus account, Direct Deposit Checking account (no-fee
consumer  checking),  intermediate to longer term  certificates of deposit,  and
business  checking  accounts.  The Company's deposit products are highly tiered,
encouraging  greater account balances in order to earn higher rates of interest.
Customer  accounts are  accessible  via bilingual  telephone  banking,  Internet
banking,  global ATM networks,  mail,  and in-branch  service.  The Company also
intends to continue  pursuing  compensating  balances,  typically demand deposit
balances, for commercial credit facilities.

         Interest  expense  on total  borrowings  increased  from $559  thousand
during the three months ended March 31, 2001 to $592  thousand  during the three
months ended March 31, 2002 due to the effect of greater  average  balances more
than offsetting the impact of lower average rates. The Company had higher levels
of borrowings  outstanding  in the first quarter of 2002 than the same period in
2001 due to  borrowings  being  utilized  to fund some of the growth in the loan
portfolio.  While the Company did not enter into any new term borrowings  during
the first quarter of 2002, the average effective cost of borrowings was lower in
the first  quarter of 2002 than  during  the same  period in 2001 due in part to
new, relatively lower cost term FHLB advances acquired during the fourth quarter
of 2001. At March 31, 2002,  the next two scheduled  maturities of FHLB advances
were $5.0 million in July 2002 and $5.0 million in November 2002. In April 2002,
the Company prepaid the advance originally  scheduled to mature in July 2002 and
entered into a new $5.0 million  advance  maturing in June,  2003 in conjunction
with the interest rate risk management program.

         The Company's  average  interest rate on other  borrowings was inflated
during 2001 and 2002 as a result of the amortization of loan fees (discount on a
liability) on MBBC's $3.0 million  revolving line of credit combined with a lack
of draws (outstanding balances) on the line.


                                       42
<PAGE>
Provision For Loan Losses

         The Company  recorded a $325 thousand  provision for loan losses during
the first quarter of 2002,  down from $500 thousand  during the first quarter of
2001. The Company  determines its periodic  provision for loan losses based upon
its analysis of loan loss reserve  adequacy.  Net  charge-offs  during the first
three months of 2002 were $32  thousand,  versus $25  thousand  during the first
three  months  of 2001.  The  Company's  ratio of loan  loss  reserves  to loans
outstanding  increased  from 1.41% at  December  31,  2001 to 1.46% at March 31,
2002,  while the nominal  amount of the loan loss reserve rose from $6.7 million
at December 31, 2001 to $7.0 million at March 31, 2002.

         The primary factor contributing to the provision for loan losses during
the first  quarter of 2002 was the need to establish a specific  reserve of $754
thousand  associated with a $2.3 million commercial real estate mortgage secured
by a hotel / resort described above under "Non-performing  Assets". Because this
loan was already classified as substandard at December 31, 2001, the incremental
loan loss  reserves  associated  with this loan at March 31, 2002 were less than
the $754 thousand specific reserve.

         Other factors  contributing to the provision for loan losses during the
first quarter of 2002 included the expansion in the loan portfolio, the addition
of a large  volume  of new  credits  to the  loan  portfolio,  the  stage of the
economic cycle,  and the change in loan portfolio mix,  particularly the reduced
concentration  of  relatively  lower risk  residential  mortgages.  Commercial &
industrial and multifamily  real estate loans typically  present greater credit,
concentration,   and  event  risks  than  home  mortgages,   thereby   requiring
proportionately  greater  reserve  levels.  Newer loans  typically  present more
credit exposure than seasoned loans with many years of prompt payment experience
and amortized principal  balances.  Commercial lines of credit and term loans to
businesses  also  typically   present  a  greater  level  of  credit  risk  than
residential mortgages.

         Factors  moderating  the amount of provision for loan losses during the
first  quarter of 2002  included a reduction  in the  portfolio of hotel / motel
loans,  a decline in the balance of the  Special  Residential  Loan Pool,  and a
decrease in total criticized assets.

         The Company  anticipates  that its ratio of loan loss reserves to loans
outstanding  will continue to increase in future  periods to the extent that the
Company is  successful in its  strategic  plan of  increasing  total loans while
expanding the proportion of the loan portfolio  represented by income  property,
construction,  and commercial business lending.  This change in portfolio mix is
anticipated to be accelerated by the Los Angeles loan production  office,  which
concentrates on construction and income property  lending.  The Los Angeles loan
production   office   presents  the  Company  with  the  opportunity  to  better
geographically  diversify its real estate loan portfolio,  such that the Company
becomes less exposed to a downturn in real estate values,  economic weakness, or
a natural  disaster in any one local real estate  market.  The Company does not,
however,  pursue lending outside the State of California,  but does occasionally
make real estate loans  secured by property in other states as an  accommodation
to existing customers.


                                       43
<PAGE>
Non-interest Income

         Non-interest  income totaled $512 thousand  during the first quarter of
2002,  down from $643 thousand  during the same period in 2001. This decline was
primarily due to the impact of lower  commissions from sales of non-FDIC insured
investment products and reduced customer service charges.

         Commissions  from  the sale of  non-FDIC  insured  investment  products
during the first  quarter  of 2002 were $41  thousand,  down from $117  thousand
during the same period the prior year due to vacancies in positions for licensed
investment sales representatives.

         Customer  service charge income totaled $351 thousand  during the first
quarter of 2002,  down from $408 thousand during the first quarter of 2001. This
decrease was  primarily  due to the Company's  charging  uncollected  funds fees
during the first  quarter of 2001 but not  charging  these fees  during the same
period in 2002 in  response  to  competitive  factors and due to a change in the
profile of the consumer checking  portfolio.  In conjunction with the conversion
to the new core data processing system in March 2001, the Company  implemented a
revamped  consumer  checking  product  line and an  associated  revised  fee and
service  charge  schedule.  These changes  contributed to the closing of certain
lower balance and / or higher transaction volume consumer checking accounts over
the past year, as such accounts began incurring increased service charges.

         Loan  servicing  income  totaled $14  thousand  during the three months
ended March 31,  2002,  compared to $2 thousand  during the same period in 2001.
Loan  servicing  income  during  the  first  quarter  of  2001  was  reduced  by
accelerated   amortization  of  mortgage  servicing  rights  because  of  faster
prepayments,  which in turn were increased by the  commencement  of decreases in
the target federal funds rate by the Federal Reserve.  The Company  continues to
sell the vast majority of its long term,  fixed rate residential loan production
into the  secondary  market on a  servicing  released  basis.  As a result,  the
portfolio  of loans  serviced for others is declining as loans pay off. At March
31, 2002, the Company serviced $37.3 million in various types of loans for other
investors, compared to $42.6 million at December 31, 2001.

         Gains on the sale of loans  increased from $5 thousand during the first
quarter  of 2001 to $27  thousand  during the first  quarter of 2002.  The lower
interest  rate  environment  in the first  quarter of 2002  compared to the same
period  in 2001  contributed  to a  greater  level  of  refinance  activity  for
residential  loans,  which in turn  increased  the  Company's  mortgage  banking
activity.

         Gains on the sale of  securities  were $43  thousand  during  the first
quarter of 2002,  compared to $34 thousand during the first quarter of 2001. The
gain during the first  quarter of 2002  resulted from the sale of a $2.7 million
(par value)  private label CMO in conjunction  with the Company's  interest rate
risk management program.

         The  Company's   strategic  plan   incorporates   non-interest   income
representing  a greater  percentage  of total  revenue.  The Company  intends to
pursue increased non-interest income in future periods through:

o    seeking additional remote ATM sites

o    further increases in the portfolio of deposit transaction accounts

o    the  continued  sale of consumer  Internet  banking  with  electronic  bill
     payment

o    the  expanded  sale of Internet  banking and cash  management  services for
     businesses

o    the continued marketing of debit cards

However,  no assurance can be provided  regarding the amount of or trends in the
Company's future levels and composition of non-interest income.


                                       44
<PAGE>
Non-interest Expense

         Non-interest  expense  totaled $3.5 million during the first quarter of
2002,  compared to $3.8 million during the same period in 2001.  This decline in
expense  was  primarily  due  to  the  Company's   incurring  $408  thousand  in
non-recurring  expenses during the first quarter of 2001 in conjunction with the
data  processing  conversion.   These  non-recurring  operating  costs  included
de-conversion  charges from the Company's  external  service bureau,  travel and
training  costs for  employees  to  assist  with the  implementation  of the new
system,  printing and postage for additional  customer mailings,  and consultant
fees.

         Compensation  and  employee  benefits  expense  rose from $1.7  million
during the first  quarter of 2001 to $1.9  million  during the first  quarter of
2002.  Factors  contributing  to this increase  included staff additions in data
processing  and  commercial  lending.  The staff  additions  in data  processing
stemmed  from the switch  from an  external  service  bureau  environment  to an
in-house system for the Company's  primary data processing.  The staff additions
in  commercial  lending  were  primarily   comprised  of  new  business  account
relationship  officers.  Compensation and employees  benefits costs also rose in
the first quarter of 2002 when compared to the same period during the prior year
due to the  opening of the Los  Angeles  loan  production  office and because of
higher costs for the Bank's  employee stock  ownership  plan ("ESOP").  The ESOP
expenses  increased in 2002 versus 2001 because of the higher  average  price of
Monterey Bay Bancorp, Inc. common stock.

         Costs for employee  incentive programs were higher in the first quarter
of 2002 than during the first quarter of 2001 in conjunction  with the Company's
better financial performance. For 2002, the Company redesigned various incentive
plans to  better  correlate  bonus  payments  with  contributions  to  increased
profitability,  achievements in support of the strategic plan, and  improvements
in stockholder value.

         The change in the Company's  systems  environment also impacted various
other  operating  expenses.  Data processing fees were much lower in 2002 versus
2001, while equipment expense was higher due to the added  depreciation from the
new hardware and software installed in 2001.

         Consulting expenses were much lower in the first quarter of 2002 versus
the same  period in 2001  because of  consultants  hired to assist with the core
systems  conversion in 2001. Legal expenses declined $48 thousand from the first
quarter of 2001 to the first quarter of 2002  primarily due to  expenditures  in
2001 associated with claims by a former executive  regarding  payments due under
his employment contracts. Accounting expenses were lower in the first quarter of
2002 versus the first quarter of 2001 primarily due to the hiring of a more cost
effective firm for selected internal auditing functions commencing in mid 2001.

         Advertising  and  promotion  costs  totaled  $77  thousand in the first
quarter of 2002,  up from $31  thousand  during the same  period in 2001.  These
costs were unusually low in the first quarter of 2001, as the Company  postponed
certain advertising and promotional activities pending the implementation of the
new computer systems environment.

         Advertising during the first quarter of 2002 included newspaper ads for
deposit  products,  targeted  direct mail to  businesses  in the Bank's  primary
market area, and local radio ads that focused on attracting  business  customers
through  the  communication  of the Bank's  "relationship  banking"  approach to
customer  service.  The Company's  visibility was also enhanced during the first
quarter  by  the  extensive  participation  of  employees  and  Directors  in  a
significant number of community events and organizations.


                                       45
<PAGE>
         The  Company's  efficiency  ratio during the first  quarter of 2002 was
59.13%,  comparing  favorably  to 71.22%  during  the first  quarter of 2001 and
improving   slightly  from  59.59%  during  the  fourth  quarter  of  2001  (the
immediately preceding quarter).  Despite this progress, the Company's efficiency
ratio is still above those of high performing peer financial  institutions.  The
expansion  in the  Company's  interest  margin has been a primary  factor in the
improvement in the efficiency ratio during the past year.

         The Company  continues to  restructure  its  operations  both to better
utilize new  technology  and improve  efficiency.  The Company also continues to
evaluate  new vendors for  various  products  and  services,  seeking  more cost
effective  business  relationships.  In 2002, the Company  altered the manner in
which its  facilities  management  is  conducted  to provide for better  expense
control. By mid 2002, the Company plans to implement revised practices for check
ordering  and  printing,  leading  to cost  savings.  Through  these  and  other
initiatives,   the  Company  continues  to  target  progress  in  improving  its
efficiency ratio.


Income Taxes

         Income tax expense increased in 2002 versus 2001 due to greater pre-tax
income. The Company's  effective book tax rate was slightly lower in 2002 versus
2001 due to  non-deductible  expenses and other  adjustments  to taxable  income
representing  a smaller  percentage  of the  increased  amount  of book  pre-tax
income.


Item 3.  Quantitative And Qualitative Disclosures About Market Risk

         For a current  discussion of the nature of market risk  exposures,  see
"Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations - Interest Rate Risk Management And Exposure". Readers should also
refer to the quantitative and qualitative  disclosures  (consisting primarily of
interest rate risk) in the  Company's  Annual Report on Form 10-K for the fiscal
year ended  December 31,  2001.  There has been no  significant  change in these
disclosures since the filing of that document.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         From time to time, the Company is party to claims and legal proceedings
         in the  ordinary  course  of  business.  Management  believes  that the
         ultimate aggregate liability represented thereby, if any, will not have
         a  material  adverse  effect on the  Company's  consolidated  financial
         position or results of operations.

Item 2.  Changes In Securities

         None.

Item 3.  Defaults Upon Senior Securities

         Not applicable.


                                       46
<PAGE>
Item 4.  Submission Of Matters To A Vote Of Security Holders
         ---------------------------------------------------

         On April 9, 2002, the Company issued its 2002 Proxy Statement.  Matters
         submitted  to a vote of  security  holders  via  that  Proxy  Statement
         included:

         1.) The  proposed  election of four  individuals  as  Directors  of the
             Company:

                                                    Proposed Term
                 Individual                             To Expire
                 -------------------------     -------------------
                 Larry A. Daniels                            2004
                 Steven Franich                              2005
                 Stephen G. Hoffmann                         2005
                 Gary L. Manfre                              2005


         2.) The proposed  ratification  of the appointment of Deloitte & Touche
             LLP as the  independent  auditors  of the  Company  for  the fiscal
             year  ending December 31, 2002.


         The Company's Annual Meeting of Stockholders is scheduled for Thursday,
         May 23, 2002 at 9:00 AM Pacific Time at the  Watsonville  Women's Club,
         12 Brennan Street, Watsonville, CA. 95076.

Item 5.  Other Information

         None.

Item 6.  Exhibits And Reports On Form 8-K

         A.  Exhibits

                 10.21    Employment Agreement With C. Edward Holden

                 10.22    Employment Agreement With Mark R. Andino

         B.  Reports On Form 8-K

                  The Company has recently filed the following  Current  Reports
                  on Form 8-K:

                       1.    Form 8-K  dated  January  29,  2002.  This  Current
                             Report  reported  the  Company's  results  for  the
                             fourth  quarter and the fiscal year 2001,  the date
                             for the 2002 Annual  Meeting of  Stockholders,  and
                             the  record  date for  voting  at the  2002  Annual
                             Meeting of Stockholders.

                       2.    Form 8-K dated March 15, 2002.  This Current Report
                             reported  the  Company's   opening  of  a  Southern
                             California loan production  office, the elimination
                             of   institution    specific   regulatory   capital
                             requirements  for Monterey Bay Bank, the repurchase
                             of additional  shares of Company common stock,  and
                             the  resignation  of a  Monterey  Bay  Bank  senior
                             officer.

                       3.    Form 8-K dated April 22, 2002.  This Current Report
                             reported the  Company's  operational  and financial
                             results for the first quarter of fiscal year 2002.


                                       47
<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 13, 2002                               By:  /s/ C. Edward Holden
                                                         --------------------
                                                         C. Edward Holden
                                                         Chief Executive Officer
                                                         President
                                                         Vice Chairman Of The
                                                         Board Of Directors



Date:    May 13, 2002                               By:  /s/ Mark R. Andino
                                                         ------------------
                                                         Mark R. Andino
                                                         Chief Financial Officer
                                                         Treasurer
                                                         (Principal Financial &
                                                         Accounting Officer)

                                       48