Exhibit 99.1

December 26, 2000

FOR IMMEDIATE RELEASE
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                      MONTEREY BAY BANCORP, INC. ANNOUNCES:
        REPAYMENT IN FULL OF A $4,825,000 NON-ACCRUAL BUSINESS TERM LOAN;
            $2.1 MILLION INCREASE IN INVESTMENT IN MONTEREY BAY BANK

                                                       Common Stock Symbol: MBBC
                                                          NASDAQ National Market

         Watsonville,   CA.  December  26,  2000.  Monterey  Bay  Bancorp,  Inc.
("Company")  today reported the repayment in full of a $4,825,000  business term
loan  primarily  secured  by  the  common  stock  of  a  depository  institution
conducting business outside the State of California. This loan was originated by
Monterey Bay Bancorp,  Inc. and has been maintained on non-accrual  status since
the fourth  quarter of 1999.  At September  30,  2000,  the Company had reserved
$200,000  for this loan.  In addition to all  principal  owed,  the Company also
received all related interest and the reimbursement of $16,000 for legal fees.

         Commenting on the repayment, C. Edward Holden, Chief Executive Officer,
stated  "The  repayment  of this  loan  will  positively  impact  the  Company's
financial profile at the end of our fiscal year, December 31, 2000, particularly
in regards to classified asset levels.  The repayment also provides the Monterey
Bay Bancorp,  Inc.  holding company with additional  liquidity.  This integrates
effectively  with the recent  decision  by the Board of  Directors  to invest an
additional  $2.1  million  from the holding  company  into the Monterey Bay Bank
("Bank") subsidiary to support the Bank's business strategy for 2001."

         Mr.  Holden then  continued  "The  repayment of the business  term loan
provides the holding company with both  flexibility and additional  resources to
further the Bank's ongoing  evolution into a community based financial  services
firm.  The  enhanced  flexibility  will permit the  Company to consider  various
opportunities to build shareholder value."

         The  Company's  common  stock is listed on the NASDAQ  National  Market
under  the  symbol  "MBBC".  The  Company  and the  Bank  are  headquartered  in
Watsonville, California. The Bank operates through its administrative offices in
Watsonville and eight full service  branches located in the Greater Monterey Bay
Area of Central California.

         This news release contains certain forward-looking  statements that are
subject to various factors that could cause actual results to differ  materially
from such statements. Such factors include, but are not limited to, the economic
and real estate market conditions in the Company's market areas, the possibility
that the Company will not be  successful in achieving its strategic and tactical
objectives,  changes in liquidity  demands upon the Company and its  subsidiary,
and  other  factors  discussed  in  documents  filed  by the  Company  with  the
Securities  and  Exchange  Commission  from time to time.  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.

                        For further information contact:

C. Edward Holden                                         Mark R. Andino
Chief Executive Officer              or                  Chief Financial Officer
(831) 768 - 4840                                         (831) 768 - 4806

                            INFO@MONTEREYBAYBANK.COM
                              Fax: (831) 722 - 6794

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