SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR the quarter period ended June 30, 2004


Commission File No.  0-31080

                                NORTH BAY BANCORP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              California                                 68-0434802
----------------------------------------    ------------------------------------
(State or Jurisdiction of incorporation)    (I.R.S. Employer Identification No.)

              1190 Airport Road, Suite 101, Napa, California 94558
           ----------------------------------------------------------
           (Address of principal executive office including Zip Code)


Registrant's telephone number, including area code:  (707) 252-5026

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value
                           --------------------------

                         Preferred Share Purchase Rights
                         -------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                   Yes   X                   No
                      -------                  ---------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

                   Yes                       No    X
                      -------                  ---------


                      APPLICABLE ONLY TO CORPORATE ISSUERS:


Indicate  the number of shares  outstanding  of the North Bay  Bancorp's  Common
Stock outstanding as of August 11, 2004: 2,422,167


<PAGE>
                                     Part 1.
                              FINANCIAL INFORMATION

FORWARD LOOKING STATEMENTS
--------------------------
In  addition to the  historical  information,  this  Quarterly  Report  contains
certain  forward-looking  information  within the  meaning of Section 27A of the
Securities Act of 1933, as amended and Section 321E of the  Securities  Exchange
Act of 1934, as amended,  and are subject to the "Safe Harbor"  created by those
Sections.  The reader of this Quarterly  Report should  understand that all such
forward-looking  statements are subject to various  uncertainties and risks that
could affect their outcome. The Company's actual results could differ materially
from those  suggested  by such  forward-looking  statements.  Factors that could
cause or contribute  to such  differences  include,  but are not limited to, (i)
variances in the actual  versus  projected  growth in assets,  return on assets,
loan  losses,  expenses,  rates  charged  on  loans  and  earned  on  securities
investments,  rates  paid on  deposits,  and fee and  other  noninterest  income
earned;  (ii)  competitive   pressures  among  depository  and  other  financial
institutions may increase significantly and have an effect on pricing, spending,
third-party  relationships and revenues;  (iii) enactment of adverse  government
regulations;  (iv)  adverse  conditions  and  volatility,  as a result of recent
economic uncertainty created by the United States' war on terrorism,  the war in
Iraq, in the stock market,  the public debt market and other capital markets and
the impact of such  conditions  of the  Company;  (v)  continued  changes in the
interest rate  environment may reduce interest  margins and adversely impact net
interest  income;  (vi) as well as other factors.  This entire  Quarterly Report
should be read to put such  forward-looking  statements in context and to gain a
more  complete  understanding  of the  uncertainties  and risks  involved in the
Company's business.

Moreover,  wherever phrases such as or similar to "In Management's  opinion", or
"Management  considers" are used,  such  statements are as of and based upon the
knowledge  of  Management  at the time  made and are  subject  to  change by the
passage of time and/or  subsequent  events,  and accordingly such statements are
subject  to the same  risks  and  uncertainties  noted  above  with  respect  to
forward-looking statements.


FINANCIAL INFORMATION
---------------------
The information for the three months and six months ended June 30, 2004 and June
30, 2003 is unaudited, but in the opinion of management reflects all adjustments
which are  necessary  to present  fairly the  financial  condition  of North Bay
Bancorp  (Company)  at June  30,  2004 and June  30,  2003  and the  results  of
operations  and cash flows for the three and six months then ended.  Results for
interim  periods  should not be  considered  as indicative of results for a full
year.


                                       2
<PAGE>
                                     Item 1.
                              FINANCIAL STATEMENTS

<TABLE>
                                                                                                     North Bay Bancorp
                                                                                                Consolidated Balance Sheets
                                                                                                        (Unaudited)
                                                                                                (In 000's except share data)
<CAPTION>

                                                                                        June 30,          June 30,      December 31,
Assets                                                                                    2004              2003            2003
                                                                                        ---------         ---------      ---------
<S>                                                                                     <C>               <C>            <C>
Cash and due from banks                                                                 $  35,740         $  27,559      $  28,756
Federal funds sold                                                                         11,180            20,670          9,195
                                                                                        ---------         ---------      ---------
                     Total cash and cash equivalents                                       46,920            48,229         37,951

Time deposits with other financial institutions                                               100               100            100

Investment Securities:
   Held-to-maturity                                                                             0             1,250              0
   Available-for-sale                                                                      94,427            85,839         90,655
   Equity securities                                                                        2,532             1,398          1,351
                                                                                        ---------         ---------      ---------
                     Total investment securities                                           96,959            88,487         92,006

Loans, net of allowance for loan losses of $3,782 in June, 2004
   $3,373 in June, 2003 and $3,524 in December, 2003                                      334,358           256,440        303,139
Loans held-for-sale                                                                        18,855            19,538          3,095
Investment in subsidiary                                                                      310                 0              0
Bank premises and equipment, net                                                           10,691            11,166         10,909
Accrued interest receivable and other assets                                               13,636            11,484         12,282
                                                                                        ---------         ---------      ---------
                            Total assets                                                $ 521,829         $ 435,444      $ 459,482
                                                                                        =========         =========      =========

Liabilities and Shareholders' Equity

Deposits:
   Non-interest bearing                                                                 $ 114,657         $ 102,107      $ 103,401
   Interest bearing                                                                       334,136           282,332        303,044
                                                                                        ---------         ---------      ---------
                           Total deposits                                                 448,793           384,439        406,445

Subordinated debentures                                                                    10,310            10,000         10,000
Long Term Borrowings                                                                       19,000                 0              0
Accrued interest payable and other liabilities                                              3,364             3,300          3,596
                                                                                        ---------         ---------      ---------
                          Total liabilities                                               481,467           397,739        420,041


Shareholders' equity:

Preferred stock - no par value:
Authorized, 500,000 shares;
Issued and outstanding - none
Common stock - no par value:
Authorized, 10,000,000 shares;
Issued and outstanding - 2,417,572 shares in June, 2004,
   2,282,521 shares in June, 2003, and 2,285,646 in December, 2003                         33,242            29,145         29,210
Retained earnings                                                                           7,684             7,160          9,623
Accumulated other comprehensive (loss) income                                                (564)            1,400            608
                                                                                        ---------         ---------      ---------
                     Total shareholders' equity                                            40,362            37,705         39,441

             Total liabilities and shareholders' equity                                 $ 521,829         $ 434,444      $ 459,482
                                                                                        =========         =========      =========
<FN>
The accompanying notes are an integral part of these statements
</FN>
</TABLE>

                                       3
<PAGE>
                                                      North Bay Bancorp
                                                Consolidated Income Statements
                                                        (Unaudited)
                                                (In 000's except share data)

                                           Three Months Ended  Six Months Ended
                                           ------------------  -----------------
                                           June 30,  June 30,  June 30, June 30,
                                             2004      2003      2004     2003
                                           -------   -------   -------   -------
Interest Income
   Loans (including fees)                  $ 5,394   $ 4,571   $10,650   $ 8,927
   Federal funds sold                           58        56       100       119
   Investment securities - taxable             706       735     1,312     1,517
   Investment securities - tax exempt          136       132       296       292
                                           -------   -------   -------   -------
Total interest income                        6,294     5,494    12,358    10,855

Interest Expense
   Deposits                                    611       670     1,168     1,357
   Short term borrowings                         0         8         1         8
   Long term debt                              248       141       378       282
                                           -------   -------   -------   -------
Total interest expense                         859       819     1,547     1,647

Net interest income                          5,435     4,675    10,811     9,208

Provision for loan losses                      174        45       360        90
                                           -------   -------   -------   -------

Net interest income after
   provision for loan losses                 5,261     4,630    10,451     9,118

Non interest income                            995       728     1,981     1,437
Gains on securities transactions, net          262       331       262       430
                                           -------   -------   -------   -------
Total non interest income                    1,257     1,059     2,243     1,867

Non interest expenses
   Salaries and employee benefits            2,563     2,252     5,067     4,558
   Occupancy                                   344       318       711       575
   Equipment                                   515       295     1,007       745
   Other                                     1,149     1,446     2,383     2,448
                                           -------   -------   -------   -------
Total non interest expense                   4,571     4,311     9,168     8,326
                                           -------   -------   -------   -------

Income before provision for
   income taxes                              1,947     1,378     3,526     2,659

Provision for income taxes                     740       366     1,284       752
                                           -------   -------   -------   -------

Net income                                 $ 1,207   $ 1,012   $ 2,242   $ 1,907
                                           =======   =======   =======   =======

Basic earnings per common share:           $  0.50   $  0.43   $  0.93   $  0.81
                                           =======   =======   =======   =======
Diluted earnings per common share:         $  0.48   $  0.42   $  0.90   $  0.78
                                           =======   =======   =======   =======
Dividends Paid:                            $  0.00   $  0.00   $  0.20   $  0.20
                                           =======   =======   =======   =======


The accompanying notes are an integral part of these statements

                                       4
<PAGE>
<TABLE>
                                                                              North Bay Bancorp
                                                           Consolidated Statement of Change in Shareholders' Equity
                                                                           For the Six Months Ended
                                                                                June 30, 2004
                                                                                (Unaudited)
                                                                          (In 000's except share data)

<CAPTION>
                                                                                        Accumulated
                                                                                           Other           Total
                                       Common Shares      Common         Retained      Comprehensive   Shareholders'   Comprehensive
                                         Outstanding       Stock         Earnings      Income (loss)       Equity          Income
                                       ---------------------------------------------------------------------------------------------
<S>                                     <C>            <C>              <C>              <C>              <C>            <C>
BALANCE, DECEMBER 31, 2003              2,285,646      $   29,210      $     9,623      $      608      $   39,441

Stock dividend                            113,997           3,706           (3,723)                            (17)
Cash dividend                                                                 (458)                           (458)
Comprehensive income:
    Net income                                                               2,242                            2,242      $    2,242
    Other comprehensive loss,
      net of tax:
       Change in net unrealized
       losses on available-for-sale
       securities, net of
        tax of $834                                                                         (1,172)         (1,172)          (1,172)
                                                                                                                         ----------
Comprehensive income                                                                                                     $    1,070
                                                                                                                         ==========

Stock options exercised, including
tax of $20                                 17,929             326                                              326
                                        ---------      ----------                                       ----------

BALANCE, JUNE 30, 2004                  2,417,572      $   33,242      $     7,684      $     (564)     $   40,362
                                        =========      ==========      ===========      ==========      ==========
<FN>
The accompanying notes are an integral part of these statements
</FN>
</TABLE>

                                       5
<PAGE>
<TABLE>
                                     North Bay Bancorp
                           Consolidated Statement of Cash Flows
                                         Unaudited
                                        (In 000's)
<CAPTION>
                                                                 Six Months Ended June 30,
                                                                 -------------------------
                                                                     2004        2003
                                                                  ---------    ---------
<S>                                                               <C>          <C>
Cash Flows From Operating Activities:
Net income                                                        $   2,242    $   1,907
Adjustment to reconcile net income to net cash
  used by operating activities:
  Depreciation and amortization                                         802          778
  Provision for loan losses                                             360           90
  Amortization of deferred loan fees                                   (297)        (329)
  Proceeds from sale of loans held-for-sale                          84,271      138,764
  Purchase of loans held-for-sale                                  (100,031)    (158,302)
  Premium amortization (discount accretion), net                        175          594
  Gain on securities transactions                                      (262)        (430)
   Changes in:
    Interest receivable and other assets                               (520)         291
    Interest payable and other liabilities                             (211)         235
                                                                  ---------    ---------
   Net cash used by operating activities                            (13,471)     (16,402)
                                                                  ---------    ---------
Cash Flows From Investing Activities:
Investment securities held-to-maturity:
  Proceeds from maturities and principal payments                         0           22
Investment securities available-for-sale:
  Proceeds from maturities and principal payments                    24,897       18,536
  Proceeds from sale of securities                                    4,322       22,472
  Purchases                                                         (34,911)     (22,440)
Equity securities:
  Purchases                                                          (1,181)         (48)
Net increase in loans                                               (31,282)     (21,864)
Capital expenditures                                                   (584)      (1,144)
                                                                  ---------    ---------
   Net cash used in investing activities                            (38,739)      (4,466)
                                                                  ---------    ---------
Cash Flows From Financing Activities:
Net increase in deposits                                             42,348       16,636
Increase in long-term borrowings                                     19,000            0
Stock options exercised                                                 306          592
Dividends paid                                                         (475)        (441)
                                                                  ---------    ---------
   Net cash provided by financing activities                         61,179       16,787
                                                                  ---------    ---------
Net increase (decrease)  in cash and cash equivalents                 8,969       (4,081)
Cash and cash equivalents at beginning of year                       37,951       52,310
                                                                  ---------    ---------
Cash and cash equivalents at end of period                        $  46,920    $  48,229
                                                                  =========    =========
Supplemental Disclosures of Cash Flow Information:
  Interest paid                                                   $   1,511    $   1,656
  Taxes paid                                                      $   1,770    $     595
<FN>
The accompanying notes are an integral part of these statements
</FN>
</TABLE>

                                       6
<PAGE>
                                NORTH BAY BANCORP
                 Notes to the Consolidated Financial Statements
                                   (Unaudited)
                                  June 30, 2004


NOTE 1 - Basis of Presentation
------------------------------
The accompanying  consolidated financial statements,  which include the accounts
of North Bay Bancorp and its  subsidiaries  together  the  "Company",  have been
prepared  pursuant to the rules and  regulations  of the Securities and Exchange
Commission and in Management's opinion, include all adjustments (consisting only
of normal recurring  adjustments)  necessary for a fair  presentation of results
for such interim periods.  The subsidiaries  consist of two community banks, The
Vintage Bank,  established  in 1985,  and Solano Bank,  which opened in 2000 and
Vintage  Capital Trust, a subsidiary of The Vintage Bank,  which was established
in February 2003.  North Bay has announced its intention,  subject to regulatory
approval,  to  consolidate  its  subsidiary  banks  to  simplify  the  Company's
corporate structure. All significant intercompany transactions and balances have
been eliminated. The Company de-consolidated its subsidiary, North Bay Statutory
Trust 1,  effective  March 31,  2004.  The Trust  has no  independent  assets or
operations  and exists  solely for the  purpose of  issuing  and  selling  trust
preferred securities.

Certain  information and note disclosures  normally included in annual financial
statements prepared in accordance with generally accepted accounting  principles
have been omitted  pursuant to SEC rules or  regulations;  however,  the Company
believes  that  the  disclosures  made  are  adequate  to make  the  information
presented  not  misleading.  The interim  results  for the three  months and six
months ended June 30, 2004 and 2003, are not  necessarily  indicative of results
for the full year. It is suggested  that these  financial  statements be read in
conjunction  with  the  financial  statements  and  the  notes  included  in the
Company's Annual Report for the year ended December 31, 2003.


NOTE 2 - Commitments
--------------------
The  Company  has  outstanding   standby  Letters  of  Credit  of  approximately
$2,185,000,  undisbursed  real estate and  construction  loans of  approximately
$20,086,000,  and  undisbursed  commercial  and  consumer  lines  of  credit  of
approximately  $72,929,000,  as of June 30,  2004.  The Company had  outstanding
standby Letters of Credit of approximately $994,000, undisbursed real estate and
construction loans of approximately $22,303,000,  and undisbursed commercial and
consumer lines of credit of approximately $52,908,000, as of June, 2003.


NOTE 3 - Earnings Per Common Share
----------------------------------
The Company declared a 5% stock dividend on January 26, 2004. As a result of the
stock  dividend the number of common shares  outstanding  and earnings per share
data was adjusted retroactively for all periods presented in the table below.

The following  table  reconciles the numerator and  denominator of the Basic and
Diluted earnings per share computations:

<TABLE>
<CAPTION>
                                                               Weighted Average           Per-Share
                                          Net Income                Shares                 Amount
                                          ----------                ------                 ------
                                                     (Dollars in 000's except share data)

                                                  For the three months ended June 30, 2004
                                                  ----------------------------------------
<S>                                         <C>                    <C>                      <C>
  Basic earnings per share                  $1,207                 2,421,695                $0.50
  Dilutive effect of stock options                                    78,126
  Diluted earnings per share                                       2,499,821                $0.48

                                                  For the three months ended June 30, 2003
                                                  ----------------------------------------
  Basic earnings per share                  $1,012                 2,377,116                $0.43
  Dilutive effect of stock options                                    53,304
  Diluted earnings per share                                       2,430,420                $0.42

</TABLE>
<TABLE>
<CAPTION>

                                                                Weighted Average           Per-Share
                                            Net Income              Shares                  Amount
                                            ----------              ------                  ------

                                                  For the six months ended June 30, 2004
                                                  --------------------------------------
<S>                                         <C>                    <C>                      <C>
  Basic earnings per share                  $2,242                 2,404,823                $0.93
  Dilutive effect of stock options                                    80,004
  Diluted earnings per share                                       2,484,827                $0.90

                                                  For the six months ended June 30, 2003
                                                  --------------------------------------
  Basic earnings per share                  $1,907                 2,364,384                $0.81
  Dilutive effect of stock options                                    64,487
  Diluted earnings per share                                       2,428,871                $0.78
</TABLE>

                                       7
<PAGE>

NOTE 4- Stock-Based Compensation
--------------------------------
The Company  uses the  intrinsic  value  method to account for its stock  option
plans (in accordance with the provisions of Accounting  Principles Board Opinion
No. 25 and related interpretations).  Under this method, compensation expense is
recognized for awards of options to purchase shares of common stock to employees
under  compensatory  plans  only if the fair  market  value of the  stock at the
option  grant date (or other  measurement  date,  if later) is greater  than the
amount the  employee  must pay to  acquire  the stock.  Statement  of  Financial
Accounting   Standards  No.  123  (SFAS  123),   "Accounting   for   Stock-Based
Compensation", permits companies to continue using the intrinsic-value method to
account  for stock  option  plans or adopt a fair value based  method.  The fair
value based method results in recognizing as expense over the vesting period the
fair  value of all  stock-based  awards on the date of grant.  The  Company  has
elected  to  continue  to use the  intrinsic  value  method  and  the pro  forma
disclosures  required by SFAS 123. Using the fair value method the Company's net
income and earnings per share  amounts  would have been reduced to the pro forma
amounts as indicated below:

                                                (In 000's except share data)
                                             For the three months ended June 30,
                                             -----------------------------------
                                                    2004             2003
                                                 ---------        ---------
Net income as reported                           $   1,207        $   1,012
Total stock-based employee
  compensation
  expense determined under
  the fair value based method
  for all awards, net of related
  tax effects                                           83               61
                                                 ---------        ---------
Net income pro forma                             $   1,124        $     951
Earnings per share:
      As reported:
Basic                                            $      .50       $     .43
     Diluted                                     $      .48       $     .42
      Pro forma:
Basic                                            $      .46       $     .40
Diluted                                          $      .45       $     .39



                                                 (In 000's except share data)
                                               For the six months ended June 30,
                                               ---------------------------------
                                                     2004            2003
                                                  ---------        ---------
Net income as reported                            $   2,242        $   1,907
Total stock-based employee
  compensation
  expense determined under
  the fair value based method
  for all awards, net of related
  tax effects                                           166              122
                                                  ---------        ---------
Net income pro forma                              $   2,076        $   1,785
Earnings per share:
      As reported:
Basic                                             $     .93        $     .81
      Diluted                                     $     .90        $     .78
      Pro forma:
Basic                                             $     .86        $     .75
Diluted                                           $     .84        $     .73



NOTE 5 - Impact of Recently Issued Accounting Standards
-------------------------------------------------------
In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued FASB
Interpretation  No.  46  "Consolidation  of  Variable  Interest   Entities,   an
interpretation  of ARB No. 51" (FIN 46).  FIN 46  provides a new  framework  for
identifying  variable  interest  entities (VIEs) and determining  when a company
should include the assets, liabilities,  noncontrolling interests and results of
activities  of a VIE in its  consolidated  financial  statements.  Prior  to the
implementation  of FIN 46, VIEs were generally  consolidated by the company when
the  company had a  controlling  financial  interest  through  ownership  of the
majority of the voting  interest in the company.  The  provisions of FIN 46 were
effective  immediately.  In October 2003, the FASB agreed to defer the effective
date of FIN 46 for VIEs to allow time for  certain  implementation  issues to be
addressed.  On December 24, 2003,  the FASB  released its latest  interpretation
(FIN 46R) of the  appropriate  accounting  treatment  for  VIEs,  which in part,
specifically  addresses  limited  purpose trusts formed to issue trust preferred
securities. In July 2003, the Board of Governors of the Federal Reserve issued a
supervisory letter instructing bank holding companies to continue to include the
trust  preferred  securities  in their  Tier 1 capital  for  regulatory  capital
purposes until notice is given to the contrary.  The Federal  Reserve intends to
review the regulatory  implications of any accounting  treatment changes and, if
necessary or warranted,  provide further appropriate  guidance.  There can be no
assurance  that the  Federal  Reserve  will  continue to allow  institutions  to


                                       8
<PAGE>

include trust preferred securities in Tier 1 capital for regulatory purposes. If
the trust  preferred  securities were no longer allowed to be included in Tier 1
capital,  the Company  would also be permitted to redeem the capital  securities
without penalty.

The Company  adopted FIN 46R  effective  March 31,  2004,  and the effect was to
de-consolidate  the subsidiary trust,  North Bay Statutory Trust 1, and move the
mandatory redeemable preferred securities directly to the parent company balance
sheet under the caption  "subordinated  debentures".  The Company  prospectively
applied this ruling in the accompanying financial information.


NOTE 6 - Borrowings
-------------------
Total borrowings were $19 million at June 30, 2004. There were no borrowings at
June 30, 2003. The following table summarizes the borrowings:

                     Fixed Rate Borrowings at June 30, 2004
                                  ($ in 000's)
                                      Amount     Maturity Date     Interest Rate
                                      ------     -------------     -------------
Federal Home Loan Bank Advance        $5,000         4-17-2006             2.24%
Federal Home Loan Bank Advance         5,000         4-16-2007             2.83%
Federal Home Loan Bank Advance         9,000         4-14-2008             3.23%
                                     -------
Total                                $19,000
Weighted average interest rate                                             2.86%



                                       9
<PAGE>
                                     Item 2.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS
--------------------------
In addition to the historical information this Quarterly Report contains certain
forward-looking   statements.   The  reader  of  this  Quarterly  Report  should
understand  that all such  forward-looking  statements  are  subject  to various
uncertainties  and risks that could affect their outcome.  The Company's  actual
results could differ  materially  from those  suggested by such  forward-looking
statements.  Factors that could cause or contribute to such differences include,
but are not limited  to,  variances  in the actual  versus  projected  growth in
assets,  return on assets,  loan losses,  expenses,  rates  charged on loans and
earned on securities investments,  rates paid on deposits,  competition effects,
fee and other noninterest income earned, the economic uncertainty created by the
United  States' war on terrorism and the war in Iraq, as well as other  factors.
This  entire  Quarterly  Report  should  be  read  to put  such  forward-looking
statements  in  context  and  to  gain  a  more  complete  understanding  of the
uncertainties and risks involved in the Company's business.

Moreover,  wherever  phrases  such as or  similar to "In  Management's  opinion"
"Management  considers" are used,  such  statements are as of and based upon the
knowledge  of  Management  at the time  made and are  subject  to  change by the
passage of time and/or  subsequent  events,  and accordingly such statements are
subject  to the same  risks  and  uncertainties  noted  above  with  respect  to
forward-looking statements.

CRITICAL ACCOUNTING POLICIES
----------------------------
The  Company's  accounting  policies are integral to  understanding  the results
reported.  The most complex accounting policies require management's judgment to
ascertain the valuation of assets,  liabilities,  commitments and contingencies.
The Company has established  detailed  policies and control  procedures that are
intended  to  ensure   valuation   methods  are  well   controlled  and  applied
consistently from period to period. In addition, the policies and procedures are
intended  to ensure that the process  for  changing  methodologies  occurs in an
appropriate  manner.  The  following  is a  brief  description  of  our  current
accounting policies involving significant management valuation judgments.

Allowance for Loan  Losses.
The allowance for loan losses  represents  management's  best estimate of losses
inherent  in the  existing  loan  portfolio.  The  allowance  for loan losses is
increased  by the  provision  for loan losses  charged to expense and reduced by
loans charged-off, net of recoveries.

We evaluate our allowance for loan loss on a monthly basis.  We believe that the
allowance for loan loss is a "critical  accounting estimate" because it is based
upon management's  assessment of various factors affecting the collectibility of
the loans,  including  current and projected  economic  conditions,  past credit
experience,  delinquency status, the value of the underlying collateral, if any,
and a continuing review of the portfolio of loans and commitments.

We determine the appropriate  level of the allowance for loan losses,  primarily
on an analysis of the various  components of the loan  portfolio,  including all
significant  credits on an individual basis. We segment the loan portfolios into
as many  components as practical.  Each  component  would  normally have similar
characteristics,  such as risk  classification,  past due status,  type of loan,
industry or collateral.

Management  has an  established  methodology  for  calculating  the level of the
allowance for loan losses. We analyze the following  components of the portfolio
and provide for them in the allowance for loan losses:

Specific allowances defined as:
     o    Management assessment of all loans classified as substandard or worse,
          with an outstanding balance of $100,000 or more
     o    A specific  allowance  is provided  for any amount by which the loan's
          collateral   fair  value  is   insufficient  to  cover  the  loan;  or
          discounting  estimated  further cash flows, or by observing the loan's
          market price if it is of a kind for which there is a secondary market

General allowance defined as:
     o    An allowance  for all loans  outstanding  within the portfolio and not
          contained in the specific allowances

Judgmental allowance defined as:
     o    National and local economic trends and conditions
     o    Trends in volume of loans
     o    Changes in underwriting standards and/or lending personnel
     o    Concentrations of credit within the portfolio

No assurance can be given that the Company will not sustain loan losses that are
sizable in relation to the amount  provided,  or that subsequent  evaluations of
the loan  portfolio  will not require an increase in the  allowance.  Prevailing
factors  in  association  with  the  methodology  may  include   improvement  or
deterioration  of  individual  commitments  or pools of similar  loans,  or loan
concentrations.

Available for Sale Securities.
SFAS 115 requires that  Available for Sale  securities be carried at fair value.
We believe this is a "critical  accounting estimate" in that the fair value of a
security is based on quoted  market  prices or if quoted  market  prices are not
available,  fair  values  are  extrapolated  from the  quoted  prices of similar


                                       10
<PAGE>

instruments.  Adjustments to the Available for Sale securities fair value impact
the  consolidated  financial  statements by increasing or decreasing  assets and
shareholders' equity.

Deferred Tax Assets.
Deferred  income  taxes  reflect the  estimated  future tax effects of temporary
differences  between the reported amount of assets and liabilities for financial
purposes and such amounts as measured by tax laws and  regulations.  We consider
the scheduled  reversal of deferred tax  liabilities,  projected  future taxable
income,  and  amounts  available  in the  carryback  periods,  and tax  planning
strategies  to support our position  that it is more likely than not the benefit
of our deferred tax assets will be realized.

OVERVIEW
--------
Net income was  $1,207,000  or $.48 per diluted share for the three months ended
June 30, 2004,  compared with $1,012,000 or $.42 per diluted share for the three
months ended June 30, 2003,  an increase of 19%.  Net income was  $2,242,000  or
$.90 per diluted  share for the six months  ended June 30, 2004,  compared  with
$1,907,000  or $.78 per diluted share for the six months ended June 30, 2003, an
increase of 18%. Total assets were $521,829,000 as of June 30, 2004; equating to
a 20% growth in assets during the twelve months ended June 30, 2004.

SUMMARY OF EARNINGS

NET INTEREST INCOME
-------------------
The following  table  provides a summary of the  components of interest  income,
interest  expense and net  interest  margins for the three months ended June 30,
2004 and June 30, 2003:
<TABLE>
<CAPTION>
                                                              (In 000's)
                                                   2004                                   2003
                                    -----------------------------------   ----------------------------------
                                     Average    Income/       Average      Average     Income/      Average
                                     Balance    Expense    Yield/Rate      Balance     Expense   Yield/Rate
                                    -----------------------------------   ----------------------------------
<S>                                 <C>          <C>            <C>       <C>           <C>           <C>
 Loans  (1)  (2)                    $344,421     $5,394         6.26%     $268,922      $4,571        6.80%
 Investment securities:
   Taxable                            74,431        705         3.79%       82,973         734        3.54%
   Non-taxable (3)                    14,078        174         4.94%       13,576         153         4.51%
                                    --------     ------                   --------      ------

TOTAL LOANS AND INVESTMENT
SECURITIES                           432,930      6,273         5.80%      365,471       5,458        5.97%

 Due from banks, time                    100          1         4.00%          100           1        4.00%
 Federal funds sold                   23,322         58          .99%       21,398          56        1.05%
                                    --------     ------                   --------      ------

TOTAL EARNING ASSETS                 456,352     $6,332         5.55%      386,969      $5,515        5.70%
                                    --------     ------                   --------      ------

 Cash and due from banks              35,247                                25,462
 Allowance for loan losses            (3,700)                               (3,357)
 Premises and equipment, net          10,737                                11,232
 Accrued interest receivable
   and other assets                   13,558                                11,877
                                    --------                              --------

TOTAL ASSETS                        $512,194                              $432,183
                                    ========                              ========

LIABILITIES AND SHAREHOLDERS'
EQUITY
 Deposits:
   Interest bearing demand          $210,836     $  270         0.51%     $168,601      $  242        0.57%
   Savings                            40,434         23         0.23%       31,426          37        0.47%
   Time                               75,461        318         1.69%       80,981         391        1.93%
                                    --------     ------         -----     --------      ------        -----
                                     326,731        611          .75%      281,008         670         .95%

   Short-term debt                         0          0         0.00%        3,000           8        1.07%
   Long-term debt                     25,267        248         3.93%       10,000         141        5.64%
                                    --------     ------                   --------      ------
                                      25,267        248                     13,000         149

TOTAL INTEREST BEARING
 LIABILITIES                         351,998     $  859          .98%      294,008      $  819        1.11%
                                     -------     ------                   --------      ------

 Noninterest bearing DDA             116,108                                97,712
 Accrued interest payable
   and other liabilities               3,788                                 3,525
 Shareholders' equity                 40,300                                36,938
                                    --------                              --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY               $512,194                              $432,183
                                    ========                              ========

NET INTEREST INCOME                              $5,473                                 $4,696
                                                 ======                                 ======
NET INTEREST INCOME TO
 AVERAGE EARNING ASSETS
(Net Interest Margin (4))                          4.80%                                  4.85%

                                       11
<PAGE>

<FN>
(1)  Average loans would include nonaccrual loans. The Company had no nonaccrual
     loans during 2004 or 2003.

(2)  Loan  interest  income  includes  loan fee  income of $221 and $280 for the
     three months ended June 30, 2004 and June 30, 2003, respectfully.

(3)  Average yields shown are on a  taxable-equivalent  basis.  On a non-taxable
     basis,  2004  interest  income on tax  exempt  securities  was $136 with an
     average yield of 3.86%; in 2003, on a non-taxable basis, interest income on
     tax  exempt  securities  was $132 with an average  yield of 3.89%.

(4)  Net interest  margin is calculated  by dividing net interest  income by the
     average balance of total earning assets for the applicable period
</FN>
</TABLE>

The following table provides a summary of the components of interest income,
interest expense and net interest margins for the six months ended June 30, 2004
and June 30, 2003:
<TABLE>
<CAPTION>
                                                              (In 000's)
                                                  2004                                 2003
                                   ----------------------------------     ----------------------------------
                                     Average    Income/       Average      Average     Income/      Average
                                     Balance    Expense    Yield/Rate      Balance     Expense   Yield/Rate
                                   ----------------------------------     ----------------------------------
<S>                                 <C>         <C>             <C>       <C>          <C>            <C>
 Loans  (1)  (2)                    $329,081    $10,650         6.47%     $257,598     $ 8,927        6.93%
 Investment securities:
   Taxable                            71,351      1,310         3.67%       85,865       1,515        3.53%
   Non-taxable (3)                    15,271        392         5.13%       13,585         395        5.82%
                                    --------    -------                   --------     -------

TOTAL LOANS AND INVESTMENT
SECURITIES                           415,703     12,352         5.94%      357,048      10,837        6.07%

 Due from banks, time                    100          2         4.00%          100           2        4.00%
 Federal funds sold                   19,910        100         1.00%       21,820         119        1.09%
                                    --------    -------                   --------     -------

TOTAL EARNING ASSETS                 435,713   $12,454          5.72%      378,968     $10,958        5.78%
                                    --------   --------                   --------     -------

 Cash and due from banks              33,110                                24,292
 Allowance for loan losses            (3,648)                               (3,353)
 Premises and equipment, net          10,781                                11,171
 Accrued interest receivable
   and other assets                   13,281                                11,766
                                      ------                              --------

TOTAL ASSETS                        $489,237                              $442,844
                                    ========                              ========

LIABILITIES AND SHAREHOLDERS'
EQUITY
 Deposits:
   Interest bearing demand          $205,849    $   517         0.50%     $162,083     $   471        0.58%
   Savings                            39,206         44         0.22%       30,535          71        0.47%
   Time                               73,786        607         1.65%       82,012         815        1.99%
                                    --------    -------         -----     --------     -------
                                     318,841      1,168          .73%      274,630       1,357

   Short-term debt                         0          1         0.00%        1,500           8        1.07%
   Long-term debt                     17,633        378         4.29%       10,000         282        5.64%
                                    --------    -------                   --------     -------
                                      17,633        379                     11,500         290

TOTAL INTEREST BEARING
  LIABILITIES                        336,474    $ 1,547          .92%      286,130     $ 1,647        1.15%
                                     -------    -------                   --------     -------

 Noninterest bearing DDA             108,837                                96,576
 Accrued interest payable
   and other liabilities               4,477                                 3,745
 Shareholders' equity                 39,449                                36,393
                                    --------                              --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY               $489,237                              $422,844
                                    ========                              ========

NET INTEREST INCOME                             $10,907                                $ 9,311
                                                =======                                =======
NET INTEREST INCOME TO
 AVERAGE EARNING ASSETS
(Net Interest Margin (4))                          5.01%                                  4.91%


                                       12
<PAGE>
<FN>

(1)  Average loans would include nonaccrual loans. The Company had no nonaccrual
     loans during 2004 or 2003.

(2)  Loan interest  income includes loan fee income of $577 and $538 for the six
     months ended June 30, 2004 and June 30, 2003, respectfully.

(3)  Average yields shown are on a  taxable-equivalent  basis.  On a non-taxable
     basis,  2004  interest  income on tax  exempt  securities  was $296 with an
     average yield of 3.88%; in 2003, on a non-taxable basis, interest income on
     tax  exempt  securities  was $292 with an average  yield of 4.30%.

(4)  Net interest  margin is calculated  by dividing net interest  income by the
     average balance of total earning assets for the applicable period
</FN>
</TABLE>

Net interest  income  represents the amount by which interest  earned on earning
assets (primarily loans and investments)  exceeds the amount of interest paid on
deposits. Net interest income is a function of volume,  interest rates and level
of non-accrual  loans.  Non-refundable  loan  origination  fees are deferred and
amortized into income over the life of the loan.

Net interest income before the provision for loan losses on a taxable-equivalent
basis for the three months ended June 30, 2004 and June 30, 2003 was  $5,473,000
and  $4,696,000,  respectively.  These  results  equate to a 17% increase in net
interest income for the second quarter of 2004 compared to the second quarter of
2003.  Loan fee income,  which is included  in interest  income from loans,  was
$221,000 for the three months ended June 30, 2004,  compared  with  $280,000 for
the three months ended June 30, 2003.  Net interest  income before the provision
for loan losses on a taxable-equivalent  basis for the six months ended June 30,
2004 and June 30,  2003 was  $10,907,000  and  $9,311,000,  respectively.  These
results equate to a 17% increase in net interest  income for the first six month
of 2004 compared to the same period of 2003. Loan fee income,  which is included
in interest  income from loans,  was  $577,000 for the six months ended June 30,
2004, compared with $538,000 for the six months ended June 30, 2003.

Taxable-equivalent  interest  income  increased  $817,000  or 15% in the  second
quarter of 2004  compared  with the same  period of 2003.  The net  increase  of
$817,000  was  attributable  to an  increase  in the  volume of  earning  assets
accounting  for  $1,220,000 of this  increase,  offset by a decrease of $403,000
attributable  to lower  rates.  Interest  paid on  interest-bearing  liabilities
increased  $40,000 or 5% in the second  quarter of 2004 compared with the second
quarter of 2003. The increase of $40,000 was attributable to an increases in the
volume  of  deposits  and  other  borrowings  accounting  for  $249,000  of this
increase, offset by a decrease of $209,000 attributable to lower rates.

Taxable-equivalent  interest income increased $1,496,000 or 15% in the first six
months of 2004  compared  with the same  period  of 2003.  The net  increase  of
$1,496,000  was  attributable  to an  increase  in the volume of earning  assets
accounting  for  $2,259,000 of this  increase,  offset by a decrease of $763,000
attributable  to lower  rates.  Interest  paid on  interest-bearing  liabilities
decreased  $100,000  in the first half of 2004  compared  with the first half of
2003.  Although  increases  in the  volume  of  deposits  and  other  borrowings
accounting  for an  increase of $273,000 it was offset by a decrease of $373,000
attributable to lower rates.

The  average  balance  of  earning  assets  for the six month  period  increased
$56,745,000  or 15% when compared with June 30, 2003 and the average  balance of
interest-bearing liabilities increased $50,344,000 or 18% compared with the same
period in 2003.  Management  does not expect a material  change in the Company's
net  interest  margin  during the next  twelve  months as the result of a modest
increase or decrease in general interest rates.


                                       13
<PAGE>
The following table sets forth a summary of the changes in interest earned and
interest paid for the three months ended June 30, 2004 over the same period of
2003 resulting from changes in assets and liabilities volumes and rates. The
change in interest due to both rate and volume has been allocated in proportion
to the relationship of absolute dollar amounts of change in each.

                                                           (In 000's)

                                                         2004 Over 2003
                                                  ------------------------------
                                                  Volume      Rate       Total
                                                  -------    -------    -------
Increase (Decrease) in Interest and Fee Income

   Time deposits with other
    Financial institutions                        $     0    $     0    $     0
   Investment securities:
     Taxable                                          (75)        46        (29)
     Non-taxable (1)                                    6         15         21
   Federal funds sold                                   5         (3)         2
   Loans                                            1,284       (461)       823
                                                  -------    -------    -------
   Total interest and fee income                    1,220       (403)       817
                                                  -------    -------    -------

Increase (Decrease) in Interest Expense

   Deposits:
     Interest bearing
     Transaction accounts                              58        (30)        28
     Savings                                           11        (25)       (14)
     Time deposits                                    (27)       (46)       (73)
                                                  -------    -------    -------
   Total deposits                                      42       (101)       (59)
                                                  -------    -------    -------

   Short-term borrowings                               (8)         0         (8)
   Long-term debt                                     215       (108)       107
                                                  -------    -------    -------
   Total Interest Expense                             249       (209)        40
                                                  -------    -------    -------
   Net Interest Income                            $   971    ($  194)   $   777
                                                  =======    =======    =======

(1) The interest earned is taxable-equivalent


The following  table sets forth a summary of the changes in interest  earned and
interest  paid for the six months  ended June 30,  2004 over the same  period of
2003 resulting  from changes in assets and  liabilities  volumes and rates.  The
change in interest due to both rate and volume has been  allocated in proportion
to the relationship of absolute dollar amounts of change in each.


                                                             (In 000's)
                                                          2004 Over 2003
                                                  ------------------------------
                                                   Volume      Rate      Total
                                                  -------    -------    -------

Increase (Decrease) in Interest and Fee Income

   Time deposits with other
    Financial institutions                        $     0    $     0    $     0
   Investment securities:
     Taxable                                         (256)        51       (205)
     Non-taxable (1)                                   49        (52)        (3)
   Federal funds sold                                 (10)        (9)       (19)
   Loans                                            2,476       (753)     1,723
                                                  -------    -------    -------
   Total interest and fee income                    2,259       (763)     1,496
                                                  -------    -------    -------


                                       14
<PAGE>

Increase (Decrease) in Interest Expense

   Deposits:
     Interest bearing
     Transaction accounts                             126        (80)        46
     Savings                                           21        (48)       (27)
     Time deposits                                    (81)      (127)      (208)
                                                  -------    -------    -------
   Total deposits                                      66       (255)      (189)

   Short-term borrowings                               (8)         1         (7)
   Long-term debt                                     215       (119)        96
                                                  -------    -------    -------
   Total Interest Expense                             273       (373)      (100)
                                                  -------    -------    -------
   Net Interest Income                            $ 1,986    ($  390)   $ 1,596
                                                  =======    =======    =======

(2) The interest earned is taxable-equivalent.


PROVISION AND ALLOWANCE FOR LOAN LOSSES
---------------------------------------
The  Company  maintains  an  allowance  for loan  losses  at a level  considered
adequate to provide for losses that can be reasonably anticipated. The allowance
is  increased by the  provision  for loan losses and reduced by net charge offs.
The  allowance for loan losses is based on  estimates,  and ultimate  losses may
vary from current  estimates.  These estimates are reviewed  periodically and as
adjustments  become  necessary  they are  reported in earnings in the periods in
which  they  become  known.  The  Company  conducts  credit  reviews of the loan
portfolio  and  considers  current  economic  conditions,  historical  loan loss
experience  and other  factors in  determining  the  adequacy  of the  allowance
balance.  This  evaluation  establishes a specific  allowance for all classified
loans over $100,000 and establishes  percentage  allowance  requirements for all
other loans,  according to the  classification  as  determined  by the Company's
internal  grading  system.  As of June 30, 2004 the allowance for loan losses of
$3,782,000  represented  1.12% of loans  outstanding.  As of June 30, 2003,  the
allowance represented 1.30% of loans outstanding.  During the three months ended
June 30,  2004  $174,000  was  charged to expense  for the loan loss  provision,
compared  with $45,000 for the same period in 2003.  During the six months ended
June 30,  2004  $360,000  was  charged to expense  for the loan loss  provision,
compared  with $90,000 for the same period in 2003.  The increase in the expense
for the loan loss  provision  was to  provide  for  growth in the  overall  loan
portfolio. There were net charge-offs of $102,000 during the first six months of
2004  compared  with  $7,000 of net  charge-offs  during the first six months of
2003.

The following table summarizes changes in the allowance for loan losses:

                                                            (In 000's)
                                                     For the Six months ended
                                                   -----------------------------
                                                   June 30, 2004   June 30, 2003
                                                   -------------   -------------
Balance, beginning of period                          $ 3,524         $ 3,290
Provision for loan losses                                 360              90
Loans charged off                                        (107)            (11)
Recoveries of loans previously charged off                  5               4
                                                      -------         -------
Balance, end of period                                $ 3,782         $ 3,373
                                                      =======         =======

Allowance for loan losses to total outstanding           1.12%           1.30%
loans

There were no loans on non-accrual  status as of June 30, 2004, June 30, 2003 or
December  31,  2003.  There  were no  loans 90 days or more  past due and  still
accruing  interest  or  restructured  loans at June 30,  2004,  June 30, 2003 or
December 31, 2003.

NON-INTEREST INCOME
-------------------
Non-interest income, excluding gains on the sale of securities, was $995,000 for
the three months ended June 30, 2004  compared with $728,000 for the same period
in 2003, a 37% increase.  Non-interest  income,  excluding  gains on the sale of
securities,  was $1,981,000 for the six months ended June 30, 2004 compared with
$1,437,000  for the same period in 2003,  a 38%  increase.  Non-interest  income
primarily  consists  of  service  charges  and other  fees  related  to  deposit
accounts.  The  increase  in  non-interest  income  resulted  primarily  from an
increase in the number of deposit  accounts,  transaction  volumes and  directly
related  service  charges.   Service  charges  on  deposit  accounts   increased
proportionately  more than deposits because of improved  collection  efforts and
implementation  of an overdraft  privilege  program that commenced in the fourth
quarter of 2003.


                                       15
<PAGE>

GAINS ON SECURITIES
-------------------
Net gains of $262,000 for the three and six months ended June 30, 2004  resulted
from the sale of several  available-for-sale  securities.  Net gains of $331,000
and $430,000  for the three and six months  ended June 30,  2003,  respectively,
also resulted from the sale of several available-for-sale securities.

NON-INTEREST EXPENSE
--------------------
Non-interest  expense for the three months ended June 30, 2004 and June 30, 2003
was $4,571,000 and $4,311,000, respectively, a 6% increase. Non-interest expense
for the six months  ended June 30,  2004 and June 30,  2003 was  $9,168,000  and
$8,326,000, respectively, a 10% increase. Salaries and employee benefits expense
for the  three  months  ended  June  30,  2004  and  2003  were  $2,563,000  and
$2,252,000, respectively, a 14% increase. Salaries and employee benefits expense
for the six months ended June 30, 2004 and 2003 were  $5,067,000 and $4,558,000,
respectively,  an 11% increase.  The increase in 2004  resulted  from  increased
salaries  paid  to  Company   officers  and   employees,   and  an  increase  of
approximately  twenty-five full-time equivalent (FTE) employees from 144 at June
30,  2003  to 169 at June  30,  2004.  The  increases  in FTE  were  related  to
increasing  sales activity and staffing new offices.  Occupancy  expense for the
three  months  ended  June  30,  2004  and  2003  were  $344,000  and  $318,000,
respectively,  an 8% increase.  Occupancy  expense for the six months ended June
30, 2004 and 2003 were $711,000 and $575,000,  respectively,  representing a 24%
increase.  The increase in 2004 is  attributed to opening a branch and obtaining
rented  locations  for  Executive  and  Administration  offices  in March  2003.
Equipment  expenses  for the  three  months  ended  June  30,  2004 and 2003 was
$515,000 and $295,000, respectively,  representing an increase of 75%. Equipment
expenses  for the six months  ended June 30,  2004 and 2003 was  $1,007,000  and
$745,000,  respectively, an increase of 35%. The primary reason for the increase
in  equipment  expense in 2004  compared  with 2003 was due to the  reversal  of
expenses accrued during the pendency of a lawsuit.  The suit was settled on June
17, 2003.  Other  expenses for the three months ended June 30, 2004 and June 30,
2003  were  $1,149,000  and  $1,446,000,  respectively,  a 21%  decrease.  Other
expenses  for the six  months  ended  June  30,  2004 and  June  30,  2003  were
$2,383,000 and $2,448,000,  respectively,  a 2% decrease.  The decrease in other
expense in 2004  compared with 2003 was primarily in legal fees since there were
no litigation  expenses in 2004.  Legal fees were $88,000 and $151,000 for three
and six months ended June 30, 2004,  respectively.  This  compares with $290,000
and $401,000, respectively, for the same period in 2003.

INCOME TAXES
------------
The Company  reported a provision for income tax for the three months ended June
30, 2004 and 2003 of $740,000 and $366,000, respectively. The Company reported a
provision  for  income tax for the six  months  ended June 30,  2004 and 2003 of
$1,284,000 and $752,000, respectively. Both the 2004 and 2003 provisions reflect
tax accruals at statutory rates for federal income taxes, adjusted primarily for
the effect of the Company's investments in tax-exempt municipal securities, bank
owned life  insurance  policies and state taxes.  Comparison  with the first six
months of 2003 were impacted by the real estate  investment trust ("REIT") state
benefits  which were included in net income in the first three  quarters of 2003
and were reversed in the fourth quarter of 2003.

BALANCE SHEET
-------------
Total assets as of June 30, 2004 were $521,829,000 compared with $435,444,000 as
of June 30,  2003,  and  $459,482,000  at December  30,  2003  equating to a 20%
increase  during the twelve  months ended June 30, 2004,  and a 14% increase for
the six months  ended June 30,  2004.  Total  deposits  as of June 30, 2004 were
$448,793,000 compared with $384,439,000 as of June 30, 2003, and $406,445,000 at
December  30, 2003  representing  a 17% increase  during the twelve  months then
ended,  and a 10% increase  for the six months ended June 30, 2004.  Gross loans
outstanding as of June 30, 2004 were $338,140,000  compared with $259,813,000 as
of June 30,  2003,  and  $306,663,000  at December  30,  2003  equating to a 30%
increase  during the twelve  months  then ended and a 10%  increase  for the six
months ended June 30, 2004.

LOANS HELD FOR SALE
-------------------
The  Company  had   $18,855,000,   $19,538,000   and   $3,095,000  in  purchased
participations in mortgage loans as of June 30, 2004, June 30, 2003 and December
31, 2003,  respectively.  Loans  originated or purchased and considered held for
sale  are  carried  at the  lower  of  cost or  estimated  market  value  in the
aggregate.  Net unrealized  losses,  if any, are recognized  through a valuation
allowance by charges to income.  There were no gains or losses recognized during
2003 or 2004.

SUBORDINATED DEBENTURES
-----------------------
During June 2002,  the Company  formed North Bay  Statutory  Trust I (Trust),  a
Connecticut  statutory  business  trust,  for the purpose of issuing  guaranteed
undivided  beneficial   interests  in  junior  subordinated   debentures  (trust
preferred  securities).  During  June  2002,  the Trust  issued  $10  million in
floating rate Cumulative Trust Preferred Securities (Securities). The Securities
bear interest at a rate of Libor plus 3.45% and had an initial  interest rate of
5.34%;  as of June 30, 2004 the interest  rate was 5.04%;  the  Securities  will
mature on June 26,  2032,  but earlier  redemption  is permitted  under  certain
circumstances, such as changes in tax or regulatory capital rules.

As previously  discussed the Company  de-consolidated  the Trust as of March 31,
2004. As a result, the junior  subordinated  debentures issued by the Company to
the Trust,  totaling  $10,310,000  are reflected on the  Company's  consolidated
balance  sheet,  under the caption  Subordinated  Debentures.  The Company  also
recognized its $310,000 investment in the Trust, which is recorded in Investment
in Subsidiary.  The Trust has no independent  assets or operations and exist for
the sole  purpose  of issuing  trust  preferred  securities  and  investing  the
proceeds thereof in an equivalent  amount of subordinated  debentures  issued by
the Company.

The Securities, the subordinated debentures, and the common securities issued by
the Trust are  redeemable  in whole or in part on or after June 26, 2007,  or at
any time in whole,  but not in part, upon the occurrence of certain events.  The
Securities  are  included  in Tier 1 capital  for  regulatory  capital  adequacy
determination  purposes,  subject to certain limitations.  The Company fully and
unconditionally  guarantees  the  obligations  of the Trust with  respect to the
issuance of the Securities.

                                       16
<PAGE>

Subject to certain  exceptions  and  limitations,  the Company may, from time to
time, defer subordinated  debenture  interest payments,  which would result in a
deferral  of   distribution   payments  on  the  Securities  and,  with  certain
exceptions,  prevent the Company from declaring or paying cash  distributions on
the  Company's  common  stock  or  debt  securities  that  rank  junior  to  the
subordinated debentures.

BORROWINGS
----------
Total  borrowings were $19 million at June 30, 2004. There were no borrowings at
June 30, 2003. The following table summarizes the borrowings:

                     Fixed Rate Borrowings at June 30, 2004
                                  ($ in 000's)

                                        Amount     Maturity Date   Interest Rate
                                        ------     -------------   -------------
Federal Home Loan Bank Advance          $5,000       4-17-2006         2.24%
Federal Home Loan Bank Advance           5,000       4-16-2007         2.83%
Federal Home Loan Bank Advance           9,000       4-14-2008         3.23%
                                       -------
Total                                  $19,000
Weighted average interest rate                                         2.86%


LIQUIDITY AND CAPITAL ADEQUACY
------------------------------
The  Company's  liquidity  is  determined  by the level of assets (such as cash,
Federal  Funds,  and  investment in unpledged  marketable  securities)  that are
readily  convertible  to cash  to  meet  customer  withdrawals  and  borrowings.
Management reviews the Company's liquidity position on a regular basis to ensure
that it is adequate to meet projected  loan funding and potential  withdrawal of
deposits.  The  Company  has  a  comprehensive  Asset/Liability  Management  and
Liquidity Policy, which it uses to determine adequate liquidity.  As of June 30,
2004 liquid  assets were 28% of total  assets,  compared with 31% as of June 30,
2003.

The Federal Deposit Insurance  Corporation  Improvement Act (FDICIA) established
ratios used to determine  whether a Company is "Well  Capitalized,"  "Adequately
Capitalized,"    "Undercapitalized,"    "Significantly   Undercapitalized,"   or
"Critically Undercapitalized." A Well Capitalized Company has risk-based capital
of at least  10%,  tier 1  risked-based  capital  of at least 6%, and a leverage
ratio of at least 5%. As of June 30,  2004,  the  Company's  risk-based  capital
ratio was 12.92%.  The  Company's  tier 1 risk-based  capital ratio and leverage
ratio were 12.03% and 9.94%, respectively.



                                       17
<PAGE>

As the following table  indicates,  the Company and the Banks currently  exceeds
the  regulatory  capital  minimum  requirements.  The  Company and the Banks are
considered "Well Capitalized" according to regulatory guidelines.

<TABLE>
<CAPTION>
                                                                          To Be Well Capitalized
                                                        For Capital       Under Prompt Corrective
                                    Actual           Adequacy Purposes      Action Provisions
                              ------------------     -----------------    -----------------------

                                                         (In 000's)
                                                     Minimum regulatory     Minimum regulatory
                                                        requirement            requirement
                              Amount      Ratio      Amount      Ratio      Amount      Ratio
                              ------      -----      ------      -----      ------      -----
<S>                           <C>         <C>        <C>         <C>       <C>          <C>
As of June 30, 2004:
Total Capital (to Risk
   Weighted Assets)
      Consolidated            $54,708     12.92%     $33,865     8.00%     $42,331      10.00%
      The Vintage Bank         37,523     11.59%      25,894     8.00%      32,368      10.00%
       Solano Bank              9,817     10.15%       7,736     8.00%       9,670      10.00%
Tier I Capital (to Risk
   Weighted Assets)
      Consolidated             50,926     12.03%      16,933     4.00%      25,399       6.00%
      The Vintage Bank         34,564     10.68%      12,947     4.00%      19,421       6.00%
       Solano Bank              8,994      9.30%       3,868     4.00%       5,802       6.00%
Tier I Capital (to
   Average Assets)
      Consolidated             50,926      9.94%      20,488     4.00%      25,610       5.00%
      The Vintage Bank         34,564      8.62%      16,046     4.00%      20,057       5.00%
       Solano Bank              8,994      8.83%       4,075     4.00%       5,094       5.00%
</TABLE>

                                     Item 3.

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk is the exposure to loss  resulting  from changes in interest  rates,
foreign currency  exchange rates,  commodity prices and equity prices.  Although
the Company manages other risks, as in credit quality and liquidity risk, in the
normal  course of  business,  management  considers  interest  rate risk to be a
principal  market risk.  Other types of market risks,  such as foreign  currency
exchange rate risk, do not arise in the normal course of the Company's  business
activities.  The  majority  of the  Company's  interest  rate risk  arises  from
instruments,  positions and  transactions  entered into for purposes  other than
trading. They include loans, securities available-for-sale, deposit liabilities,
short-term  borrowings and long-term debt. Interest rate risk occurs when assets
and liabilities reprice at different times as interest rates change.

The Company manages interest rate risk through its Audit Committee, which serves
as the Asset Liability  Committee (ALCO). The ALCO monitors exposure to interest
rate risk on a  quarterly  basis  using  both a  traditional  gap  analysis  and
simulation  analysis.  Traditional gap analysis  identifies  short and long-term
interest  rate  positions  or  exposure.  Simulation  analysis  uses  an  income
simulation  approach to measure the change in interest  income and expense under
rate shock conditions. The model considers the three major factors of (a) volume
differences,  (b) repricing differences and (c) timing in its income simulation.
The model begins by disseminating data into appropriate  repricing buckets based
on internally  supplied  algorithms (or overridden by  calibration).  Next, each
major asset and liability  type is assigned a  "multiplier"  or beta to simulate
how much that particular  balance sheet category type will reprice when interest
rates change. The model uses eight asset and liability multipliers consisting of
bank-specific  or default  multipliers.  The  remaining  step is to simulate the
timing effect of assets and liabilities by modeling a month-by-month  simulation
to estimate  the change in interest  income and expense  over the next  12-month
period.  The results are then  expressed  as the change in pre-tax net  interest
income over a 12-month period for +1%, and +2% shocks.

Utilizing the  simulation  model to measure  interest rate risk at June 30, 2004
and  December  31, 2003 the Company is within the  established  exposure of a 4%
change in "return on equity" tolerance limit. There were no significant  changes
in interest rate risk from the annual report on form 10-K for December 31, 2003.


                                       18
<PAGE>
                                     Item 4.

                             CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

Based on their  evaluation as of June 30, 2004,  the Company's  Chief  Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information  required to be
disclosed in the reports that the Company files or submits under the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time periods  specified in the  Securities and Exchange  Commission's  rules and
forms.

Changes in Internal Controls:

There  were no  significant  changes in our  internal  controls  over  financial
reporting  that  occurred  during our last fiscal  quarter that have  materially
affected,  or are reasonably likely to materially  affect, our internal controls
over financial reporting.


                                       19
<PAGE>
                                     PART 2
                                OTHER INFORMATION



OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Other  than  ordinary  routine  litigation  incidental  to the  business  of the
Company, there are no material pending legal proceedings.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         (a) The Fifth  Annual  Meeting of the  shareholders  of the Company was
held on May 6, 2004.

         (b) Proxies for the meeting were  solicited  pursuant to Regulation 14A
under  the Act,  there  were no  solicitations  in  opposition  to  management's
nominees as listed in the proxy statement, and all such nominees were elected.

         (c) In addition to the election of directors and aside from  procedural
matters,  the  following  matters  were voted  upon at the annual  shareholders'
meeting:  A proposal  to amend the  Company's  Bylaws to  increase  the range of
directors  from  six (6) to  eleven  (11) to nine  (9) to  seventeen  (17).  The
affirmative vote of a majority of the Company's  outstanding shares was required
for approval.  At the Fifth Annual Meeting,  the proposal to amend the Bylaws to
increase the range of directors was approved with 1,206,525  affirmative  votes.
There were, 149,536 negative votes, and 15,195 abstaining votes.

         (d) There was no  settlement  between the Company and any other  person
terminating any solicitation subject to Rule 14a-11.

ITEM 5.  OTHER INFORMATION

None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) An index of exhibits begins on page 22.

         (b) During  the  quarter  ended  June 30,  2004 the  Company  filed the
following Current Report on Form 8-K:

         Filed May 4, 2004,  under Item 12 of Form 8-K,  reporting net income of
$1 million for first quarter of 2004.

         No  financial  statements  were filed with the Current  Reports on Form
8-K.


                                       20
<PAGE>

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Company has duly caused this quarterly  report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            NORTH BAY BANCORP
                                            A California Corporation


Date: August 11, 2004                       BY: /s/ TERRY L. ROBINSON
                                                --------------------------------
                                                Terry L. Robinson
                                                President & CEO
                                                Principal Executive Officer


Date: August 11, 2004                       BY: /s/ LEE-ANN CIMINO
                                                --------------------------------
                                                Lee-Ann Cimino
                                                Senior Vice President
                                                Principal Financial Officer





                                       21
<PAGE>

                                  EXHIBIT INDEX

    Exhibit No.   Description
    -----------   -----------

       3.2        Amended and Restated Bylaws

      10.9        Form of  Indemnification  Agreement entered into between North
                  Bay Bancorp and its Directors and Executive Officers

        11        Statement re: computation of per share earnings is included in
                  Note  3 to  the  unaudited  condensed  consolidated  financial
                  statements of Registrant.

      31.1        Certificate  of Principal  Executive  Officer  Pursuant to SEC
                  Release 33-8238

      31.2        Certificate  of Principal  Financial  Officer  Pursuant to SEC
                  Release 33-8238

      32.1        Certificate  of  Principal  Executive  Officer  Pursuant to 18
                  U.S.C. Section 1350

      32.2        Certificate  of  Principal  Financial  Officer  Pursuant to 18
                  U.S.C. Section 1350



                                       22