U. S. SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C. 20549
                                  FORM 10-QSB
                                   (Mark One)

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

               For the quarterly period ended September 30, 1997

[ ]           TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            For the transition period from____________to____________


                        Commission File Number: 0-12231

                            BAY COMMERCIAL SERVICES
       (Exact name of small business issuer as specified in its charter)

                             California 94-2760444
                (State or other jurisdiction of (I.R.S.Employer
               incorporation or organization) Identification No.)

                             1495 East 14th Street
                         San Leandro, California 94577
                    (Address of principal executive offices)

                                 (510) 357-2265
                          (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 _____

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

Class                                           Outstanding at October 31, 1997

Common stock, no par value                                     1,076,720 shares


Transitional Small Business Disclosure Format

YES NO __X_


This report contains a total of 18 pages.

<PAGE>


<TABLE>
                                   BAY COMMERCIAL SERVICES AND SUBSIDIARY
                                   Consolidated Condensed Balance Sheets
<CAPTION>
                                                                        September 30,
                                                                                1997  December 31,
(Dollars in thousands):                                                   (unaudited)        1996
---------------------------------------------------------------------------------------------------
<S>                                                                            
ASSETS                                                                      <C>           <C> 
Cash and due from banks                                                     $  8,257      $ 6,945
Federal funds sold and securities purchased under repurchase agreements        6,800          ---
---------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                     15,057        6,945
---------------------------------------------------------------------------------------------------
Investment securities available for sale, stated at market value
  (amortized cost of $17,589 for 1997; $9,364 for 1996)                       17,538        9,339
Investment securities held to maturity (market values of $7,654 for 1997;
  $6,743 for 1996)                                                             7,574        6,704
---------------------------------------------------------------------------------------------------
  Total investment securities                                                 25,112       16,043
--------------------------------------------------------------------------------------------------
Loans held for sale                                                            1,521        2,923
Loans held for investment                                                     67,841       68,439
  Allowance for loan losses                                                   (1,000)        (971)
---------------------------------------------------------------------------------------------------
  Net loans                                                                   68,362       70,391
---------------------------------------------------------------------------------------------------
Premises and equipment, net                                                    2,152        2,164
Interest and fees receivable                                                     708          585
Other assets                                                                     439          641
---------------------------------------------------------------------------------------------------
  Total assets                                                              $111,830      $96,769
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand                                                $ 30,058      $26,198
  Savings and interest-bearing demand                                         26,025       23,250
  Time                                                                        31,725       27,823
  Certificates of deposit, $100,000 and over                                  11,298        6,020
---------------------------------------------------------------------------------------------------
  Total deposits                                                              99,106       83,291
---------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase                                 1,732        2,304
Federal funds purchased                                                          ---          500
Interest payable and other liabilities                                           810        1,256
---------------------------------------------------------------------------------------------------
  Total liabilities                                                          101,648       87,351
---------------------------------------------------------------------------------------------------

Commitments and contingent liabilities                                           ---          ---

Shareholders' equity:
  Common stock - no par value: authorized 20,000,000
    shares; issued & outstanding 1,076,720 shares in 1997 and 1996             3,662        3,662
  Retained earnings                                                            6,551        5,771
  Net unrealized loss on securities available for sale                           (31)         (15)
---------------------------------------------------------------------------------------------------
  Total shareholders' equity                                                  10,182        9,418
---------------------------------------------------------------------------------------------------
  Total liabilities and shareholders' equity                                $111,830      $96,769
===================================================================================================
See accompanying notes to consolidated condensed financial statements 
</TABLE>
<PAGE>
<TABLE>
                     BAY COMMERCIAL SERVICES AND SUBSIDIARY
            Consolidated Condensed Statements of Income (unaudited)

<CAPTION>
                                                 Nine Months Ended   Three Months Ended
                                                     September 30,        September 30,
(In thousands, except per share amounts):            1997     1996          1997   1996
---------------------------------------------------------------------------------------
<S>                                                
Interest income:                                   <C>      <C>         <C>      <C>
  Loans, including fees                            $5,327   $4,736      $1,801   $1,641
  Federal funds sold and securities purchased
    under repurchase agreements                       199      209          59       94
  Investment securities:
    Taxable                                           741      740         328      231
    Nontaxable                                        143      122          51       46
---------------------------------------------------------------------------------------
      Total interest income                         6,410    5,807       2,239    2,012
---------------------------------------------------------------------------------------
Interest expense:
  Deposits:
    Savings and interest-bearing demand               496      497         177      177
    Time                                            1,166    1,041         415      374
    Certificates of deposit, $100,000 and over        398      212         153       73
  Other borrowed funds                                 73       77          23       26
---------------------------------------------------------------------------------------
      Total interest expense                        2,133    1,827         768      650
---------------------------------------------------------------------------------------
      Net interest income                           4,277    3,980       1,471    1,362
Provision for loan losses                              52      ---           5      ---
---------------------------------------------------------------------------------------
      Net interest income after
        provision for loan losses                   4,225    3,980       1,466    1,362
---------------------------------------------------------------------------------------
Noninterest income:
  Service charges and fees                            200      192          67       67
  Bankcard income                                     225      186          80       66
  Loan servicing                                       99       99          37       34
  Gain on sale of loans                                57      174         ---       66
  Gain on sale of OREO                                ---      111         ---      111
  Other                                               198      128           6       54
---------------------------------------------------------------------------------------
      Total noninterest income                        779      890         190      398
---------------------------------------------------------------------------------------
Noninterest expenses:
  Salaries and employee benefits                    2,116    1,831         695      623
  Occupancy                                           511      446         164      149
  Data processing                                     233      213          78       69
  Bankcard processing expense                         179      149          62       58
  Professional services                                90      190          21       86
  Other                                               638      612         235      157
---------------------------------------------------------------------------------------
      Total noninterest expenses                    3,767    3,441       1,255    1,142
---------------------------------------------------------------------------------------
      Income before income tax expense              1,237    1,429         401      618
Income tax expense                                    457      567         146      251
---------------------------------------------------------------------------------------
      Net income                                   $  780   $  862      $  255   $  367
=======================================================================================
      Net income per common and equivalent share   $ 0.62   $ 0.71      $ 0.20   $ 0.30
=======================================================================================
See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
                     BAY COMMERCIAL SERVICES AND SUBSIDIARY
                Consolidated Condensed Statements of Cash Flows

<CAPTION>
                                                                      Nine Months Ended
                                                                        September 30,
(In thousands):                                                          1997        1996
-----------------------------------------------------------------------------------------
<S>                                                                                       
Cash flows from operating activities:                                <C>         <C> 
   Net income                                                        $    780    $    862
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Depreciation and amortization                                       51         181
       Provision for loan losses                                           52        --
       Unamortized deferred loan fees, net                                (59)        (60)
       Originations of SBA loans held for sale                           (659)       (810)
       Proceeds from the sale of SBA loans held for sale                1,095       3,106
       Net income related to OREO                                         ---        (111)
       Change in interest and fees receivable and other assets            104        (230)
       Change in interest payable and other liabilities                  (123)       (393)
-----------------------------------------------------------------------------------------
     Net cash provided by operating activities                          1,241       2,545
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
   Proceeds from maturities of securities available for sale           17,464       1,655
   Proceeds from maturities of securities held to maturity              1,271       1,661
   Purchase of securities available for sale                          (26,532)        ---
   Purchase of securities held to maturity                             (1,139)     (1,028)
   Net change in loans                                                  1,585      (9,685)
   Proceeds from sale of OREO                                             ---         251
   Purchases of premises and equipment                                   (198)        (50)
   Sales of premises and equipment                                        ---          48
-----------------------------------------------------------------------------------------
     Net cash used in investing activities                             (7,549)     (7,148)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
   Net change in deposits                                              15,815       6,381
   Net change in securities sold under agreements to repurchase          (572)        (36)
   Net change in federal funds purchased                                 (500)        --- 
   Cash dividends paid                                                   (323)       (323)
-----------------------------------------------------------------------------------------
     Net cash provided by financing activities                         14,420       6,022
-----------------------------------------------------------------------------------------
     Net change in cash and cash equivalents                            8,112       1,419
Cash and cash equivalents at beginning of period                        6,945      11,757
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                           $ 15,057    $ 13,176
=========================================================================================
Supplemental disclosure of cash flow information: 
Cash paid during the period for:
      Interest                                                       $  2,171    $  1,817
      Income taxes                                                        413         854
   Noncash investing activities during the period:
      Loans made in connection with sale of OREO                          ---         178

  See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE>

                     BAY COMMERCIAL SERVICES AND SUBSIDIARY
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1)  All adjustments (consisting only of normal recurring accruals) which, in the
    opinion  of  Management,  are  necessary  for a  fair  presentation  of  the
    Company's financial position at September 30, 1997 and December 31, 1996 and
    the  results  of its  operations  and its cash  flows for the three and nine
    month periods  ended  September  30, 1997 and 1996 have been  included.  The
    results of  operations  and cash  flows for the  periods  presented  are not
    necessarily indicative of the results for a full year.

2)  The accompanying unaudited financial statements have been prepared on a
    basis consistent with the accounting principles and policies reflected in
    the Company's annual report for the year ended December 31, 1996.

3)  Net income per share for the three and nine month  periods  ended  September
    30,  1997 and 1996 was  computed  by  dividing  net  income by the  weighted
    average  number of shares of common  stock  outstanding  during the periods,
    including the dilutive effects of stock options,  if material.  The weighted
    average  number of common and  equivalent  shares  outstanding  for the nine
    month periods ended September 30, 1997 and 1996 was 1,255,715 and 1,214,788,
    respectively.  The weighted  average number of common and equivalent  shares
    outstanding  for the  third  quarter  of 1997  and 1996  was  1,264,133  and
    1,220,296, respectively.

    In February 1997, The Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
    The Company is required to adopt SFAS 128 in the fourth quarter of 1997 and
    will restate at that time earnings per share (EPS) data for prior periods to
    conform with SFAS 128. Earlier application is not permitted.

    SFAS 128 replaces current EPS reporting requirements and requires a dual
    presentation of basic and diluted EPS. Basic EPS excludes dilution and is
    computed by dividing net income by the weighted average number of common
    shares outstanding for the period. Diluted EPS reflects the potential
    dilution that could occur if securities or other contracts to issue common
    stock were exercised or converted into common stock.

    If SFAS 128 had been in effect during the current and prior year periods,
    basic EPS would have been $0.72 and $0.80 for the nine month periods ended
    September 30, 1997 and 1996, respectively. Basic EPS for the third quarter
    of 1997 and 1996 would have been $0.24 and $0.34, respectively. Diluted EPS
    under SFAS 128 would not have been significantly different than EPS
    currently reported for the periods.

4)  The provision for income taxes for the periods presented is based on a
    projected tax rate for the entire year. The Company's effective tax rate was
    37% and 40% for the nine month periods ended September 30, 1997 and 1996,
    respectively. The decrease in the tax rate was partially attributable to an
    increase in nontaxable municipal bond income in 1997 and a reduction of the
    California franchise tax rate to 10.84% in 1997 from 11.3% in 1996.
<PAGE>
<TABLE>
                                   BAY COMMERCIAL SERVICES AND SUBSIDIARY

                                    The Table Below Illustrates Changes in
                Major Categories of the Average Balance Sheets and Statements of Income and in
                                    Certain Performance Ratios (Unaudited)

<CAPTION>
                                                                      Nine Months Ended           Increase
                                                                         September 30,           (Decrease)
(Dollars in thousands):                                                  1997       1996        $          %
--------------------------------------------------------------------------------------------------------------
<S>
Average Balances:
                                                                     <C>         <C>         <C>       <C>  
  Assets *                                                           $104,094    $94,425     $9,669      10.2%
  Investment securities - taxable*                                     15,926     15,934         (8)     (0.1)
  Investment securities - nontaxable                                    3,618      3,113        505      16.2
  Federal funds sold                                                    5,025      5,459       (434)     (8.0)
  Total loans                                                          70,318     61,218      9,100      14.9
  Nonaccrual loans                                                        374        194        180      92.8
  Other real estate owned                                                 ---        336       (336)   (100.0)
  Deposits                                                             91,381     82,134      9,247      11.3
  Shareholders' equity *                                                9,836      9,112        724       7.9

  Interest-earning assets                                              94,513     85,530      8,983      10.5
  Interest-bearing liabilities                                         66,221     59,609      6,612      11.1


Income Statements:
  Interest income (1)                                                  $6,476     $5,864      $ 612      10.4%
  Interest expense                                                      2,133      1,827        306      16.7
-------------------------------------------------------------------------------------------------------------- 
    Net interest income (1)                                             4,343      4,037        306       7.6
  Taxable equivalent adjustment                                            66         57          9      15.8
--------------------------------------------------------------------------------------------------------------
    Net interest income                                                 4,277      3,980        297       7.5
  Provision for loan losses                                                52        ---         52        NA
--------------------------------------------------------------------------------------------------------------
    Net interest income after provision
      for loan losses                                                   4,225      3,980        245       6.2
--------------------------------------------------------------------------------------------------------------
  Noninterest income                                                      779        890       (111)    (12.5)
  Noninterest expenses                                                  3,767      3,441        326       9.5
  Income tax expense                                                      457        567       (110)    (19.4)
--------------------------------------------------------------------------------------------------------------
    Net income                                                         $  780     $  862      $ (82)     (9.5)%
==============================================================================================================
<FN>
* before unrealized gain or loss on securities available for sale
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S>
Performance Ratios: (2)                                                                       Change
                                                                         <C>        <C>        <C>     
  Yield on average earning assets                                        9.07%      9.07%      0.00 %
  Yield on average earning assets (1)                                    9.16%      9.16%      0.00 %
  Interest rate on average interest-bearing
      liabilities                                                        4.31%      4.09%      0.22 %
  Interest expense as a percent of average
      earning assets                                                     3.02%      2.85%      0.17 %

  Net yield on average earning assets                                    6.05%      6.22%     (0.17)%
  Net yield on average earning assets (1)                                6.14%      6.31%     (0.17)%
<FN>
(1) Federal taxable equivalent basis.
(2) Ratios have been annualized and are not necessarily indicative of results
    for a full year.
</FN>
</TABLE>
<PAGE>
<TABLE>
                                   BAY COMMERCIAL SERVICES AND SUBSIDIARY

                                    The Table Below Illustrates Changes in
                Major Categories of the Average Balance Sheets and Statements of Income and in
                                    Certain Performance Ratios (Unaudited)

<CAPTION>
                                                                      Three Months Ended          Increase
                                                                          September 30,          (Decrease)
(Dollars in thousands):                                                  1997       1996       $           %
--------------------------------------------------------------------------------------------------------------
<S> 
Average Balances:
                                                                     <C>         <C>        <C>        <C>  
  Assets *                                                           $109,163    $98,334    $10,829      11.0%
  Investment securities - taxable*                                     21,353     15,078      6,275      41.6
  Investment securities - nontaxable                                    3,941      3,134        807      25.7
  Federal funds sold                                                    4,283      7,234     (2,951)    (40.8)
  Total loans                                                          70,722     64,316      6,406      10.0
  Nonaccrual loans                                                        490        299        191      63.9
  Other real estate owned                                                 ---        291       (291)   (100.0)
  Deposits                                                             96,351     85,906     10,445      12.2
  Shareholders' equity *                                               10,122      9,393        729       7.8

  Interest-earning assets                                              99,809     89,463     10,346      11.6
  Interest-bearing liabilities                                         69,841     62,699      7,142      11.4


Income Statements:
  Interest income (1)                                                  $2,262     $2,034      $ 228      11.2%
  Interest expense                                                        768        650        118      18.2
--------------------------------------------------------------------------------------------------------------
    Net interest income (1)                                             1,494      1,384        110       7.9
  Taxable equivalent adjustment                                            23         22          1       4.5
--------------------------------------------------------------------------------------------------------------
    Net interest income                                                 1,471      1,362        109       8.0
  Provision for loan losses                                                 5        ---          5        NA
--------------------------------------------------------------------------------------------------------------
    Net interest income after provision
      for loan losses                                                   1,466      1,362        104       7.6
--------------------------------------------------------------------------------------------------------------
  Noninterest income                                                      190        398       (208)    (52.3)
  Noninterest expenses                                                  1,255      1,142        113       9.9
  Income tax expense                                                      146        251       (105)    (41.8)
--------------------------------------------------------------------------------------------------------------
    Net income                                                         $  255     $  367      $(112)    (30.5)%
==============================================================================================================
<FN>                                                                  
 * before unrealized gain or loss on securities available for sale
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S>
Performance Ratios: (2)                                                                       Change  
                                                                        <C>        <C>        <C>    
  Yield on average earning assets                                       8.90%      8.95%      (0.05)%
  Yield on average earning assets (1)                                   8.99%      9.04%      (0.05)%
  Interest rate on average interest-bearing
      liabilities                                                       4.36%      4.12%       0.24%
  Interest expense as a percent of average
      earning assets                                                    3.05%      2.89%       0.16%

  Net yield on average earning assets                                   5.85%      6.06%      (0.21)%
  Net yield on average earning assets (1)                               5.94%      6.15%      (0.21)%
<FN>

(1) Federal taxable equivalent basis.
(2) Ratios have been annualized and are not necessarily indicative of results
    for a full year.
</FN>
</TABLE>
<PAGE>

                     BAY COMMERCIAL SERVICES AND SUBSIDIARY

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

                Nine  months ended September 30, 1997 compared to nine months
                      ended September 30, 1996

OVERVIEW

Certain matters discussed in this Management's Discussion and Analysis are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among others,
(1) significant increases in competitive pressure in the banking industry; (2)
changes in the interest rate environment affect margins; (3) general economic
conditions, either nationally or regionally, are less favorable than expected,
resulting in, among other things, a deterioration in credit quality; (4) changes
in the regulatory environment; (5) changes in business conditions and inflation;
and (6) changes in securities markets. Therefore, the information set forth in
such forward-looking statements should be carefully considered when evaluating
the business prospects of Bay Commercial Services (the "Company") and Bay Bank
of Commerce (the "Bank").

Net income was $780,000 or $0.62 per share for the first nine months of 1997
compared to $862,000 or $0.71 per share for the 1996 period, a decline of
$82,000 or 10%. The annualized return on average assets was 1.0% and 1.2% and
the annualized return on average shareholders' equity was 10.6% and 12.6% for
the 1997 and 1996 periods, respectively. These annualized ratios are not
necessarily indicative of results for a full year.

The decline in net income during the 1997 period reflected increased noninterest
expenses, primarily operating expenses of the Bank's new San Ramon Regional
Branch, and certain nonrecurring noninterest income earned in 1996, both of
which were partially offset with increased net interest income and decreased tax
expense.

With a significant contribution from the Bank's San Ramon office, strong deposit
growth propelled total assets to $111,830,000 at September 30, 1997, an increase
of $15,061,000 or 16% over December 31, 1996. During the same period, total
loans declined by $2,000,000 as a result of loan sales, payoffs and reduced loan
originations. Investment securities and other short-term investments increased
by $15,869,000 or 99%.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income, the principal source of the Company's earnings, is the
amount by which interest and fees generated by interest-earning assets, loans

<PAGE>
and investments, exceed the interest cost of deposits and other interest-bearing
liabilities. Net interest income is affected by changes in interest rates as
well as the composition and volume of interest-earning assets and
interest-bearing liabilities.

Net interest income of $4,277,000 for the first nine months of 1997 increased
$297,000 or 8% compared to the same 1996 period. The increase principally
reflected an $8,983,000 or 11% increase in average interest-earning assets.
Although average interest-bearing liabilities increased a smaller $6,612,000 or
11%, the net interest margin for the 1997 period declined to 6.05% compared to
6.22% in 1996. The lower margin was mostly due to a $7,664,000 or 24% increase
in the average volume of higher cost time deposits.

As a result of exceptionally strong loan growth during the second half of 1996,
most of the increase in average interest-earning assets between the 1997 and
1996 periods was due to the increase in outstanding loan balances. However, with
reduced loan originations, loan pay-offs and loan sales during the 1997 period,
total outstanding loans actually declined as of September 30, 1997. Lower
lending rates, in addition to reduced loan fee income, caused average loan
yields to decline to 10.18% compared to 10.36% for the 1996 period. Despite the
larger proportion of earning assets held in higher yielding loans, the yield on
average total interest-earning assets remained unchanged at 9.07% for both the
1997 and 1996 periods.

INTEREST RATE SENSITIVITY

Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. If more assets than liabilities reprice in a given period (an asset
sensitive position), interest rate changes will be reflected more quickly in
rates on earning assets. If interest rates decline, an asset sensitive position
could adversely affect net interest income. Alternatively, where liabilities
reprice more quickly than assets in a given period (a liability sensitive
position) a decline in market rates could benefit net interest income. The
results would reverse if market rates were to increase.

The following table presents the Company's interest rate sensitivity gap
position at September 30, 1997. For any given period, the repricing is matched
when an equal amount of assets and liabilities reprice. The repricing of a fixed
rate asset or liability is considered to occur at its contractual maturity or,
for those assets which are held for sale, within the time period during which
sale may reasonably be expected to be accomplished. Floating rate assets or
liabilities are considered to reprice in the period during which the rate can
contractually change. Any excess of either assets or liabilities in a period
results in a gap, or mismatch, shown in the table. A positive gap indicates
asset sensitivity and a negative gap indicates liability sensitivity.
<PAGE>
<TABLE>
<CAPTION>
                                                        Interest Sensitivity Period
                                                ------------------------------------------
                                                      3       Over      Over 1
As of September 30, 1997:                        months   3 months     year to     Over 5
(Dollars in thousands)                          or less  to 1 year     5 years      years      Total
----------------------------------------------------------------------------------------------------  
<S>
Interest rate sensitive assets:
                                                <C>        <C>         <C>        <C>        <C>     
  Loans (net of nonaccrual)                     $49,001    $ 2,146     $ 7,406    $10,897    $ 69,450
  Investment securities (before unrealized
    loss on securities available for sale)        9,986      1,309       5,309      8,559      25,163
  Federal funds sold and securities
   purchased under repurchase agreements          6,800        ---         ---        ---       6,800
 ----------------------------------------------------------------------------------------------------
    Total                                        65,787      3,455      12,715     19,456     101,413
 ----------------------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
  Interest-bearing transaction accounts          19,527       ---         ---        ---       19,527
  Savings deposits                                6,499       ---         ---        ---        6,499
  Time deposits $100,000 and over                20,832      3,409       1,525        100      25,866
  Other time deposits                            10,329      5,076       1,751        ---      17,156
  Other borrowed funds                            1,632        100         ---        ---       1,732
-----------------------------------------------------------------------------------------------------
    Total                                        58,819      8,585       3,276        100      70,780
-----------------------------------------------------------------------------------------------------
Interest rate sensitivity gap                   $ 6,968    $(5,130)    $ 9,439    $19,356    $ 30,633
-----------------------------------------------------------------------------------------------------
Cumulative interest rate
  sensitivity gap                               $ 6,968    $ 1,838     $11,277    $30,633
-----------------------------------------------------------------------------------------------------
Cumulative interest rate
 sensitivity gap to total assets                   6.2%       1.6%       10.1%      27.4%
</TABLE>

This table presents a static gap, which is a position at a point in time. It
does not address the interest rate sensitivity of assets or liabilities which
would be added through growth, nor does it anticipate the future interest rate
sensitivity of assets and liabilities once they have repriced, and it assumes
equivalent elasticity of assets and liabilities. The interest rate sensitivity
analysis at September 30, 1997, indicates that the Company, on a cumulative gap
basis, is asset sensitive over all the time periods.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Company provides for potential loan losses by a charge to operating income
based upon the current composition of the loan portfolio, past loan loss
experience, current and projected economic conditions, an evaluation of the risk
elements in the loan portfolio and other factors that, in Management's judgment,
deserve recognition in estimating loan losses. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to make additions to the allowance based on their evaluations of information
available to them at the time of their examination. Management will charge off
loans to the allowance when it determines there has been a permanent impairment
of the related carrying values.

The provision for loan losses reflects an amount sufficient to cover estimated
loan losses and to maintain the allowance for loan losses at a level which, in
Management's opinion, is adequate to absorb potential credit losses inherent in
loans, outstanding loan commitments and standby letters of credit.
<PAGE>
As of September 30, 1997, the allowance for loan losses was $1,000,000 compared
to $971,000 at December 31, 1996. The ratio of the allowance for loan losses to
total loans was 1.4% at September 30, 1997 and December 31, 1996. A $52,000
provision for loan losses was added during the first nine months of 1997 while
no provision for loan losses was made during the first nine months of 1996.
Although Management uses available information to provide for losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. Based upon information currently available, Management believes that
the allowance for loan losses at September 30, 1997 is adequate to absorb future
possible losses. However, no assurance can be given that the Company may not
sustain charge-offs which are in excess of the size of the allowance in any
given period.

Information on nonperforming loans and other real estate owned for the nine
months ended September 30, 1997 and 1996 and the year ended December 31, 1996 is
summarized in the following table.
<TABLE>
<CAPTION>
                                              September 30, December 31, September 30, 
(Dollars in thousands)                                 1997         1996          1996
--------------------------------------------------------------------------------------
<S>                                                    <C>          <C>           <C> 
Net loan charge-offs                                   $ 23         $ 11          $ 18
                                                                                
Ratio of net loan charge-offs to average loans          ---          ---           ---
                                                                                
Nonperforming loans:                                                            
  Nonaccrual                                           $464         $208          $171
  Accruing loans past due                                                       
   90 days or more                                      168          227           267
--------------------------------------------------------------------------------------
   Total nonperforming loans                           $632         $435          $438
--------------------------------------------------------------------------------------
                                                                                
Ratio of nonperforming loans to total loans             0.9%         0.6%          0.7%
Ratio of allowance for loan losses to nonperforming                             
  loans                                                 158%         223%          220%
                                                                                
Other real estate owned                                 ---          ---          $ 41
</TABLE>
                                                                              
Although there has been an increase in total nonperforming loans from September
1996 to September 1997, 37% of the September 1997 total represents loans
guaranteed by the Small Business Administration ("SBA loans"). The remaining
unguaranteed nonperforming balance of $401,000 is comprised of loans in the
process of recovery and/or liquidation and represents 0.6% of total outstanding
loans. Management believes that the increase in nonperforming loans since
September 30, 1996 is not representative of any specific trend within the loan
portfolio.

NONINTEREST INCOME

     Total  noninterest  income of  $779,000  for the first nine  months of 1997
declined $111,000 or 13% compared to the first nine months of 1996. The decrease
principally reflected reductions of $117,000 or 67% in gain on sale of loans and
$111,000 in gain of sale of OREO. These reductions represented larger loan sales
during the 1996 period and the absence of OREO sales
<PAGE>
during the 1997 period.  Partially  offsetting the decreases in noninterest
income were a $70,000 or 55% increase in other noninterest  income and a $39,000
or 21% increase in bankcard income.  Although other noninterest  income for both
the 1997 and 1996 periods included  nonrecurring  and significant  recoveries of
prior years' expenses related to charged-off  loans, the amounts  recovered were
larger  in  1997.  Bankcard  income  increased  during  the 1997  period  due to
increased merchant account activity. Loan servicing income remained unchanged at
$99,000  for both the 1997 and 1996  periods as the  average  volume of serviced
loans did not change significantly.

NONINTEREST EXPENSE

Total noninterest expenses of $3,767,000 for the first nine months of 1997 rose
$326,000 or 10% compared to the same period in 1996. The largest contribution to
the increase was a $285,000 or 16% increase in salaries and employee benefits,
which principally reflected the additional staff in the Bank's San Ramon branch
and growth in other salary and employee benefits expense. The Bank's San Ramon
branch was also the principal source of the $65,000 or 15% increase in occupancy
expense and $26,000 or 4% increase in other noninterest expense. Costs
associated with settlement of a litigation matter in 1996 explain a large
portion of the $100,000 or 53% drop in professional services expense for the
1997 period.

PROVISION FOR INCOME TAXES

The provision for income tax expense was $457,000 for the first nine months of
1997 compared to $567,000 for the first nine months of 1996. The effective
income tax rate was 37% and 40% for the 1997 and 1996 periods, respectively. The
decline in the rate for 1997 principally reflected the effects of an increase in
nontaxable municipal bond interest and a reduction in the California tax rate
for financial institutions to 10.84% for 1997 from 11.30% for 1996.

                THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
                     THREE MONTHS ENDED SEPTEMBER 30, 1996

OVERVIEW

Net income for the third quarter of 1997 was $255,000 or $0.20 per share
compared to $367,000 or $0.30 per share for the same 1996 quarter. The
annualized return on average assets was 0.9% and 1.5% and the annualized return
on average shareholders' equity was 10.0% and 15.5% for the 1997 and 1996
quarters, respectively. These annualized ratios are not necessarily indicative
of results for a full year.

The $112,000 or 31% reduction in net income between the 1997 and 1996 quarters
principally resulted from a $208,000 or 52% reduction in noninterest income
which primarily reflected nonrecurring gains from sales of loans and OREO during
the 1996 quarter. Net interest income, which increased $109,000 or 8% during the
1997 period, largely offset a $113,000 or 10% increase in noninterest expense.
The increased in noninterest expense primarily represented the operating costs
of the Bank's new San Ramon regional branch. With reduced taxable income and a
lower effective tax rate, the Company's income tax expense declined $105,000 or
42%.
<PAGE>
RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income of $1,471,000 for the third quarter of 1997 increased
$109,000 or 8% compared to the same 1996 period. The increase principally
reflected the $10,346,000 or 12% growth in average interest-earning assets
between the quarters. The net interest margin for the 1997 quarter declined to
5.85% from 6.05% in 1996, primarily as a result of the increased volume of
higher cost time deposits.

Growth in average interest-earning assets between the 1997 and 1996 quarters was
principally due to increases of $7,082,000 or 39% in average total investment
securities and $6,215,000 or 10% in average outstanding loans. Overnight
investments declined by $2,951,000 or 41% between the quarters. Yields on
average earning assets remained essentially unchanged at 8.90% for the 1997
quarter and 8.95% in 1996.

Average interest-bearing liabilities increased $7,142,000 or 11% compared to the
1996 quarter while the average rate paid rose to 4.36% from 4.12%. The increase
primarily reflected significant growth in higher cost time deposits which
increased $8,596,000 or 25% between the periods.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

A $5,000 provision for loan losses was added to the reserve for loan losses
during the 1997 quarter. No provision for loan losses was made during the third
quarter of 1996.

NONINTEREST INCOME

Total noninterest income of $190,000 for the third quarter of 1997 declined
$208,000 or 52% compared to the third quarter of 1996. The most significant
contributions to the decrease were gains of $111,000 on OREO sales and $66,000
from loan sales during the 1996 quarter that were not repeated in the 1997
period. Other noninterest income also declined between the quarters, by $48,000
or 89%, reflecting recovery during the 1996 quarter of prior years' expenses
related to charged-off loans. Partially offsetting the decreases in noninterest
income was a $14,000 or 21% increase in bankcard income.

NONINTEREST EXPENSE

Total noninterest expenses of $1,255,000 for the third quarter of 1997 rose
$113,000 or 10% compared to the same quarter in 1996. Salaries and employees
benefits increased $72,000 or 12%, due principally to staffing at the Bank's San
Ramon branch and growth in other salaries and employee benefits expense. The
Bank's San Ramon branch was also a principal source of the $15,000 or 10%
increase in occupancy expense and the $78,000 or 50% increase in other
noninterest expenses. The $65,000 or 76% reduction in professional services
expense was
<PAGE>
largely due to legal fees associated with the settlement of a litigation
matter during the 1996 period.

PROVISION FOR INCOME TAXES

The provision for income tax expense was $146,000 for the third quarter of 1997
compared to $251,000 for the third quarter of 1996. The decreased income tax
expense reflected reduced taxable income during the 1997 quarter. The effective
income tax rate was 36% and 41% for the 1997 and 1996 quarters, respectively.
The decreased rate for the 1997 quarter principally reflected the effects of an
increase in nontaxable municipal bond interest and a reduction in the California
tax rate for financial institutions to 10.84% for 1997 from 11.30% for 1996.

FINANCIAL CONDITION

LOANS AND INVESTMENTS

As a result of loan sales, loan payoffs, and reduced loan originations, total
loans of $69,362,000 at September 30, 1997 were $2,000,000 lower than at
year-end 1996. Deposit growth for the first nine months of 1997 was principally
invested in investment securities and overnight investments, which increased
$15,869,000 or 99% from December 31, 1996.

DEPOSITS AND OTHER BORROWED FUNDS

Total deposits of $99,106,000 at September 30, 1997 increased $15,815,000 or 19%
from December 31, 1996. The increase in deposits was primarily the result of new
account growth in the Bank's San Ramon Regional Office and growth in time
deposits. Customer repurchase agreements and federal funds purchased declined
$1,072,000 or 38% during the same period. As of September 30, 1997, the Bank did
not carry any brokered deposit balances.

OTHER ASSETS AND OTHER LIABILITIES

As a result of growth in earning assets, interest and fees receivable increased
$123,000 or 21% during the first nine months of 1997. During the same period,
interest payable and other liabilities declined $446,000 or 36% largely due to
the payment in 1997 of a cash dividend accrued in 1996.

LIQUIDITY

Liquidity is defined as the ability of the Company to meet present and future
obligations either through the sale or maturity of existing assets, or by the
acquisition of funds through liability management. The Company manages its
liquidity to provide adequate funds to support both the borrowing needs of its
customers and fluctuations in deposit flows. The Company defines liquid assets
to include cash and noninterest-bearing deposit balances, federal funds sold,
all marketable
<PAGE>
securities less liabilities that are secured by any of the
securities, and loans held for sale, less any reserve requirements being met by
any of the above. Net deposits and short-term liabilities include all deposits,
federal funds purchased, repurchase agreements and other borrowings and debt due
in one year or less. The liquidity ratio is calculated by dividing total liquid
assets by net deposits and short term liabilities. The Company's liquidity ratio
by this measure was 34% at September 30, 1997 and 28% at December 31, 1996. It
is the opinion of Management that the Company's and the Bank's liquidity
positions are sufficient to meet their respective needs.

In addition, the Bank has informal, non-binding, federal funds borrowing
arrangements totaling $5,000,000 with a correspondent bank and also has
repurchase facilities to meet unforeseen outflows. As of September 30, 1997, no
borrowed funds were outstanding from these credit facilities.

CAPITAL

The following tables present the Company's and the Bank's regulatory capital
positions at September 30, 1997, and average assets over the nine month period
ended September 30, 1997:

                                              RISK BASED CAPITAL RATIO
                                              Company              Bank
(Dollars in thousands)                    Amount  Ratio       Amount  Ratio
----------------------------------------------------------------------------
Tier 1 Capital                           $10,097   11.9%     $ 9,924   11.7%
Tier 1 Capital minimum requirement         3,399    4.0        3,393    4.0
----------------------------------------------------------------------------
Excess                                   $ 6,698    7.9%     $ 6,531    7.7%
                                                            
Total Capital                            $11,097   13.1%     $10,924   12.9%
Total Capital minimum requirement          6,797    8.0        6,787    8.0
----------------------------------------------------------------------------
Excess                                   $ 4,300    5.1%     $ 4,137    4.9%
                                                           
Risk weighted assets                          $84,964             $84,837
                                        
                                     
                                                   LEVERAGE RATIO
                                              Company              Bank
(Dollars in thousands)                    Amount   Ratio      Amount   Ratio
----------------------------------------------------------------------------
Tier 1 Capital to average total assets   $10,097    9.7%      $9,924    9.6%
Range of minimum leverage                  3,119-   3.0-       3,115-   3.0-
  requirement                              5,199    5.0%       5,192    5.0%
----------------------------------------------------------------------------
Range of excess                            4,898-   4.7-       4,732-   4.6-
                                         $ 6,978    6.7%      $6,809    6.6%

Average total assets                          $103,978            $103,847

The Company currently does not have any material commitments for capital
expenditures, and in the opinion of Management, the Company's and the Bank's
capital positions are sufficient to meet their respective needs.
<PAGE>
INFLATION

It is Management's opinion that the effects of inflation on the consolidated
financial statements for the periods ended September 30, 1997 and 1996 have not
been material.

<PAGE>



                           PART II - OTHER INFORMATION


Item 5.    Other Information:  None

Item 6.    Exhibits and Reports on Form 8-K.
       (a) Exhibits:  None.
       (b) Reports on Form 8-K:
           No reports on Form 8-K were filed by the Company for the quarter
           ended September 30, 1997.


<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.


                                          BAY COMMERCIAL SERVICES
                                         (Registrant)




Date: November 6, 1997                    /s/ R. M. Kahler
                                          R. M. Kahler
                                          President and
                                          Chief Executive Officer
                                          (Principal Executive Officer)



Date: November 6, 1997                    /s/ R. D. Greenfield
                                          R. D. Greenfield
                                          Chief Financial Officer
                                          (Principal Accounting Officer)