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 June 30, 1999

[ ]           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 July 31, 1999

Common stock, no par value                                      1,324,110 shares


Transitional Small Business Disclosure Format

YES              NO __X_


This report contains a total of 24 pages.

<PAGE>


<TABLE>
<CAPTION>
                BAY COMMERCIAL SERVICES AND SUBSIDIARY
           Consolidated Condensed Balance Sheets (unaudited)

                                                                           June 30,  December 31,
                                                                               1999          1998
(Dollars in thousands):                                                  unaudited)
--------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
Cash and due from banks                                                    $ 11,975        $9,077
Federal funds sold and reverse repurchase agreements                          1,200       ---
--------------------------------------------------------------------------------------------------
  Cash and cash equivalents                                                  13,175         9,077
--------------------------------------------------------------------------------------------------
Securities available for sale, stated at fair value (amortized cost of
   $19,337 at June 30, 1999; $31,969 at December 31, 1998)                   19,123        32,033
Securities held to maturity (fair values of $7,538 at June 30, 1999;
   $7,748 at December 31, 1998)                                               7,457         7,509
Federal Home Loan Bank stock                                                    432           359
Loans held for sale                                                             733           939
Loans held for investment                                                   107,159        92,190
  Allowance for loan losses                                                  (1,081)         (980)
---------------------------------------------------------------------------------------------------
  Net loans                                                                 106,811        92,149
--------------------------------------------------------------------------------------------------
Premises and equipment, net                                                   2,004         1,949
Interest and fees receivable                                                    695           635
Other assets                                                                    889           491
--------------------------------------------------------------------------------------------------
  Total assets                                                             $150,586      $144,202
==================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand                                               $ 39,732      $ 33,904
  Savings and interest-bearing demand                                        46,277        37,571
  Time                                                                       29,530        30,309
  Certificates of deposit, $100 and over                                     21,143        21,611
--------------------------------------------------------------------------------------------------
  Total deposits                                                            136,682       123,395
--------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase                                  200         1,344
Other short-term borrowing                                                      ---         7,000
Interest payable and other liabilities                                          765         1,068
--------------------------------------------------------------------------------------------------
  Total liabilities                                                         137,647       132,807
--------------------------------------------------------------------------------------------------
Commitments and contingent liabilities                                        ---          ---

Shareholders' equity:
  Common stock - no par value: authorized 20,000,000 shares;
   issued & outstanding 1,324,110 at June 30, 1999;
   1,080,670 at December 31, 1998                                             4,802         3,622
  Retained earnings                                                           8,268         7,734
  Accumulated other comprehensive income, net of tax                           (131)           39
--------------------------------------------------------------------------------------------------
  Total shareholders' equity                                                 12,939        11,395
--------------------------------------------------------------------------------------------------
  Total liabilities and shareholders' equity                               $150,586      $144,202
==================================================================================================
See accompanying notes to consolidated condensed financial statements (unaudited)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          BAY COMMERCIAL SERVICES AND SUBSIDIARY
                                 Consolidated Condensed Statements of Income (unaudited)

                                                             Six Months Ended      Three Months Ended
                                                                 June 30,                 June 30,
(Dollars in thousands, except per share amounts):            1999       1998          1999       1998
------------------------------------------------------------------------------------------------------
<S>                                                        <C>        <C>           <C>        <C>
Interest income:
  Loans, including fees                                    $4,462     $3,971        $2,344     $2,036
  Federal funds sold and reverse repurchase agreements         66        193            40        138
  Securities:
    Taxable                                                   725        555           345        276
    Tax exempt                                                155        124            78         64
------------------------------------------------------------------------------------------------------
      Total interest income                                 5,408      4,843         2,807      2,514
------------------------------------------------------------------------------------------------------
Interest expense:
  Deposits:
    Savings and interest-bearing demand                       589        479           314        275
    Time                                                      679        761           337        375
    Certificates of deposit, $100 and over                    506        384           257        200
  Other borrowed funds                                         21         34             4         16
------------------------------------------------------------------------------------------------------
      Total interest expense                                1,795      1,658           912        866
------------------------------------------------------------------------------------------------------
      Net interest income                                   3,613      3,185         1,895      1,648
Provision for loan losses                                     101         69            60         59
------------------------------------------------------------------------------------------------------
      Net interest income after
        provision for loan losses                           3,512      3,116         1,835      1,589
------------------------------------------------------------------------------------------------------
Noninterest income:
  Bankcard income                                             231        205           123        109
  Service charges and fees                                    156        148            78         80
  Gain on sale of loans                                        24         88             0         55
  Loan servicing                                               47         49            25         25
  Other                                                        16         30             6          3
------------------------------------------------------------------------------------------------------
      Total noninterest income                                474        520           232        272
------------------------------------------------------------------------------------------------------
Noninterest expenses:
  Salaries and employee benefits                            1,640      1,561           812        768
  Occupancy                                                   349        343           175        173
  Data processing                                             201        174           101         89
  Bankcard processing expense                                 192        175           103         96
  Professional services                                        90         68            40         40
  Other                                                       474        457           232        225
------------------------------------------------------------------------------------------------------
      Total noninterest expenses                            2,946      2,778         1,463      1,391
------------------------------------------------------------------------------------------------------
      Income before income tax expense                      1,040        858           604        470
Income tax expense                                            373        301           221        167
------------------------------------------------------------------------------------------------------
      Net income                                           $  667     $  557        $  383     $  303
======================================================================================================
      Net income per common share - basic                   $0.54      $0.52         $0.30      $0.28
      Weighted average common shares - basic            1,235,832  1,080,419     1,287,401  1,081,177
      Net income per common share - diluted                 $0.51      $0.44         $0.29      $0.24
      Weighted average common shares - diluted          1,304,997  1,280,350     1,315,642  1,280,986
======================================================================================================
See accompanying notes to consolidated condensed financial statements (unaudited)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                 BAY COMMERCIAL SERVICES AND SUBSIDIARY
       Consolidated Condensed Statements of Cash Flows (unaudited)
                                                                   Six Months Ended
                                                                        June 30,
(Dollars in thousands):                                              1999      1998
------------------------------------------------------------------------------------
<S>                                                                <C>       <C>
Cash flows from operating activities:
   Net income                                                      $  667    $  557
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Depreciation and amortization                                 (221)     (327)
       Provision for loan losses                                      101        69
       Unamortized deferred loan fees, net                            160       (68)
       Originations of SBA loans held for sale                       (889)     (760)
       Proceeds from the sale of SBA loans held for sale              622     2,125
       Change in interest and fees receivable and other assets       (194)       40
       Change in interest payable and other liabilities              (108)      (59)
-------------------------------------------------------------------------------------
     Net cash provided by operating activities                        138     1,577
------------------------------------------------------------------------------------
Cash flows from investing activities:
   Proceeds from maturities of securities available for sale       77,024    33,175
   Proceeds from maturities of securities held to maturity             60     2,271
   Purchase of securities available for sale                      (64,040)  (27,848)
   Purchase of securities held to maturity                            ---      (739)
   Purchase of Federal Home Loan Bank stock                           (73)       ---
   Net change in loans                                            (14,662)   (7,716)
   Purchases of premises and equipment                               (194)      (30)
-------------------------------------------------------------------------------------
     Net cash used in investing activities                         (1,885)     (887)
-------------------------------------------------------------------------------------
Cash flows from financing activities:
   Net change in deposits                                          13,287    14,945
   Net change in securities sold under agreements to repurchase    (1,144)       27
   Net change in other short-term borrowing                        (7,000)   (2,500)
   Exercise of stock options                                        1,180        29
   Repurchase and retirement of common stock                          ---       (84)
   Cash dividends paid                                               (478)     (324)
-------------------------------------------------------------------------------------
     Net cash provided by financing activities                      5,845    12,093
------------------------------------------------------------------------------------
     Net change in cash and cash equivalents                        4,098    12,783
Cash and cash equivalents at beginning of year                      9,077     7,548
------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                        $13,175   $20,331
====================================================================================
Supplemental disclosure of cash flow information: Cash paid during the year for:
      Interest                                                     $1,850    $1,700
      Income taxes                                                     76       151
   Noncash investing and financing activities during the year:
      Tax benefit of exercise of nonqualified stock options          $345       ---

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


                   Bay Commercial Services and Subsidiary
       Notes to Consolidated Condensed Financial Statements (Unaudited)
             As of June 30, 1999 and December 31, 1998 and for the
           Three and Six Months Periods ended June 30, 1999 and 1998

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 June 30, 1999 and December 31, 1998 and the
     results of its  operations  and its cash flows for the three  month and six
     periods  ended June 30,  1999 and 1998 have been  included.  The results of
     operations  and cash flows for the periods  presented  are not  necessarily
     indicative  of the  results  that may be  expected  for a full year.  These
     unaudited  consolidated  condensed  financial  statements should be read in
     conjunction with the consolidated financial statements,  and notes thereto,
     included  in the  Company's  Annual  Report on SEC Form  10KSB for the year
     ended December 31, 1998.

2)   Net  income per  common  share - basic for the three and six month  periods
     ended June 30, 1999 and 1998 was  computed  by  dividing  net income by the
     weighted average number of outstanding common shares. Net income per common
     share - diluted for the three and six month periods ended June 30, 1999 and
     1998 is computed by dividing net income by the weighted  average  number of
     outstanding  common shares  including the dilutive effect of stock options.
     The weighted  average number of  outstanding  common shares for the six and
     three  month  periods  ended June 30,  1999 was  1,235,832  and  1,287,401,
     respectively.  The weighted average number of outstanding common shares for
     the six and three  month  periods  ended June 30,  1998 was  1,080,419  and
     1,081,177,  respectively. The weighted average number of outstanding common
     shares including the dilutive effect of stock options for the six and three
     month  periods   ended  June  30,  1999  was   1,304,997   and   1,315,642,
     respectively.  The weighted  average  number of  outstanding  common shares
     including the dilutive effect of stock options for the six and three months
     periods  ended  June  30,  1998  and  1998  was  1,280,350  and  1,280,986,
     respectively.

3)   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 36% and 35% for the six months  periods  ended June 30,  1999 and 1998,
     respectively.

4)   Comprehensive  income includes net income and other  comprehensive  income.
     The  Company's  only source of other  comprehensive  income is derived from
     unrealized  gains and losses on investment  securities  available for sale.
     Reclassification  adjustments  resulting from gains or losses on investment
     securities  that were  realized  and  included in net income of the current
     period  that  also  had been  included  in other  comprehensive  income  as
     unrealized  holding  gains or losses in the  period in which they arose are
     excluded from  comprehensive  income of the current  period.  The Company's
     total  comprehensive  income was  $497,000  and $581,000 for the six months
     ended  June  30,  1999  and  1998,   respectively.   The  Company's   total
     comprehensive  income was  $301,000 and $317,000 for the three months ended
     June 30,  1999 and 1998,  respectively.

5)   In June 1999, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards (SFAS) No. 137, "Accounting for Derivative
     Instruments and Hedging Activities - Deferral of the Effective Date of FASB
     Statement No. 133".  This  statement  defers the effective date of SFAS No.
     133 to fiscal years beginning after June 15, 2000. The deferral  applies to
     quarterly and annual financial statements. The Company is in the process of
     determining the impact of adopting SFAS 133, however, the Company currently
     does not have any derivative instruments and is not involved in any hedging
     activities.

6)   On April 30,  1999 the  Company  and  Greater  Bay  Bancorp,  the parent of
     Cupertino National Bank,  Mid-Peninsula  Bank,  Peninsula Bank of Commerce,
     Golden Gate Bank and Bay Area Bank,  signed a  definintive  agreement for a
     merger between the two companies.  The agreement provides for the Company's
     shareholders to receive approximately 945,000 shares of Greater Bay Bancorp
     stock  subject to certain  adjustments  based on  movements in the price of
     Greater Bay Bancorp's stock, in a tax-free  exchange to be accounted for as
     a pooling-of-interests.  Following the transaction, the shareholders of the
     Company's will own approximately  7.8% of the combined company's stock. The
     transaction  is  expected  to be  completed  in the fourth  quarter of 1999
     subject to approval of the  transaction by the Company's  shareholders  and
     receipt of regulatory  approvals.

<PAGE>
<TABLE>
<CAPTION>
                         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)

                                                         Six Months Ended          Increase
                                                               June 30,           (Decrease)
(Dollars in thousands):                                     1999     1998           $      %
-----------------------------------------------------------------------------------------------
<S>                                                     <C>      <C>            <C>       <C>
Average Balances:
  Assets (1)                                            $143,427 $119,002       $24,425   20.5%
  Securities - taxable (1)                                26,794   18,446         8,348   45.3
  Securities - tax exempt                                  6,127    4,844         1,283   26.5
  Federal funds sold and reverse repurchase agreements     2,832    6,999        (4,167) (59.5)
  Total loans                                             97,593   78,834        18,759   23.8
  Nonaccrual loans                                            28      363          (335) (92.3)
  Deposits                                               129,388  106,294        23,094   21.7
  Shareholders' equity (1)                                12,276   10,464         1,812   17.3

  Interest-earning assets (1)                            133,318  108,760        24,558   22.6
  Interest-bearing liabilities                            93,155   77,210        15,945   20.7

Income Statements:
  Interest income (2)                                      5,480    4,900           580   11.8%
  Interest expense                                         1,795    1,658           137    8.3
-----------------------------------------------------------------------------------------------
    Net interest income (2)                                3,685    3,242           443   13.7
  Taxable equivalent adjustment                               72       57            15   26.3
-----------------------------------------------------------------------------------------------
    Net interest income                                    3,613    3,185           428   13.4
  Provision for loan losses                                  101       69            32   46.4
-----------------------------------------------------------------------------------------------
    Net interest income after provision
      for loan losses                                      3,512    3,116           396   12.7
-----------------------------------------------------------------------------------------------
  Noninterest income                                         474      520          (46)  (8.8)
  Noninterest expenses                                     2,946    2,778           168    6.0
  Income tax expense                                         373      301            72   23.9
-----------------------------------------------------------------------------------------------
    Net income                                            $  667   $  557       $   110   19.7%
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Performance Ratios: (3)                                                          Change
<S>                                                        <C>      <C>          <C>
  Yield on average interest-earning assets                 8.18%    8.98%        (0.80 %
  Yield on average interest-earning assets (2)             8.29%    9.09%        (0.80)%
  Interest rate on average interest-bearing
      liabilities                                          3.89%    4.33%        (0.44)%
  Interest expense as a percent of average
      interest-earning assets                              2.72%    3.07%        (0.35)%

  Net yield on average interest-earning assets             5.46%    5.91%        (0.45)%
  Net yield on average interest-earning assets (2)         5.57%    6.02%        (0.45)%
</TABLE>

(1) Before unrealized gain or loss on securities  available for sale
(2) Federal taxable   equivalent  basis.
(3) Ratios  have  been  annualized and  are  not necessarily indicative of
    results that may be expected for a full year.
<PAGE>
<TABLE>
<CAPTION>
                         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)

                                                       Three Months Ended       Increase
                                                               June 30,        (Decrease)
(Dollars in thousands):                                     1999     1998          $       %
------------------------------------------------------------------------------------------------
Average Balances:
<S>                                                     <C>      <C>            <C>         <C>
  Assets (1)                                            $147,718 $123,671       $ 24,047    19.4 %
  Securities - taxable (1)                                25,747   18,530          7,217    38.9
  Securities - nontaxable                                  6,130    5,016          1,114    22.2
  Federal funds sold and reverse repurchase agreements     3,453    9,951         (6,498)  (65.3)
  Total loans                                            102,169   80,296         21,873    27.2
  Nonaccrual loans                                            27      293           (266)  (90.8)
  Deposits                                               133,850  110,988         22,862    20.6
  Shareholders' equity (1)                                12,862   10,586          2,276    21.5

  Interest-earning assets (1)                            137,472  113,500         23,972    21.1
  Interest-bearing liabilities                            94,943   80,326         14,617    18.2


Income Statements:
  Interest income (2)                                      2,843    2,543            300    11.8%
  Interest expense                                           912      866             46     5.3
-------------------------------------------------------------------------------------------------
    Net interest income (2)                                1,931    1,677            254    15.1
  Taxable equivalent adjustment                               36       29              7    24.1
-------------------------------------------------------------------------------------------------
    Net interest income                                    1,895    1,648            247    15.0
Provision for loan losses                                     60       59              1     1.7
-------------------------------------------------------------------------------------------------
Net interest income after provision
      for loan losses                                      1,835    1,589            246    15.5
-------------------------------------------------------------------------------------------------
  Noninterest income                                         232      272            (40)  (14.7)
  Noninterest expenses                                     1,463    1,391             72     5.2
  Income tax expense                                         221      167             54    32.3
-------------------------------------------------------------------------------------------------
    Net income                                              $383     $303           $ 80    26.4%
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Performance Ratios: (3)                                                           Change
<S>                                                        <C>      <C>           <C>
  Yield on average interest-earning assets                 8.19%    8.88%         (0.69)%
  Yield on average interest-earning assets (2)             8.29%    8.99%         (0.70)%
  Interest rate on average interest-bearing
      liabilities                                          3.85%    4.32%         (0.47)%
  Interest expense as a percent of average
      interest-earning assets                              2.66%    3.06%         (0.40)%

  Net yield on average interest-earning assets             5.53%    5.82%         (0.29)%
  Net yield on average interest-earning assets (2)         5.63%    5.93%         (0.30)%
</TABLE>

(1) Before unrealized gain or loss on securities  available for sale
(2) Federal taxable   equivalent  basis.
(3) Ratios  have  been  annualized and  are  not necessarily indicative of
    results that may be expected for a full year.

<PAGE>

                     BAY COMMERCIAL SERVICES AND SUBSIDIARY

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

                   Six months ended June 30, 1999 compared to
                        Six months ended June 30, 1998

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 which could reduce 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 of the Company was $667,000 for the first six months of 1999 compared
to $557,000 for the first six months of 1998.  Net income per common share basic
was $0.54 for the first six months of 1999  compared  to $0.52 for the first six
months of 1998.  Net  income per  common  share - basic for the 1999  period was
impacted by an increase in the weighted  average number of common shares - basic
to  1,235,832  shares for the 1999  period  from  1,080,419  shares for the 1998
period. The increase in the weighted average number of common shares - basic was
due to the exercise of stock  options  during the first six months of 1999.  Net
income  per  common  share - diluted  was $0.51 for the first six months of 1999
compared to $0.44 for the first six months of 1998.

The  $110,000  or 20%  growth in net  income  for the  first six  months of 1999
compared  to the  first six  months of 1998  principally  reflected  higher  net
interest income for the 1999 period,  which was partially offset by increases in
noninterest  expenses  and the  provision  for loan  losses  as well as  reduced
noninterest income compared to the 1998 period. Net interest income for the 1999
period  increased  $428,000  or 13%  compared  to the 1998  period due to strong
growth  in  average  interest-earning  assets.  A  $168,000  or 6%  increase  in
noninterest  expenses  in the 1999 period was  principally  the result of higher
salaries  and  employee  benefits  expense  and  other  expenses  for Year  2000
compliance  measures.  The  provision for loan losses  increased  $32,000 or 46%
compared to the 1998 period.  Noninterest  income declined  $46,000 or 9% in the
1999 period largely due to reduced gain on sale of loans guaranteed by the Small
Business Administration ("SBA loans").

Total assets were $150,586,000 at June 30, 1999, representing a $6,384,000 or 4%
increase from December 31, 1998. Total deposits of $136,682,000 at June 30, 1999
grew  $13,287,000  or  11%  from  year-end  1998  while  securities  sold  under
agreements  to  repurchase  declined  $1,144,000  or 85%  and  other  short-term
borrowing  decreased  $7,000,000.  Funds  from  the  deposit  growth  net of the
reduction in repurchase  agreements and  short-term  borrowing and a $12,889,000
reduction in securities as of June 30, 1999 were  principally  invested in loans
and cash and cash  equivalents.  Loans grew  $14,763,000 or 16% during the first
six months of 1999 and cash and cash equivalents increased $4,098,000 or 45%.

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
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  $3,613,000  for the first six months of 1999  increased
$428,000 or 13%  compared to the first six months of 1998.  The increase was due
to growth of  $24,558,000  or 23% in average  interest-earning  assets.  The net
yield on average  interest-earning  assets declined to 5.46% for the 1999 period
from 5.91% for the 1998 period.

The  increase  in  average  interest-earning  assets  between  the 1999 and 1998
periods was  principally  due to growth of $19,094,000 or 24% in average earning
loans and $5,464,000 or 18% in average other  investments.  The average yield on
interest-earning  assets declined to 8.18% for the 1999 period compared to 8.98%
for the 1998 period.  The yield on average  earning loans declined to 9.22% from
10.20% for the 1998  period,  primarily  reflecting  the 0.75% drop in the prime
lending rate during the second half of 1998.  Average  earning  loans were 73.2%
and 72.2% of  average  interest-earning  assets  for the 1999 and 1998  periods,
respectively.  A reduction in the average yield on total securities to 5.39% for
the 1999 period from 5.88% for the 1998 period reflected a significant  increase
in the percentage of the portfolio invested in short-term  securities as well as
lower overall money market rates for the 1999 period.

Average  interest-bearing  liabilities  increased $15,945,000 or 21% between the
1999 and 1998 periods.  The average rate paid for  interest-bearing  liabilities
declined  to 3.89% for the 1999 period  compared  to 4.33% for the 1998  period,
reflecting  a decrease in overall  money  market and deposit  rates  between the
periods and a slight  shift in the  composition  of the deposit  portfolio.  The
ratio of higher cost time deposits to average total interest-bearing liabilities
declined to 55.0% from 56.5% for the 1999 and 1998 periods, respectively.

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 have a greater effect on earning
assets. If interest rates decline,  an asset sensitive  position could adversely
affect net interest  income.  Alternatively,  where more liabilities than assets
reprice in a given period (a liability sensitive position) a decline in interest
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 June 30, 1999.  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.
<TABLE>
<CAPTION>
                                                 Interest Sensitivity Period
                                           -----------------------------------------
                                                  3       Over     Over 1
As of June 30, 1999:                         months   3 months    year to     Over 5
(Dollars in thousands)                      or less  to 1 year    5 years      years       Total
------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>       <C>
Interest rate sensitive assets:
  Loans (excluding nonaccrual and
    deferred fees)                          $66,543    $10,227    $20,038    $11,599    $108,407
  Securities (before unrealized
    loss on securities available for sale)    9,172        272     10,712      6,638      26,794
  Federal funds sold and reverse
    repurchase agreements                     1,200        ---        ---        ---       1,200
-------------------------------------------------------------------------------------------------
    Total                                    76,915     10,499     30,750     18,237     136,401
-------------------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
  Interest-bearing transaction accounts      38,497        ---        ---        ---      38,497
  Savings deposits                            7,780        ---        ---        ---       7,780
  Time deposits, $100 and over               19,496     11,107      1,037        ---      31,640
  Other time deposits                        11,359      6,448      1,225          1      19,033
  Other borrowed funds                          100        100        ---        ---         200
-------------------------------------------------------------------------------------------------
    Total                                    77,232     17,655      2,262          1      97,150
-------------------------------------------------------------------------------------------------
Interest rate sensitivity gap                  (317)    (7,156)    28,488     18,236     $39,251
-------------------------------------------------------------------------------------------------
Cumulative interest rate
  sensitivity gap                           $  (317)   $(7,473)   $21,015    $39,251
-------------------------------------------------------------------------------------------------
Cumulative interest rate
 sensitivity gap to total assets               (0.2)%     (5.0)%     14.0%      26.1%
</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 June 30,  1999,  indicates  that the Company,  on a  cumulative  gap
basis,  is  liability  sensitive  in the  periods "3 months or less" and "Over 3
months to 1 year" and asset sensitive over the remaining time periods.

PROVISION  AND  ALLOWANCE  FOR LOAN LOSSES
The Bank provides for probable loan losses by a charge to operating income based
upon the composition of the loan portfolio,  past loan loss experience,  current
economic conditions and other factors which, in management's  judgment,  deserve
recognition in estimating loan losses.  Management will charge off loans when it
determines there has been a permanent impairment of the related carrying values.

The allowance for loan losses is reviewed by management  monthly and approved by
the  Board  of  Directors  at least  quarterly.  Management  attributes  general
reserves  to  different  types of loans using  percentages  which are based upon
perceived  risk  associated  with  the  portfolio  and  underlying   collateral,
historical loss experience,  and vulnerability to changing  economic  conditions
which may  affect  the  collectibility  of the loans.  Specific  allowances  are
allocated  for impaired  loans,  for loans which have  experienced  a decline in
internal loan grading,  and when  management  believes  additional loss exposure
exists. Although the allowance for loan losses is allocated to various portfolio
segments, it is general in nature and is available for the loan portfolio in its
entirety.  While  management uses available  information to recognize  losses on
loans,  future  additions to the allowance may be necessary  based on changes in
economic conditions.  In addition,  various regulatory agencies,  as an integral
part of their examination  process,  periodically review the Company's allowance
for  losses on loans.  Such  agencies  may  require  the  Company  to  recognize
additions to the allowance  based on their analysis of information  available to
them at the time of their examination.

The Senior Loan Officer  assesses the loan portfolio  monthly to determine which
loans are  specifically  identifiable  problem  credits  in order to update  the
Bank's internal watch list,  which tracks all such credits.  The Bank's internal
Loan Review Examiner  grades all new commercial  loans and all credits where the
total liability equals or exceeds certain thresholds  established by management.
If either the Senior  Loan  Officer or the Loan  Review  Examiner  identifies  a
serious  deficiency,  the loan is  placed  on the  next  quarterly  watch  list.
Management  provides a specific reserve allowance for the effects of the problem
applicable to each watchlisted credit. When management  identifies a generalized
risk not evidenced by a specially  identifiable  loan or portfolio segment as of
the  evaluation  date,  management's  evaluation  of the probable  loss exposure
concerning this condition will be provided for by adjusting the level of general
reserve for this exposure.

The  provision  for loan  losses  reflects  an amount  necessary  to adjust  the
allowance for loan losses to 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.  As of June 30, 1999, the allowance
for loan losses was  $1,081,000  compared to $980,000 at December 31, 1998.  The
increased allowance was a result of a $101,000 provision for loan losses made in
the first six months of 1999.  The  provision for loan losses was $69,000 in the
first six months of 1998.  Although  nonperforming  loans dropped  slightly from
June 30, 1998,  (see  information on  non-performing  loans below),  strong loan
growth,  particularly  in construction  loans,  also added  additional  inherent
credit risk which was  reflected in the  provision..  The ratio of the allowance
for loan  losses to total  loans was 1.0% at June 30,  1999 and 1.1% at December
31, 1998. Based upon information  currently available,  management believes that
the  allowance  for loan losses at June 30, 1999,  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.

At June 30, 1999 and December 31, 1998,  the Bank also held  California  Capital
Access Program ("CalCAP") deposits of $282,000 and $203,000, respectively, which
CalCAP has pledged to offset any losses on loans in the Bank's CalCAP portfolio.
The Bank had a total of $1,851,000 and $1,584,000 in CalCAP loans as of June 30,
1999 and December 31, 1998, respectively.  CalCAP is a program authorized by the
California  Legislature to encourage California  financial  institutions to make
loans to small businesses whose  operations  affect the state's  environment and
which  may  not  meet  the  normal  underwriting   standards  of  the  financial
institution.

Information on nonperforming loans for the six month periods ended June 30, 1999
and 1998 and the year ended  December 31, 1998 is  summarized  in the  following
table.
<TABLE>
<CAPTION>
                                                           June 30,   December 31,      June 30,
(Dollars in thousands)                                         1999           1998          1998
-----------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>
Net loan charge-offs                                            ---         $(154)       $(169)

Ratio of net loan charge-offs to average loans                  ---          (0.2)%       (0.2)%

Nonperforming loans:
  Nonaccrual                                                  $ 27           $ 30         $231
  Accruing loans past due 90 days or more                      ---            ---          ---
  Restructured                                                 469            469          469
----------------------------------------------------------------------------------- ------------
   Total nonperforming loans                                  $496           $499         $700
----------------------------------------------------------------------------------- ------------

Ratio of nonperforming loans to total loans                    0.5%           0.5%         0.9%
Ratio of allowance for loan losses to nonperforming loans    217.9%         196.4%         129%
</TABLE>

NONINTEREST INCOME
Noninterest  income declined  $46,000 or 9% between the first six months of 1999
and 1998.  The largest  change was a $64,000 or 73% reduction in gain on sale of
loans which was attributable to the sale of a smaller volume of loans during the
1999 period. Other noninterest income declined $14,000 or 47% principally due to
the recovery during the 1998 period of income and expenses related to previously
charged-off or paid-off loans, which was not repeated in the first six months of
1999. The decreases in noninterest  income were partially offset by a $26,000 or
13% increase in bankcard income which reflected increased merchant activity.

NONINTEREST EXPENSES
Total  noninterest  expenses  of  $2,946,000  for the first  six  months of 1999
increased $168,000 or 6% compared to the first six months of 1998.  Salaries and
employee  benefits rose $79,000 or 5%,  principally  due to merit  increases and
performance  bonuses  associated  with  loan and  deposit  growth.  Professional
services  expense  for the first six months of 1999 was $22,000 or 32% above the
1998 period,  reflecting increased accounting and legal services expense.  Other
expenses which were higher for the 1999 period included data processing expense,
up $27,000 or 16%,  and  bankcard  expense  up $17,000 or 10%.  Data  processing
expenses for the 1999 period  reflected  costs  associated  with the Bank's Year
2000 efforts as well as increased  processing  volume associated with the Bank's
asset growth. Bankcard expenses grew with increased merchant activity.

PROVISION FOR INCOME TAXES
The  provision  for income tax expense was  $373,000 for the first six months of
1999  compared to $301,000 for the first six months of 1998.  The $72,000 or 24%
increase in income tax expense  reflected  the increase in pretax income for the
1999 period. The effective income tax rate was 36% and 35% for the 1999 and 1998
periods, respectively.

                  Three months  ended June 30,  1999  compared to
                        Three  months ended June 30, 1998

OVERVIEW
Net income of the Company was $383,000 for the second  quarter of 1999  compared
to $303,000 for the second  quarter of 1998. Net income per common share - basic
was $0.30 and $0.28 for the second quarter of 1999 and 1998,  respectively.  Net
income per common share - diluted was $0.29 and $0.24 for the second  quarter of
1999 and 1998, respectively.

Net interest  income for the second  quarter of 1999  increased  $247,000 or 15%
compared   to  the  1998   quarter,   reflecting   strong   growth  in   average
interest-earning  assets.  The  increase in net  interest  income was  partially
offset by a $72,000 or 5% increase  in  noninterest  expenses,  a $40,000 or 15%
reduction  in  noninterest  income and a $54,000 or 32%  increase  in income tax
expense.

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
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  $1,895,000  for the second  quarter of 1999  increased
$247,000 or 15% compared to the second quarter of 1998.  The increase  reflected
the  $23,972,000  or 21%  growth in  average  interest-earning  assets.  The net
interest  margin on average  interest-earning  assets  declined to 5.53% for the
1999 quarter from 5.82% for the 1998 quarter.

The  increase  in  average  interest-earning  assets  between  the 1999 and 1998
quarters was  principally due to growth of $22,139,000 or 28% in average earning
loans and $8,331,000 or 35% in average total  securities.  These  increases were
partially  offset by a $6,498,000 or 65% decrease in average  federal funds sold
and  securities  purchased  under  repurchase  agreements.  The average yield on
interest-earning  assets  for the  second  quarter  of 1999  declined  to  8.19%
compared to 8.88% for the 1998  quarter.  The average yield on earning loans for
the 1999 quarter  declined to 9.20% from 10.21% for the 1998  quarter  while the
average ratio of earning  loans to  interest-earning  assets  increased to 74.3%
from 70.5% for the 1998 quarter.

Average  interest-bearing  liabilities  increased $14,617,000 or 18% between the
1999 and 1998 quarters.  The average rate paid for interest-bearing  liabilities
declined to 3.85% for the 1999 quarter  compared to 4.32% for the 1998  quarter,
reflecting  a decrease in overall  money  market and deposit  rates  between the
quarters.   The  ratio  of  time  deposits  to  average  total  interest-bearing
liabilities  was little changed at 54.0% for the 1999 quarter  compared to 54.3%
for the 1998 quarter.

NONINTEREST INCOME
A $40,000 or 15% reduction in noninterest  income for the 1999 quarter  compared
to the 1998  quarter  largely  reflected  a $55,000  decrease in gain on sale of
loans. There were no loans sales during the 1999 quarter.  Partially  offsetting
the reduction in noninterest income,  bankcard income rose $14,000 or 13% due to
increased merchant activity.

NONINTEREST EXPENSES
Total  noninterest  expenses  of  $1,463,000  for  the  second  quarter  of 1999
increased  $72,000 or 5% compared to the second  quarter of 1998.  Salaries  and
employee  benefits rose $44,000 or 6%,  principally due to salary  increases and
higher bonuses  associated with loan growth.  Data processing  expense increased
$12,000 or 14% principally due to deposit and loan growth between the quarters.

PROVISION FOR INCOME TAXES
The provision for income tax expense was $221,000 for the second quarter of 1999
compared to $167,000 for the second quarter of 1998. The $54,000 or 32% increase
in income tax expense  reflected  increased taxable income for the 1999 quarter.
The  effective  income tax rate was 37% and 36% for the 1999 and 1998  quarters,
respectively.

FINANCIAL CONDITION - June 30, 1999 compared to December 31, 1998

CASH AND CASH EQUIVALENTS, INVESTMENTS AND LOANS
Total loans of  $107,892,000  at June 30, 1999 increased  $14,763,000 or 16% and
cash and cash  equivalents of $13,175,000 at June 30, 1999 increased  $4,098,000
or 45% from  December  31,  1998.  Funding for these  increases  was provided by
deposit  growth  of  $13,287,000  or 11% and a  $12,889,000  or 32%  decline  in
securities as of June 30, 1999.  The decline in  securities  balances as of June
30, 1999 principally reflected maturities of short-term investments.

DEPOSITS AND OTHER BORROWED FUNDS
Reflecting a continuation  of the Bank's strong growth trend,  total deposits of
$136,682,000 at June 30, 1999 increased  $13,287,000 or 11% compared to December
31, 1998. Noninterest-bearing demand deposits grew $5,828,000 or 17% and savings
and  interest-bearing  demand deposits increased $8,706,000 or 23% from December
31, 1998.  There were no short-term  borrowings  outstanding as of June 30, 1999
compared to $7,000,000 at December 31, 1998. Securities sold under agreements to
repurchase declined $1,144,000 or 85% during the first six months of 1999.

OTHER ASSETS AND OTHER LIABILITIES
Interest and fees receivable at June 30, 1999 of $695,000  increased  $60,000 or
10%  from  December  31,  1998  principally  due to loan  growth.  Other  assets
increased  $398,000  or 81%, a portion of which  reflected  $179,000  in prepaid
expenses which were incurred during the 1999 quarter for services related to the
pending  merger with  Greater Bay  Bancorp  which is expected  take place in the
fourth quarter of 1999.  Additionally,  the exercise during the first six months
of 1999 of  nonqualified  stock  options  resulted  in a  $186,000  increase  in
deferred tax assets.  Interest  payable and other  liabilities at June 30, 1999,
declined  $303,000 or 28% from year-end 1998  principally  due to the payment of
income taxes during the first six months of 1999 and the application of $159,000
in tax benefits related to the exercise of nonqualified stock options during the
period.

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 cash equivalents , all marketable securities with maturities
of one year or less,  securities  available for sale with maturities  beyond one
year, 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  22%  and  30% at  June  30,  1999  and  December  31,  1998,
respectively.  The decline in the liquidity ratio at June 30, 1999 reflected the
decrease in short-term securities during the first six months of 1999. 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,  to meet unforeseen  outflows,  the Bank has informal,  non-binding
borrowing arrangements with two correspondent banks, which include federal funds
borrowing lines totaling $8,500,000 and a repurchase facility, as well as access
to  collateralized  borrowing  capacity of  approximately  $10,000,000  from the
Federal Home Loan Bank of San Francisco.  As of June 30, 1999, no borrowed funds
were outstanding from these credit facilities.
<PAGE>

CAPITAL
The following  tables  present the Company's and the Bank's  regulatory  capital
positions at June 30, 1999, and average assets for the second quarter of 1999.
<TABLE>
<CAPTION>
                                                    RISK BASED CAPITAL RATIO
                                                  Company             Bank
(Dollars in thousands)                         Amount  Ratio     Amount   Ratio
-------------------------------------------------------------------------------
<S>                                           <C>      <C>      <C>        <C>
Tier 1 Capital.                               $13,070  10.1%    $12,620    9.8%
Tier 1 Capital minimum requirement              5,158   4.0       5,146    4.0
-------------------------------------------------------------------------------
Excess.                                       $ 7,912   6.1%    $ 7,474    5.8%

Total Capital                                 $14,151  11.0%    $13,701   10.7%
Total Capital minimum requirement              10,315   8.0      10,291    8.0
---------------------------------------------------------- -------------------
Excess                                        $ 3,836   3.0%    $ 3,410    2.7%

      Risk weighted assets                    $128,941          $128,639
</TABLE>
<TABLE>
<CAPTION>
                                                       LEVERAGE RATIO
                                                  Company             Bank
(Dollars in thousands)                         Amount  Ratio     Amount   Ratio
-------------------------------------------------------------------------------
<S>  <C>                                      <C>       <C>      <C>       <C>
Tier 1 Capital to average total assets        $13,070   8.9%     $12,620   8.6%
Range of minimum leverage                       4,432-  3.0-       4,427-  3.0-
  requirement                                   7,386   5.0%       7,379   5.0%
------------------------------------------------------ -------- ---------------
Range of excess                                 5,684-  3.9-       5,241-  3.6-
                                              $ 8,638   5.9%     $ 8,193   5.6%

Average total assets for the second quarter*  $147,718           $147,574
</TABLE>

(* Average  total assets do not include  unrealized  gains/losses  on securities
available for sale.)

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.

INFLATION
It is  Management's  opinion that the effects of  inflation on the  consolidated
financial  statements for the periods ended June 30, 1999 and 1998 have not been
material.

YEAR 2000 READINESS DISCLOSURE
The following  discussion of the  implications  of the Year 2000 problem for the
Company  contains  numerous  forward-looking   statements  based  on  inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal Year 2000 modifications are based on management's
best estimates,  which were derived  utilizing a number of assumptions of future
events including the continued  availability of internal and external resources,
third party modifications and other factors.  However, there can be no guarantee
that these estimates will be achieved and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance,  there can be no guarantee  that failure to modify the systems would
not have a material adverse affect on the Company.

In addition, the Company places a high degree of reliance on computer systems of
third  parties,   such  as  customers,   suppliers,   and  other  financial  and
governmental  institutions.   Although  the  Company  continues  to  assess  the
readiness of these third parties and is preparing  contingency  plans, there can
be no  guarantees  that the failure of any one of these third  parties to modify
their systems in advance of December 31, 1999 would not have a material  adverse
affect on the Company.

Many computer hardware systems and software programs in use today were developed
using a two digit date code to specify the year.  As a result  many  systems and
programs  that are date  sensitive  will treat  "00" as the year  1900,  and not
properly  recognize the date transition at the year 2000. An additional issue is
that  1900 was not a leap  year,  whereas  the year  2000  is.  Therefore,  some
programs may not properly provide for February 29, 2000.

The  Company  initiated  its  Year  2000  planning  in 1997 and has  prepared  a
comprehensive  written plan which addresses both internal and external Year 2000
exposure  and  includes  the  following   phases  -  Inventory  and  Assessment,
Renovation, Testing and Implementation, and Contingency Planning.

Inventory & Assessment
The Company  completed its inventory and  assessment  phase during 1997.  During
this process the Company made a physical  inventory  of  information  technology
("IT") systems and non-IT  systems at each office  location.  Additionally,  all
vendor  supplied  services  were  reviewed  to  identify IT and non-IT Year 2000
issues. The systems examined included hardware and software platforms associated
with  customer  account  processing,  computer  networks and  workstations,  and
telecommunications systems.

Although the assessment  determined  that there was no  significant  reliance on
non-IT technology (that is, equipment with embedded microprocessor controls such
as elevators,  climate control systems,  etc.), it did identify mission critical
IT systems, both internal and external that were not Year 2000 compliant.

These  noncompliant  systems included data processing  applications  provided by
third party  suppliers,  the teller  platform at two branch offices of the Bank,
and some of the hardware  and software  elements of the Bank's Wide Area Network
("WAN") computer network.  The WAN is a centralized,  server based,  system that
interconnects employees' desktop PC workstations at each location.

One additional  element of Year 2000 concern has been the Bank's customers.  The
Bank is reliant on its customers to make the necessary preparations for the Year
2000 so that their business operations will not be interrupted, thus threatening
their ability to honor financial commitments.

In an ongoing  effort to ensure that its customer base is aware of the Year 2000
issue,  during the first six months of 1998 the Bank  mailed to each  commercial
account,  and  included in each  commercial  account  loan and  deposit  account
statement,  a letter  addressing Year 2000 issues and encouraging the assessment
of Year 2000  risk.  Year 2000  reference  resources  for  businesses  were also
provided.

As part of its customer Year 2000 assessment, the Bank identified all commercial
account  borrowing  relationships in excess of $100,000.  These represented over
200 relationships  and approximately 95% of the total borrowings  outstanding as
of June 30, 1998.  Each of these business  relationships  was analyzed as to its
potential  for Year 2000 risk and  approximately  20% were selected to receive a
detailed  Year 2000  questionnaire.  The  questionnaire,  requesting  additional
information  on Year 2000  status,  was  delivered to these  selected  customers
during the third quarter of 1998. The completed questionnaires were analyzed for
risk and each borrower was assigned a Year 2000 risk rating. As a result of this
analysis,  the Bank  modified  its credit  review  process and its  underwriting
criteria to include consideration of Year 2000 issues.

Renovation, Testing & Implementation
The  correction  and testing phase of the Company's  Year 2000 Plan includes the
renovation and/or replacement of all mission critical IT hardware,  software and
equipment  identified as not compliant  with the Year 2000.  The majority of the
internal mission critical  renovation  centered around the upgrade to the Bank's
WAN and teller  systems.  The  installation  of the Year 2000  compliant  teller
system was completed by December 31, 1998.

To ensure Year 2000 compliance of its WAN and reduce the administrative overhead
of its IT systems,  management  determined that a complete renovation of the WAN
would  provide the most cost  effective  solution.  Most of the  elements of the
Bank's WAN upgrade  were  completed  by December  31,  1998.  Due to the overall
complexity of this project, however, only a few of the desktop workstations were
operational on the new system at that time. As of June 30, 1999 additional users
have been converted over, and current projections are for all users to be either
converted over to the new system during the remainder of 1999 or, as the pending
merger with Greater Bay Bancorp progresses,  as discussed below, all systems may
be fully converted to the Greater Bay Bancorp systems after the  consummation of
the merger and during the fourth quarter of 1999.

The Bank  relies on two primary  off-site  data  processing  vendors for mission
critical  processing of the Bank's customer accounting system and general ledger
applications.  These vendors  identified certain Year 2000 compliance issues and
the  renovations  to these  systems were  completed by December 31, 1998.  Final
testing of these systems was completed during the second quarter of 1999.

Although  no  vendors  were  identified  where  the  inability  to be Year  2000
compliant would cause the Company to seek alternative suppliers, the Company has
no viable  alternatives for some vendors,  such as power  distribution and local
telephone  companies.  The Year 2000 efforts of these  companies  continue to be
monitored and are part of the Company's  contingency plan. As with all financial
institutions,  the Company  places a high degree of reliance on systems of other
institutions, including governmental agencies, to settle transactions.

In  compliance  with  FFIEC   guidelines,   the  Company  has  met  all  testing
requirements  at or prior to the time such  requirements  were  required to have
been met.

Costs
The majority of the costs  associated  with the Company's  Year 2000 project are
for the  installation and testing of the components to upgrade the Bank's teller
systems  and  WAN.   Included  in  this  project  were  improved   communication
connections  between  offices,   higher  capacity  computer  file  servers,  and
operating system upgrades for the entire network.  While these  investments were
not specifically accelerated due to the Company's Year 2000 project, these costs
have been included.

As of June 30, 1999,  and since the  inception  of the project,  the Company had
invested  approximately $203,000 for capital improvements to the WAN and $60,000
for the  teller  cash  control  system and  workstations.  Other  project  costs
incurred by the  Company  include  staff time  devoted to the issue at a cost of
approximately  $27,000  and  outside  consulting  services  of  $46,000.  It  is
anticipated  that additional costs to the Company for the Year 2000 project will
not exceed $10,000.

While  management  believes it has  identified and planned for the resolution of
the mission critical issues relevant to the Year 2000, no assurance can be given
that the Company may not be required to expend  significant  additional  amounts
related to the Year 2000 issue.

Risks
The principal risks  associated  with the Year 2000 problem  primarily fall into
three  categories.  The first risk is that the Company is unable to successfully
renovate and/or migrate to Year 2000 compliant  systems.  The second risk is the
disruption of operations due to the failure of third  parties.  The third is the
risk of business  interruption among fund providers and fund users which affects
their ability to contractually perform.

The only risk largely under the  Company's  control for the Year 2000 project is
the  identification,  renovation and implementation of its internal  operations.
The Company,  like other financial  institutions,  is heavily dependent upon its
computer systems.  Reliance on readily available PC-based systems and technology
for WAN and desktop workstations has simplified this process to some extent, and
management believes its systems are now Year 2000 compliant.

Because of the  reliance on outside  vendors  for  processing  mission  critical
customer  accounting systems, a computer failure of a third party may jeopardize
Company operations. How serious this would be depends on the nature and duration
of such failures. Because of the complexity, integration and dependence of these
outside  systems to the  Company's  operations,  switching to another  vendor on
short  notice  does not  represent  a viable  option.  At this time,  management
believes  that the necessary  renovations  to these third party systems for Year
2000 compliance have been completed.

Another serious impact to Company  operations would occur if basic services such
as  telecommunications,  electric power supplies and services  provided by other
governmental  agencies were disrupted.  To date definitive  public disclosure of
the  state  of  readiness  among  basic  infrastructure  suppliers  has not been
generally available.  Although inquiries continue, the Company does not yet have
the  information  to estimate the likelihood of  significant  disruptions  among
these suppliers.

Contingency Planning
The Company has developed  contingency  plans for the Year 2000  including  cash
reserves,  liquidity and operational  issues related to systems failures and for
reasons that are not presently foreseen. In the event of a failure,  these plans
outline the steps that will be taken to deal with the  situation to minimize the
effect on customers and losses to the Company. Although the Company's identified
Year 2000 risks are largely  concentrated  with the ability of third  parties to
provide services after the year 2000, as we near the end of 1999, the Company is
actively  monitoring  current events,  including news report,  which may have an
immediate impact on its customers and therefore its operations.

Apart from the  Company's  Year 2000 project,  federal  banking  regulators  are
conducting special examinations of FDIC-insured financial institutions and third
party data processors,  including suppliers to the Company, to determine whether
they are taking  necessary  steps to prepare for the Year 2000. They are closely
monitoring  the progress  made by these  institutions  in  completing  key steps
required by their individual Year 2000 plans.

The pending merger of the Company and Greater Bay Bancorp,  which is expected to
occur  early in the fourth  quarter of 1999,  will have some impact on Year 2000
issues at Bay Bank of Commerce. Plans have been formalized for the conversion of
the Bank's data processing applications and PC-based  wide-area-network  ("WAN")
to the Greater  Bay Bancorp  systems  prior to  year-end  1999.  The Company has
investigated  Greater Bay Bancorp's  Year 2000 Plan and the  compliance of their
computer systems. Based solely on information provided to the Company by Greater
Bay  Bancorp,  the  Company  believes  that Year 2000  testing of Greater  Bay's
systems was  successfully  completed by Greater Bay Bancorp and that Greater Bay
Bancorp  has met the Year 2000  guidelines  of the  various  banking  regulatory
agencies.

The  Company's  disclosure  and  announcement  herein  concerning  its Year 2000
planning  and  programs  are  intended  to  constitute   "year  2000   readiness
disclosures"  as  defined  in the  recently-enacted  Year 2000  Information  and
Readiness  Disclosure Act (the "Act").  The Act provided certain protection from
liability for certain public and private statements  concerning an entity's Year
2000 readiness and the Year 2000 readiness of its products and services.

RECENT EVENTS On April 30, 1999 the Company and Greater Bay Bancorp,  the parent
of Cupertino  National  Bank,  Mid-Peninsula  Bank,  Peninsula Bank of Commerce,
Golden Gate Bank and Bay Area Bank, signed a definintive  agreement for a merger
between the two companies. The agreement provides for the Company's shareholders
to receive  approximately 945,000 shares of Greater Bay Bancorp stock subject to
certain  adjustments  based on movements  in the price of Greater Bay  Bancorp's
stock,  in a tax-free  exchange to be accounted  for as a  pooling-of-interests.
Following  the   transaction,   the  shareholders  of  the  Company's  will  own
approximately  7.8% of the combined company's stock. The transaction is expected
to be  completed  in the fourth  quarter  of 1999  subject  to  approval  of the
transaction by the Company's  shareholders and receipt of regulatory  approvals.
Greater Bay Bancorp's financial services subsidiaries and divisions have offices
located in San Jose, Cupertino, Santa Clara, Palo Alto, Redwood City, San Mateo,
Millbrae,  San  Francisco  and Walnut  Creek.  As of June 30, 1999,  Greater Bay
Bancorp had $2.1 billion in assets, $1.8 billion in deposits and $115 million in
shareholders'  equity.  The combined company,  on a pro-forma basis after giving
effect to the merger,  would have had total assets of approximately $2.3 billion
and shareholders' equity of over $128.0 million at June 30, 1999.

Management believes that the merger offers significant  opportunities to enhance
the spectrum of financial services offered to both existing and future customers
of the Company.


<PAGE>



                           PART II - OTHER INFORMATION


Item 5.           Other Information:  None

Item 6.           Exhibits and Reports on Form 8-K.

        (b)       Reports on Form 8-K:
                  No  reports  on Form 8-K were  filed  by the  Company  for the
                  quarter ended June 30, 1999.


<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: August 13, 1999             /s/ R. M. Kahler
                                  R. M. Kahler
                                  President and
                                  Chief Executive Officer
                                  (Principal Executive Officer)



Date: August 13, 1999             /s/ R. D. Greenfield
                                  R. D. Greenfield
                                  Chief Financial Officer
                                  (Principal Accounting Officer)

<PAGE>