================================================================================

                                   FORM 10-QSB

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM ______ TO ______

                         COMMISSION FILE NUMBER: 0-23299

                              BAY BANCSHARES, INC.
        (Exact name of small business issuer as specified in its charter)

               TEXAS                                        76-0046244
  (State or other jurisdiction of                         (I.R.S. Employer
   incorporation or organization)                       Identification No.)

                             1001 HIGHWAY 146 SOUTH
                              LA PORTE, TEXAS 77571
                    (Address of principal executive offices)

                                 (281) 471-4400
                (Issuer's telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

As of November 8, 2000, there were 1,971,783 shares of the registrant's Common
Stock, par value $1.00 per share outstanding.

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<PAGE>
                           BAY BANCSHARES, INC. AND SUBSIDIARIES
                              INDEX TO FORM 10-QSB

PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
            Consolidated Balance Sheets as of September 30, 2000 and December
                  31, 1999
            Consolidated Statements of Earnings for Nine Months ended
                  September 30, 2000 and 1999
            Consolidated Statements of Comprehensive Income for the Nine Months
                  ended September 30, 2000 and 1999
            Consolidated Statements of Cash Flows for the Nine Months ended
                  September 30, 2000 and 1999
            Notes to Interim Consolidated Financial Statements
ITEM 2. - Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
ITEM 2. - Changes in Securities and Use of Proceeds
ITEM 3. - Defaults Upon Senior Securities
ITEM 4. - Submission of Matters to a Vote of Security Holders
ITEM 5. - Other Information
ITEM 6. - Exhibits and Reports on Form 8-K
Signatures

                                       1
<PAGE>
PART I - FINANCIAL INFORMATION

                      BAY BANCSHARES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                SEPTEMBER 30,        DECEMBER 31,
                                                                                                    2000                 1999
                                                                                               ---------------      ---------------
                                                                                                 (UNAUDITED)
<S>                                                                                            <C>                  <C>
                         ASSETS
Cash and cash equivalents
     Cash and due from banks .............................................................     $        10,719      $        11,170
     Federal funds sold ..................................................................              13,373                2,715
                                                                                               ---------------      ---------------
        Total cash and cash equivalents ..................................................              24,092
                                                                                                                             13,885

Securities available-for-sale ............................................................              82,269               75,551

Loans, net of allowance for credit losses of $2,095 ......................................             207,333              197,427
     and $1,985
Bank premises and equipment, net .........................................................               8,405                8,881
Other assets .............................................................................              12,624               13,437
                                                                                               ---------------      ---------------
        Total assets .....................................................................     $       332,723      $       309,181
                                                                                               ===============      ===============

           LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
     Deposits
        Noninterest-bearing ..............................................................     $        60,063      $        56,556
        Interest-bearing deposits ........................................................             230,543              212,670
                                                                                               ---------------      ---------------
        Total deposits ...................................................................             290,606              269,226

     Borrowings ..........................................................................              11,000              11,0000
     Other liabilities ...................................................................               2,492                2,343
                                                                                               ---------------      ---------------
        Total liabilities ................................................................             304,098              282,569
Stockholders' equity
     Common stock ........................................................................               2,093                2,092
     Additional paid-in capital ..........................................................              17,554               17,548
     Retained earnings ...................................................................              11,739                9,660

     Accumulated other comprehensive loss ................................................              (1,358)              (1,592)
                                                                                               ---------------      ---------------
                                                                                                        30,028               27,708
Less:  Treasury stock ....................................................................              (1,403)              (1,096)
        Total stockholders' equity .......................................................              28,625               26,612
                                                                                               ---------------      ---------------
        Total liabilities and stockholders' equity .......................................     $       332,723      $       309,181
                                                                                               ===============      ===============
</TABLE>
      (See accompanying notes to interim consolidated financial statements)

                                       2
<PAGE>
                      BAY BANCSHARES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,                 SEPTEMBER 30,
                                                                           ---------------------------   ---------------------------
                                                                               2000           1999           2000           1999
                                                                           ------------   ------------   ------------   ------------
<S>                                                                        <C>            <C>            <C>            <C>
Interest income

     Loans, including fees .............................................   $      4,787   $      4,147   $     13,639   $     11,808

     Securities ........................................................          1,271          1,188          3,793          3,347

     Federal funds sold ................................................            244             41            523            507
                                                                           ------------   ------------   ------------   ------------
     Total interest income .............................................          6,302          5,376         17,955         15,662
Interest expense

     Deposits ..........................................................          2,634          1,986          7,173          5,796

     Other .............................................................            193            127            532            226
                                                                           ------------   ------------   ------------   ------------

     Total interest expense ............................................          2,827          2,113          7,705          6,022
                                                                           ------------   ------------   ------------   ------------
        Net interest income ............................................          3,475          3,263         10,250          9,640

     Provision for credit losses .......................................            329            150            864            430
                                                                           ------------   ------------   ------------   ------------
Net interest income after provision for credit losses ..................          3,146          3,113          9,386          9,210
Noninterest income

     Service charges ...................................................            730            612          1,881          1,758

     Other .............................................................            401            336          1,283          1,032
                                                                           ------------   ------------   ------------   ------------
        Total noninterest income .......................................          1,131            948          3,164          2,790
Noninterest expense

     Salaries and employee benefits ....................................          1,555          1,560          4,652          4,698

     Occupancy expense, net ............................................            473            465          1,408          1,391

     Other noninterest expense .........................................            971            950          2,908          2,891
                                                                           ------------   ------------   ------------   ------------

     Total noninterest expense .........................................          2,999          2,975          8,968          8,980
                                                                           ------------   ------------   ------------   ------------
Earnings before income taxes ...........................................          1,278          1,086          3,582          3,020

     Provision for income taxes ........................................            381            366          1,145          1,028
                                                                           ------------   ------------   ------------   ------------
        Net earnings ...................................................   $        897   $        720   $      2,437   $      1,992
                                                                           ============   ============   ============   ============


        Net earnings per share (basic) .................................   $       0.45   $       0.36   $       1.23   $       1.00
        Net earnings per share (diluted) ...............................           0.43           0.35           1.17           0.97

</TABLE>
      (See accompanying notes to interim consolidated financial statements)

                                       3
<PAGE>
                       BAY BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                              (DOLLARS IN THOUSANDS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED               NINE MONTHS ENDED
                                                                              SEPTEMBER 30,                   SEPTEMBER 30,
                                                                       ----------------------------    ----------------------------
                                                                           2000            1999            2000            1999
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
Net earnings ......................................................... $        897    $        720    $      2,437    $      1,992
Other comprehensive income, net of tax:

Unrealized (losses) gains on securities:
     Unrealized holding (losses) gains arising during period .........          731            (108)            234          (1,550)
     Less:  reclassification adjustment for gains (losses)
       included in net earnings ......................................         --                 5            --               (28)
                                                                       ------------    ------------    ------------    ------------

                                                                                731            (103)            234          (1,578)
                                                                       ------------    ------------    ------------    ------------
Comprehensive income ................................................. $      1,628    $        617    $      2,671    $        414
                                                                       ============    ============    ============    ============
</TABLE>

      (See accompanying notes to interim consolidated financial statements)

                                       4
<PAGE>
                      BAY BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                        NINE MONTHS ENDED
                                                                                                           SEPTEMBER 30,
                                                                                                 ----------------------------------
                                                                                                      2000               1999
                                                                                                 ---------------    ---------------
<S>                                                                                              <C>                          <C>
Cash flows from operating activities:
                Net earnings .................................................................   $         2,437              1,992

                Adjustments to reconcile net earnings to net cash provided by
                     operating activities:

                     Provision for credit losses .............................................               864                430

                     Depreciation ............................................................               717                896

                     Gain on sale of available-for-sale securities ...........................              --                  (42)

                     Amortization of premiums, net of accretion and discounts
                         on securities .......................................................                37                 87

                     Effect of phantom stock plan ............................................              --                   48

                     Decrease (increase) in other assets .....................................               290               (877)

                     Increase in other liabilities ...........................................                28                881
                                                                                                 ---------------    ---------------


                         Net cash provided by operating activities ...........................             4,373              3,415

Cash flows from investing activities:

                Proceeds from sale of available-for-sale securities ..........................              --                7,943

                Proceeds from principal repayments, maturities, and calls of
                     available-for-sale securities ...........................................             7,051             10,479

                Purchases of available-for-sale securities ...................................           (11,451)           (30,012)

                Net increase in loans ........................................................           (10,247)           (24,602)

                Purchases of bank premises and equipment .....................................              (241)            (1,017)
                                                                                                 ---------------    ---------------


                         Net cash used in investing activities ...............................           (14,888)           (37,209)

Cash flows from financing activities:

                Sale of common stock .........................................................                 7                  5

                Purchase of treasury stock ...................................................              (307)              (374)

                Net increase in deposits .....................................................            21,380             12,666

                Advance from Federal Home Loan Bank ..........................................              --                8,000

                Dividends paid ...............................................................              (358)              (358)
                                                                                                 ---------------    ---------------


                         Net cash provided  by financing activities ..........................            20,722             19,939


                         Net increase (decrease) in cash and cash equivalents ................            10,207            (13,855)

Cash and cash equivalents at beginning of period .............................................            13,885             25,456
                                                                                                 ---------------    ---------------

Cash and cash equivalents at end of period ...................................................   $        24,092    $        11,601
                                                                                                 ===============    ===============
</TABLE>

      (See accompanying notes to interim consolidated financial statements)

                                       5
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1)  BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of Bay
Bancshares, Inc. (the "Company") and its wholly-owned subsidiaries Bayshore
National Bank (the "Bank"), Bay Bancshares of Delaware, Inc. ("BBDI") and
BayBanc Independent Insurance Agency ("BBIIA"). All significant intercompany
transactions and balances have been eliminated.

      The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company on a consolidated basis, and all
such adjustments are of a normal recurring nature. These financial statements
and the notes thereto should be read in conjunction with the Company's 1999
Annual Report on Form 10-KSB. Operating results for the nine month period ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.

(2)  EARNINGS PER COMMON SHARE

      Earnings per common and common equivalent share was computed based on the
following:

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                       -------------------------------------  -------------------------------------
                                                                  SEPTEMBER 30,                          SEPTEMBER 30,
                                                             2000                1999               2000                1999
                                                       -----------------   -----------------  -----------------   -----------------
                                                                   (UNAUDITED)                            (UNAUDITED)

<S>                                                    <C>                 <C>               <C>                 <C>
Net earnings available to common shareholders                $      897          $      720        $     2,437         $     1,992

Basic weighted average shares outstanding                         1,979               1,991              1,987               1,991
Diluted weighed average shares outstanding                        2,074               2,050              2,084               2,050

Basic earnings per common share                              $     0.45          $     0.36         $     1.23          $     1.00
Diluted earnings per common share                            $     0.43          $     0.35         $     1.17          $     0.97
</TABLE>

(3)  COMPREHENSIVE INCOME

      Comprehensive income includes net earnings plus unrealized gain or loss on
securities.

      The tax effects of other comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED                         THREE MONTHS ENDED
                                                          SEPTEMBER 30, 2000                         SEPTEMBER 30, 1999
                                               ----------------------------------------- -------------------------------------------
                                                              (UNAUDITED)                               (UNAUDITED)

                                               BEFORE TAX         TAX          NET OF     BEFORE TAX        TAX           NET OF
                                                 AMOUNT         EXPENSE      TAX AMOUNT     AMOUNT        EXPENSE       TAX AMOUNT
                                               ------------   ------------   ----------- -------------  -------------  -------------
<S>                                            <C>            <C>            <C>         <C>            <C>            <C>
Unrealized gains on securities:
    Unrealized holding (losses) gains arising
      during period                              $   1,108      $    (377)       $   731   $    (145)       $     37      $   (108)
    Less:  reclassification adjustments for
      (losses)  gains included in net earnings          -              -              -            8              (3)            5
                                               ------------   ------------   ----------- -------------  -------------  -------------
Other comprehensive income                        $   1,108      $    (377)       $   731   $    (137)       $     34      $   (103)
                                               ============   ============   =========== =============  =============  =============
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED                         NINE MONTHS ENDED
                                                          SEPTEMBER 30, 2000                         SEPTEMBER 30, 1999
                                               ----------------------------------------- -------------------------------------------
                                                              (UNAUDITED)                               (UNAUDITED)
                                                                  TAX                                       TAX
                                               BEFORE TAX      (EXPENSE)       NET OF     BEFORE TAX     (EXPENSE)        NET OF
                                                 AMOUNT         BENEFIT      TAX AMOUNT     AMOUNT        BENEFIT       TAX AMOUNT
                                               ------------   ------------   ----------- -------------  -------------  -------------
<S>                                            <C>            <C>            <C>         <C>            <C>            <C>
Unrealized gains on securities:
    Unrealized holding gains (losses) arising
      during period                               $    355      $   (121)       $    234     $(2,077)       $    527       $(1,550)
    Less:  reclassification adjustments for
       (losses) gains included in net earnings          -              -              -          (42)             14           (28)
                                               ------------   ------------   ----------- -------------  -------------  -------------
Other comprehensive income                        $    355      $    (121)      $    234     $(2,119)       $    541        (1,578)
                                               ============   ============   =========== =============  =============  =============
</TABLE>

ITEM 2. -MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

      Certain of the matters discussed in this document and in the documents
incorporated into this document by reference, including matters discussed under
the captions "Management's Discussion and Analysis or Plan of Operation," may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expects," "estimates," "anticipates,"
"contemplated," "intends," "plans," "believes," "seek," "will," "would,"
"should," "projected" and similar expressions are intended to identify such
forward-looking statements.

      The Company's actual results or experience may differ materially from the
results anticipated in such forward-looking statements due to a variety of
factors, including, but not limited to: (1) the effects of future acquisitions,
if any; (2) the concentration of indirect automobile dealer paper in the loan
portfolio; (3) the effects of future economic conditions on the Company and its
customers; (4) governmental monetary and fiscal policies, as well as legislative
and regulatory changes; (5) the risks of changes in interest rates on the level
and composition of deposits, loan demand and the values of loan collateral,
securities and interest rate protection agreements, as well as interest rate
risks; (6) the effects of competition from other commercial banks, thrifts,
mortgage banking firms, insurance companies, money market and other mutual fund
and other financial institutions operation in the Company's market areas and
elsewhere, including competitors offering banking products and services by mail,
telephone, computer and the Internet; (7) the failure of assumptions underlying
the establishment of reserves for credit losses and the fact that estimations of
values of collateral and various financial assets and liabilities and
technological changes, including "Year 2000" data systems compliance issues, are
more difficult or expensive than anticipated; and (8) other uncertainties set
forth in the Company's other public reports and filings and public statements.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.

      Bay Bancshares, Inc. (the "Company") was incorporated as a business
corporation in 1982 under the laws of the State of Texas to be a multi-bank
holding company for Bayshore National Bank (the "Bank"). The Company currently
serves its market areas from its headquarters in La Porte and ten full-service
banking office locations in La Porte, Liberty, Cleveland, Seabrook, Pasadena,
Baytown, Deer Park and Mont Belvieu, Texas. Additionally, the Company operates
three Loan Production Offices ("LPOs") in the Houston area and an Internet
banking site (WWW.BANKBNB.COM).

      Net earnings for the nine months ended September 30, 2000 was $2.4 million
compared with $2.0 million for the nine months ended September 30, 1999, an
increase of $445,000 or 22.34%. Per share (basic) earnings increased $0.23 to
$1.23 for the nine months ended September 30, 2000 compared to $1.00 for the
same period ended September 30, 1999. Per share (diluted) earnings increased
$0.20 to $1.17 for

                                       8
<PAGE>
the nine months ended September 30, 2000 from $0.97 for the same period ended
September 30, 1999. Net earnings for the third quarter 2000 was $897,000, an
increase of $177,000 or 24.58% compared with $720,000 for the same period in
1999. Per share (basic) earnings increased $0.09 to $0.45 for the third quarter
2000 from $0.36 for the same period in 1999. Per share (diluted) earnings
increased $0.08 to $0.43 for the third quarter 2000 from $0.35 for the same
period in 1999.

      On February 2, 1999 the Company announced that the Board of Directors
approved the repurchase of up to $1.0 million of Company Common Stock (the
"Plan"). Additionally, on July 25, 2000 the Company's Board of Directors
approved $500,000 for the repurchase of Company Common Stock bringing the amount
to be repurchased by the Plan to $1.5 million. As of November 8, 2000 the Plan,
using excess funds, has repurchased 44,600 shares of Common Stock in the open
market in eleven separate trades at a total cost of $865,000. As of November 8,
2000 there were 1,971,783 shares of Common Stock outstanding.

RESULTS OF OPERATIONS

Net Interest Income

      Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
income. Interest rate fluctuations, as well as changes in the amount and type of
earning assets and liabilities, combine to affect net interest income.

      Net interest income for the nine months ended September 30, 2000 was $10.3
million compared with $9.6 million for the nine months ended September 30, 1999,
an increase of $610,000 or 6.33% and an increase of $212,000 or 6.50% in the
third quarter 2000 as compared with the third quarter 1999. Average
interest-earning assets increased from 88.36% of total average assets at
September 30, 1999 to 89.95% of total average assets at September 30, 2000.
Average interest-earning assets for the nine months ended September 30, 2000
compared to the same period in 1999 increased primarily due to the Company's
internally generated loan growth. Average gross loans increased to $202.5
million for the nine months ended September 30, 2000 from $179.8 million for the
nine months ended September 30, 1999, an increase of $22.7 million or 12.63%.

      Net interest income was improved by an increase in average loans and an
increase in the rate of interest-earning assets from 7.79% in September 30, 1999
to 8.20% for the nine months ended September 30, 2000. Average interest-bearing
liabilities increased to $233.3 million for the nine months ended September 30,
2000 from $209.1 million for the nine months ended September 30, 1999, an
increase of $24.2 million or 11.57%.

      The Company posted net interest margins of 4.68% and 4.79% and net
interest spreads of 3.80% and 3.95% for the periods ended September 30, 2000 and
September 30, 1999, respectively. The decrease in net interest margin for the
nine months ended 1999 compared to the same period during 2000 reflects a 41
basis point increase in the yield on average interest-earning assets and a 56
basis point increase in the cost of interest-bearing liabilities.

                                       9
<PAGE>
      The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax
equivalent adjustments were made and all average balances are daily average
balances.

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                         ---------------------------------------------------------------------------------
                                                          2000                                      1999

                                         ---------------------------------------    --------------------------------------
                                           AVERAGE       INTEREST     AVERAGE         AVERAGE       INTEREST     AVERAGE
                                         OUTSTANDING      EARNED/      YIELD/       OUTSTANDING     EARNED/      YIELD/
                                           BALANCE         PAID         RATE          BALANCE         PAID        RATE
                                         -------------   ----------  -----------    -------------  -----------  ----------
<S>                                      <C>             <C>         <C>            <C>            <C>          <C>
Assets

Interest-earning assets:

    Loans                                   $ 202,485     $ 13,639        8.98%        $ 179,803     $ 11,808       8.76%

    Securities                                 78,941        3,793        6.41%           75,369        3,347       5.92%

    Federal funds sold and other
        temporary Investments                  10,362          523        6.73%           12,982          507       5.21%
                                         -------------   ----------  -----------    -------------  -----------  ----------

        Total interest-earning assets         291,788       17,955        8.20%          268,154       15,662       7.79%
                                         -------------   ----------  -----------    -------------  -----------  ----------
    Less allowance for credit losses
                                               (2,039)                                    (1,998)
                                         -------------                              -------------
    Total interest-earning assets,
        net of Allowance                      289,749                                    266,156

    Nonearning assets                          34,629                                     33,924
                                         -------------                              -------------
        Total assets                        $ 324,378                                  $ 300,080
                                         =============                              =============

Liabilities and stockholders' equity

  Interest-bearing liabilities:

    Interest-bearing demand deposits        $  33,299     $    260        1.04%        $  31,767       $  251       1.05%

    Public fund deposits                        4,492          124        3.68%            7,484          226       4.03%

    Savings and money market accounts          55,139        1,392        3.37%           63,248        1,477       3.11%

    Certificates of deposit                   129,391        5,397        5.56%          101,168        3,842       5.06%

    Federal funds purchased, FHLB
        line of credit and other
        borrowings                             11,000          532        6.45%            5,481          226       5.50%
                                         -------------   ----------  -----------    -------------  -----------  ----------
        Total interest-bearing
          liabilities                         233,321        7,705        4.40%          209,148        6,022       3.84%
                                         -------------   ----------  -----------    -------------  -----------  ----------
Noninterest-bearing liabilities:

    Noninterest-bearing demand deposits        61,796                                     63,031

    Other liabilities                           2,138                                      1,723
                                         -------------                              -------------

        Total liabilities                     297,255                                    273,902
                                         -------------                              -------------

Stockholders' equity                           27,123                                     26,178
                                         -------------                              -------------
        Total liabilities and
          stockholders' Equity              $ 324,378                                  $ 300,080
                                         =============                              =============
    Net interest income                                  $  10,250                                    $ 9,640
                                                         =========                                 ==========
    Net interest spread
                                                                          3.80%                                    3.95%
                                                                     ==========                                 =========
    Net interest margin
                                                                          4.68%                                    4.79%
                                                                     ==========                                 =========
</TABLE>

                                       10
<PAGE>
Provision for Credit Losses

      Provisions for credit losses are charged to income in order to bring the
Company's allowance for credit losses to a level deemed appropriate by
Management based on the factors discussed under "-Financial Condition." The
provision for Credit Losses increased to $864,000 for the nine months ended
September 30, 2000 from $430,000 for the same time period in 1999, an increase
of $434,000 or 100.01%. The increase in the provision reflects with the overall
increase in loan volume and Management's analysis of the allowance for credit
losses.

Noninterest Income

      Noninterest income is an important source of revenue for financial
institutions. The Company's primary source of noninterest income is service
charges on deposit accounts and other banking service related fees. Noninterest
income for the nine months ended September 30, 2000 was $3.2 million compared
with $2.8 million for the nine months ended September 30, 1999, an increase of
$374,000 or 13.41%. Noninterest income for the three months ended September 30,
2000 was $1.1 million compared with $948,000 for the three months ended
September 30, 1999, an increase of $183,000 or 19.30%. The Small Business
Administration (SBA) gain component of noninterest income increased during the
third quarter 2000 to $30,000 from $19,000 compared with same period during
1999. Contributing to other noninterest income was an increase in the Company's
ATM fees of $27,000 to $139,000 for the third quarter ended 2000 compared with
the same period in 1999.

      The following table presents for the periods indicated the major
categories of noninterest income:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                                SEPTEMBER 30,                        SEPTEMBER 30,
                                                       ---------------------------------    ---------------------------------
                                                           2000               1999               2000              1999
                                                       --------------     --------------    ---------------    --------------
                                                            (DOLLARS IN THOUSANDS)               (DOLLARS IN THOUSANDS)
<S>                                                    <C>                <C>                <C>              <C>
Service charges on deposit accounts                          $   730            $   612            $  1881          $  1,758
Gain on sale of SBA loans                                         30                 19                180                81
ATM fee income                                                   139                112                396               312
Alternative investments                                           44                 50                136               149
Other noninterest income                                         188                155                571               490
                                                       --------------     --------------    ---------------    --------------
     Total noninterest income                               $  1,131            $   948           $  3,164          $  2,790
                                                       ==============     ==============    ===============    ==============
</TABLE>

Noninterest Expense

      In the nine month period ended September 30, 2000, noninterest expense
decreased $12,000 or 0.13% to $9.0 million compared with the nine months ended
1999 and increased $24,000 or 0.81% in the third quarter 2000 as compared with
the third quarter 1999. Employee compensation and benefit expense for the nine
months ended September 30, 2000 was $4.7 million, a decrease of $46,000 or 0.98%
compared with the nine months ended 1999 and a decrease of $5,000 or 0.32% in
the third quarter 2000 as compared with the third quarter 1999. Non-staff
expense for the nine months ended September 30, 2000 was $4.3 million, an
increase of $34,000 or 0.79% from $4.3 million in the same period of 1999 and an
increase of $29,000 or 2.05% in the third quarter 2000 as compared with the
third quarter 1999. Non staff expenses for the nine months ended 2000 compared
to the same period during 1999 increased slightly due the Company's growth. The
Company remains committed to growth while controlling cost and as a result of
this on going commitment, the efficiency ratio decreased to 62.98% from 68.32%
during the third quarter 2000 compared with the same period in 1999.

                                       11
<PAGE>
      The following table presents for the periods indicted the major categories
of noninterest expense:

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     ---------------------------------
                                                              2000              1999               2000               1999
                                                         ---------------    --------------     --------------    ---------------
                                                              (DOLLARS IN THOUSANDS)                (DOLLARS IN THOUSANDS)
<S>                                                      <C>                <C>                <C>               <C>
Employee compensation and benefits                             $  1,555          $  1,560           $  4,652           $  4,698
Non-staff expense:
     Net bank premises expense                                      230               225                668                637
     Equipment rentals, depreciation and maintenance                243               240                740                754
     Data processing                                                 71                72                204                229
     Professional fees                                              174               128                386                371
     Regulatory assessments/FDIC insurance                           34                32                100                 94
     Ad valorem and franchise taxes                                  21                72                160                216
     Other                                                          671               646              2,058              1,981
                                                         ---------------    --------------     --------------    ---------------
        Total non-staff expenses                                  1,444             1,415              4,316              4,282
                                                         ---------------    --------------     --------------    ---------------
        Total noninterest expense                              $  2,999          $  2,975           $  8,968           $  8,980
                                                         ===============    ==============     ==============    ===============
</TABLE>

Financial Condition

      Total assets as of September 30, 2000 were $332.7 million compared with
$309.2 million at December 31, 1999 an increase of $23.5 million or 7.60%. At
September 30, 2000, investment securities totaled $82.3 million, an increase of
$6.7 million or 8.86% from $75.6 million at December 31, 1999. Net loans were
$207.3 million at September 30, 2000, an increase of $9.9 million or 5.02% from
$197.4 million at December 31, 1999. Third quarter 2000 balance sheet growth was
a direct result of the Company's continued customer sales and calling programs.

      The allowance for credit losses is a reserve established through charges
to earnings in the form of a provision for credit losses. Management has
established an allowance for credit losses which it believes is adequate for
estimated losses in the Company's loan portfolio. The Company follows a loan
review program to evaluate the credit risk in the loan portfolio. Through the
loan review process, the Company maintains an internally classified loan watch
list which, along with the delinquency list of loans, helps management assess
the overall quality of the loan portfolio and the adequacy of the allowance for
credit losses. Loans classified as "substandard" are those loans with clear and
defined weaknesses such as a highly-leveraged position, unfavorable financial
ratios, uncertain repayment sources or poor financial condition, which may
jeopardize recoverability of the debt. As loan volume continues to grow,
Management remains committed to increase the allowance for credit losses to
reflect such growth. The allowance for credit losses as of September 30, 2000
was $2.1 million or 1.00% of outstanding loans compared with $2.0 million or
1.00% of outstanding loans as of December 31, 1999.

      At September 30, 2000, deposits totaled $304.1 million, an increase of
$21.5 million or 7.61% from $282.6 million at December 31, 1999.

      Stockholders' equity increased from $26.6 million at December 31, 1999 to
$28.6 million at September 30, 2000, an increase of $2.0 million or 7.52%. As of
September 30, 2000 the Company's ratio of stockholders' equity to total assets
was 8.60% as compared with 8.61% as of December 30, 1999.

      Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. The Company's liquidity needs are primarily met by
growth in core deposits. Although access to purchased funds from correspondent
banks is available and has been utilized on occasion to take advantage of
investment opportunities, the Company does not rely on these external funding
sources. The cash and federal funds sold position, supplemented by amortizing
investment

                                       12
<PAGE>
along with payments and maturities within the loan portfolio, have historically
created an adequate liquidity position.

      The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities was $4.4
million and $3.4 million for the nine months ended September 30, 2000 and 1999
respectively. The increase in net cash provided by operating activities for the
nine months ended September 30, 2000 compared with the same period in 1999 was
primarily due to the decrease in other assets in 2000.

      Net cash used in investing activities was $14.9 million and $37.2 million
for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in net cash used in investing activities for the nine months ended
September 30, 2000 compared with the same period in 1999 was primarily due to
the decrease in purchase of available-for-sale securities in 2000.

      Net cash provided by financing activities was $20.7 million and $19.9
million for the nine months ended September 30, 2000 and 1999, respectively. The
increase in net cash provided by financing activities for the nine months ended
September 30, 2000 compared with the same period in 1999 was primarily due to
the increase in deposits in 2000.

      Capital management consists of providing equity to support both current
and future operations. The Company is subject to capital adequacy requirements
imposed by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") and the Bank is subject to capital adequacy requirements imposed
by the Office of the Comptroller of Currency ("OCC"). Both the Federal Reserve
board and the OCC have adopted risk-based capital requirements. The following
table provides a comparison of the Company's and the Bank's leverage and risk
weighted capital ratios as of September 30, 2000 and with regulatory standards.

                                                Actual Ratio
                                    Minimum     September 30,
                                    Required        2000
                                   --------------------------
THE COMPANY
Leverage ratio                        3.00%         7.63%
Tier 1 risk-based capital             4.00%        10.37%
Risk-based capital ratio              8.00%        11.24%

THE BANK
Leverage ratio                        3.00%         7.22%
Tier 1 risk-based capital             4.00%         9.75%
Risk-based capital ratio              8.00%        10.63%


PART II - Other Information

ITEM 1. - Legal Proceedings

      None

ITEM 2. - Changes in Securities

      None

ITEM 3. - Defaults Upon Senior Securities

      None

ITEM 4. - Submission of Matters to a Vote of Security Holders

                                       13
<PAGE>
      None

ITEM 5. - Other Information

      None

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

(a)   The following exhibits are filed with this report;

      EXHIBIT
      NUMBER                        DESCRIPTION
      -------                       -----------
           27                       Financial Data Schedule

(b)   No reports on Form 8-K were filed by the Company during the three months
      ended September 30, 2000


                                   SIGNATURES

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


                                    BAY BANCSHARES, INC.

                                    By: /s/ L.D. WRIGHT
                                        ----------------------------------------
                                            L. D. Wright
                                            Chief Executive Officer

                                    By: /s/ KIM E. LOVE
                                        ----------------------------------------
                                            Kim E. Love
                                            Controller

                                       14