U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the year ended December 31, 2000

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

         For the transition period from ___________ to ___________

                        Commission File Number 333-87781


                            Bay National Corporation
                            ------------------------
                 (Name of small business issuer in its charter)

         Maryland                                         52-2176710
         --------                                         ----------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)


                2328 West Joppa Road, Lutherville, Maryland      21093
                -------------------------------------------     ------
                  (Address of principal executive offices)    (Zip Code)

                     Issuer's telephone number: 410-494-2580

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

         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 __

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]

<PAGE>


         The issuer's revenues for its most recent fiscal year were $828,012.

         The aggregate market value of the common equity held by non-affiliates
was $10,091,412 as of March 19, 2001, based on a sales price of $8.13 per share
of Common Stock, which is the sales price at which shares of Common Stock were
last sold at in over the counter trading on March 14, 2001.

         The number of shares outstanding of the issuer's Common Stock was
1,242,020 as of March 19, 2001.

         Transitional Small Business Disclosure Format (check one):

                                                          Yes __ No X
                                                                    -


                                     PART I

Item 1.  Description of Business

General

         Bay National Corporation was incorporated under the laws of the State
of Maryland on June 3, 1999, primarily to serve as a bank holding company for a
proposed federally chartered commercial bank to be named Bay National Bank.

         On April 30, 2000, Bay National Corporation completed an initial public
offering of 1,129,520 shares of its common stock at an offering price of $10.00
per share.

         Bay National Bank commenced operations on May 12, 2000 with its main
office in North Baltimore, Maryland and a branch office in Salisbury, Maryland.
Bay National Bank accepts checking and savings deposits and offers a wide range
of commercial and industrial, real estate, consumer and residential mortgage
loans.

Marketing Focus

         A group of individuals active in business, professional, banking,
financial and charitable activities in the Baltimore, Maryland metropolitan area
and the Eastern Shore of Maryland organized Bay National Bank because they
believe that the banking needs of certain segments of these communities are not
being served adequately by existing banks. Specifically, as a result of bank
mergers over the past decade, many banks in the Baltimore metropolitan area and
the Eastern Shore of Maryland are local branches of large regional and national
banks. Although size gives the larger banks some advantages in competing for
business from large corporations, including economies of scale and higher
lending limits, the organizers believe that these "megabanks" have focused on a
mass market approach which de-emphasizes personal contact and service. The
organizers also believe that the centralization of decision-making power at
these large institutions has resulted in a lack of customer service. At many of
these institutions, determinations are made at the "home office" by individuals
who lack personal contact with customers as well as an understanding of the
customers' needs and scope of the relationship with the institution.

         Bay National Bank's management believes that this trend has been
particularly frustrating to owners of small and mid-sized businesses, business
professionals and high net worth individuals who traditionally were accustomed



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<PAGE>

to dealing directly with a bank executive who had an understanding of their
banking needs with the ability to deliver a prompt response.

         Bay National Bank targets its commercial banking services to small and
mid-sized businesses and targets its retail banking services to the owners of
these businesses and their employees, to business professionals and high net
worth individuals.

         Bay National Bank seeks to distinguish itself by

          o    Developing personal relationships with its customers.

          o    Customizing its products to fit the needs of its customers
               instead of adopting a "one size fits all" mentality.

          o    Streamlining the decision making process.

          o    Offering its customers additional complementary services, such as
               insurance and investment advice, through relationships with
               strategic partners.

         Bay National Bank's offices are not organized in the traditional retail
branch structure, which is transaction and "bank teller" oriented. Instead, Bay
National Bank has adopted a "sit-down" model where customers are greeted by a
personal banker and taken to a private desk. We believe that this approach will
make service more individualized and enhance the banker's understanding of the
customer's needs. Furthermore, Bay National Bank's branch locations do not focus
on capturing every customer within the surrounding area. Instead, they are
strategically located in areas convenient to Bay National Bank's target customer
base.

Market Area and Facilities

        Bay National Bank's headquarters and Baltimore branch office are located
at 2328 West Joppa Road, Lutherville, Maryland 21093. Bay National Bank serves
the Baltimore metropolitan area from that location, with its primary service
area being Towson, Lutherville-Timonium, Cockeysville, Hunt Valley, Ruxton and
Roland Park. Bay National Bank also established a branch office at 109 Poplar
Hill Avenue, Salisbury, Maryland 21801, from which it serves Maryland's Eastern
Shore.

Products and Services

         Loan Portfolio.
         --------------

         Bay National Bank offers a full range of loans, including commercial
and industrial loans, real estate loans, consumer loans and residential mortgage
and home equity loans. Management anticipates that commercial business and
commercial real estate loans for owner-occupied properties will ultimately be
Bay National Bank's primary loan products, although these loans accounted for
less than 48% of the loan portfolio at December 31, 2000.

         Generally, Bay National Bank is subject to a lending limit to any one
borrower of 15% of Bay National Bank's unimpaired capital and surplus. However,
management intends to originate loans and to participate with other lenders in
loans that exceed Bay National Bank's lending limits. It is not believed that
loan participations that Bay National Bank purchases will necessarily pose any
greater risk of loss than loans, which Bay National Bank originates.




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<PAGE>

         The following is a description of the types of loans Bay National Bank
has targeted in building its loan portfolio:

          o    Commercial and industrial loans for business purposes including
               working capital, equipment purchases, lines of credit and
               government contract financing. Asset-based lending, accounts
               receivable financing and lease financing also will be available.
               As of December 31, 2000, these loans represented approximately
               47% of Bay National Bank's loan portfolio. Bay National Bank is
               targeting small and mid-sized businesses in its market area with
               credit needs in the range of up to $5,000,000.

          o    Real estate loans, including land development and construction
               loan financing, primarily for owner-occupied premises. As of
               December 31, 2000, these loans represented less than 1% of Bay
               National Bank's loan portfolio.

          o    Consumer loans including automobile and personal loans. In
               addition, Bay National Bank offers personal lines of credit. As
               of December 31, 2000, these loans represented approximately 13%
               of Bay National Bank's loan portfolio. Bay National Bank's
               consumer loans are targeted to business owners and their
               employees, business professionals and high net worth individuals.

          o    Residential mortgage loans, including first and second mortgage
               loans and home equity loans secured by single-family
               owner-occupied residences. As of December 31, 2000, these loans,
               all of which were home equity loans, represented approximately
               39% of Bay National Bank's loan portfolio. Like its consumer
               loans, Bay National Bank's residential mortgage loans are
               targeted to business owners and their employees, business
               professionals and high net worth individuals.

              Bay National Bank's residential mortgage loans adhere to standards
              developed by FNMA/FHLMC. Management requires private mortgage
              insurance for loans in excess of 80% of a property's value. Bay
              National Bank sells most of its first and second mortgage loans in
              the secondary market. Therefore, management sells those loans that
              have a lower degree of risk , and a lower yield, relative to the
              other types of loans that Bay National Bank is expected to make.

        Deposits.
        --------

        Bay National Bank offers a wide range of interest-bearing and
non-interest-bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts,
interest-bearing statement savings accounts and certificates of deposit with
fixed and variable rates and a range of maturity date options.

        Other Banking and Financial Services.
        ------------------------------------

        Bay National Bank offers commercial customers cash management services
such as sweep accounts, account reconciliation, lockbox services and wire
transfers of funds. Additionally, Bay National Bank makes available telephone
banking, ATM/debit cards, safe keeping boxes, after-hours deposit services,
travelers checks, direct deposit of payroll and automatic drafts for various
accounts. These services are provided either directly by Bay National Bank or
through correspondent banking relationships. However, Bay National Bank does not
have an ATM machine at its main office in North Baltimore or its branch in
Salisbury.

        In addition, Bay National Bank's customers are able to access
information about their accounts and view information about Bay National Bank's
services and products on Bay National Bank's website, which is located at
http://www.baynational.com. Bay National Bank's website also permits customers
to make transfers of funds among accounts, pay bills, and send e-mail to Bay
National Bank personnel.



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<PAGE>


        Bay National Bank offers, through strategic partners, investment
advisory, risk management and employee benefit services. Through these
affiliations, banking clients can receive a full range of financial services,
including investment advice, personal and business insurance products and
employee benefit products such as pension and 401(k) plan administration. To the
extent permitted by applicable regulations, the strategic partners may share
fees and commissions with Bay National Bank in the future. As of December 31,
2000, Bay National Bank has not entered in to any such fee arrangements. When
sufficient volume is developed in any of these lines of business, Bay National
Bank may provide these services if permitted by applicable regulations.

Competition

        Deregulation of financial institutions and acquisitions of banks across
state lines has resulted in widespread changes in the financial services
industry. In both the Baltimore metropolitan area and on Maryland's Eastern
Shore, Bay National Bank faces strong competition from large banks headquartered
within and outside of Maryland. Bay National Bank also competes with other
community banks, savings and loan associations, credit unions, mortgage
companies, finance companies and others providing financial services. In
addition, pursuant to recently enacted legislation, insurance companies,
securities brokers and other non-bank entities or their affiliates may provide
services, which historically have been considered banking in nature.

        Many of Bay National Bank's competitors can finance extensive
advertising campaigns, maintain extensive branch networks and technology
investments, and offer services, which Bay National Bank cannot or will not
offer initially. Also, larger institutions have substantially higher lending
limits than Bay National Bank. Some of Bay National Bank's competitors have
other advantages, such as tax exemption in the case of credit unions, and lesser
regulation in the case of mortgage companies and finance companies.

Employees

        As of March 19, 2001, Bay National Corporation employed twenty
individuals. Thirteen people operate from Bay National Bank's headquarters in
North Baltimore and seven people from the Salisbury, Maryland branch.

Supervision and Regulation

        Bay National Corporation and Bay National Bank are subject to extensive
regulation under state and federal banking laws and regulations. These laws
impose specific requirements and restrictions on virtually all aspects of
operations and generally are intended to protect depositors, not stockholders.
The following discussion is only a summary and readers should refer to
particular statutory and regulatory provisions for more detailed information. In
addition, management cannot predict the nature or the extent of the effect on
business and earnings that new federal or state legislation may have in the
future.

        Bay National Corporation.
        ------------------------

        Federal Bank Holding Company Regulation. Bay National Corporation is a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended, and is subject to supervision by the Federal Reserve Board. As a bank
holding company, Bay National Corporation will be required to file with the
Federal Reserve Board an annual report and such other additional information as
the Federal Reserve Board may require by statute. The Federal Reserve Board may
also examine Bay National Corporation and each of its subsidiaries.



                                       5

<PAGE>

        The status of Bay National Corporation as a registered bank holding
company under the Bank Holding Company Act does not exempt it from certain
federal and state laws and regulations applicable to corporations generally,
including, without limitation, certain provisions of the federal securities
laws.

        The Federal Reserve Board must approve, among other things, the
acquisition by a bank holding company of control of more than five percent (5%)
of the voting shares, or substantially all the assets, of any bank or bank
holding company or the merger or consolidation by a bank holding company with
another bank holding company. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, the restrictions on interstate acquisitions of
banks by bank holding companies were repealed as of September 29, 1995. The
effect of the repeal of these restrictions is that, subject to certain time and
deposit base requirements, Bay National Corporation may acquire a bank located
in Maryland or any other state, and a bank holding company located outside of
Maryland can acquire any Maryland-based bank holding company or bank.

        Unless it chooses to become a financial holding company, as further
described below, a bank holding company is prohibited from acquiring control of
any voting shares of any company which is not a bank or bank holding company and
from engaging directly or indirectly in any activity other than banking, or
managing or controlling banks or furnishing services for its authorized
subsidiaries. There are limited exceptions. A bank holding company may, for
example, engage in activities which the Federal Reserve Board has determined by
order or regulation to be so closely related to banking or managing or
controlling banks as to be "properly incident thereto." In making such a
determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the activities
that the Federal Reserve Board has determined by regulation to be closely
related to banking include servicing loans, performing certain data processing
services, acting as a fiduciary, investment or financial advisor, and making
investments in corporations or projects designed primarily to promote community
welfare.

        Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by statute on any extensions of credit to the bank holding
company or any of its subsidiaries, or investments in their stock or other
securities, and on taking such stock or securities as collateral for loans to
any borrower. Further, a bank holding company and any subsidiary bank are
prohibited from engaging in certain tie-in arrangements in connection with the
extension of credit. In 1997, the Federal Reserve Board adopted amendments to
its Regulation Y, creating exceptions to the Bank Holding Company Act's
anti-tying prohibitions that give bank subsidiaries of holding companies greater
flexibility in packaging products and services with their affiliates.

        In accordance with Federal Reserve Board policy, Bay National
Corporation is expected to act as a source of financial strength to Bay National
Bank and to commit resources to support Bay National Bank in circumstances in
which Bay National Corporation might not otherwise do so. The Federal Reserve
Board may require a bank holding company to terminate any activity or relinquish
control of a non-bank subsidiary (other than a non-bank subsidiary of a bank)
upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness or stability of any
subsidiary depository institution of the bank holding company. Further, federal
bank regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or non-bank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.

        On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act ("GLBA"). Effective March 11, 2000, pursuant to authority



                                       6
<PAGE>

granted under the GLBA, a bank holding company may elect to become a financial
holding company and thereby engage in a broader range of financial and other
activities than are permissible for traditional bank holding companies. In order
to qualify for the election, all of the depository institution subsidiaries of
the bank holding company must be well capitalized and well managed, as defined
by regulation, and all of its depository institution subsidiaries must have
achieved a rating of satisfactory or better with respect to meeting community
credit needs.

         Pursuant to the GLBA, financial holding companies will be permitted to
engage in activities that are "financial in nature" or incidental or
complementary thereto, as determined by the Federal Reserve Board. The GLBA
identifies several activities as "financial in nature," including, among others,
insurance underwriting and agency, investment advisory services, merchant
banking and underwriting, and dealing or making a market in securities. Being
designated a financial holding company will allow insurance companies,
securities brokers and other types of financial companies to affiliate with
and/or acquire depository institutions.

        The Federal Reserve Board imposes risk-based capital measures on bank
holding companies in order to insure their capital adequacy. As a bank holding
company with less than $150,000,000 in assets, Bay National Corporation
initially is exempt from most of these risk-based capital measures. However, the
Federal Reserve Board still requires that Bay National Corporation remain
adequately capitalized and have the ability to retire any debt within 25 years
from the date it is incurred.

        State Bank Holding Company Regulation. Bay National Corporation is a
Maryland-chartered bank holding company and is subject to various restrictions
on its activities as set forth in Maryland law, in addition to those
restrictions set forth in federal law.

        Under Maryland law, a bank holding company that desires to acquire a
Maryland state-chartered bank or trust company, a federally chartered bank with
its main office in Maryland, or a bank holding company that has its principal
place of business in Maryland, must file an application with the Maryland
Commissioner of Financial Regulation (the "Commissioner"). In approving the
application, the Commissioner must consider whether the acquisition may be
detrimental to the safety and soundness of the entity being acquired or whether
the acquisition may result in an undue concentration of resources or a
substantial reduction in competition in Maryland. The Commissioner may not
approve an acquisition if, on consummation of the transaction, the acquiring
company, together with all its insured depository institution affiliates, would
control 30% or more of the total amount of deposits of insured depository
institutions in Maryland. The Commissioner has authority to adopt by regulation
a procedure to waive this requirement for good cause. In a transaction for which
the Commissioner's approval is not required due to an exemption under Maryland
law, or for which federal law authorizes the transaction without application to
the Commissioner, the parties to the acquisition must provide written notice to
the Commissioner at least 15 days before the effective date of the acquisition.

        Bay National Bank.
        -----------------

        General. Bay National Bank, as a national banking association whose
accounts are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation ("FDIC") up to the maximum legal limits, is subject to
regulation, supervision and regular examinations by the Office of the
Comptroller of the Currency ("OCC"). Bay National Bank is a member of the
Federal Reserve System and, as such, is subject to certain regulations issued by
the Federal Reserve Board. Bay National Bank also is subject to applicable
banking provisions of Maryland law insofar as they do not conflict with or are
not preempted by federal law. The regulations of these various agencies govern
most aspects of Bay National Bank's business, including setting required
reserves against deposits, loans, investments, mergers and acquisitions,
borrowing, dividends and location and number of branch offices.



                                       7
<PAGE>

        The GLBA authorizes expanded activities for national banks, but requires
(with the exception of underwriting municipal revenue bonds and other state and
local obligations), that any expanded activities be conducted in a new entity
called a "financial subsidiary," that is a subsidiary of the bank rather than
the bank itself. A financial subsidiary may engage in any activities in which a
financial holding company or a financial holding company's non-bank subsidiaries
can engage, except that a financial subsidiary may not underwrite most
insurance, engage in real estate development or conduct merchant banking
activities. A financial subsidiary may be established through acquisition or de
novo.

        In order for a national bank to operate a financial subsidiary, it must
be well capitalized and well managed, have a satisfactory or better rating with
respect to meeting community credit needs and the aggregate assets of all of the
bank's financial subsidiaries may not exceed 45% of the total assets of the
bank, subject to certain exceptions. Existing authority of the OCC and the FDIC
to review subsidiary activities are preserved.

        Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of a bank's earnings. Thus, the earnings and growth of Bay
National Bank will be subject to the influence of economic conditions generally,
both domestic and foreign, and also on the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve Board, which
regulates the supply of money. We cannot predict the nature and timing of
changes in such policies and their impact on Bay National Bank.

        Branching and Interstate Banking. Beginning on June 1, 1997, the federal
banking agencies were authorized to approve interstate bank merger transactions
without regard to whether such a transaction is prohibited by the law of any
state, unless the home state of one of the banks has opted out of the interstate
bank merger provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994. Furthermore, under the Riegle-Neal Act, interstate
acquisitions of branches are permitted if the law of the state in which the
branch is located permits such acquisitions. The Riegle-Neal Act also authorizes
the OCC and FDIC to approve interstate branching de novo by national and
non-member banks, respectively, but only in states which specifically allow for
such branching.

        The District of Columbia, Maryland, Delaware and Pennsylvania have all
enacted laws which permit interstate acquisitions of banks and bank branches and
permit out-of-state banks to establish de novo branches.

        Capital Adequacy Guidelines. The Federal Reserve Board, the OCC and the
FDIC have all adopted risk-based capital adequacy guidelines by which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.

        Since December 31, 1992, national banks have been expected to meet a
minimum ratio of total qualifying capital (the sum of core capital (Tier 1) and
supplementary capital (Tier 2)) to risk-weighted assets (a "Total Risk-Based
Capital Ratio") of 8%. At least half of this amount (4%) should be in the form
of core capital. These requirements apply to Bay National Bank.

        Tier 1 capital for national banks generally consists of the sum of
common stockholders' equity and perpetual preferred stock (subject in the case
of the latter to limitations on the kind and amount of such stock which may be
included as Tier 1 capital), less goodwill, without adjustment in accordance
with Statement of Financial Accounting Standards No. 115. Tier 2 capital
consists of the following: hybrid capital instruments, perpetual preferred stock
which is not otherwise eligible to be included as Tier 1 capital, term
subordinated debt and intermediate-term preferred stock, and, subject to




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<PAGE>

limitations, general allowances for loan losses. Assets are adjusted under the
risk-based guidelines to take into account different risk characteristics, with
the categories ranging from 0% (requiring no risk-based capital) for assets such
as cash, to 100% for the bulk of assets which are typically held by a bank
holding company, including certain multi-family residential and commercial real
estate loans, commercial business loans and consumer loans. Residential first
mortgage loans on one-to-four-family residential real estate and certain
seasoned multi-family residential real estate loans, which are not 90 days or
more past-due or non-performing and which have been made in accordance with
prudent underwriting standards, are assigned a 50% level in the risk-weighing
system, as are certain privately issued mortgage-backed securities representing
indirect ownership of such loans. Off-balance sheet items also are adjusted to
take into account certain risk characteristics.

        On March 8, 2000, the Federal Reserve Board, in conjunction with the
other banking agencies, issued proposed changes to the risk based capital
measures regarding recourse and direct capital measures. The proposal would
amend the current measures to more closely align how recourse obligations,
direct credit substitutes and securitized transactions are treated. Until
finalized, it cannot be determined what, if any, impact the proposed changes
will have on Bay National Bank's operations.

        In addition to the risk-based capital requirements, the OCC has
established a minimum 3% Leverage Capital Ratio (Tier 1 capital to total
adjusted assets) requirement for the most highly-rated national banks, with an
additional cushion of at least 100 to 200 basis points for all other national
banks, which effectively increases the minimum Leverage Capital Ratio for such
other banks to 4%-5% or more. Under the OCC's regulations, highest-rated banks
are those that the OCC determines are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, those which are considered a strong banking organization. A national
bank that has less than the minimum Leverage Capital Ratio requirement must
submit to the applicable district office for review and approval a reasonable
plan describing the means and timing by which the bank will achieve its minimum
Leverage Capital Ratio requirement. A national bank which fails to file such a
plan is deemed to be operating in an unsafe and unsound manner and could be
subject to a cease-and-desist order.

        The OCC's regulations also provide that any insured depository
institution with a Leverage Capital Ratio less than 2% is deemed to be operating
in an unsafe or unsound condition. Operating in an unsafe or unsound manner
could lead the FDIC to terminate deposit insurance. However, such an institution
will not be subject to an enforcement proceeding solely on account of its
capital ratios if it has entered into and is in compliance with a written
agreement with the OCC to increase its Leverage Capital Ratio to such level as
the OCC deems appropriate and to take such other action as may be necessary for
the institution to be operated in a safe and sound manner. The capital
regulations also provide, among other things, for the issuance by the OCC or its
designee(s) of a capital directive, which is a final order issued to a bank that
fails to maintain minimum capital or to restore its capital to the minimum
capital requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease-and-desist order.

        Prompt Corrective Action. Each federal banking agency is required to
implement a system of prompt corrective action for institutions which it
regulates. Under applicable regulations, a bank will be deemed to be: (i) "well
capitalized" if it has a Total Risk-Based Capital Ratio of 10% or more, a Tier 1
Risk-Based Capital Ratio of 6% or more, a Leverage Capital Ratio of 5% or more
and is not subject to any written capital order or directive; (ii) "adequately
capitalized" if it has a Total Risk-Based Capital Ratio of 8% or more, a Tier 1
Risk-Based Capital Ratio of 4% or more and a Leverage Capital Ratio of 4% or
more (3% under certain circumstances); (iii) "undercapitalized" if it has a
Total Risk-Based Capital Ratio that is less than 8%, a Tier 1 Risk-Based Capital
Ratio that is less than 4% or a Leverage Capital Ratio that is less than 4%
(3.3% under certain circumstances); (iv) "significantly undercapitalized" if it
has a Total Risk-Based Capital Ratio that is less than 6%, a Tier 1 Risk-Based
Capital Ratio that is less than 3% or a Leverage Capital Ratio that is less than



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<PAGE>

3%; and (v) "critically undercapitalized" if it has a ratio of tangible equity
to total assets that is equal to or less than 2%. Bay National Bank is "well
capitalized" as of December 31, 2000.

        An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. The federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving the
capital restoration plan, subject to extensions by the applicable agency.

        An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty is limited to the lesser of (i) an amount equal
to 5% of the institution's total assets at the time the institution was notified
or deemed to have notice that it was undercapitalized or (ii) the amount
necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty expires after the federal banking agency
notifies the institution that it has remained adequately capitalized for each of
four consecutive calendar quarters. An institution which fails to submit a
written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, is subject to the restrictions in Section 38 of the
Federal Deposit Insurance Act which are applicable to significantly
undercapitalized institutions.

        A critically undercapitalized institution will be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or another appropriate federal banking
regulatory agency makes specific further findings and certifies that the
institution is viable and is not expected to fail, an institution that remains
critically undercapitalized on average during the four calendar quarters after
the date it becomes critically undercapitalized must be placed in receivership.

        Immediately upon becoming undercapitalized, an institution becomes
subject to statutory provisions which (i) restrict payment of capital
distributions and management fees; (ii) require that the appropriate federal
banking agency monitor the condition of the institution and its efforts to
restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include requiring
the institution to raise additional capital, restricting transactions with
affiliates, requiring divestiture of the institution or the sale of the
institution to a willing purchaser, and any other supervisory action that the
agency deems appropriate. Significantly undercapitalized and critically
undercapitalized institutions are subject to these and additional mandatory and
permissive supervisory actions.

        Regulatory Enforcement Authority. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators.
This enforcement authority included, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined in FIRREA. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely reports filed with
regulatory authorities. FIRREA significantly increased the amount of and grounds
for civil money penalties and requires, except under certain circumstances,



                                       10
<PAGE>

public disclosure of final enforcement actions by the federal banking agencies.

        Deposit insurance. The FDIC has adopted a risk-based deposit insurance
assessment system. The FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending seven months before the assessment period, consisting of (i) well
capitalized, (ii) adequately capitalized or (iii) undercapitalized, and one of
three supervisory subcategories within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
subcategory to which it is assigned. Assessment rates for BIF deposits currently
range from 0 basis points to 27 basis points. As a new bank, Bay National Bank
was initially assigned to a capital and supervisory subcategory that has an
assessment rate of 0. The FDIC is authorized to raise the assessment rates in
certain circumstances, including to maintain or achieve the designated reserve
ratio of 1.25%, which requirement the BIF currently meets. The FDIC has
exercised its authority to raise rates in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of Bay National Bank.

        Under the Federal Deposit Insurance Act, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.

        Transactions with Affiliates and Insiders. Bay National Bank is subject
to the provisions of Section 23A of the Federal Reserve Act, which place limits
on the amount of loans or extensions of credit to affiliates, investments in or
certain other transactions with affiliates and on the amount of advances to
third parties collateralized by the securities or obligations of affiliates.
Section 23A limits the aggregate amount of transactions with any individual
affiliate to ten percent (10%) of the capital and surplus of Bay National Bank
and also limits the aggregate amount of transactions with all affiliates to
twenty percent (20%) of capital and surplus. Loans and certain other extensions
of credit to affiliates are required to be secured by collateral in an amount
and of a type described in Section 23A, and the purchase of low quality assets
from affiliates is generally prohibited.

        Bay National Bank also is subject to the provisions of Section 23B of
the Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution and/or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliated entities. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies.

        Bay National Bank also is subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act and the Federal Reserve Board's
Regulation O thereunder on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer or
a greater-than-10% stockholder of a bank as well as certain affiliated interests
of any of the foregoing may not exceed, together with all other outstanding
loans to such person and affiliated interests, the loans-to-one-borrower limit
applicable to national banks (generally 15% of the institution's unimpaired
capital and surplus), and all loans to all such persons in the aggregate may not
exceed the institution's unimpaired capital and unimpaired surplus. Regulation O
also prohibits the making of loans in an amount greater than $25,000 or 5% of
capital and surplus but in any event not over $500,000, to directors, executive
officers and greater-than-10% stockholders of a bank, and their respective
affiliates, unless such loans are approved in advance by a majority of the board



                                       11
<PAGE>

of directors of the bank with any "interested" director not participating in the
voting. Further, Regulation O requires that loans to directors, executive
officers and principal stockholders be made on terms substantially the same as
those that are offered in comparable transactions to other persons. Regulation O
also prohibits a depository institution from paying overdrafts over $1,000 of
any of its executive officers or directors unless they are paid pursuant to
written pre-authorized extension of credit or transfer of funds plans.

        Loans to One Borrower. As a national bank, Bay National Bank is subject
to the statutory and regulatory limits on the extension of credit to one
borrower. Generally, the maximum amount of total outstanding loans that a
national bank may have to any one borrower at any one time is 15% of the bank's
unimpaired capital and surplus. A national bank may lend an additional 10% on
top of the 15% if the amount that exceeds 15% of the bank's unimpaired capital
and surplus is fully secured by readily marketable collateral.

        Liquidity. Bay National Bank is subject to the reserve requirements of
Federal Reserve Board Regulation D, which applies to all depository
institutions. Specifically, amounts in Bay National Bank's transaction accounts
above $5,000,000 and under $44,300,000 must have reserves held against them in
the ratio of three percent (3%) of the amount.

        Community Reinvestment Act. The Community Reinvestment Act ("CRA")
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve Board, the FDIC, the OCC or
the Office of Thrift Supervision shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
An institution's CRA activities are considered in, among other things,
evaluating mergers, acquisitions and applications to open a branch or facility
as well as determining whether the institution will be permitted to exercise
certain of the powers allowed by the GLBA. The CRA also requires all
institutions to make public disclosure of their CRA ratings.

Factors Affecting Future Results

         Some of the information in this annual report includes "forward-looking
statements." These statements use words such as "may," "will," "expect,"
"anticipate," "plan," "estimate" or similar words, and they discuss future
expectations, projections of financial results or strategies that are subject to
risks and uncertainties. When you read a forward-looking statement, you should
keep in mind the risk factors described below and any other information
contained in this annual report which identifies a risk or uncertainty. Bay
National Corporation's actual results and the actual outcome of Bay National
Corporation's expectations and strategies could be different from what we have
described in this annual report because of these risks and uncertainties.

         Bay National Corporation has limited operating history upon which to
evaluate future success, and Bay National Corporation does not expect to be
profitable initially. Bay National Corporation and Bay National Bank commenced
operations in May 2000, and their operating history is very limited. Bay
National Corporation's profitability will depend on the results of operations of
its principal asset, Bay National Bank. Management expects that Bay National
Bank will incur operating losses during its initial years of operation and may
not achieve profitability, if at all, for at least two years. If Bay National
Bank decides to open additional offices, that decision may further delay
profitability because of the increased expenses of expansion and because the new
offices may not enhance the results of operations as anticipated.



                                       12
<PAGE>

         Bay National Corporation and Bay National Bank depend heavily on one
key employee, Mr. Hugh W. Mohler, and business would suffer if something were to
happen to Mr. Mohler. Mr. Mohler is the President and Chief Executive Officer of
Bay National Bank. If he were to leave for any reason, Bay National
Corporation's and Bay National Bank's business would suffer because he has
banking experience and relationships with potential clients that would not be
easy to replace. In addition, because Bay National Bank's business will be
relationship driven, the loss of an employee who has primary contact with one or
more of Bay National Bank's clients could cause Bay National Bank to lose those
clients' business, possibly resulting in a decline in revenues.

         Bay National Bank's lending strategy involves risks resulting from the
choice of loan portfolio. Bay National Bank's loan strategy emphasizes
commercial business loans and commercial real estate loans. At December 31,
2000, such loans accounted for less than 48% of the loan portfolio, but it is
management's goal to increase loan growth in these categories. Bay National Bank
also offers construction loans, consumer loans and mortgage loans for
owner-occupied residential properties, although most of the residential mortgage
loans will be sold in the secondary market. Commercial business and commercial
real estate loans generally carry a higher degree of credit risk than do
residential mortgage loans because of several factors including larger loan
balances, dependence on the successful operation of a business or a project for
repayment, or loan terms with a balloon payment rather than full amortization
over the loan term.

         Bay National Bank's lending limit may limit its growth and the growth
of Bay National Corporation. Bay National Bank is limited in the amount it can
loan to a single borrower by the amount of its capital. Specifically, under
current law, Bay National Bank may lend up to 15% of its unimpaired capital and
surplus to any one borrower. Furthermore, until Bay National Bank is profitable,
Bay National Bank's capital will decrease which will result in a decrease to the
lending limit. Bay National Bank's lending limit is significantly less than that
of many of its competitors and may discourage potential borrowers who have
credit needs in excess of Bay National Bank's lending limit, from conducting
business with Bay National Bank. Management intends to accommodate larger loans
by selling participations in those loans to other financial institutions, but
this strategy may not succeed.

         Bay National Bank faces substantial competition which could adversely
affect its ability to attract depositors and borrowers. Bay National Bank
operates in a competitive market for financial services and faces intense
competition from other institutions both in making loans and in attracting
deposits. Many of these institutions have been in business for many years, are
significantly larger, have established customer bases, have greater financial
resources and lending limits than Bay National Bank, and are able to offer
certain services that Bay National Bank is not able to offer. If Bay National
Bank cannot attract deposits and make loans at a sufficient level, its operating
results will suffer, as will its opportunities for growth.


         Government regulation could restrict Bay National Corporation's or Bay
National Bank's growth or cause Bay National Corporation or Bay National Bank to
incur higher costs. Bay National Corporation and Bay National Bank operate in a
highly regulated environment and are subject to examination, supervision and
comprehensive regulation by several federal and state regulatory agencies.
Banking regulations, designed primarily for the safety of depositors, may limit
the growth of Bay National Bank and the return to investors by restricting
activities such as the payment of dividends; mergers with, or acquisitions by,
other institutions; investments; loans and interest rates; interest rates paid
on deposits; and the creation of branch offices. Laws and regulations could
change at any time, and changes could adversely affect Bay National
Corporation's and Bay National Bank's business. In addition, the cost of
compliance with regulatory requirements could adversely affect Bay National
Corporation's and Bay National Bank's ability to operate profitably.

         Bay National Bank's ability to compete may suffer if it cannot take
advantage of technology to provide banking services or if its customers fail to
embrace that technology. Bay National Bank's business strategy relies less on



                                       13
<PAGE>

customers' access to a large branch network and more on access to technology and
personal relationships. Further, the market for financial services is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telephone banking, debit cards and so-called "smart" cards. Bay
National Bank's ability to compete successfully may depend on the extent to
which Bay National Bank can take advantage of technological changes and the
extent to which Bay National Bank's customers embrace technology to do their
banking transactions.

Item 2.  Description of Property

        On July 16, 1999, Bay National Corporation entered into two lease
agreements for its main office, which is located at 2328 West Joppa Road,
Baltimore, Maryland 21093.

        The first lease, which commenced on July 26, 1999, is for 947 square
feet of space. This space, which is on the first floor of a three-story
building, was initially used for administrative office space. Upon the opening
of Bay National Bank, this space became Bay National Bank's Baltimore branch
office. The lease term runs for five years and five months. Bay National
Corporation has the option to extend the term of this lease for one five-year
renewal term. During the first year of the lease term, Bay National Corporation
paid monthly rent of approximately $1,900, which amount increases at the rate of
four percent per year. The monthly rent includes Bay National Corporation's
share of taxes and building operating costs.

        The second lease, which commenced on March 1, 2000, is for 5,130 square
feet of space and runs for five years. Approximately 3,400 square feet of this
space, which is on the third floor of the same building, is used for Bay
National Corporation and Bay National Bank's administrative offices. Bay
National Corporation also has the option to extend the term of this lease for
one five-year renewal term. During the first year of the lease term, Bay
National Corporation paid monthly rent of approximately $10,773, which amount
increases at the rate of four percent per year. The monthly rent includes Bay
National Corporation's share of taxes and building operating costs. Beginning
April 1, 2000, Bay National Corporation sublet approximately 1,800 square feet
of this space for a three-year term at a monthly rent for the first year of
$3,173, which amount increases at the rate of four percent per year. After the
termination of the sublease, management will reassess whether Bay National
Corporation or Bay National Bank requires the use of this additional space for
operations.

        On September 16, 1999, Bay National Corporation entered into a lease
agreement for Bay National Bank's Salisbury, Maryland branch office, which is
located at 109 Poplar Hill Avenue, Salisbury Maryland 21801 in a two-story
building containing approximately 2,500 square feet of office space. This lease,
which became effective as of September 1, 1999, is for a term of five years with
Bay National Corporation having the option to extend the term for three
five-year renewal terms. During the initial lease term, Bay National Corporation
is paying monthly rent of approximately $1,980, plus all real estate taxes and
utilities. Pursuant to this lease, Bay National Corporation has a right of first
refusal to purchase the building in the event the landlord receives a bona fide
offer to sell.

Item 3.  Legal Proceedings

         There are no pending legal proceedings to which Bay National
Corporation or Bay National Bank is a party or to which any of their properties
are subject, nor are there proceedings known to Bay National Corporation to be
contemplated by any governmental authority. There are no material proceedings
known to Bay National Corporation, pending or contemplated, in which any
director, officer or affiliate or any principal security holder of Bay National
Corporation is a party adverse to Bay National Corporation or Bay National Bank
or has a material interest adverse to Bay National Corporation or Bay National
Bank.


                                       14
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

         No matter was submitted during the fourth quarter of the year ended
December 31, 2000 to a vote of security holders of Bay National Corporation.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market for Common Stock and Dividends

         As of March 19, 2001, the number of holders of record of Bay National
Corporation's common stock was approximately 400. Bay National Corporation's
common stock is traded on the Over the Counter Bulletin Board ("OTCBB") under
the symbol "BANI."

         Bay National Corporation completed an initial public offering of its
common stock on April 30, 2000. Stock prices subsequent to the IPO are based
upon limited trading on the OTCBB. Quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not represent actual
transactions.

                                                     2000
                                                Bid Price Range
                 Quarter                      Low            High
                                          ----------------------------
                 2nd                     $       10.00   $      10.00
                 3rd                             10.00          10.00
                 4th                              8.50          10.38


        To date, Bay National Corporation has not declared or paid any dividends
on its common stock. Management anticipates that Bay National Corporation will
retain all earnings, if any, in order to provide more funds to operate and
expand Bay National Corporation's business and, therefore, Bay National
Corporation has no plans to pay any cash dividends for at least the first three
years of operations. If Bay National Corporation decides to pay dividends in the
future, its ability to do so will depend on the ability of Bay National Bank to
pay dividends to Bay National Corporation. In addition, management would
consider a number of other factors before deciding to pay dividends, including
Bay National Corporation's earnings prospects, financial condition and cash
needs.

        The amount of dividends that may be paid by Bay National Bank to Bay
National Corporation depends on Bay National Bank's earnings and capital
position and is limited by statute, regulations and regulatory policies. As a
national bank, Bay National Bank may not pay dividends from its paid-in surplus.
All dividends must be paid out of undivided profits then on hand, after
deducting expenses, including provisions for loan losses and bad debts. In
addition, a national bank is prohibited from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus no less than one-tenth of the bank's net profits for
the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus. In addition, Bay National
Bank may not pay a dividend if, after paying the dividend, it would be
"undercapitalized" as defined in the applicable regulations.



                                       15
<PAGE>

Use of Proceeds of Initial Public Offering

         The effective date of the Securities Act registration statement for
which the use of proceeds information is being disclosed was November 17, 1999.
The Securities and Exchange Commission file number assigned to the registration
statement was 333-87781. The offering commenced on November 17, 1999, and did
not terminate before any securities were sold.

          The offering terminated as of April 30, 2000. In the offering, Bay
National Corporation sold 1,129,520 of the 1,500,000 shares of common stock,
$0.01 par value per share that were registered. The offering was not
underwritten. Bay National Corporation's common stock, $0.01 par value per
share, was registered in the offering.

          Bay National Corporation registered 1,500,000 shares of common stock
in the offering, with an aggregate price of $15,000,000. Bay National
Corporation sold 1,129,520 shares of common stock in the offering, and received
aggregate offering proceeds of $11,295,200.

         From the effective date of the registration statement, November 17,
1999, to April 30, 2000, a reasonable estimate of the expenses incurred by Bay
National Corporation in connection with the issuance and distribution of its
common stock is as follows:

         Underwriting discounts and commissions:             $    -
         Finders fees:                                            -
         Expense paid to or for underwriters:                     -
         Other expenses:
                Filing fees                                        6,800
                Legal and other professional fees                112,500
                Printing fees (including Edgar filing
                     expenses)                                    50,400
                Other                                             39,500
                                                             ------------
                  Total                                      $   209,200
                                                             ============


         As of December 31, 2000, Bay National Corporation had paid all of such
expenses. None of the $209,200 was paid, directly or indirectly, to directors,
officers or owners of ten percent or more of any class of equity securities of
Bay National Corporation, or to any affiliate of the Bay National Corporation.

         A reasonable estimate of the net offering proceeds received by Bay
National Corporation after giving effect to the payment of expenses described
above is $11,086,000.

         From the effective date of the registration statement to December 31,
2000, Bay National Corporation used the net offering proceeds as follows:

         Purchase of stock of Bay National Bank           $   9,000,000
         Working capital                                      2,086,000
                                                          -------------
                  Total                                   $  11,086,000
                                                          =============


         Bay National Corporation paid the $9,000,000 for all of the capital
stock of the Bay National Bank, and the Bank became a wholly owned subsidiary of
Bay National Corporation. None of the $9,000,000 was paid, directly or
indirectly, to directors, officers or owners of ten percent or more of any class
of equity securities of Bay National Corporation, or to any affiliate of the Bay
National Corporation.


                                       16
<PAGE>

         The use of proceeds received is consistent with the use described in
the prospectus for the initial public offering.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

         The following discussion of Bay National Corporation's financial
condition and results of operations should be read in conjunction with Bay
National Corporation's consolidated financial statements, the notes thereto and
the other information included in this annual report.

         This discussion and analysis provides an overview of the financial
condition and results of operations of Bay National Corporation ("Parent") and
its national bank subsidiary, Bay National Bank ("Bank"), collectively (the
"Company") as of December 31, 2000 and for the year ended December 31, 2000.
Comparative discussion of the results of operations for year ended December 31,
2000 and for the period from June 3, 1999 (date of inception) to December 31,
1999 is not provided, as the Company had no operations other than organizational
activity until May 2000, and as such, comparisons do not provide accurate or
meaningful information regarding the Company's financial position or results of
operations.

 General

        The Parent was organized on June 3, 1999. From inception through May 12,
2000, the Parent's activities were limited to those related to its organization
and capitalization of the Bank. These limited activities were financed solely by
the Parent's sale of an aggregate of 112,500 shares of common stock at a
purchase price of $10.00 per share in its organizational offering.

         The Parent completed its initial public offering of 1,129,520 shares of
its common stock, at an offering price of $10.00 per share, on April 30, 2000.
The primary purpose of the offering was to raise the necessary capital to form
and capitalize the Bank. Subscription funds received during the offering were
placed in an escrow account and invested temporarily in bank accounts,
short-term certificates of deposit or short-term securities issued or guaranteed
by the United States government. Upon completion of the offering, subscription
proceeds were released from escrow.

         On May 12, 2000 the Parent became a bank holding company by purchasing
all of the common stock issued by the Bank. The Bank opened its first office on
May 12, 2000, and a second office on May 26, 2000.

OVERVIEW

         On a consolidated basis, the Company recorded a net loss of $1,652,920
for the year ended December 31, 2000. Included in the loss for the year ended
December 31, 2000 was $1,321,014 associated with Bank operations. The remainder
of the loss was the result of organizational activities performed prior to the
opening of the Bank.

         Loan and deposit growth initially were not expected to produce net
interest income sufficient to cover operating expenses. On average, community
banks do not achieve profitability for the first 24 to 30 months of operation.

         As of December 31, 2000, total assets of the Company were $24,025,825.
This represents growth of approximately $23.2 million since December 31, 1999.
The growth in assets was primarily attributable to the proceeds from the
Parent's initial public offering, and funds obtained from deposit growth.
Deposits at December 31, 2000 were $13,656,640. Deposit growth was attributable
to the marketing efforts of officers and directors during the organizational
period, as well as subsequent to the opening of the Bank. Management has set the



                                       17
<PAGE>

interest rates paid on deposits to be competitive in the market and has
continued to increase marketing activities throughout the year. The Company has
no brokered funds.

         As of December 31, 2000, loans (net of a $70,000 allowance for loan
losses) totaled $5,578,321. The composition of the loan portfolio was
approximately $2.6 million of commercial loans, and $3.0 million of consumer
loans. Funds not extended in loans are held in cash and due from banks, federal
funds sold and other overnight investments, and Federal Reserve Bank stock. At
December 31, 2000, the Company had federal funds sold and other overnight
investments, and investments in Federal Reserve Bank stock totaling $16,863,218.

         Total capital at December 31, 2000 was $10,218,031. Management believes
this capital will be adequate to fund the Company's operations for at least the
next 12 months.

NET INTEREST INCOME / MARGINS

         Net interest income is the difference between income on assets and the
cost of funds supporting those assets. Earning assets are composed primarily of
loans, investments, and federal funds sold; interest-bearing deposits make up
the cost of funds. Non-interest-bearing deposits and capital are also funding
sources. Changes in the volume and mix of earning assets and funding sources
along with changes in associated interest rates determine changes in net
interest income.

         The net interest income for the year ended December 31, 2000 was
$610,160. During that period, $103,708 was income from lending activities;
$709,472 was income from overnight and security investments; and the Company's
cost of deposits was $203,020.

         Growth in the loan portfolio resulted in greater contributions to
interest income as the year progressed, because the yields on loans are normally
3% to 4% higher than yields on investment securities. At December 31, 2000, the
weighted average yield on the loan portfolio was 9.75%; the weighted average
yield on federal funds sold and the investment portfolio was 6.28%.

         The market in which the Company operates is very competitive, and the
rates of interest paid on deposits are affected by rates paid by other
depository institutions. Management closely monitors rates offered by other
institutions, and seeks to be competitive within the market. The Company
initially has chosen not to aggressively compete for certificates of deposits in
excess of $100,000, which are highly rate sensitive, and are not normally
perceived to be as stable as demand deposits or money market accounts. At
December 31, 2000, the Company's weighted average cost of deposits was 4.68%. It
is anticipated that both the volume of deposits and the interest expense will
increase during the next twelve-month period based upon increased marketing
activities.

         The following table sets forth, for the year ended December 31, 2000,
information regarding the average balances of interest-earning assets and
interest-bearing liabilities, the amount of interest income and interest expense
and the resulting yields on average interest-earning assets and rates paid on
average interest-bearing liabilities. Average balances are also provided for
non-interest-earning assets and non-interest-bearing liabilities.


                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                       Average                          Yield/
                                                                       Balance          Interest         Rate
ASSETS
Loans:
<S>                                                                 <C>               <C>                    <C>
    Real Estate - Home Equity Line of Credit                        $     410,181     $    39,537            9.64%
    Real Estate - Construction                                              3,070             297            9.67
    Commercial                                                            441,235          47,512           10.77
    Consumer                                                              162,235          16,362           10.09
                                                                     -------------     -----------
         Total Loans                                                    1,016,721         103,708           10.20
Investment Securities                                                   1,292,289          79,600            6.16
Federal funds sold and other overnight investments                      9,872,259         629,872            6.38
                                                                     -------------     -----------
         Total Earning Assets                                          12,181,269         813,180            6.68%
                                                                                       -----------
Less: Allowance for credit losses                                          (9,583)
Cash and due from banks                                                   240,876
Premises and equipment, net                                               547,483
Accrued interest receivable and other assets                               25,834
                                                                     -------------
         Total Assets                                               $  12,985,879
                                                                     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                    $   3,310,811         170,684            5.16%
Regular savings deposits                                                   39,094             879            2.25
Time deposits                                                             518,329          31,457            6.07
                                                                     -------------     -----------
         Total interest-bearing liabilities                             3,868,234         203,020            5.25%
                                                                                       -----------    ------------
         Net interest income and spread                                               $   610,160            1.43%
                                                                                       ===========    ============
Non-interest-bearing demand deposits                                      531,623
Accrued expenses and other liabilities                                    175,041
Stockholders' equity                                                    8,410,981
                                                                     -------------
         Total Liabilities and Stockholders' Equity                 $  12,985,879
                                                                     =============

Interest income/earning assets                                               6.68 %
Interest expense/earning assets                                              1.67
                                                                     -------------
Net interest margin                                                          5.01 %
                                                                     =============

Return on Assets                                                           (12.73)%
                                                                     =============
Return on Equity                                                           (19.65)%
                                                                     =============
</TABLE>

COMPOSITION OF LOAN PORTFOLIO

         As previously discussed, the yields on loans are normally 3% to 4%
higher than yields on investment securities. At December 31, 2000 the weighted
average yield on the loan portfolio was 3.47% higher than the weighted average
yield on federal funds sold and the investment portfolio. This difference in
yields makes it important for the Company to continue to increase the overall
level of loans, as well as the percentage of loans to total earning assets.
Accomplishing this goal will ultimately result in increases in net interest
margin. As of December 31, 2000, loans represented 25.09% of total earning
assets.

         The following table sets forth the composition of the Company's loan
portfolio as of December 31, 2000.


      Real Estate - Home Equity Line of Credit   $   2,230,613          39.49  %
      Real Estate - Construction                        36,250           0.64
      Commercial                                     2,642,972          46.79
      Consumer                                         738,486          13.08
                                                  -------------    -----------
           Total Loans                               5,648,321         100.00  %
                                                                   ===========
      Less: Allowance for credit losses                (70,000)
                                                  -------------
           Net Loans                             $   5,578,321
                                                  =============


                                       19
<PAGE>

         The following table sets forth the maturity distribution for the
Company's loan portfolio at December 31, 2000. Some of the loans may be renewed
or repaid prior to maturity. Therefore, the following table should not be used
as a forecast of future cash flows.

<TABLE>
<CAPTION>
                                                   Within one     One to three         Three to      Over five
                                                      year            years           five years       years
<S>                                              <C>             <C>              <C>              <C>
      Real Estate - Home Equity Line of Credit   $    2,230,613  $      -         $       -        $     -
      Real Estate - Construction                         36,250         -                 -              -
      Commercial                                      1,323,245         474,316           818,264         27,147
      Consumer                                          690,399         -                  48,087        -
                                                  --------------  --------------   ---------------  -------------
               Total                             $    4,280,507  $      474,316   $       866,351  $      27,147
                                                  ==============  ==============   ===============  =============

      Fixed interest rate                        $      170,000  $      474,316   $       866,351  $      27,147
      Variable interest rate                          4,110,507         -                 -              -
                                                  --------------  --------------   ---------------  -------------
               Total                             $    4,280,507  $      474,316   $       866,351  $      27,147
                                                  ==============  ==============   ===============  =============
</TABLE>

         The scheduled repayments as shown above are reported in the maturity
category in which the payment is due, except for the adjustable rate loans,
which are reported in the period of repricing.

         The Company's loan portfolio composition as of December 31, 2000
reflects a concentration in variable rate loans. Fixed rate loans total
$1,537,814 or 27.2% of the Company's loan portfolio. Interest rates on variable
rate loans adjust to the current interest rate environment, whereas fixed rates
do not allow this flexibility. If interest rates were to increase in the future,
the interest earned on the variable rate loans would improve, and if rates were
to fall, the interest earned would decline. See "- Liquidity and Interest Rate
Sensitivity."

         The officers and directors of the Company have loans due to the Bank of
$618,500 at December 31, 2000. All loans made to officers and directors are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unaffiliated third
parties and do not involve more than the normal risk of repayment or present
other unfavorable features.

CREDIT RISK MANAGEMENT

         The provision for credit losses represents an expense to fund the
allowance for credit losses. This allowance is established to absorb credit
losses in the current loan portfolio. The amount of the allowance is based on
many factors which are considered in management's assessment of the loan
portfolio. These factors include economic conditions and trends, the value and
adequacy of collateral, the volume and mix of the loan portfolio, the
performance of the portfolio, and internal loan processes of the Company.

         Based upon management's analysis of the loan portfolio as of December
31, 2000, management allocated an amount of $70,000 to the provision for credit
losses. The amount was computed based upon an allocation of 1.24% of outstanding
loans. This allocation is an estimate based on limited historical information,
and may be revised over time for changes in economic conditions, experience with
the portfolio, and other factors, which may arise.

         Management considers the year-end allowance appropriate and adequate to
cover possible losses inherent in the loan portfolio; however, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there can




                                       20
<PAGE>

be no assurance that charge-offs in future periods will not exceed the allowance
for credit loss or that additional increases in the allowance will not be
required.

         The Company uses a loan grading system where all loans are graded based
on management's evaluation of the risk associated with each loan. In the future,
a factor, based on the loan grading, will be applied to the loan balance to
reserve for potential losses. This methodology will be used when management
believes that the loan portfolio is large and diversified enough to justify such
an approach. Had this methodology been applied at December 31, 2000, management
believes the amount of the allowance would have been approximately the same as
the current allowance.

         As of December 31, 2000, the Company has not charged off any loans.
This is not unusual given the fact the Company opened for business in May 2000.

NONPERFORMING LOANS AND OTHER DELINQUENT ASSETS

         Management performs reviews of all delinquent loans. Management will
generally classify loans as non-accrual when collection of full principal and
interest under the original terms of the loan is not expected or payment of
principal or interest has become 90 days past due. Classifying a loan as
non-accrual results in the Company no longer accruing interest on such loan and
reversing any interest previously accrued but not collected. A non-accrual loan
may be restored to accrual status when delinquent principal and interest
payments are brought current and future monthly principal and interest payments
are expected to be collected. The Company will recognize interest on non-accrual
loans only when received. As of December 31, 2000, the Company does not have any
non-performing loans.

         Any property acquired by the Company as a result of foreclosure on a
mortgage loan will be classified as "real estate owned" and will be recorded at
the lower of the unpaid principal balance or fair value at the date of
acquisition and subsequently carried at the lower of cost or net realizable
value. Any required write-down of the loan to its net realizable value will be
charged against the allowance for loan losses. Upon foreclosure, the Company
generally will require an appraisal of the property and, thereafter, appraisals
of the property on at least an annual basis and external inspections on at least
a quarterly basis. As of December 31, 2000, the Company held no real estate
acquired as a result of foreclosure.

         The Company applies the provisions of Statements of Financial
Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors for
Impairment of a Loan," as amended by Statements of Financial Accounting
Standards No. 118 ("SFAS 118"), "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure." SFAS 114 and SFAS 118 require that
impaired loans, which consist of all modified loans and other loans for which
collection of all contractual principal and interest is not probable, be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or at the loan's observable market price or
the fair value of the collateral if the loan is collateral dependent. If the
measure of the impaired loan is less than the recorded investment in the loan,
an impairment is recognized through a valuation allowance and corresponding
provision for credit losses. The Company considers consumer loans as homogenous
loans and thus does not apply the SFAS 114 impairment test to these loans.
Impaired loans will be written off when collection of the loan is doubtful.

         The Company had no impaired loans as of December 31, 2000.

LIQUIDITY AND INTEREST RATE SENSITIVITY

         The Company's principal sources of liquidity are cash and assets that
can be readily converted into cash, including investment securities maturing
within one year. As of December 31, 2000, the Company had $561,237 in cash and
due from banks, and $16,587,278 in federal funds sold and other overnight



                                       21
<PAGE>

investments. Growth in the Company's loan portfolio, without corresponding
growth in deposits would reduce liquidity, as would reductions in the level of
customer deposits.

         The primary objective of asset/liability management is to ensure the
steady growth of the Company's primary earnings component, net interest income.
Net interest income can fluctuate with significant interest rate movements. To
minimize the risk associated with these rate swings, management will work to
structure the Company's balance sheet so that the ability exists to adjust
pricing on interest-earning assets and interest-bearing liabilities in roughly
equivalent amounts at approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.

         The measurement of the Company's interest rate sensitivity, or "gap,"
is one of the principal techniques used in asset/liability management. The
interest sensitive gap is the dollar difference between assets and liabilities
which are subject to interest rate pricing within a given time period, including
both floating rate or adjustable rate instruments and instruments which are
approaching maturity.


















                                       22
<PAGE>


 The following table sets forth the amount of the Company 's interest-earning
assets and interest-bearing liabilities as of December 31, 2000, which are
expected to mature or reprice in each of the time periods shown:


<TABLE>
<CAPTION>
                                                                                               Maturity or repricing within
                                                           Percent          0 to 3       4 to 12         1 to 5          Over 5
                                             Amount        of Total         Months        Months          Years          Years
Interest-earning assets
<S>                                       <C>                <C>        <C>            <C>            <C>            <C>
   Federal funds sold and other
       overnight investments              $16,587,278        73.68 %    $16,587,278    $        --    $        --    $        --
   Loans - Variable rate                    4,110,507        18.26        4,110,507             --             --             --
   Loans - Fixed rate                       1,537,814         6.83           45,000        125,000      1,340,667         27,147
   Other earning assets                       275,940         1.23               --             --             --        275,940
                                          -----------       ------      -----------    -----------    -----------    -----------
    Total interest-earning assets         $22,511,539       100.00 %    $20,742,785    $   125,000    $ 1,340,667    $   303,087
                                          ===========       ======      ===========    ===========    ===========    ===========

Interest-bearing liabilities
 Deposits - Variable rate                 $ 9,851,261        88.42 %    $ 9,851,261    $        --    $        --    $        --
 Deposits - Fixed rate                      1,290,290        11.58          376,349        747,226        166,715             --
                                          -----------       ------      -----------    -----------    -----------    -----------
    Total interest-bearing liabilities    $11,141,551       100.00 %    $10,227,610    $   747,226    $   166,715    $        --
                                          ===========       ======      ===========    ===========    ===========    ===========

Periodic repricing differences
 Periodic gap                                                           $10,515,175    $  (622,226)   $ 1,173,952    $   303,087
                                                                        ===========    ===========    ===========    ===========
 Cumulative gap                                                         $10,515,175    $ 9,892,949    $11,066,901    $11,369,988
                                                                        ===========    ===========    ===========    ===========

Ratio  of  rate  sensitive  assets  to rate
 sensitive liabilities                                                       202.81 %        16.73 %       804.17 %        N/A
</TABLE>


         As indicated by the table, the Company has a high concentration of its
interest-earning assets, and interest-bearing liabilities in variable rate
balances. The excess of interest-earning assets over interest-bearing
liabilities of $10,515,175 in the category of items maturing or repricing within
three months comprises the majority of the overall gap. This analysis indicates
that the Company generally will benefit from increasing market rates of
interest. However, since all interest rates and yields do not adjust at the same
pace, the gap is only a general indicator of interest rate sensitivity. The
analysis of the Company's interest-earning assets and interest-bearing
liabilities presents only a static view of the timing of maturities and
repricing opportunities, without taking into consideration the fact that changes
in interest rates do not affect all assets and liabilities equally. Net interest
income may be affected by other significant factors in a given interest rate
environment, including changes in the volume and mix of interest-earning assets
and interest-bearing liabilities.

         Management will constantly monitor and manage the structure of the
Company's balance sheet, control interest rate exposure, and evaluate pricing
strategies. Strategies to better match maturities of interest-earning assets and
interest-bearing liabilities could include structuring loans with rate floors
and ceilings on variable rate notes and by providing for repricing opportunities
on fixed rate notes. Management believes that a lending strategy focusing on
variable rate loans will best facilitate the goal of minimizing interest rate
risk through the origination of variable rate and short term fixed rate
products. The Company's current investment concentration in federal funds sold
and other overnight investments, provides the most flexible and control over
rate sensitivity since it generally can be restructured more quickly than the
loan portfolio. On the liability side, deposit products can be restructured so
as to offer incentives to attain the maturity distribution desired although
competitive factors sometimes make control over deposits difficult.



                                       23
<PAGE>

         In theory, maintaining a nominal level of interest rate sensitivity can
diminish interest rate risk. In practice, this is made difficult by a number of
factors, including cyclical variation in loan demand, different impacts on
interest sensitive assets and liabilities when interest rates change, and the
availability of funding sources. Management generally will attempt to maintain a
balance between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risk to the Company.

INVESTMENT PORTFOLIO

         The Company has chosen to invest its available funds in federal funds
sold and other overnight investments, and Federal Reserve Bank stock. As a
result, investment securities consist only of $275,940 of Federal Reserve Bank
stock. Management has made the decision to maintain its available funds in
highly liquid assets because it desired to ensure that funds were readily
available to fund the growth of the loan portfolio, and because the yields
available on other longer-term securities were not substantially better that
those currently being earned on short-term investments. Management believes that
this strategy will allow initial growth in the loan portfolio without the use of
borrowed funds, or more aggressive pricing of deposit products.

SOURCES OF FUNDS

         Deposits and initial capital are the only current source of funds
utilized by the Company for lending and investment activities, and other general
business purposes.

         The Company offers a variety of deposit products having a range of
interest rates and terms. The Company's deposits consist of checking accounts,
savings accounts, money market accounts and certificates of deposit. As of
December 31, 2000, the Company had not used brokers to obtain deposits.

         The following table sets forth the composition of the Company's
deposits as of December 31, 2000:


      Demand deposits                     $    2,515,089          18.42  %
      Savings                                    401,795           2.94
      Money Market and sweep                   9,449,466          69.19
      Certificates of deposit                  1,290,290           9.45
                                          --------------    -----------
           Total deposits                 $   13,656,640         100.00  %
                                          ==============    ===========






                                       24
<PAGE>


         The following table sets forth the maturity distribution for the
Company's deposits at December 31, 2000. Some of the deposits may be renewed or
withdrawn prior to maturity. Therefore, the following table should not be used
as a forecast of future cash flows.

<TABLE>
<CAPTION>
                                       Within one     One to three     Three to       Over five
                                          year            years       five years        years
<S>                                   <C>             <C>             <C>             <C>
          Demand deposits             $ 2,515,089     $        --     $        --     $    --
          Savings                         401,795              --              --          --
          Money Market and sweep        9,449,466              --              --          --
          Certificates of deposit       1,123,575          10,000         156,715          --
                                      -----------     -----------     -----------     -------
                   Total              $13,489,925     $    10,000     $   156,715     $    --
                                      ===========     ===========     ===========     =======

          Fixed interest rate         $ 1,123,575     $    10,000     $   156,715     $    --
          Variable interest rate        9,851,261              --              --          --
          Non-interest-bearing          2,515,089              --              --          --
                                      -----------     -----------     -----------     -------
                   Total              $13,489,925     $    10,000     $   156,715     $    --
                                      ===========     ===========     ===========     =======
</TABLE>


         Certificates of deposit in amounts of $100,000 or more and their
remaining maturities at December 31, 2000 are as follows:

                                                                2000
                                                                ----
      Three months or less                                $     200,000
      Over three months through six months                       -
      Over six months through twelve months                     404,864
      Over twelve months                                        103,103
                                                          --------------
           Total                                          $     707,967
                                                          ==============

                  Large certificate of deposit customers tend to be extremely
sensitive to interest rate levels, making these deposits less reliable sources
of funding for liquidity planning purposes than the remainder of the Company's
deposits.

NON-INTEREST INCOME

         Non-interest income is primarily deposit account service charges, and
cash management fees. For the year ended December 31, 2000, the Company realized
non-interest income in the amount of $14,832. These fees are volume driven,
based mostly on the deposit customer base and should increase as the customer
base increases.

         The Company is working to expand its sources of non-interest income by
entering into fee arrangements with strategic partners that offer mutual fund
investment products, investment advisory services, and insurance products. As of
December 31, 2000, the Company has identified prospective partners, entered into
negotiations for fee arrangements, and commenced the process of seeking
regulatory approval, when necessary, for contemplated activities. No assurance
can be given that such fee arrangements will be obtained or maintained.

NON-INTEREST EXPENSE

        Non-interest expense for the year ended December 31, 2000, was
$2,207,912. The largest portion of these operating expenses was salaries and
employee benefits which totaled $1,209,989 or 54.80% of total non-interest
expenses for the year ended December 31, 2000. Other significant expenses for
the year ended December 31, 2000 included, outside services, primarily




                                       25
<PAGE>

outsourced data and item processing totaling $223,234 or 10.11% of total
non-interest expenses, and occupancy costs totaling $210,237 or 9.52% of total
non-interest expenses. Management expects that these items will continue to
represent a significant portion of non-interest expense, however, management
believes that growth in the Company's customer base can be accommodated without
significant increases in these costs.

         Non-interest expenses incurred prior to the opening of the Bank on May
12, 2000, totaled $550,173. These costs were primarily comprised of salaries and
benefits which totaled $301,321 or 54.77% of total non-interest expenses,
occupancy expenses that totaled $48,104 or 8.74% of total non-interest expenses,
and professional fees that totaled $46,967 or 8.54% of total non-interest
expenses.

LIQUIDITY AND CAPITAL RESOURCES

         The Company had stockholders' equity at December 31, 2000 of
$10,218,031. The Company has declared no cash dividends since its inception.

         Banking regulatory authorities have implemented strict capital
guidelines directly related to the credit risk associated with an institution's
assets. Banks and bank holding companies are required to maintain capital levels
based on their "risk adjusted" assets so that categories of assets with higher
"defined" credit risks will require more capital support than assets with lower
risks. The Bank has exceeded its capital adequacy requirements to date.

         Banking regulations also limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agencies. Regulatory approval is
required to pay dividends, which exceed the Bank's net profits for the current
year, plus it's retained net profits for the preceding two years. The Bank could
not have paid dividends to the Company without approval from bank regulatory
agencies at December 31, 2000.

         Cash and due from banks, and federal funds sold and other overnight
investments provide the Company's liquidity. The levels of such assets are
dependent upon the Company's operating, financing and investment activities at
any given time. Variations in levels of cash and cash equivalents are mostly
influenced by deposit flows and loan activity.

         Management believes that the Company's current level of capital will be
sufficient to fund the Company's operations for at least the next twelve months.
Management does not anticipate a need to raise additional capital during that
period.

         The tables below present the Bank's capital position relative to its
various minimum regulatory capital requirements as of December 31, 2000. For a
discussion of these capital requirements, see "Item 1 Description of Business -
Supervision and Regulation - Capital Adequacy Guidelines."

<TABLE>
<CAPTION>
                                                                                                            To Be Well
                                                                                                        Capitalized Under
                                                                                For Capital             Prompt Corrective
                                                        Actual               Adequacy Purpose           Action Provisions
                                                   Amount      Ratio       Amount          Ratio      Amount       Ratio
<S>                                             <C>            <C>       <C>               <C>      <C>             <C>
Total Capital (to Risk Weighted Assets):        $7,748,986     62.63%    $989,832          8.00%    $1,237,290      10.00%
Tier I Capital (to Risk Weighted Assets):        7,678,986     62.06%     494,916          4.00%      742,374        6.00%
Tier I Capital (to Average Assets):              7,678,986     39.29%     371,187          3.00%      618,645        5.00%
</TABLE>


                                       26
<PAGE>


IMPACT OF INFLATION AND CHANGING PRICES

         The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, nearly all the assets of the Company are monetary in
nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.



















                                       27
<PAGE>


Item 7.  Financial Statements

         The following consolidated financial statements are filed with this
         report:

         Independent Auditors' Report

         Consolidated Balance Sheets - December 31, 2000 and 1999

         Consolidated Statements of Operations - For the year ended December 31,
         2000 and for the period from June 3, 1999 (date of inception) to
         December 31, 1999

         Consolidated Statements of Changes in Stockholders' Equity - For the
         year ended December 31, 2000 and for the period from June 3, 1999 (date
         of inception) to December 31, 1999

         Consolidated Statements of Cash Flows - For the year ended December 31,
         2000 and for the period from June 3, 1999 (date of inception) to
         December 31, 1999

         Notes to Consolidated Financial Statements













                                       28
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Bay National Corporation
Baltimore, Maryland


           We have audited the accompanying consolidated balance sheets of Bay
National Corporation and subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year ended December 31, 2000 and for the period from June
3, 1999 (date of inception) to December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

           We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

           In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Bay
National Corporation and subsidiary as of December 31, 2000 and 1999, and the
results of its operations and cash flows for the year ended December 31, 2000
and for the period from June 3, 1999 (date of inception) to December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.



/s/ Stegman & Company
Baltimore, Maryland
January 26, 2001




                                       29
<PAGE>


                                           BAY NATIONAL CORPORATION

                                          CONSOLIDATED BALANCE SHEETS
                                          December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                2000                  1999
                                                                           ------------           ------------
<S>                                                                        <C>                    <C>
     Cash and due from banks                                               $    561,237           $    763,957
     Federal funds sold and other overnight investments                      16,587,278                   --
     Federal Reserve Bank stock                                                 275,940                   --
     Loans                                                                    5,648,321                   --
         Less: Allowance for credit losses                                      (70,000)                  --
                                                                           ------------           ------------
              Loans, net                                                      5,578,321                   --
     Premises and equipment, net                                                939,504                 22,768
     Accrued interest receivable and other assets                                83,545                 49,659
                                                                           ------------           ------------

              Total Assets                                                 $ 24,025,825           $    836,384
                                                                           ============           ============

LIABILITIES

     Non-interest-bearing deposits                                         $  2,515,089           $       --
     Interest-bearing deposits                                               11,141,551                   --
                                                                           ------------           ------------
         Total deposits                                                      13,656,640                   --

     Accrued expenses and other liabilities                                     151,154                260,633
                                                                           ------------           ------------

              Total Liabilities                                              13,807,794                260,633
                                                                           ------------           ------------


STOCKHOLDERS' EQUITY

     Common stock - $.01 par value, authorized:
         9,000,000 shares authorized, 1,242,020 and 112,500
         issued and outstanding as of December 31, 2000 and 1999,
         respectively:                                                           12,420                  1,125
     Surplus                                                                 12,407,780              1,123,875
     Accumulated Deficit                                                     (2,202,169)              (549,249)
                                                                           ------------           ------------

              Total Stockholders' Equity                                     10,218,031                575,751
                                                                           ------------           ------------

              Total Liabilities and Stockholders' Equity                   $ 24,025,825           $    836,384
                                                                           ============           ============
</TABLE>





          See accompanying notes to consolidated financial statements.




                                       30
<PAGE>

<TABLE>
<CAPTION>
                                           BAY NATIONAL CORPORATION

                                     CONSOLIDATED STATEMENTS OF OPERATIONS
                         For the year ended December 31, 2000 and for the period from
                             June 3, 1999 (date of inception) to December 31, 1999

                                                                                2000                 1999
                                                                           -----------           -----------

INTEREST INCOME:
<S>                                                                        <C>                   <C>
   Interest and fees on loans                                              $   103,708           $      --
   Interest on federal funds sold and other overnight investments              629,872                  --
   Taxable interest and dividends on investment securities                      79,600                14,996
                                                                           -----------           -----------
   Total interest income                                                       813,180                14,996

INTEREST EXPENSE ON DEPOSITS:                                                  203,020                  --
                                                                           -----------           -----------

Net interest income                                                            610,160                14,996

Provision for credit losses                                                     70,000                  --
                                                                           -----------           -----------

Net interest income after provision for credit losses                          540,160                14,996
                                                                           -----------           -----------

NON-INTEREST INCOME:
   Service charges on deposit accounts                                           3,017                  --
   Other income                                                                 11,815                  --
                                                                           -----------           -----------
     Total non-interest income                                                  14,832                  --
                                                                           -----------           -----------

NON-INTEREST EXPENSE:
   Salaries and employee benefits                                            1,209,989               159,829
   Occupancy expenses                                                          210,237                27,599
   Furniture and equipment expenses                                            133,182                  --
   Legal and professional fees                                                 100,770               241,138
   Outside services                                                            223,234                  --
   Other expenses                                                              330,500               135,679
                                                                           -----------           -----------
     Total non-interest expenses                                             2,207,912               564,245
                                                                           -----------           -----------
                                                                           -----------           -----------

Loss before income taxes                                                    (1,652,920)             (549,249)
Income tax benefit                                                                --                    --
                                                                           -----------           -----------
Net Loss                                                                   $(1,652,920)          $  (549,249)
                                                                           ===========           ===========


Per Share Data:
   Net Loss (Basic and Diluted)                                            $     (1.98)          $     (4.88)

   Average Shares Outstanding (Basic and Diluted)                              834,652               112,500








                         See accompanying notes to consolidated financial statements.

                                                      31


</TABLE>





 <PAGE>



<TABLE>
<CAPTION>

                                           BAY NATIONAL CORPORATION

                          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                         For the year ended December 31, 2000 and for the period from
                             June 3, 1999 (date of inception) to December 31, 1999


                                         Common                               Accumulated
                                         Stock              Surplus             Deficit               Total
                                     ------------        ------------        ------------         ------------
<S>                                 <C>                 <C>                 <C>                  <C>
Balances at June 3, 1999             $       --          $       --          $       --           $       --

Issuance of Common Stock                    1,125           1,123,875                --              1,125,000

Net Loss                                     --                  --              (549,249)            (549,249)
                                     ------------        ------------        ------------         ------------
Balances at December 31, 1999               1,125           1,123,875            (549,249)             575,751

Issuance of Common Stock                   11,295          11,283,905                --             11,295,200

Net Loss                                     --                  --            (1,652,920)          (1,652,920)

                                     ------------        ------------        ------------         ------------
Balances at December 31, 2000        $     12,420        $ 12,407,780        $ (2,202,169)        $ 10,218,031
                                     ============        ============        ============         ============

























                         See accompanying notes to consolidated financial statements.



                                                      32
</TABLE>






<PAGE>


<TABLE>
<CAPTION>
                                             BAY NATIONAL CORPORATION

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                           For the year ended December 31, 2000 and for the period from
                               June 3, 1999 (date of inception) to December 31, 1999



                                                                                     2000               1999
                                                                                ------------         ------------

Cash Flows From Operating Activities:
<S>                                                                             <C>                  <C>
   Net loss                                                                     $ (1,652,920)        $   (549,249)
   Adjustments to reconcile net loss to net cash used by
     operating activities:
       Depreciation                                                                  102,031                2,768
       Amortization of investment (discounts)/premiums, net                          (63,400)                --
       Provision for credit losses                                                    70,000                 --
       Net increase in accrued interest receivable and other assets                  (33,886)             (49,659)
       Net (decrease) increase in accrued expenses and other liabilities            (109,479)             260,633
                                                                                ------------         ------------

            Net cash used by operating activities                                 (1,687,654)            (335,507)
                                                                                ------------         ------------

Cash Flows From Investing Activities:
   Purchases of investment securities                                             (3,212,540)                --
   Maturities of investment securities                                             3,000,000                 --
   Net increase in loans                                                          (5,648,321)                --
   Capital expenditures                                                           (1,018,767)             (25,536)
                                                                                ------------         ------------
            Net cash used by investing activities                                 (6,879,628)             (25,536)
                                                                                ------------         ------------

Cash Flows From Financing Activities:
   Net increase in deposits                                                       13,656,640                 --
   Issuance of common stock                                                       11,295,200            1,125,000
                                                                                ------------         ------------
            Net cash provided by financing activities                             24,951,840            1,125,000
                                                                                ------------         ------------

Net increase in cash and cash equivalents                                         16,384,558              763,957
Cash and cash equivalents at beginning of year                                       763,957                 --
                                                                                ------------         ------------

Cash and cash equivalents at end of period                                      $ 17,148,515         $    763,957
                                                                                ============         ============

Cash paid for:
   Interest                                                                     $    182,362         $       --
                                                                                ============         ============
   Income taxes                                                                 $       --           $       --
                                                                                ============         ============





                           See accompanying notes to consolidated financial statements.
</TABLE>


                                                        33
<PAGE>


                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The consolidated financial statements include the accounts of Bay
National Corporation and its subsidiary, Bay National Bank (the "Bank"),
collectively (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. The investment in subsidiary
is recorded on the parent's books on the basis of its equity in the net assets.
The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States and to general practices in
the banking industry.

         Nature of Business

         Bay National Corporation was incorporated on June 3, 1999 under the
laws of the State of Maryland to operate as a bank holding company of a national
bank with the name Bay National Bank. On May 12, 2000, the Company purchased all
the shares of common stock issued by the Bank. The Company's operations through
that date were limited to taking the necessary actions to organize and
capitalize the Company and the Bank. The Bank commenced operations on May 12,
2000 after successfully meeting the conditions of the Office of the Comptroller
of the Currency (the "OCC") to receive its charter authorizing it to commence
operations as a national bank, and obtaining the approval of the Federal Deposit
Insurance Corporation to insure its deposit accounts, and meeting certain other
regulatory requirements.

         The principal business of the Company is to make loans and other
investments and to accept time and demand deposits. The Company's primary market
areas are in Baltimore and Salisbury, Maryland, although the Company's business
development efforts generate business outside of these areas. The Company offers
a broad range of banking products, including a full line of business and
personal savings and checking accounts, money market demand accounts,
certificates of deposit, and other banking services. The Company funds a variety
of loan types including commercial and residential real estate loans, commercial
term loans and lines of credit, consumer loans, and letters of credit. The
Company's customers are primarily individuals and small businesses.

         Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

         Cash and Cash Equivalents

         The Company has included cash and due from banks, and federal funds
sold and other overnight investments as cash and cash equivalents for the
purpose of reporting cash flows.




                                       34
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999


         Investment Securities

         Investment securities that management has the ability and intent to
hold to maturity are classified as held to maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts. Other
investment securities are classified as available for sale and are carried at
estimated fair value. Unrealized gains and losses on investment securities
available for sale, net of any related deferred income taxes, are recognized as
accumulated other comprehensive income, a separate component of stockholders'
equity. The cost of investment securities sold is determined using the specific
identification method.

         Loans

         Loans are stated at the principal amount outstanding. Interest income
on loans is accrued at the contractual rate on the principal amount outstanding.
It is the Company's policy to discontinue the accrual of interest when
circumstances indicate that collection is doubtful. Fees charged and costs
capitalized for originating certain loans are being amortized on the interest
method over the term of the loan.

         Impaired loans, are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, except that
as a practical expedient, the Company may measure impairment based on a loan's
observable market price or the fair value of the collateral, if the loan is
collateral dependent. The Company recognizes interest income on impaired loans
on a cash basis if the borrower demonstrates the ability to meet the contractual
obligation and collateral is sufficient. If there is doubt regarding the
borrowers ability to make payments or the collateral is not sufficient, payments
received are accounted for as a reduction in principal.

         Allowance for Credit Losses

         The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the allowance for
credit losses when management believes that the collectibility of the principal
is unlikely. The allowance, based on evaluations of the collectibility of loans,
is an amount that management believes will be adequate to absorb possible losses
on existing loans that may become uncollectible. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions and trends that may affect the borrowers' ability to
pay.

         The allowance for loan losses represents an estimation done pursuant to
either Statement of Financial Accounting Standards ("SFAS") No. 5 "Accounting
for Contingencies", or SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan." The Company uses a loan grading system where loans are graded based on
management's evaluation of the risk associated with each loan. In the future, a
factor, based on the loan grading, will be applied to the loan balance to
reserve for potential losses. This methodology will be used when management
believes that the loan portfolio is large and diversified enough to justify such
an approach. Had this methodology been applied at December 31, 2000, management
believes the amount of the allowance would have been approximately the same as
the current allowance.


                                       35
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999

         While management believes it has established the allowance for credit
losses in accordance with generally accepted accounting principles and has taken
into account the views of its regulators and the current economic environment,
there can be no assurance that in the future the Company's regulators or the
economic environment will not require further increases in the allowance.

         Premises and Equipment

         Premises and equipment are stated at cost less accumulated depreciation
and amortization computed using the straight-line method. Premises and equipment
are depreciated over the useful lives of the assets, except for leasehold
improvements which are amortized over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. The costs of
major renewals and betterments are capitalized, while the costs of ordinary
maintenance and repairs are expensed as incurred.

         Costs Associated with Start-Up Activities

         The Company expensed costs incurred during the start-up phase of
organization in accordance with the American Institute of Certified Public
Accountants' Statement of Position 98-5 Reporting on the Costs of Start-Up
Activities, which requires such costs to be expensed in the period incurred.

         Income Taxes

         The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred-tax assets and liabilities are determined
based on differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities (i.e., temporary differences) and
are measured at the enacted rates that will be in effect when these differences
reverse. Deferred income taxes will be recognized when it is deemed more likely
than not that the benefits of such deferred income taxes will be realized;
accordingly, no deferred income taxes or income tax benefits have been recorded
by the Company.

         Earnings Per Share

         Basic net loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period.
Diluted net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period,
including any potential dilutive common shares outstanding, such as options and
warrants. No consideration was given to the outstanding warrants because of
their anti-dilutive effect.

         New Accounting Standards

         Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, requires derivative instruments



                                       36
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999

be carried at fair value on the balance sheet. The statement continues to allow
derivative instruments to be used to hedge various risks and sets forth specific
criteria to be used to determine when hedge accounting can be used. The
statement also provides for offsetting changes in fair value or cash flows of
both the derivative and the hedged asset or liability to be recognized in
earnings in the same period; however, any changes in fair value or cash flow
that represent the ineffective portion of a hedge are required to be recognized
in earnings and cannot be deferred. For derivative instruments not accounted for
as hedges, changes in fair value are required to be recognized in earnings.

         The Company adopted the provisions of this statement, as amended, for
its quarterly and annual reporting beginning January 1, 2001, the statement's
effective date. The impact of adopting the provisions of this statement did not
have any effect on the Company's financial position, results of operations or
cash flows.

2.    INVESTMENT SECURITIES

         At December 31, 2000, the Company's investment securities consisted of
Federal Reserve Bank stock totaling $275,940. All other available funds at
December 31, 2000 and 1999 were held in cash and due from banks, and federal
funds sold and other overnight investments.

3.    LOANS AND ALLOWANCE FOR CREDIT LOSSES

         Major loan categories at December 31 are presented below:

                                                    2000               1999
                                                -----------         ---------
Real Estate - Home Equity Line of Credit        $ 2,230,613         $    --
Real Estate - Construction                           36,250              --
Commercial                                        2,642,972              --
Consumer                                            738,486              --
                                                -----------         ---------
     Total Loans                                  5,648,321              --
Less: Allowance for credit losses                   (70,000)             --
                                                -----------         ---------
     Net Loans                                  $ 5,578,321         $    --
                                                ===========         =========

         Activity in the allowance for credit losses for the year ended December
31, 2000 is shown below:

                                                    2000               1999
                                                -----------         ---------
Balance at beginning of year                    $      --           $    --
Provision for credit losses                          70,000              --
Loan charge-offs                                       --                --
Loan recoveries                                        --                --
Net charge-offs                                        --                --
                                                -----------         ---------
Balance at end of year                          $    70,000         $    --
                                                ===========         =========

         At December 31, 2000, there were no loans that were considered impaired
under SFAS No. 114.




                                       37
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999

4.   PREMISES AND EQUIPMENT

         Premises and equipment at December 31 include the following:

                                                       2000            1999
                                                  -----------     -----------
              Furniture and equipment             $   303,194     $    25,536
              Computer hardware and software          465,196            --
              Leasehold improvements                  275,913            --
                                                  -----------     -----------
                                                    1,044,303          25,536
                 Less accumulated depreciation       (104,799)         (2,768)
                                                  -----------     -----------

                   Net premises and equipment     $   939,504     $    22,768
                                                  ===========     ===========

         The Company rents office space in two locations under three
non-cancelable lease arrangements accounted for as operating leases. The initial
lease periods are for five years and provide for one or more five-year renewal
options. The two leases for the Baltimore location provide for percentage annual
rent escalations. The lease for the Salisbury location requires that the lessee
pay certain operating expenses applicable to the leased space.

         Rent expense applicable to operating leases for the periods ended
December 31, was as follows:

                                                2000               1999
                                                ----               ----
             Minimum rentals               $    143,897       $      17,420
             Less: Sublease rentals             (28,555)                --
                                           -------------      -------------
                Net rent expense           $    115,342       $      17,420
                                           =============      =============

         At December 31, 2000, future minimum lease payments under
non-cancelable operating leases having an initial term in excess of one year are
as follows:

             Years ending December 31:
                      2001                                  $   181,021
                      2002                                      187,312
                      2003                                      193,854
                      2004                                      181,179
                      2005                                       37,809
                                                             -----------
                      Total minimum lease payments          $   781,175
                                                             ===========

         Total minimum future rental payments have not been reduced by $90,294
of sublease rentals expected to be received in the future under a non-cancelable
subleases expiring in March 2003.


                                       38
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999


5.    DEPOSITS

         Certificates of deposit in amounts of $100,000 or more and their
remaining maturities at December 31 are as follows:

                                                       2000          1999
                                                       ----          ----
Three months or less                             $    200,000    $    -
Over three months through six months                   -              -
Over six months through twelve months                 404,864         -
Over twelve months                                    103,103         -
                                                  -----------    ------------
     Total                                       $    707,967    $    -
                                                  ===========    ============

         Interest expense on deposits for the period ended December 31 is as
follows:

                                                2000           1999
                                                ----           ----
Interest-bearing transaction               $     2,211     $     -
Savings and money market                       169,352           -
Time, $100,000 or more                          17,410           -
Other time                                      14,047           -
                                            -----------     -------------
     Total interest on deposits            $   203,020     $     -
                                            ===========     =============

6.   ISSUANCE OF COMMON STOCK

         During 1999, the Company offered and sold 112,500 shares of its common
stock, $0.01 par value per share, in a private placement organizational offering
for a price of $10 per share and received aggregate consideration of $1,125,000.

         On April 30, 2000, the Company completed its initial public offering
and sold 1,129,520 shares of its common stock, $0.01 par value per share, for a
price of $10 per share and received aggregate consideration of $11,295,200.

7.   OPTIONS AND WARRANTS

         On August 31, 1999, the Board of Directors of the Company authorized
the issuance on September 10, 1999, to each stockholder of record of the Company
on August 31, 1999, a warrant to purchase one share of common stock at $10 per
share for every two shares that the stockholder purchased in the organizational
offering. As a result, the Company issued warrants to purchase 56,250 shares.
The warrants were issued in recognition of the financial and organizational risk
undertaken by the purchasers in the organizational offering. The warrants became
exercisable on May 12, 2000, the date that the Bank opened for business, and are
exercisable in whole or in part until November 16, 2004. No warrants have been
exercised as of December 31, 2000.



                                       39
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999


8.    RETIREMENT PLAN

         The Company has a 401(k) profit sharing plan covering substantially all
full-time employees. The plan requires the Company to match 25% of employee
contributions of up to 3% of compensation as defined under the plan. The Company
has also elected to make a safe harbor contribution to the plan on behalf of all
eligible employees, as defined under the plan. The safe harbor contribution is
equal to 3% of compensation as defined under the plan. The plan permits
additional contributions at the discretion of management. Expense under this
plan totaled $29,445 for the year ended December 31, 2000. There were no costs
associated with the plan in 1999.

9.   INCOME TAXES

         Federal and state income tax expense (benefit) consists of the
following for the periods ended December 31:

<TABLE>
<CAPTION>
                                                                    2000             1999
                                                                 ---------        ---------
<S>                                                              <C>              <C>
            Current federal income tax                           $    --          $    --
            Current state income tax                                  --               --
            Deferred federal income tax expense (benefit)             --               --
            Deferred state income tax expense (benefit)               --               --
                                                                 ---------        ---------

            Total income tax expense (benefit)                   $    --          $    --
                                                                 =========        =========
</TABLE>

         The following table is a summary of the tax effect of temporary
differences that give rise to a significant portion of deferred tax assets:
<TABLE>
<CAPTION>
            Deferred tax assets (liabilities):              2000              1999
                                                         ---------         ---------
<S>                                                      <C>               <C>
                 Net operating loss carryforwards        $ 800,000         $ 212,000
                 Depreciation and amortization             (19,000)             --
                 Allowance for credit losses                16,000              --
                                                         ---------         ---------
                     Total deferred tax assets             797,000           212,000
                    Less valuation allowance              (797,000)         (212,000)
                                                         ---------         ---------

            Total deferred tax assets                    $    --           $    --
                                                         =========         =========
</TABLE>

         No income tax benefit or deferred tax asset is reflected in the
financial statements. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carryforwards if their realization is "more
likely than not".

         At December 31, 2000, the Company had approximately $2.1 million in tax
loss carryforwards, which expire in 2019 and 2020. Realization depends on
generating sufficient taxable income before the expiration of the loss
carryforward periods. The amount of loss carryforward available for any one year



                                       40
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999


may be limited if the Company is subject to the alternative minimum tax.

10.  RELATED PARTY TRANSACTIONS

         Certain directors and executive officers have loan transactions with
the Company. Such loans were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with outsiders. The following
schedule summarizes changes in amounts of loans outstanding, both direct and
indirect, to these persons during 2000 and 1999.

                                                    2000            1999
                                                  --------        --------
            Balance at beginning of period        $   --          $   --
            Additions                              622,131            --
            Repayments                               3,631            --
                                                  --------        --------
            Balance at December 31                $618,500        $   --
                                                  ========        ========


         An individual who is a director of the Company owns a 50% interest in a
partnership, which leases an office facility to the Company. The lease term
commenced September 1, 1999 and is for a term of five years and contains renewal
options for three additional five-year terms. Rent expense under this agreement
was $23,756 and $9,900 for the periods ending December 31, 2000 and 1999,
respectively. Management believes that the services provided and the terms of
the foregoing lease are no more and no less favorable to the Company than those
which could have been received from unaffiliated parties.

11.    FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

         The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business. These financial instruments may include
commitments to extend credit, standby letters of credit and purchase
commitments. The Company uses these financial instruments to meet the financing
needs of its customers. Financial instruments involve, to varying degrees,
elements of credit, interest rate, and liquidity risk. These do not represent
unusual risks and management does not anticipate any losses which would have a
material effect on the accompanying financial statements.

         Outstanding loan commitments and lines and letters of credit at
December 31 are as follows:

                                              2000           1999
                                          ----------        -------
            Loan commitments              $  235,886        $  --
            Unused lines of credit         3,667,229           --
            Letters of credit                100,000           --

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. The
Company generally requires collateral to support financial instruments with
credit risk on the same basis as it does for on-balance sheet instruments. The
collateral is based on management's credit evaluation of the counter party.



                                       41
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999

Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. Each customer's
credit-worthiness is evaluated on a case-by-case basis.

         Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.

12.   REGULATORY MATTERS

         As of December 31, 2000 the Company was not required to maintain
non-interest-bearing deposits with the Federal Reserve Bank. The actual balance
maintained with the Federal Reserve Bank at December 31, 2000 was $82,763.

         The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the Bank
met all capital adequacy requirements to which it is subject.

         Due to the Bank's recent formation, as of May 12, 2000, the Bank has
not been categorized by the OCC under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. There
are no conditions or events that management believes would prevent the Bank from
being categorized as well capitalized.

                                       42
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999



            The Bank's actual capital amounts and ratios as of December 31, 2000
are presented in the following table:

<TABLE>
<CAPTION>
                                                                                                         To Be Well
                                                                                                       Capitalized Under
                                                                               For Capital             Prompt Corrective
                                                       Actual                Adequacy Purpose          Action Provisions
                                               Amount         Ratio         Amount        Ratio       Amount         Ratio
<S>                                          <C>              <C>         <C>              <C>      <C>              <C>
Total Capital (to Risk Weighted Assets):     $7,748,986       62.63%      $  989,832       8.00%    $1,237,290       10.00%
Tier I Capital (to Risk Weighted Assets):     7,678,986       62.06%         494,916       4.00%       742,374        6.00%
Tier I Capital (to Average Assets):           7,678,986       39.29%         371,187       3.00%       618,645        5.00%
</TABLE>

         Banking regulations also limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agencies. Regulatory approval is
required to pay dividends which exceed the Bank's net profits for the current
year, plus it's retained net profits for the preceding two years. The Bank could
not have paid dividends to the Company without approval from bank regulatory
agencies at December 31, 2000.
















                                       43
<PAGE>
                            BAY NATIONAL CORPORATION

          For the year ended December 31, 2000 and for the period from
             June 3, 1999 (date of inception) to December 31, 1999


13.   PARENT COMPANY FINANCIAL INFORMATION

         Condensed financial information for Bay National Corporation (Parent
Only) is as follows:

                                            CONDENSED BALANCE SHEETS
                                           December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                   2000               1999
                                                                              ------------         ------------

ASSETS
<S>                                                                           <C>                  <C>
     Cash and due from banks                                                  $  2,733,482         $    763,957
     Investment in subsidiary                                                    7,678,986                 --
     Other assets                                                                     --                 72,427
                                                                              ------------         ------------

              Total Assets                                                    $ 10,412,468         $    836,384
                                                                              ============         ============

LIABILITIES
     Due to subsidiary                                                        $    169,415         $       --
     Accrued expenses and other liabilities                                         25,022              260,633
                                                                              ------------         ------------

              Total Liabilities                                                    194,437              260,633
                                                                              ------------         ------------

STOCKHOLDERS' EQUITY

     Common stock - $.01 par value, authorized:
         9,000,000 shares authorized, 1,242,020 and 112,500 issued and
         outstanding as of December 31, 2000 and 1999,  respectively:               12,420                1,125
     Surplus                                                                    12,407,780            1,123,875
     Accumulated Deficit                                                        (2,202,169)            (549,249)
                                                                              ------------         ------------

              Total Stockholders' Equity                                        10,218,031              575,751
                                                                              ------------         ------------

              Total Liabilities and Stockholders' Equity                      $ 10,412,468         $    836,384
                                                                              ============         ============
</TABLE>



                                                       44

<PAGE>

<TABLE>
<CAPTION>
                                       CONDENSED STATEMENTS OF OPERATIONS For
                              the year ended December 31, 2000 and for the period from
                               June 3, 1999 (date of inception) to December 31, 1999


                                                                                        2000             1999
                                                                                    -------------     ------------
<S>                                                                                <C>               <C>
Interest and dividends on investment securities                                    $     218,267     $     14,996
Non-interest expense                                                                     550,173          564,245
                                                                                    -------------     ------------
   Loss before income taxes and equity in undistributed losses of subsidiary            (331,906)        (549,249)
Income tax benefit                                                                       -                 -
                                                                                    -------------     ------------
   Loss before equity in undistributed losses of subsidiary                             (331,906)        (549,249)
Equity in undistributed losses of subsidiary                                          (1,321,014)          -
                                                                                    -------------     ------------
   Net Loss                                                                        $  (1,652,920)    $   (549,249)
                                                                                    =============     ============
</TABLE>




                               CONDENSED STATEMENTS OF CASH FLOWS For
                      the year ended December 31, 2000 and for the period from
                        June 3, 1999 (date of inception) to December 31, 1999
<TABLE>
<CAPTION>
                                                                     2000                1999
                                                                ------------         ------------
Cash Flows From Operating Activities
<S>                                                             <C>                  <C>
   Net Loss                                                     $ (1,652,920)        $   (549,249)
   Adjustments to reconcile net loss to net cash used by
     operating activities:
       Equity in undistributed earnings of subsidiary              1,321,014                 --
       Net decrease (increase) other assets                           72,427              (72,427)
       Net (decrease) increase in other liabilities                  (66,196)             260,633
                                                                ------------         ------------

            Net cash used by operating activities                   (325,675)            (361,043)
                                                                ------------         ------------

Cash Flows From Investing Activities
   Investment in subsidiary                                       (9,000,000)                --
                                                                ------------         ------------
            Net cash used by investing activities                 (9,000,000)                --
                                                                ------------         ------------

Cash Flows From Financing Activities
   Issuance of common stock                                       11,295,200            1,125,000
                                                                ------------         ------------
            Net cash provided by financing activities             11,295,200            1,125,000
                                                                ------------         ------------

Net increase in cash and cash equivalents                          1,969,525              763,957
Cash and cash equivalents at beginning of year                       763,957                    0
                                                                ------------         ------------

Cash and cash equivalents at end of period                      $  2,733,482         $    763,957
                                                                ============         ============
</TABLE>



                                                 45

<PAGE>


                            BAY NATIONAL CORPORATION



Item 8. Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

         There has been no occurrence requiring a response to this Item.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

Directors, Executive Officers, Promoters and Control Persons

        Bay National Corporation's directors and executive officers and Bay
National Bank's directors and executive officers are as follows:
<TABLE>
<CAPTION>
   Name                 Age                                Position
<S>                   <C>     <C>
Hugh W. Mohler          55     President and Chief Executive Officer of Bay National Corporation and Bay
                               National Bank, Director of Bay National Corporation and Bay National Bank

Mark A. Semanie         37     Vice President and Chief Financial Officer, Treasurer and Secretary of Bay
                               National Corporation and Vice President and Chief Financial Officer, Chief
                               Compliance Officer, Treasurer and Secretary of Bay National Bank

James C. Alban, Jr.     82     Director of Bay National Corporation and Bay National Bank
Carroll A. Bodie        55     Director of Bay National Corporation and Bay National Bank
Charles E. Bounds       82     Director of Bay National Corporation and Bay National Bank
John R. Lerch           56     Director of Bay National Corporation and Bay National Bank
Donald G. McClure, Jr.  57     Director of Bay National Corporation and Bay National Bank
Robert L. Moore         47     Director of Bay National Corporation
H. Victor Rieger, Jr.   63     Director of Bay National Corporation and Bay National Bank
Margaret Knott Riehl    67     Director of Bay National Corporation and Bay National Bank
William B. Rinnier      59     Director of Bay National Corporation and Bay National Bank
Edwin A. Rommel, III    51     Director of Bay National Corporation and Bay National Bank
Henry H. Stansbury      61     Director of Bay National Corporation and Bay National Bank
Kenneth H. Trout        52     Director of Bay National Corporation and Bay National Bank
Eugene M. Waldron, Jr.  57     Director of Bay National Corporation and Bay National Bank
</TABLE>



                                       46
<PAGE>

                            BAY NATIONAL CORPORATION


         Bay National Corporation's charter and bylaws provide that Bay National
Corporation shall have at least three (3) directors, and that the number of
directors may be increased or decreased by the board of directors. As of March
19, 2001, the number of directors has been fixed at 14. At the first annual
meeting of Bay National Corporation's stockholders, which will be held on May
21, 2001, the directors will be divided into three classes - Class A, Class B
and Class C - each class to consist of an equal number of directors, or as
nearly equal as possible. Each director will serve for a term ending on the date
of the third annual meeting following the annual meeting at which such director
was elected. However, the Class A directors first chosen will hold office for
one year or until the first annual meeting following their election, the Class B
directors first chosen will hold office for two years or until the second annual
meeting following their election and the Class C directors first chosen will
hold office for three years or until the third annual meeting following their
election. A director may only be removed by the affirmative vote of at least 80%
of the votes entitled to be cast on the matter and only for cause. Management
believes that the classification of the board of directors will help to assure
the continuity and stability of Bay National Corporation's business strategies
and policies as determined by the board of directors.

         Bay National Corporation's officers are appointed by the board of
directors and hold office at the will of the board or as otherwise provided in
an employment agreement between an officer and Bay National Corporation.

         Each of Bay National Bank's directors will serve until Bay National
Bank's first stockholders' meeting, which will be held on May 21, 2001. As Bay
National Corporation is the sole stockholder of Bay National Bank, it is
expected that each director will be elected to serve as a director of Bay
National Bank. After the first stockholders' meeting, directors of Bay National
Bank will serve for a term of one year and will be elected each year at Bay
National Bank's annual meeting of stockholders. Bay National Bank's officers are
appointed by its board of directors and hold office at the will of the board.

         Bay National Corporation has established an advisory board of
directors, which is comprised of professionals, and business persons who will
provide advice to Bay National Corporation's and Bay National Bank's board of
directors and who will promote the interests of Bay National Corporation and Bay
National Bank. An advisory board of directors is not required by any Maryland or
federal law or regulation and advisory directors are not subject to regulatory
approval or supervision. The advisory directors do not have the power to vote on
any matter considered by the board of directors and they serve at the pleasure
of the board.

         Biographical information regarding the directors and officers of Bay
National Corporation and Bay National Bank is set forth below.

         Hugh W. Mohler, age 55, serves as president, chief executive officer,
and has been a director of Bay National Corporation since June 1999, and a
director of Bay National Bank since April 2000. Mr. Mohler has more than 25
years' experience in the financial services industry, holding positions in
executive management, commercial lending and business development. From 1977 to
1999, Mr. Mohler was affiliated with Mercantile Bankshares Corporation, which is
headquartered in Baltimore, Maryland, most recently serving as executive vice
president with responsibility for 20 community banks in a three-state area. For
17 years, from 1978 to 1994, he was president of Mercantile's Salisbury,



                                       47
<PAGE>

                            BAY NATIONAL CORPORATION


Maryland-based affiliate, Peninsula Bank, the largest financial institution on
Maryland's Eastern Shore. Earlier he was a vice president in commercial lending
at First National bank of Maryland.

         A native of Baltimore, Mr. Mohler earned his undergraduate degree in
economics from Loyola College of Maryland and his master of business
administration degree from the University of Baltimore. He is immediate past
president of the board of trustees of Associated Catholic Charities, Inc. in the
Roman Catholic Archdiocese of Baltimore. Currently he serves as a trustee of
Loyola Blakefield and Goucher College. Mr. Mohler also serves on the board of
directors of the Independent College Fund of Maryland and the Board of Sponsors
of the Sellinger School of Business at Loyola College of Maryland. He also
serves on the Board of Governors of The Maryland Club.

         Mr. Mohler's prior civic experiences include serving as chairman of the
Greater Salisbury Committee, chairman of the Salisbury School, and chairman of
the Governor's Lower Shore Economic Task Force. He also served on the boards of
Peninsula Regional Medical Center, Maryland Chamber of Commerce,
Salisbury-Wicomico Economic Development Committee, and the Somerset County
Economic Development Committee. Mr. Mohler also served as president of the
Maryland bankers Association and on several committees of the American bankers
Association.

         Mark A. Semanie, age 37, serves as Vice President and Chief Financial
Officer, Treasurer and Secretary of Bay National Corporation and Vice President
and Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary
of Bay National Bank. Mr. Semanie worked in the insurance industry for over 7
years. From July 1996 to October 2000, he served as Executive Vice President and
Chief Financial Officer for Agency Holding Company of Maryland, Inc., parent
company of Baltimore-based Agency Services, Inc., the largest independently
owned premium finance company in the United States. From March 1993 to July
1996, he was associated with USF&G Corporation where he served in various
capacities, including Manager of SEC and External Reporting. From August 1985 to
March 1993, Mr. Semanie worked in the Boston and Baltimore offices of the
international accounting firm of KPMG LLP. He last served as a Senior Manager in
the Audit practice with the firm. His background includes experience in
financial planning and reporting, backroom operations, human resources and
compliance issues.

         A native of Connecticut, Mr. Semanie earned a Bachelor of Science
degree in accounting from Bentley College. He currently serves on the board of
directors of Agency Insurance Company of Maryland, Inc. He is also a member of
the American Institute of Certified Public Accountants, the American Institute
of Chartered Property Casualty Underwriters, and Financial Executives
International.

         James C. Alban, Jr., age 82, has been a director of Bay National
Corporation since September 1999, and a director of Bay National Bank since
April 2000. Since 1983, Mr. Alban has been self-employed as a private investor
trading as The Alban Company. From 1938 to 1983, Mr. Alban was with the Alban
Tractor Company, Inc., a Baltimore-based dealer for the Caterpillar Tractor
Company. Since 1991, Mr. Alban has been a director of Palm Beach National Bank &
Trust Co., a national commercial bank. From 1965 to 1988, Mr. Alban was a
director of the Savings Bank of Baltimore, Equitable Bancorporation and
Equitable Trust Company. His other board experiences include service as a
director of PHH Group, Inc. from 1969 to 1990 and Club Car, Inc. from 1977 to
1995.


                                       48
<PAGE>

                            BAY NATIONAL CORPORATION


         A Baltimore native, Mr. Alban holds an undergraduate degree from Lehigh
University. Mr. Alban is a past chairman of the Salvation Army Advisory Board
and a former trustee of Goucher College in Baltimore. In addition, he is a past
president of the Baltimore Rotary Club and a member of that organization for
more than 40 years.

         Carroll A. Bodie, age 55, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Mr. Bodie is vice president, general counsel and secretary of Noxell
Corporation, a Hunt Valley, Maryland-based subsidiary of Procter & Gamble
Company for which he also serves as associate general counsel. Mr. Bodie has
served in that capacity since 1987. Prior to joining Noxell, Mr. Bodie spent
more than two decades in the brewing industry, his most recent position being
with the Miller Brewing Company subsidiary of Philip Morris Companies, Inc.

         A Baltimore native, Mr. Bodie holds an undergraduate degree in
marketing from the University of Baltimore and earned his law degree from the
University of Baltimore School of Law. Admitted to practice before numerous
courts, including those in the State of Maryland and the United States Supreme
Court, he is a member of both the Baltimore County, Maryland Bar Association,
the American Bar Association and the American Corporate Counsel Association. Mr.
Bodie is chairman of the board of trustees of Loyola Blakefield and a board and
executive committee member for the Independent College Fund of Maryland. He is a
past director and board chairman for the YMCA of Central Maryland.

         Charles E. Bounds, age 82, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Mr. Bounds is a retired executive who served from 1944 to 1969 as director
of purchases and inventory for Symington Wayne Corporation, an international
conglomerate headquartered in Salisbury, Maryland, which operated businesses in
the United States and seven foreign countries. From 1969 to 1999, he was a vice
president-investments for Morgan Stanley Dean Witter, working in the Salisbury,
Maryland office of the investment banking firm.

         A native of Salisbury, Maryland, Mr. Bounds is past chairman of the
Salvation Army Boys Club in Salisbury, Maryland, and headed the Salisbury,
Maryland Salvation Army administrative board. He has also chaired fund raising
efforts for the Boy Scouts of America, Delmarva District. Mr. Bounds was an
original member of the Ward Foundation, which is a Salisbury, Maryland based
non-profit organization, which operates The Ward Museum of Wildfowl Art. Mr.
Bounds is an alumnus of Beacom College.

         John R. Lerch, age 56, has been a director of Bay National Corporation
since June 1999, and a director of Bay National Bank since April 2000. Since
January 1999, Mr. Lerch has been self-employed as a private investor trading as
the Chesapeake Venture Group. From 1973 to January 1999, Mr. Lerch was president
of Chesapeake Insurance-The Harris Riggin Agency, an independent insurance
agency based in Salisbury, Maryland. Mr. Lerch began his business career in the
securities industry, serving as a stockbroker at firms in Washington, D.C. and
Salisbury, Maryland. Mr. Lerch is a past director of the Independent Insurance
Agents of Maryland.

         Mr. Lerch is an alumnus of Dickinson College of Carlisle, Pennsylvania.
He served as an officer in the U.S. Army and holds a Bronze Star from his
service in Vietnam. He is a director of Barr International, Inc., a regional
medium and heavy truck sales and service organization. He is a past director of
Peninsula Bank, a subsidiary of Baltimore-based Mercantile Bankshares



                                       49
<PAGE>

                            BAY NATIONAL CORPORATION

Corporation. He is a past director and vice-chairman of the Greater Salisbury
Committee, past trustee of the Peninsula Regional Medical Center in Salisbury,
past president of Salisbury-Wicomico Economic Development Corporation and past
president and campaign chairman of the United Way of the Lower Eastern Shore. He
also has served as a director for the Mid-Delmarva Family YMCA and was a former
chairman and a current trustee for The Ward Foundation.

         Donald G. McClure, Jr., age 57, has been a director of Bay National
Corporation and Bay National Bank since April 2000. Mr. McClure is a principal
in the McClure Group, Inc, a Baltimore-based private equity investment firm
originated in 1979. He is the former Chairman and Co-Chief Executive of Americom
Wireless Services, Inc., which merged with a Fortune 200 company in 2000.

         Mr. McClure serves on several private company boards as well as
devoting substantial time to various civic, charitable and educational
organizations here and in other states.

         Robert L. Moore, age 47, has been a director of Bay National
Corporation since February 2001. Mr. Moore is a certified public accountant. He
received his CPA designation twenty-two years ago, and has practiced with the
Salisbury, Maryland accounting firm of Twilley, Rommel & Moore for the last
sixteen years where he is a partner/owner. His professional concentration is
income tax and business consulting.

         Mr. Moore received his Bachelor of Science degree from the University
of Virginia in 1976. Currently, he serves as Chairman of the Trustees of the
Wicomico County Pension System, a member of the Performance Review Committee for
Wicomico County, and a member of the Salisbury Area Chamber of Commerce.

         Mr. Moore is a past president of the Eastern Shore Chapter of the
Maryland Association of CPAs. He served as Chairman of the Administrative Board
of Asbury United Methodist Church. In addition, Mr. Moore served on the Board of
Directors of the Bank of Fruitland, Maple Shade Residential Homes, Inc., and the
Holly Foundation. He was also a member of the Executive Committee and Board of
Directors of the Green Hill Yacht & Country Club and a member and officer of the
Salisbury Jaycees.

         H. Victor Rieger, Jr., age 63, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Mr. Rieger retired from Signet Banking Corporation, successor to Union
Trust Company of Maryland, in December 1997 after nearly four decades of
service. Mr. Rieger served in numerous capacities for Signet, including regional
executive vice president of international banking and as part of Signet's
Maryland commercial banking group. Mr. Rieger has extensive experience in
commercial relationship banking, credit administration and loan policy.

         An alumnus of Johns Hopkins University, Mr. Rieger is a graduate of the
Stonier School of Banking at Rutgers University. He is past president and a
current trustee of Family and Children's Services of Central Maryland, past
treasurer and board member of the National Flag Day Foundation and a past
vice-president and director of the Baltimore Junior Association of Commerce. He
is a former member of the loan committee for the Minority Small Business
Investment Company and a past advisory board member of the U.S. Small Business
Administration. Mr. Rieger also is past president of the Chesapeake Chapter of
Robert Morris Associates.

         Margaret K. Riehl, age 67, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank April 2000.
Mrs. Riehl is a retired nurse and civic volunteer. She is currently a trustee of
the Marion I. and Henry J. Knott Foundation, a Baltimore, Maryland-based
philanthropic organization and has served in that capacity from 1978 to 1985 and


                                       50
<PAGE>

                            BAY NATIONAL CORPORATION


again from 1993 to present. She serves as chair of the board of trustees of
Baltimore's Associated Catholic Charities, Inc., and as a trustee of St. Mary's
Seminary & University, also in Baltimore. Mrs. Riehl is a former trustee of the
Community Foundation of Baltimore, Mercy Medical Center, the Institute of Notre
Dame and St. Paul's School for Girls. A Baltimore native, Mrs. Riehl is an
alumna of the Mercy Hospital School of Nursing.

         William B. Rinnier, age 59, has been a director of Bay National
Corporation since August 1999, and a director of Bay National Bank since April
2000. Mr. Rinnier is the owner and president of Rinnier Development Company, a
Salisbury, Maryland based real estate development company, which specializes in
the development and sale or management of resort condominiums, multi-family
apartments, and commercial and industrial buildings. He joined Rinnier
Development Company nearly three decades ago after his honorable discharge from
the U.S. Navy.

         A native of Salisbury, Maryland, Mr. Rinnier earned a degree in
aerospace engineering from the Georgia Institute of Technology and attended the
Graduate School of Business at the University of Virginia. He is a board member
of the Greater Salisbury Committee and is past president of the
Salisbury-Wicomico Economic Development Corporation and the Coastal Board of
Realtors.

         Edwin A. Rommel III, age 51, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Mr. Rommel is a certified public accountant that, since 1974, has been a
partner in the Salisbury, Maryland, accounting firm of Twilley, Rommel & Moore,
P.A. Mr. Rommel has been certified as a valuation analyst and accredited in
business evaluation by the American Institute of Certified Public Accountants.

         A Baltimore native, Mr. Rommel earned his undergraduate degree from
Loyola College of Maryland. Mr. Rommel is a current director of the Greater
Salisbury Committee and past president of the Salisbury Area Chamber of
Commerce. He serves as a director of the Maryland Association of Certified
Public Accountants and an officer of its Eastern Shore Chapter. Mr. Rommel is
past president of the St. Francis de Sales Board of Trustees and past member of
the Wicomico County Democratic Central Committee.

         Henry H. Stansbury, age 61, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Since 1975, Mr. Stansbury has been the chief executive officer of Agency
Services, Inc., the largest independently owned premium finance company in the
United States. Since 1989, Mr. Stansbury has been the chief executive officer of
Agency Insurance Company of Maryland, Inc., a privately owned multi-line
property/casualty insurance company. Mr. Stansbury is president of the Maryland
Association of Premium Finance Companies and is a past president and director of
the National Association of Premium Finance Companies.

         Mr. Stansbury is a vice president and trustee of the Maryland
Historical Society, a trustee of the Ward Museum of Wildfowl Art, and a director
of the Catonsville Historical Society. He served as director and chairman of the
museum committee for the Lacrosse Hall of Fame at the Johns Hopkins University
and is vice president and a trustee of the St. Paul's School for Boys. He is
also past president and board member of ReVisions, Inc., a nonprofit
organization that serves the mentally ill. Mr. Stansbury is a graduate of
Leadership Maryland and a director of Leadership Baltimore County. He is the
author of LLOYD J. TYLER: FOLK ARTIST AND DECOY MAKER. Mr. Stansbury is an



                                       51
<PAGE>

                            BAY NATIONAL CORPORATION


alumnus of the University of Maryland and holds a master of business
administration degree from George Washington University.

         Kenneth H. Trout, age 52, has been a director of Bay National
Corporation since October 1999, and a director of Bay National Bank since April
2000. Since January 1999, Mr. Trout has served as the executive vice president
and chief operating officer of Rosemore, Inc., a Baltimore-based privately held
investment company primarily engaged in the business of oil and gas exploration
and production. He also serves as a director of Rosemore Holdings, Inc.,
Rosemore Calvert, Inc., Tema Oil and Gas Company and Gateway Gathering and
Marketing Company, which are all subsidiaries of Rosemore, Inc. He is also a
director of KCI Technologies, Inc. From 1970 to November 1997, Mr. Trout was
employed by Signet Banking Corporation. During his last five years of tenure
with Signet, he served as senior executive vice president-commercial banking and
as president and chief executive officer of Signet Bank-Maryland. Mr. Trout was
retired from December 1997 to December 1998.

         A Bridgeton, New Jersey native, Mr. Trout received his undergraduate
degree in economics and business administration from Methodist College in North
Carolina. He is chairman of the board of governors of the National Aquarium in
Baltimore, and is vice chairman of the Board of Trustees of The College of Notre
Dame of Maryland.

         Eugene M. Waldron, Jr., age 57, has been a director of Bay National
Corporation since June 1999, and a director of Bay National Bank since April
2000. Mr. Waldron is a chartered financial analyst and since September 1998 has
been a senior vice president in the Washington, D.C., office of Capital Guardian
Trust Company, an employee-owned firm based in Los Angeles dedicated to
international investing. From March 1994 to August 1998, Mr. Waldron was
employed by Loomis, Sayles & Company, an investment management firm. Mr.
Waldron's more than three decades of investment experience include employment at
CS First Boston Asset Management, Fidelity Management Trust Company, T. Rowe
Price Associates and Baker, Watts & Company.

         An alumnus of Mt. St. Mary's College, Emmitsburg, Maryland, Mr. Waldron
earned his master of business administration degree at the Bernard M. Baruch
College of the City University of New York. A native of Annapolis, Maryland, he
is a member of the Mt. St. Mary's Board of Trustees and the Newton,
Massachusetts Country Day School of the Sacred Heart's Endowment Committee.


         Other than Mr. Mohler and Mr. Waldron who are first cousins, there are
no family relationships between any director or executive officer and any other
director or executive officer of Bay National Corporation.

Compliance with Section 16(a) of the Exchange Act

         The Company did not have a class of equity securities registered
pursuant to the Securities Exchange Act of 1934, as amended, at any time during
the Company's fiscal year ended December 31, 2000.



                                       52
<PAGE>

                            BAY NATIONAL CORPORATION

Item 10.  Executive Compensation

Director Compensation

         The directors of Bay National Corporation were not, during the year
ended December 31, 2000, and are not currently, compensated for their attendance
at regularly scheduled or special board meetings or for other services, and Bay
National Corporation does not intend to pay directors fees until Bay National
Bank is profitable. However, Bay National Corporation reserves the right to pay
directors' fees at any time. Directors are reimbursed for reasonable expenses
incurred on behalf of Bay National Corporation.

Executive Compensation

The following table sets forth the compensation paid by the Company and the Bank
for the Chief Executive Officer of the Company and the Bank and to any other
executive officer of the Company or the Bank who received compensation in excess
of $100,000 during the years 2000 or 1999.

<TABLE>
<CAPTION>
                                                     Summary Compensation Table

                                                                                       Long Term Compensation
                                                                                  -------------------------------
                                                 Annual Compensation                     Awards          Payouts
                             ---------------------------------------------------  ---------------------- --------
Name and                                                                          Restricted  Securities                    All
                                                                                    Stock     Underlying                  Other
Principal                                                            Other Annual   Award(s)   Options/   LTIP           Compen-
Position                       Year       Salary($)     Bonus($)     Compensation    ($)       SARs(#)   Payouts ($)    sation ($)
-----------------------------------------------------------------------------------------------------------------------------------
Hugh W. Mohler
President and
Chief Executive
<S>                            <C>       <C>           <C>            <C>           <C>         <C>       <C>           <C>
Officer (1)                     2000      $ 96,318        -             -             -           -          -           $ 16,589

John S. DiPietro
Vice President(2)               2000      $106,970        -             -             -           -          -           $ 48,361

Thomas M. Neale
Vice President(3)               2000      $145,891        -             -             -           -          -           $ 14,109

Mark A. Semanie
Vice President(4)               2000      $ 19,232        -             -             -           -          -           $     72
<FN>

         (1) Mr. Mohler voluntarily declined any and all compensation during the
Company's formative stage (June, 1999 through May, 2000). Mr. Mohler's annual
salary is $154,000. Other compensation includes $11,581 of contributions to the
Company's 401(k) retirement plan, and $5,008 of term life insurance premiums
paid by the Company on Mr. Mohler's behalf.

         (2) Mr. DiPietro separated from the Company on August 31, 2000. Mr.
DiPietro's annual salary prior to his departure was $154,000. Other compensation
includes $3,088 of contributions to the Company's 401(k) retirement plan, $356
of term life insurance premiums paid by the Company on Mr. DiPietro's behalf,
and $44,917 paid to Mr. DiPietro upon his separation from the Company.

         (3) Mr. Neale separated from the Company on November 30, 2000. Mr.
Neale's annual salary prior to his departure was $154,000. Other compensation
includes $13,169 of contributions to the Company's 401(k) retirement plan, and
$940 of term life insurance premiums paid by the Company on Mr. Neale's behalf.

         (4) Mr. Semanie's annual salary is $125,000. Other compensation
includes $72 of term life insurance premiums paid by the Company on Mr.
Semanie's behalf. Mr. Semanie joined the Company in October 2000.
</FN>
</TABLE>



                                       53
<PAGE>
                            BAY NATIONAL CORPORATION


Employment Arrangements

         Bay National Bank has entered into a written employment agreement with
Mr. Mohler effective as of May 12, 2000. Under this agreement, Mr. Mohler serves
as the president of Bay National Corporation at an initial annual base salary of
$154,000, subject to annual review. However, pursuant to Mr. Mohler's agreement,
Mr. Mohler did not receive any compensation until May 2000. The agreement has an
initial term of three years, automatically renewable for one-year terms unless
written notice is provided by either party 90 days before expiration of a term.

         Bay National Bank may terminate the employment agreement without cause
upon 30 days' prior written notice and may terminate the employment agreement
for cause at any time without prior notice. Mr. Mohler may terminate his
employment agreement at any time upon 30 days' prior written notice. In the
event Mr. Mohler is terminated without cause, he will continue to receive salary
payments for the earlier of six months from the date of termination or until he
has found comparable employment. Mr. Mohler is required to use his best efforts
to obtain comparable employment.

         Pursuant to this agreement, if Mr. Mohler is employed by Bay National
Bank on the date of a "change of control," he is entitled to a payment of 290%
of his base salary from Bay National Bank. The employment agreements define
"change of control" as (i) the acquisition by any person of forty percent (40%)
or more of the outstanding shares of common stock of Bay National Bank or Bay
National Corporation; (ii) the election of a majority of the members of the
board of directors who were not approved or nominated by then incumbent board or
(iii) the approval by the stockholders of Bay National Bank or Bay National
Corporation of (a) a reorganization, merger or consolidation of Bay National
Bank or Bay National Corporation, subject to certain exceptions; (b) a
liquidation or dissolution of Bay National Bank or Bay National Corporation or
(c) the sale or other disposition of all or substantially all of the assets of
Bay National Bank or Bay National Corporation.

         In the employment agreement with Bay National Bank, Mr. Mohler agrees
that for a period of six (6) months after employment with Bay National Bank or
any affiliate, he will not, directly or indirectly, own, operate or otherwise be
associated with, any financial institution which is located in the Bank's market
area. Mr. Mohler also agrees that for a period of one (1) year after employment
with Bay National Bank or any affiliate, he will not (i) solicit any person or
entity which at the time of his termination was, or within one (1) year prior
thereto had been, a customer of Bay National Bank or any of its affiliates or
(ii) solicit the employment of any person who was employed by Bay National Bank
or any of its affiliates on a full or part time basis at the time of his
termination of employment, unless such person (a) was involuntarily discharged
by Bay National Bank or the affiliate or (b) voluntarily terminated his
relationship with Bay National Bank or the affiliate prior to Mr. Mohler's
termination of employment.

         In addition, upon adoption of a stock option plan by Bay National
Corporation's board of directors, Mr. Mohler will be granted options to purchase
3% of the shares of common stock outstanding after the offering. These options
will be exercisable at the market value of the stock on the date the options are
granted.

         Bay National  Corporation has purchased "key man" life insurance on Mr.
Mohler.



                                       54
<PAGE>
                            BAY NATIONAL CORPORATION

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth the ownership of Bay National
Corporation's common stock by its directors, executive officers and persons
known to own more than five percent (5%) of the common stock as of March 19,
2001. The table includes warrants granted to any of these persons. Unless
otherwise noted below, we believe that each person named in the table has the
sole voting and sole investment power with respect to each of the shares of
common stock reported as owned by such person.

<TABLE>
<CAPTION>
Name and Address
of Beneficial                                                                     Percentage
Owner                                                Number of Shares (14)          of Class
----------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>
James C. Alban
157 Peruvian Avenue
Palm Beach, FL 33480                                             30,000             2.42%

Carroll A. Bodie (1)
4005 Greenway
Baltimore, MD 21218                                              12,500             1.00%

Charles E. Bounds (2)
1707 Upper Millstone Lane
Salisbury, MD 21801                                               3,750              .30%

Citizens, Inc. (3)
P.O. Box 1550
Butler, PA 16003                                                112,500             9.04%

John R. Lerch (4)
618 Indian Lane
Salisbury, MD 21801                                              15,000             1.20%

Donald G. McClure, Jr. (5)
11520 Pebble Creek Drive
Lutherville, MD 21093                                            10,000              .81%

Hugh W. Mohler (6)
23 Buchanan Road
Baltimore, MD 21212                                              40,000             3.21%


Robert L. Moore (7)
5673 N. Nithsdale Drive
Salisbury, MD 21801                                               7,500              .60%



                                       55
<PAGE>
                            BAY NATIONAL CORPORATION


H. Victor Rieger, Jr. (8)
1015 Ivy Hill Road
Cockeysville, MD 21030                                           17,000             1.37%

Margaret K. Riehl (9)
6200 Gentry Lane
Baltimore, MD 21210                                              13,500             1.08%

William B. Rinnier (10)
616 Manor Drive
Salisbury, MD 21801                                              12,500             1.00%

Edwin A. Rommel, III (11)
5281 Silver Run Lane
Salisbury, MD 21801                                              18,500             1.49%

Mark A. Semanie
1200 Corinthian Court
Bel Air, MD 21014                                                     -              -  %

Henry H. Stansbury (12)
6200 Foxhall Farm Road
Catonsville, MD 21228                                            25,000             2.00%

Kenneth H. Trout
804 Hillstead Drive
Lutherville, MD 21093                                             1,000              .08%

Eugene M. Waldron, Jr. (13)
5309 Woodlawn Avenue
Chevy Chase, MD 20815                                            30,000             2.41%

All directors and executive officers as a
group: Fifteen persons                                          209,750            16.84%
<FN>
     (1) Includes  2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date.

     (2) Includes  1,250 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date.

     (3) Includes  2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date.


                                       56
<PAGE>
                            BAY NATIONAL CORPORATION


     (4) Includes  4,000 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date. Includes 6,000 shares held by LFI
partnership,  of which Mr. Lerch is a general partner;  and 2,000 shares held by
Mr. Lerch's  spouse,  and 1,000 shares issuable upon the exercise of warrants by
Mrs.  Lerch that are  exercisable  within 60 days of the record date.  Mr. Lerch
disclaims beneficial ownership as to the shares and warrants held by his spouse.

     (5) Includes  9,000  shares held in trust for the benefit of Mr.  McClure's
children for which Mr. McClure is a co-trustee.

     (6) Includes  5,000 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date. Includes 1,000 shares held by Mr.
Mohler's spouse. Mr. Mohler disclaims beneficial ownership as to the shares held
by his spouse.

     (7) Includes  2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date.

     (8) Includes  2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date. Includes 1,000 shares held by Mr.
Rieger's spouse. Mr. Rieger disclaims beneficial ownership as to the shares held
by his spouse.

     (9) Includes  2,500 shares  issuable upon the exercise of warrants that are
exercisable  within 60 days of the record  date.  Includes  1,000 shares held by
Mrs. Riehl's spouse. Mrs. Riehl disclaims  beneficial ownership as to the shares
held by her spouse.

     (10) Includes 2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date. Includes 3,000 shares held by Mr.
Rinnier's spouse, and 2,000 shares held by Mr. Rinnier's  children.  Mr. Rinnier
disclaims  beneficial  ownership  as to the  shares  held by his  spouse and his
children.

     (11) Includes 2,500 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date.

     (12) Includes 2,500 shares  issuable upon the exercise of warrants that are
exercisable  within 60 days of the record date.  Includes  10,000 shares held by
Mr. Stansbury's  spouse, and 2,500 shares issuable upon the exercise of warrants
by Mrs.  Stansbury that are  exercisable  within 60 days of the record date. Mr.
Stansbury disclaims  beneficial  ownership as to the shares and warrants held by
his spouse.

     (13) Includes 5,000 shares  issuable upon the exercise of warrants that are
exercisable within 60 days of the record date. Includes 3,000 shares held by Mr.
Waldron's children.  Mr. Waldron disclaims beneficial ownership as to the shares
held by his children.


                                       57
<PAGE>
                            BAY NATIONAL CORPORATION


     (14) Warrants were issued August 31, 1999, as recognition for the financial
and  organizational  risks  undertaken by our seed capital  investors.  Warrants
became  exercisable  upon the opening of the Bank, May 12, 2000, and they expire
on November 16, 2004. Seed investors were given one warrant for every two shares
purchased  during the  Company's  organizational  offering  prior to its initial
public  offering.  They are  exercisable  at $10 per  share.  A total of  56,250
warrants have been issued. None have been exercised.
</FN>
</TABLE>

Item 12.  Certain Relationships and Related Transactions

         Prior to Bay National Corporation's initial public offering, the
organizers of Bay National Corporation and Bay National Bank and certain other
investors purchased an aggregate of 112,500 shares of Bay National Corporation's
common stock at a purchase price of $10.00 per share. The primary purpose of
this "organizational offering" was to provide Bay National Corporation and Bay
National Bank with the capital necessary to fund some of the initial
organizational and prepaid operating expenses.

         In recognition of the financial and organizational risk undertaken by
the purchasers in the organizational offering, each purchaser in the
organizational offering received, for no additional consideration, a warrant to
purchase one share of common stock at $10.00 per share for every two shares that
they purchased in the organizational offering. As a result, Bay National
Corporation issued warrants to purchase an aggregate of 56,250 shares of common
stock to the purchasers in the organizational offering.

         The warrants became exercisable on May 12, 2000, the date that Bay
National Bank opened for business, and are exercisable in whole or in part until
November 16, 2004. The warrants and the shares of common stock issuable upon the
exercise of the warrants are transferable subject to compliance with applicable
securities laws. If the OCC issues a capital directive or other order requiring
Bay National Bank to obtain additional capital, the warrants are forfeited if
not immediately exercised.

         Director John R. Lerch owns a 50% interest in the property being leased
for Bay National Bank's Salisbury, Maryland branch office. Pursuant to that
lease, which is for a five-year term and commenced as of September 1, 1999, Bay
National Corporation agreed to pay Mr. Lerch and his partner monthly rent of
approximately $1,980 plus all real estate taxes and utilities. Bay National
Corporation believes that the lease rate is at fair market value, based, in
part, on an evaluation of the lease terms by William E. Martin of ERA Martin
Associates, a Salisbury-based real estate brokerage firm. Bay National
Corporation engaged Mr. Martin to review the lease terms for the purpose of
determining whether the terms were consistent with the lease terms for similar
properties in the downtown Salisbury area.

         Some of Bay National Bank's directors and officers and the business and
professional organizations with which they are associated have banking
transactions with Bay National Bank in the ordinary course of business. It is
Bay National Bank's policy that any loans and loan commitments will be made in
accordance with applicable laws and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of comparable credit standing. Loans to
directors and officers must comply with Bay National Bank's lending policies and
statutory lending limits, and directors with a personal interest in any loan
application will be excluded from considering any such loan application.

         The officers and directors of the Company have loans due to the Bank of
$618,500 at December 31, 2000. All loans were made on substantially the same



                                       58
<PAGE>
                            BAY NATIONAL CORPORATION


terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unaffiliated third parties and do not involve
more than the normal risk of repayment or present other unfavorable features.

Item 13.  Exhibits and Reports on Form 8-K

         (a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed by Bay National Corporation as a part of, and are
hereby incorporated by reference from, Bay National Corporation's Registration
Statement on Form SB-2, as amended, under the Securities Act of 1933,
Registration Number 333-87781

Exhibit
No.        Description of Exhibit

3.1*       Articles of Incorporation of Bay National Corporation
3.2*       Bylaws of Bay National Corporation
4.1*       Rights of Holders of Common Stock (as contained in Exhibit 3.1)
4.2*       Form of Common Stock Certificate
4.3*       Form of Warrant
10.1*      Form of Employment Agreement between Bay National Corporation and
           Hugh W. Mohler
10.2*      Form of Employment Agreement between Bay National Bank and
           Hugh W. Mohler
10.3*      Office Lease  Agreement dated July 16, 1999 between Bay National
           Corporation and Joppa Green II Limited Partnership
10.4*      Office Lease Agreement dated July 16, 1999 between Bay National
           Corporation and Joppa Green II Limited Partnership
10.5*      Lease Agreement dated September 16, 1999 between Bay National
           Corporation and John R. Lerch and Thomas C. Thompson
21.1*      Subsidiaries of Bay National Corporation


     (b) Reports of Form 8-K.  No reports on Form 8-K were  required to be filed
for the fourth quarter of 2000.













                                       59
<PAGE>
                            BAY NATIONAL CORPORATION


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                            BAY NATIONAL CORPORATION

Date:  March 27, 2001                       By: /s/ Hugh W. Mohler
                                               -------------------------
                                                  Hugh W. Mohler,
                                                  President

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


<TABLE>
<CAPTION>
       Name                                        Position                               Date
       ----                                        --------                               ----
<S>                                              <C>                                <C>
                                                   Director and President
 /s/ Hugh W. Mohler                                (Principal Executive Officer)      March 27, 2001
------------------------------                     Treasurer
Hugh W. Mohler


 /s/ Mark A. Semanie                               (Principal Accounting and          March 27, 2001
------------------------------                     Financial Officer)
Mark A. Semanie


                                                   Director                           March 27, 2001
------------------------------
James C. Alban, Jr.


 /s/ Carroll A. Bodie                              Director                           March 27, 2001
------------------------------
Carrol1 A. Bodie


                                                   Director                           March 27, 2001
------------------------------
Charles E. Bounds


 /s/ John R. Lerch                                 Director                           March 27, 2001
------------------------------
John R. Lerch


                                                   Director                           March 27, 2001
------------------------------
Donald G. McClure, Jr.


/s/ Robert L. Moore                                Director                           March 27, 2001
------------------------------
Robert L. Moore


/s/ H. Victor Rieger, Jr.                          Director                           March 27, 2001
------------------------------
H. Victor Rieger, Jr.


                                       60
<PAGE>
                                      BAY NATIONAL CORPORATION




                                                   Director                           March 27, 2001
------------------------------
Margaret Knott Riehl


 /s/ William B. Rinnier                            Director                           March 27, 2001
------------------------------
William B. Rinnier


 /s/ Edwin A. Rommel, III                          Director                           March 27, 2001
------------------------------
Edwin A. Rommel, III


 /s/ Henry H. Stansbury                            Director                           March 27, 2001
------------------------------
Henry H. Stansbury


 /s/ Kenneth H. Trout                              Director                           March 27, 2001
------------------------------
Kenneth H. Trout


                                                   Director                           March 27, 2001
------------------------------
Eugene M. Waldron, Jr.

</TABLE>













                                       61
<PAGE>
                            BAY NATIONAL CORPORATION



     SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
           SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS

         Bay National Corporation has not sent and will not send to its security
holders an annual report other than this annual report on Form 10-KSB.
Subsequent to the date of this filing, Bay National Corporation intends to
provide proxy materials to its security holders in connection with its annual
meeting of security holders. A copy of such proxy materials will be furnished to
the Securities and Exchange Commission for its information and Bay National
Corporation understands that such materials will not be considered to be filed
or subject to the liabilities of Section 18 of the Exchange Act.































                                       62
<PAGE>


                                  EXHIBIT INDEX


Exhibit
No.        Description of Exhibit


3.1*       Articles of Incorporation of Bay National Corporation
3.2*       Bylaws of Bay National Corporation
4.1*       Rights of Holders of Common Stock (as contained in Exhibit 3.1)
4.2*       Form of Common Stock Certificate
4.3*       Form of Warrant
10.1*      Form of Employment Agreement between Bay National Corporation and
           Hugh W. Mohler
10.2*      Form of Employment Agreement between Bay National Bank and
           Hugh W. Mohler
10.3*      Office Lease  Agreement dated July 16, 1999 between Bay National
           Corporation and Joppa Green II Limited Partnership
10.4*      Office Lease Agreement dated July 16, 1999 between Bay National
           Corporation and Joppa Green II Limited Partnership
10.5*      Lease Agreement dated September 16, 1999 between Bay National
           Corporation and John R. Lerch and Thomas C. Thompson
21.1*      Subsidiaries of Bay National Corporation


* Previously filed by Bay National Corporation as a part of Bay National
Corporation's Registration Statement on Form SB-2, as amended, under the
Securities Act of 1933, Registration Number 333-87781

















                                       63