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, 2003

[ ]       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 $6,145,331.

         The aggregate market value of the common equity held by non-affiliates
was $15,999,706 as of March 19, 2004, based on a sales price of $11.40 per share
of Common Stock, which is the sales price at which shares of Common Stock were
last sold in over the counter trading on March 12, 2004.

         The number of shares outstanding of the issuer's Common Stock was
1,862,710 as of March 19, 2004.

         Transitional Small Business Disclosure Format (check one):

                                                        Yes __ No X

                                     PART I

Item 1.  Description of Business

           BUSINESS OF BAY NATIONAL CORPORATION AND BAY NATIONAL BANK

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.

         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

         Bay National Bank was formed by 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. These
individuals believed that the banking needs of certain segments of these
communities were not being served adequately by existing banks. Specifically, as
a result of bank mergers in the 1990's, many banks in the Baltimore metropolitan
area and the Eastern Shore of Maryland became local branches of large regional
and national banks. Although size gave the larger banks some advantages in
competing for business from large corporations, including economies of scale and
higher lending limits, the organizers believed that these "megabanks" were
focused on a mass market approach which de-emphasized personal contact and
service. The organizers also believed that the centralization of decision-making
power at these large institutions had resulted in a lack of customer service. At
many of these institutions, determinations were made at the "home office" by
individuals who lacked 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 is ongoing, and
has been particularly frustrating to owners of small and mid-sized businesses,
business professionals and high net worth individuals who traditionally were
accustomed to dealing directly with a bank executive who had an understanding of
their banking needs with the ability to deliver a prompt response.




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         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. Management believes that this
approach makes service more individualized and enhances 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's Salisbury, Maryland branch office is located 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. Commercial business and commercial real estate loans for
owner-occupied properties are Bay National Bank's primary loan products,
accounting for approximately 78% of the loan portfolio as of December 31, 2003.

         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 is able to originate loans and to participate with other lenders in
loans that exceed Bay National Bank's lending limits.

         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
                    are also available. As of December 31, 2003, these loans
                    represented approximately 61% 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.




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          o         Commercial real estate loans, including mortgage
                    loans on non-residential properties, and land development
                    and construction loan financing, primarily for
                    owner-occupied premises. As of December 31, 2003, these
                    loans represented approximately 16% 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, 2003, these loans represented
                    approximately 2% 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         Mortgage loans secured by residential property, including
                    first and second mortgage loans on owner occupied and
                    investment properties (1 to 4 family and multi-family), and
                    home equity loans secured by single-family owner-occupied
                    residences. As of December 31, 2003, these loans represented
                    approximately 21% of Bay National Bank's loan portfolio. The
                    majority of these loans, approximately 16% of Bay National
                    Bank's loan portfolio, are home equity loans. Like its
                    consumer loans, Bay National Bank's non-investment
                    residential mortgage loans are targeted to business owners
                    and their employees, business professionals and high net
                    worth individuals.

                    Bay National Bank's conventional first and second
                    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 residential
                    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. As of
                    December 31, 2003, mortgage loans held for sale, totaled
                    $923,825.

        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. Bay National Bank does not have
it's own network of ATM machines. In general, Bay National Bank waives fees on a
predetermined number of ATM transactions per month, thereby allowing its
customers to use any ATM machine.

        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. As of December 31, 2003, Bay
National Bank had 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, 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 offer 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 24, 2004, Bay National Bank employed thirty-one individuals.
Twenty-two people operate from Bay National Bank's headquarters and banking
office in North Baltimore and nine people from the Salisbury, Maryland banking
office. Bay National Corporation has no employees.

                           SUPERVISION AND REGULATION

General

        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 is 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.




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<PAGE>

        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
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.




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<PAGE>

         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.

        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.

        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.

        The GLBA authorizes expanded activities for national banks, but requires
(with the exception of underwriting municipal revenue bonds and other state and




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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.

        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
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





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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.

        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
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, 2003.

        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





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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,
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




                                       10
<PAGE>

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
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.



                                       11
<PAGE>

        Liquidity. Bay National Bank is subject to the reserve requirements of
Federal Reserve Board Regulation D, which applies to all depository
institutions. Specifically, as of January 31, 2004, amounts in transaction
accounts above $6,600,000 and up to $45,400,000 must have reserves held against
them in the ratio of three percent of the amount. Amounts above $45,400,000
require reserves of $1,164,000 plus 10 percent of the amount in excess of
$45,400,000. Bay National Bank is in compliance with the applicable liquidity
requirements.

         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. Bay National Bank
received a "satisfactory" rating in its latest CRA Examination in May 2003.

         USA PATRIOT Act. On October 26, 2001, the President signed into law
comprehensive anti-terrorism legislation known as the USA PATRIOT Act of 2001
(the "USA Patriot Act"). Title III of the USA Patriot Act substantially
broadened the scope of U.S. anti-money laundering laws and regulations by
imposing significant new compliance and due diligence obligations, creating new
crimes and penalties and expanding the extra-territorial jurisdiction of the
United States. The U.S. Treasury Department ("Treasury") has issued a number of
implementing regulations that apply to various requirements of the USA Patriot
Act to financial institutions such as Bay National Bank. Those regulations
impose new obligations on financial institutions to maintain appropriate
policies, procedures and controls to detect, prevent and report money laundering
and terrorist financing. Treasury may issue additional regulations that will
further clarify the USA Patriot Act's requirements.

         Failure of a financial institution to comply with the USA Patriot Act's
requirements could have serious legal and reputational consequences for the
institution. The Company has adopted appropriate policies, procedures and
controls to address compliance with the requirements of the USA Patriot Act
under the existing regulations and will continue to revise and update its
policies, procedures and controls to reflect changes required by the USA Patriot
Act and Treasury's regulations.

FACTORS AFFECTING FUTURE RESULTS

         Some of the matters discussed in this annual report including under the
captions "Business of Bay National Corporation and Bay National Bank," and
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations" include forward-looking statements. These forward-looking statements
include statements regarding profitability, liquidity, allowance for loan
losses, interest rate sensitivity, market risk and financial and other goals.
Forward-looking statements often use words such as "believe," "expect," "plan,"
"may," "will," "should," "project," "contemplate," "anticipate," "forecast,"
"intend", or other words of similar meaning. You can also identify them by the
fact that they do not relate strictly to historical or current facts. 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





                                       12
<PAGE>

could be different from that described in this annual report because of these
risks and uncertainties and you should not put undue reliance on any
forward-looking statements. All forward-looking statements speak only as of the
date of this filing, and Bay National Corporation undertakes no obligation to
make any revisions to the forward-looking statements to reflect events or
circumstances after the date of this filing or to reflect the occurrence of
unanticipated events.

         Bay National Corporation has a limited operating history upon which to
evaluate future success. Bay National Corporation and Bay National Bank
commenced operations in May 2000, and their operating history is limited. Bay
National Corporation's profitability depends on the results of operations of its
principal asset, Bay National Bank. Bay National Corporation incurred operating
losses during each of the years of its operations other than 2003, when it
achieved net income of $7,581. Management expects that additional capital may be
required in the future to support growth of Bay National Bank.

         If Bay National Bank decides to open additional offices, that decision
may result in future operating losses, or slow the growth of operating
profitability because of the increased expenses of expansion and because the new
branch offices may not enhance the results of operations as anticipated. Bay
National Bank has no current plans to open additional branch offices.

         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 Chairman, 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 clients and potential clients that
would not be easy to replace. In addition, because Bay National Bank's business
is 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,
2003, such loans accounted for approximately 78% of the loan portfolio. Bay
National Bank also offers construction loans, consumer loans and mortgage loans
for owner-occupied residential properties, although most of the residential
mortgage loans are 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. 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 is often able to
accommodate larger loans by selling participations in those loans to other
financial institutions.

         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




                                       13
<PAGE>

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
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 complete
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,
Lutherville, 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 as of December 31, 2003 was $2,223. 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 4,200 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 as of December
31, 2003 was $12,118. 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
increased at the rate of four percent per year. Upon the termination of the
sublease in March 2003, management converted a portion of this space
(approximately 800 square feet) for use by Bay National Corporation and Bay
National Bank and entered into a new sublease agreement for the remaining space.
The monthly rent under this sublease as of December 31, 2003 was $1,698.

        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,





                                       14
<PAGE>

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.

        On September 1, 2002, Bay National Corporation entered into a lease
agreement for Bay National Bank's Salisbury, Maryland mortgage division office,
which is located at 318 East Main Street, Salisbury Maryland 21801. The leased
space consists of two office suites totaling approximately 420 square feet. This
lease, which became effective as of January 1, 2003, is for a term of one year
with Bay National Corporation having the option to extend the term for one
additional one-year renewal term. Bay National Corporation renewed the lease for
an additional one year term effective as of January 1, 2004. During the initial
lease term and the renewal term, Bay National Corporation is paying monthly rent
of $700. The landlord is responsible for 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.

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, 2003 to a vote of security holders of Bay National Corporation.
















                                       15
<PAGE>



        PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         As of March 15, 2003, the number of holders of record of Bay National
Corporation's common stock was approximately 460. Bay National Corporation's
common stock is traded on the Over the Counter Bulletin Board ("OTCBB") under
the symbol "BANI.OB."

         Bay National Corporation completed an initial public offering ("IPO")
of its common stock on April 30, 2000. Stock prices subsequent to the IPO are
based upon limited trading on the OTCBB. The following table reflects the high
and low sales information as reported on the OTCBB for the periods presented.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.

                                2003                          2002
                           Bid Price Range              Bid Price Range
         Quarter          Low           High           Low            High
                      --------------------------   ---------------------------
         1st         $       8.05   $      9.00   $       7.00    $      7.30
         2nd                 8.10         11.00           6.71           7.25
         3rd                 9.05          9.75           6.70           7.50
         4th                 9.50         10.25           7.00           8.60

        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 at least until it has
achieved profitability that supports capital growth in excess of regulatory
capital needs. 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.





                                       16
<PAGE>


<TABLE>
<CAPTION>
                                                SELECTED FINANCIAL DATA
                                     AS OF DECEMBER 31, 2003, 2002, 2001 and 2000
                                     (dollars in thousands, except per share data)

                                                                  2003           2002          2001             2000
                                                                  ----           ----          ----             ----
<S>                                                        <C>             <C>           <C>              <C>
Total assets                                               $     122,328   $    84,609   $     47,026     $    24,026
Cash and due from banks                                              573           363          3,065             561
Federal funds sold and other overnight investments                17,487        11,753          6,488          16,587
Loans held for sale                                                  924         2,819            682               -
Investment securities available for sale                           1,548           948              -               -
Federal Reserve Bank stock                                           313           276            276             276
Federal Home Loan Bank stock                                         168            80              -               -
Loans, net                                                       100,125        67,227         35,415           5,578
Deposits                                                         108,531        76,079         38,139          13,657
Short-term borrowings                                              1,222           507              -               -
Stockholders' equity                                              12,067         7,610          8,602          10,218

Common shares outstanding                                      1,862,710     1,242,020      1,242,020       1,242,020
Book value per share                                       $        6.48   $      6.13   $       6.93     $      8.23
Ratio of interest earning assets to interest
     bearing liabilities                                          127.61%       127.68%        134.86%         202.05%
Stockholders' equity as a percentage of                             9.86%         8.99%         18.29%          42.53%
     assets
</TABLE>

<TABLE>
<CAPTION>
                                               SELECTED FINANCIAL RATIOS
                              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, 2001 and 2000

Weighted average yield/rate on:
                                                                    2003           2002           2001           2000
                                                                    ----           ----          ----             ----
<S>                                                                 <C>           <C>            <C>             <C>
Loans                                                               5.98%         6.52%          7.38%           7.19%
Investments and interest bearing cash balances                       .80%         1.36%          3.79%           6.35%
Deposits and short-term borrowings                                  2.26%         2.84%          3.70%           5.25%
Net interest spread                                                 2.81%         2.80%          2.31%           1.17%
Net interest margin                                                 3.29%         3.43%          3.58%           4.75%
</TABLE>



<TABLE>
<CAPTION>
                                               SELECTED OPERATIONAL DATA
                              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, 2001 and 2000
                                     (dollars in thousands, except per share data)

                                                                  2003           2002           2001           2000
                                                                  ----           ----          ----             ----
<S>                                                        <C>             <C>           <C>            <C>
Interest income                                            $       5,520   $     3,486   $      1,882   $         782
Interest expense                                                   1,937         1,367            760             203
Net interest income                                                3,583         2,119          1,122             579
Provision for credit losses                                          415           405            377              70
Net interest income after provision for credit                     3,168         1,714            745             509
     losses
Non-interest income                                                  626           479            187              15
Non-interest expenses                                              3,786         3,185          2,548           2,177
Income (loss) before income taxes                                      8          (992)        (1,616)         (1,653)
Income taxes                                                           -             -              -               -
Net income (loss)                                          $           8   $      (992)  $     (1,616)   $     (1,653)

PER COMMON SHARE
Basic net income (loss) per share                          $         .00   $      (.80)  $      (1.30)   $      (1.98)
Diluted net income (loss) per share                        $         .00   $      (.80)  $      (1.30)   $      (1.98)
Average shares outstanding (Basic)                             1,660,348     1,242,020      1,242,020         834,652
Average shares outstanding (Diluted)                           1,682,905     1,242,020      1,242,020         834,652

</TABLE>


                                       17
<PAGE>



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, 2003 and 2002 and for the years ended December
31, 2003, 2002, and 2001.

General

         The Parent was incorporated on June 3, 1999 under the laws of the State
of Maryland to operate as a bank holding company of 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 the areas North of Baltimore and the areas surrounding 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 with an emphasis on meeting the borrowing
needs of small businesses. The Company's target customers are small closely held
businesses, business owners, professionals and high net worth individuals.

Overview

         The Company recorded its first annual profit of $7,581 for the year
ended December 31, 2003. This is an improvement of $1,000,075 or 101% over a net
loss of $992,494 for the year ended December 31, 2002. The Company reported a
net loss of $1,615,879 for the year ended December 31, 2001. This significant
improvement in results for the periods is due to the continued strong growth of
the loan portfolio, which reached the levels necessary to generate sufficient
net interest income to cover operating expenses. Monthly profitability was
achieved in June 2003, followed by quarterly profits of $107,348 and $131,323
for the third and fourth quarters of 2003, respectively. Management expects
continuous improvement in operating results as asset levels continue to grow.
However, actual results will be subject to the volatility of the provision for
credit losses, which is related to loan growth, and the volatility of mortgage
loan production, which is sensitive to economic and interest rate fluctuations.

         The losses for the years ended December 31, 2002, and 2001 were
expected since loan and deposit growth initially were not expected to produce
net interest income sufficient to cover operating expenses. The Company achieved
profitability in its 37th month of operation. On average, start-up community
banks do not achieve profitability during the first 24 to 36 months of
operation.

         Total assets of the Company were $122,328,256 as of December 31, 2003,
compared to total assets of $84,609,183 as of December 31, 2002. This represents
growth of approximately $37.7 million or 44.6% since December 31, 2002. The
growth in assets was funded by growth in deposits. Deposits at December 31, 2003
were $108,530,901 compared to deposits of $76,078,731 at December 31, 2002.
Deposit growth





                                       18
<PAGE>

resulted from the marketing efforts of officers and directors of
the Bank, and the use of two Internet based listing services for certificates of
deposit. Management has set the interest rates paid on deposits to be
competitive in the market and has continued to increase marketing activities
throughout the year.

         As of December 31, 2003, loans including loans held for sale (net of a
$1,266,500 allowance for credit losses), totaled $101,049,300. This represents
an increase of $31,004,039 or 44.3% from December 31, 2002. The composition of
the loan portfolio as of December 31, 2003 was approximately $61.9 million of
commercial loans (excluding real estate loans), $1.7 million of consumer loans,
and $37.8 million of real estate loans excluding $923,825 of mortgage loans held
for sale. The composition of the loan portfolio as of December 31, 2002 was
approximately $42.6 million of commercial loans (excluding real estate loans),
$4.0 million of consumer loans, and $21.5 million of real estate loans excluding
$2.8 million of mortgage loans held for sale. Growth in the loan portfolio is a
direct result of the marketing efforts of bank employees as well as members of
the Board of Directors, and the Baltimore and Salisbury Advisory Boards. The mix
of loans is consistent with the initial plans for the business.

         Funds not extended in loans are held in cash and due from banks, and
various investments including federal funds sold and other overnight
investments, United States Treasury securities, Federal Reserve Bank stock and
Federal Home Loan Bank stock. These investments totaled $19,515,869 as of
December 31, 2003 compare to $13,056,906 as of December 31, 2002. Other than the
investments in Federal Reserve Bank stock and Federal Home Loan Bank stock,
totaling $481,090 and $355,840 at December 31, 2003 and 2002, respectively, all
investments have maturities of 90 days or less. Management has made a decision
to maintain liquidity in the investment portfolio in order to ensure that funds
are readily available to fund the growth of the loan portfolio.

         Bay National Bank's mortgage division, based in Salisbury, Maryland,
originates conventional first and second residential mortgage loans. Bay
National Bank sells most of its first and second residential mortgage loans in
the secondary market and typically recognizes a gain on the sale of these loans
after the payment of commissions to the loan origination officer. The mortgage
division has been a significant contributor to operating results since its
inception in February 2001. For the years ended December 31, 2003, 2002, and
2001, gains on the sale of mortgage loans totaled $370,626, $334,815 and
120,570, respectively. The level of gains on the sale of mortgage loans has
remained strong due to the ongoing low interest rate environment, combined with
a strong housing market, creating an exceptional market for mortgage products.
An increase in interest rates, or a slow down in the housing market, could
negatively impact the Company's ability to maintain the same level of income
associated with mortgage loan production.

         Total capital at December 31, 2003 was $12,066,500 as compared to
$7,609,658 at December 31, 2002. The increase in capital is a result of positive
operating results and the completion of a private offering with 620,690 shares
issued and net proceeds after offering costs of $4,449,261. Management believes
that this capital is adequate to support expected asset growth for at least the
next 12 months.

Results of Operations

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 and other
short-term borrowings 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.

         Interest income from loans and investments for the year ended December
31, 2003 was $5,520,068, compared to $3,486,302 and $1,881,987 for the years
ended December 31, 2002 and 2001, respectively. The


                                       19
<PAGE>


58.34% increase over 2002, and the 193.31% increase over 2001, are directly
related to the 76.08% increase in average interest earning assets from 2002, and
the 247.64% increase in average interest earning assets from 2001. The increases
in average earning assets were somewhat offset by declines in average yields due
to a declining interest rate environment. The yields on these assets declined
from 6.01% for the year ended December 31, 2001 to 5.64% for the year ended
December 31, 2002 and to 5.07% for the year ended December 31, 2003.

         The percentage of average interest-earning assets represented by loans
was 82.5%, 83.0% and 62.0% for the years ended December 31, 2003, 2002, and
2001, respectively. Stability in the percentage of interest-earning assets
represented by the loan portfolio would normally be expected to result in
stability in average yields on interest-earning assets. However, loan yields
have steadily declined as a result of actions taken by the Federal Reserve to
reduce its target for the federal funds rate from 6.50% at December 31, 2000 to
1.75% at December 31, 2001, to 1.25% effective November 6, 2002, and finally to
1.00% effective June 25, 2003. For the year ended December 31, 2003, the average
yield on the loan portfolio decreased to 5.98% from 6.52% for the year ended
December 31, 2002. This decrease is due to the timing of the final two federal
funds rate decreases, which impacted 2003 more significantly than 2002. The
average yield on the loan portfolio for the year ended December 31, 2002 also
decreased to 6.52% from 7.38% for the year ended December 31, 2001. In 2002, the
rate environment was weak throughout the year; however, in 2001 the rate
environment was initially strong but declined steadily throughout the year. As a
result, in 2001 the Company received some benefit from the initial stronger rate
environment.

        The average yield on the investment portfolio was 0.80% for the year
ended December 31, 2003 as compared to 1.36% and 3.79% for the years ended
December 31, 2002 and 2001, respectively. The declines in the average yields
were a direct result of the Federal Reserve actions discussed above. The
percentage of average interest-earning assets represented by investments was
17.5%, 17.0% and 38.0% for the years ended December 31, 2003, 2002, and 2001,
respectively.

         Interest expense from deposits and short-term borrowings for the year
ended December 31, 2003 was $1,936,726, compared to $1,367,502 and $759,938 for
the years ended December 31, 2002 and 2001, respectively. The 41.63% increase
over 2002, and the 154.85% increase over 2001 are directly related to the 78.17%
increase in average interest-bearing liabilities from 2002, and the 317.21%
increase in average interest-bearing liabilities from 2001. The increases in
average interest-bearing liabilities were significantly offset by declines in
average rates paid due to the declining interest rate environment. The average
rates paid on these liabilities declined from 3.70% for the year ended December
31, 2001 to 2.84% for the year ended December 31, 2002 and to 2.26% for the year
ended December 31, 2003.



                                       20
<PAGE>



         The following tables set forth, for the periods indicated, 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.


<TABLE>
<CAPTION>
                                            Year Ended December 31, 2003

                                                                       Average         Interest        Yield/
                                                                       Balance         and fees        Rate
                                                                       -------         --------        -------
<S>                                                                 <C>              <C>                 <C>
ASSETS
Loans                                                               $  89,721,871    $  5,367,997        5.98%
Investment securities                                                   1,833,052          37,317        2.04
Federal funds sold and other overnight investments                     17,238,474         114,754         .67
                                                                     -------------    ------------
         Total Earning Assets                                         108,793,397       5,520,068        5.07%
                                                                                      ------------
Less: Allowance for credit losses                                      (1,090,526)
Cash and due from banks                                                   903,675
Premises and equipment, net                                               689,080
Accrued interest receivable and other assets                              396,583
                                                                     -------------
         Total Assets                                               $ 109,692,209
                                                                     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                    $  33,884,963         381,985        1.13%
Regular savings deposits                                                2,997,371          20,532         .69
Time deposits                                                          47,675,682       1,522,525        3.19
Short-term borrowings                                                   1,172,658          11,684        1.00
                                                                     -------------    ------------
         Total interest-bearing liabilities                            85,730,674       1,936,726        2.26%
                                                                                      ------------   ---------
         Net interest income and spread                                              $  3,583,342        2.81%
                                                                                      ============   =========
Non-interest-bearing demand deposits                                   13,158,325
Accrued expenses and other liabilities                                    386,732
Stockholders' equity                                                   10,416,478
                                                                     -------------
         Total Liabilities and Stockholders' Equity                 $ 109,692,209
                                                                     =============

Interest and fee income/earning assets                                       5.07%
Interest expense/earning assets                                              1.78
                                                                     -------------
Net interest margin                                                          3.29%
                                                                     =============

Return on Average Assets                                                       - %
                                                                     =============
Return on Average Equity                                                       - %
                                                                     =============
Average Equity to Average Assets                                             9.50%
                                                                     =============
</TABLE>



                                       21
<PAGE>





<TABLE>
<CAPTION>
                                            Year Ended December 31, 2002

                                                                       Average         Interest         Yield/
                                                                       Balance         and fees          Rate
ASSETS                                                                --------         ---------        -------
<S>                                                                 <C>              <C>                     <C>
Loans                                                               $  51,267,330    $  3,342,790         6.52%
Investment securities                                                     796,439          25,949         3.26
Federal funds sold and other overnight investments                      9,724,297         117,563         1.21
                                                                     -------------    ------------
         Total Earning Assets                                          61,788,066       3,486,302         5.64%
                                                                                      ------------
Less: Allowance for credit losses                                        (607,823)
Cash and due from banks                                                   688,916
Premises and equipment, net                                               770,440
Accrued interest receivable and other assets                              287,930
                                                                     -------------
         Total Assets                                               $  62,927,529
                                                                     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                    $  22,882,007         495,510         2.17%
Regular savings deposits                                                2,530,480          30,352         1.20
Time deposits                                                          22,379,802         836,763         3.74
Short-term borrowings                                                     325,786           4,877         1.50
                                                                     -------------    ------------
         Total interest-bearing liabilities                            48,118,075       1,367,502         2.84%
                                                                                      ------------    ---------
         Net interest income and spread                                              $  2,118,800         2.80%
                                                                                      ============    =========
Non-interest-bearing demand deposits                                    6,512,685
Accrued expenses and other liabilities                                    226,776
Stockholders' equity                                                    8,069,993
                                                                     -------------
         Total Liabilities and Stockholders' Equity                 $  62,927,529
                                                                     =============

Interest and fee income/earning assets                                       5.64 %
Interest expense/earning assets                                              2.21
                                                                     -------------
Net interest margin                                                          3.43 %
                                                                     =============

Return on Average Assets                                                    (1.58)%
                                                                     =============
Return on Average Equity                                                   (12.30)%
                                                                     =============
Average Equity to Average Assets                                            12.82 %
                                                                     =============
</TABLE>



                                       22
<PAGE>




<TABLE>
<CAPTION>
                                            Year Ended December 31, 2001

                                                                       Average         Interest         Yield/
                                                                       Balance         and fees          Rate
ASSETS                                                                 -------         --------         ------
<S>                                                                 <C>              <C>                     <C>
Loans                                                               $  19,395,046    $  1,431,030         7.38%
Investment securities                                                     275,940          16,200         5.87
Federal funds sold and other overnight investments                     11,624,139         434,757         3.74
                                                                     -------------    ------------
         Total Earning Assets                                          31,295,125       1,881,987         6.01%
                                                                                      ------------
Less: Allowance for credit losses                                        (234,580)
Cash and due from banks                                                   769,649
Premises and equipment, net                                               889,748
Accrued interest receivable and other assets                              115,669
                                                                     -------------
         Total Assets                                               $  32,835,611
                                                                     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                    $  14,119,718         519,783         3.68%
Regular savings deposits                                                2,435,613          52,000         2.13
Time deposits                                                           3,993,259         188,155         4.71
                                                                     -------------    ------------
         Total interest-bearing liabilities                            20,548,590         759,938         3.70%
                                                                                      ------------    ---------
         Net interest income and spread                                              $  1,122,049         2.31%
                                                                                      ============    =========
Non-interest-bearing demand deposits                                    2,710,623
Accrued expenses and other liabilities                                    141,699
Stockholders' equity                                                    9,434,699
                                                                     -------------
         Total Liabilities and Stockholders' Equity                 $  32,835,611
                                                                     =============

Interest and fee income/earning assets                                       6.01 %
Interest expense/earning assets                                              2.43
                                                                     -------------
Net interest margin                                                          3.58 %
                                                                     =============

Return on Average Assets                                                    (4.92)%
                                                                     =============
Return on Average Equity                                                   (17.13)%
                                                                     =============
Average Equity to Average Assets                                            28.73 %
                                                                     =============
</TABLE>



                                       23
<PAGE>



RATE/VOLUME ANALYSIS

         A rate/volume analysis, which demonstrates changes in
taxable-equivalent interest income and expense for significant assets and
liabilities, appears below. The calculation of rate, volume and rate/volume
variances is based on a procedure established for bank holding companies by the
Securities and Exchange Commission. Rate, volume and rate/volume variances
presented for each component may not total to the variances presented on totals
of interest income and interest expense because of shifts from year to year in
the relative mix of interest-earning assets and interest-bearing liabilities.

<TABLE>
<CAPTION>
                                                                Year ended December 31,
                                         ----------------------------------------------------------------------
                                                                     2003 vs. 2002
                                                                  Due to variances in
                                            Total              Rates             Volumes          Rate/ Volume
                                         ----------------------------------------------------------------------
<S>                                     <C>               <C>               <C>                  <C>
Interest earned on:
Loans                                   $   2,025,207     $     (275,501)   $      2,507,356     $    (206,648)
Investment Securities                          11,368             (9,735)             33,774           (12,671)
Federal funds sold and other
     overnight investments                     (2,809)           (52,830)             90,844           (40,823)
                                         -------------     --------------    -----------------    -------------
         Total interest income              2,033,766           (338,066)          2,631,974          (260,142)

Interest paid on:
Interest-bearing demand deposits             (113,525)          (237,561)            238,269          (114,233)
Regular savings deposits                       (9,820)           (13,018)              5,600            (2,402)
Time deposits                                 685,762           (122,063)            945,793          (137,968)
Short-term borrowings                           6,807             (1,631)             12,678            (4,240)
                                         -------------     --------------    -----------------    -------------
         Total interest expense               569,224           (374,273)          1,202,340          (258,843)
                                         -------------     --------------    -----------------    -------------

Net interest earned                     $   1,464,542     $       36,207    $      1,429,634     $      (1,299)
                                         =============     ==============    =================    =============



                                                                Year ended December 31,
                                         ----------------------------------------------------------------------
                                                                     2002 vs. 2001
                                                                  Due to variances in
                                            Total              Rates             Volumes          Rate/ Volume
                                         ----------------------------------------------------------------------
Interest earned on:
Loans                                   $   1,911,760     $     (183,119)   $      2,363,077     $    (268,198)
Investment Securities                           9,749             (7,210)             30,558           (13,599)
Federal funds sold and other
     overnight investments                   (317,194)          (294,226)            (71,056)           48,088
                                         -------------     --------------    -----------------    -------------
         Total interest income              1,604,315           (484,555)          2,322,579          (233,709)

Interest paid on:
Interest-bearing demand deposits              (24,273)          (214,020)            322,562          (132,815)
Regular savings deposits                      (21,648)           (22,786)              2,025              (887)
Time deposits                                 648,608            (38,850)            866,340          (178,882)
Short-term borrowings                           4,877            -                  -                    4,877
                                         -------------     --------------    -----------------    -------------
         Total interest expense               607,564           (275,656)          1,190,927          (307,707)
                                         -------------     --------------    -----------------    -------------

Net interest earned                     $     996,751     $     (208,899)   $      1,131,652     $      73,998
                                         =============     ==============    =================    =============
</TABLE>


PROVISION FOR CREDIT LOSSES

         The provision for loan losses was $415,000 for the year ended December
31, 2003, as compared to $404,500 for the year ended December 31, 2002, and
$377,000 for the year ended December 31, 2001. The provisions for each year were
the direct result of growth in loan balances outstanding in all segments of the
portfolio. For additional information regarding the methodology used to
determine the provision for credit losses see the Management Discussion and
Analysis section entitled "Allowance for Credit Losses and Credit Risk
Management."



                                       24
<PAGE>




NON-INTEREST INCOME

         Non-interest income consists primarily of gains on the sale of mortgage
loans, deposit account service charges, and cash management fees. For the year
ended December 31, 2003, the Company realized non-interest income in the amount
of $625,263 as compared to $478,516 and $186,751 for the years ended December
31, 2002 and 2001, respectively. Gains on the sale of mortgage loans of $370,326
are the most significant element of non-interest income, comprising 59.23% of
the total for the year ended December 31, 2003. This compares to gains on the
sale of mortgage loans of $334,815 or 69.97% of total non-interest income for
the year ended December 31, 2002, and $120,570 or 64.56% of total non-interest
income for the year ended December 31, 2001. The level of gains on the sale of
mortgage loans has remained strong due to the ongoing low interest rate
environment, combined with a strong housing market, creating an exceptional
market for mortgage products. An increase in interest rates, or a slow down in
the housing market, could negatively impact the Company's ability to maintain
the same level of income associated with mortgage loan production.

         Service charges on deposit accounts totaled $212,787 for the year ended
December 31, 2003, as compared to $105,766 and $26,630 for the years ended
December 31, 2002 and 2001, respectively. The increases of 101.19% over 2002,
and 699.05% over 2001 can be directly attributed to the growth in the Company's
deposit portfolio, and to the fact that the Company introduced additional fee
based commercial deposit products in 2002.

         The Company will continue to seek ways to expand its sources of
non-interest income. In the future, the Company may enter into fee arrangements
with strategic partners that offer investment advisory services, and risk
management and employee benefit services. 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, 2003, totaled
$3,786,024 compared to $3,185,310, and $2,547,679 for the years ended December
31, 2002 and 2001, respectively. The increase of $600,714, or 18.86%, for the
year included an increase in salaries and benefits of $301,722 related to
staffing growth initiated to increase marketing efforts, manage the growth of
the loan and deposit portfolios, and support increased operational volume.
Occupancy expenses increased by $47,052, or 22.12%, for the year ended December
31, 2003 as compared to the same period in 2002. This increase was due to
scheduled rent increases as well as a reduction in sublease income of
approximately $17,000 due to expansion of the Company's corporate office into
previously sublet space, and $8,400 of rental expense associated with new space
obtained for the mortgage division. The $136,731, or 34.21%, increase in data
processing and other outside services for the year ended December 31, 2003, as
compared to the same period in 2002, is the result of increased courier expenses
incurred to facilitate commercial deposit gathering with a limited branch
presence, and increased data and item processing costs paid to external service
providers. The data and item processing costs are volume driven based upon the
number of customer accounts and related transaction volume. As a result, these
costs increase with the growth of the Company. The $36,435, or 20.96% increase
in advertising and marketing related expenses for the year ended December 31,
2003 as compared to the same period in 2002 is related to increased efforts to
enhance the visibility of the Bank and attract new customers. The increase of
$41,792, or 16.80%, in other expenses relates to various costs associated with
the increased size and complexity of the Company.

         Non-interest expense for the year ended December 31, 2002, totaled
$3,185,310. This compares to non-interest expense for the comparable period in
2001 of $2,547,679. The increase of $637,631 or 25.03% for 2002 over 2001
resulted primarily from an increase in salaries and benefits of $405,386 related
to staff growth to increase marketing efforts, manage the growth of the loan and
deposit portfolios, and support increased operational volume. Advertising and
marketing expense increased $45,806 or 35.77%, from



                                       25
<PAGE>


$128,048 to $173,854 for the year ended December 31, 2002 as compared to the
same period in 2001. This was primarily the result of increased expenditures
made to increase public awareness of the Company and its services, and to grow
the Company's deposit and loan portfolios. Other expenses increased $66,768 or
36.68%, from $182,012 to $248,780 for the year ended December 31, 2002 as
compared to the same period in 2001. This was primarily the result of increased
operating expenses such as telephone, postage, and printing expenses of
approximately $35,000 which have increased with the growing customer base, and
increased insurance expense of approximately $12,000 related to rising prices
for insurance coverage.

         The growth of the Company's customer base will continue to require
additional staffing in order to service customers, and manage the business
properly. Management believes that continued growth in the customer base can be
accommodated without proportionate increases in these costs.

INCOME TAXES

         The Company has not incurred any income tax liability since its
inception. At December 31, 2003, the Company had net operating loss
carryforwards of approximately $3.9 million available to offset future taxable
income. The carryforwards at December 31, 2003 will expire beginning in 2019.

Financial Condition
-------------------

COMPOSITION OF LOAN PORTFOLIO

         As of December 31, 2003 and 2002, the weighted average yields on the
loan portfolio were 4.69% and 4.79% higher than the weighted average yields on
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 maintain
a relatively high percentage of loans to total earning assets. Accomplishing
this goal will ultimately result in maximizing net interest margin. As of
December 31, 2003 and 2002, loans represented 83.22% and 81.09% of total earning
assets, respectively.

         The following table sets forth the composition of the principal
balances of Company's loan portfolio as of December 31, 2003 and 2002,
respectively.

<TABLE>
<CAPTION>
                                                             2003                           2002
                                                ----------------------------      ---------------------------
<S>                                            <C>                    <C>        <C>                   <C>
      Real Estate - Home Equity Line of
          Credit                               $    16,078,166        15.86%     $     9,960,943       14.63%
      Real Estate - Construction                     8,101,017         7.99            3,700,389        5.44
      Real Estate - Mortgage                        13,687,709        13.50            7,816,997       11.48
      Commercial                                    61,868,002        61.02           42,566,165       62.52
      Consumer                                       1,657,081         1.63            4,033,767        5.93
                                                ----------------------------      ---------------------------
               Total loans                     $   101,391,975       100.00%     $    68,078,261      100.00%
                                                ============================      ===========================
</TABLE>


                                       26
<PAGE>




      The following table sets forth the maturity distribution for the Company's
loan portfolio at December 31, 2003. 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   $   16,078,166  $            -   $             -  $            -
      Real Estate - Construction                      7,847,205         253,812                 -               -
      Real Estate - Mortgage                          5,961,947       2,470,451         4,952,866         302,445
      Commercial                                     47,423,616       7,484,216         5,952,870       1,007,300
      Consumer                                        1,443,891         120,838            92,352               -
                                                  --------------  --------------   ---------------  --------------
               Total                             $   78,754,825  $   10,329,317   $    10,998,088  $    1,309,745
                                                  ==============  ==============   ===============  ==============

      Fixed interest rate                        $    8,151,166  $   10,329,317   $    10,998,088  $    1,309,745
      Variable interest rate                         70,603,659               -                 -               -
                                                  --------------  --------------   ---------------  --------------
               Total                             $   78,754,825  $   10,329,317   $    10,998,088  $    1,309,745
                                                  ==============  ==============   ===============  ==============
</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, 2003
reflects a 69.63% concentration in variable rate loans. Fixed rate loans total
$30,788,316 or 30.37% 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 from the Bank of
$4,672,104 at December 31, 2003. 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.

ALLOWANCE FOR CREDIT LOSSES AND CREDIT RISK MANAGEMENT

         Originating loans involves a degree of risk that credit losses will
occur in varying amounts according to, among other factors, the type of loans
being made, the credit-worthiness of the borrowers over the term of the loans,
the quality of the collateral for the loan, if any, as well as general economic
conditions. The Company charges the provision for loan losses to earnings to
maintain the total allowance for loan losses at a level considered by management
to represent its best estimate of the losses known and inherent in the portfolio
that are both probable and reasonable to estimate, based on, among other
factors, prior loss experience, volume and type of lending conducted, estimated
value of any underlying collateral, economic conditions (particularly as such
conditions relate to Bay National Corporation's market area), regulatory
guidance, peer statistics, management's judgment, past due loans in the loan
portfolio, loan charge off experience and concentrations of risk (if any). The
Company charges losses on loans against the allowance when it is believed that
collection of loan principal is unlikely. Recoveries on loans previously charged
off are added back to the allowance.

         Management uses a loan grading system where all loans are graded based
on management's evaluation of the risk associated with each loan. A factor,
based on the loan grading, is applied to the loan balance to reserve for
potential losses. In addition, management judgmentally establishes an additional



                                       27
<PAGE>

nonspecific reserve. The nonspecific portion of the allowance reflects
management's estimate of probable inherent but undetected losses within the
portfolio due to uncertainties in economic conditions, delays in obtaining
information, including unfavorable information about a borrower's financial
condition, the difficulty in identifying triggering events that correlate
perfectly to subsequent loss rates, and risk factors that have not yet
manifested themselves in loss allocation factors.

         The reserve factors used are based on management's judgment as to
appropriate reserve percentages for various categories of loans, and adjusting
those values based on the following: historical losses in each category,
historical and current delinquency in each category, underwriting standards in
each category, comparison of losses and delinquencies to peer group performance
and an assessment of the likely impact of economic and other external conditions
on the performance of each category.

         A test of the adequacy of the allowance for loan losses is performed
and reported to the Board of Directors on a monthly basis. Management uses the
information available to make a determination with respect to the allowance for
loan losses, recognizing that the determination is inherently subjective and
that future adjustments may be necessary depending upon, among other factors, a
change in economic conditions of specific borrowers or generally in the economy,
and new information that becomes available. However, there are no assurances
that the allowance for loan losses will be sufficient to absorb losses on
nonperforming assets, or that the allowance will be sufficient to cover losses
on nonperforming assets in the future.

         The allowance for credit losses as of December 31, 2003 and December
31, 2002 was $1,266,500 and $851,500, respectively. The amount equates to 1.25%
of outstanding loans, net of loans held for sale, as of December 31, 2003 and
2002. This percentage has remained consistent because no additional information
has indicated that the overall level of reserves is inappropriate. Bay National
Corporation has no exposure to foreign countries or foreign borrowers.
Management believes that the allowance for loan losses is adequate for each
period presented.

         The following table represents an analysis of the activity in the
allowance for credit losses for the periods presented:

<TABLE>
<CAPTION>
                                                                           2003            2002             2001
                                                                       -------------   -------------     -----------
<S>                                                                   <C>             <C>               <C>
             Balance at beginning of year                             $    851,500    $     447,000     $    70,000
             Provision for credit losses                                   415,000          404,500         377,000
             Loan charge-offs                                                    -               -                -
             Loan recoveries                                                     -               -                -
                                                                       -------------   -------------     -----------
             Net charge-offs                                                     -               -                -
                                                                       -------------   -------------     -----------
             Balance at end of year                                   $  1,266,500    $     851,500     $   447,000
                                                                       =============   =============     ===========
</TABLE>

         There were no loans that were considered impaired under SFAS No. 114 as
of December 31, 2003, 2002 and 2001 and for the years then ended.




                                       28
<PAGE>



         The following table presents the allocation of the allowance for credit
losses, reflecting use of the methodology presented above, along with the
percentage of total loans in each category as of December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                        As of December 31, 2003
                                                                       Amount              Loan Mix
                                                                    --------------       -------------
<S>                                                              <C>                            <C>
Real Estate - Home Equity Line of Credit                         $         80,370               15.86%
Real Estate - Construction                                                 86,252                7.99
Real Estate - Mortgage                                                    133,109               13.50
Commercial                                                                954,623               61.02
Consumer                                                                   10,324                1.63
Nonspecific                                                                 1,822                   -
                                                                    --------------       -------------
         Total Allowance                                         $      1,266,500              100.00%
                                                                    ==============       =============


                                        As of December 31, 2002
                                                                       Amount              Loan Mix
                                                                    --------------       -------------
Real Estate - Home Equity Line of Credit                         $         52,720               14.63%
Real Estate - Construction                                                 33,961                5.44
Real Estate - Mortgage                                                     84,548               11.48
Commercial                                                                626,699               62.52
Consumer                                                                   26,256                5.93
Nonspecific                                                                27,316                   -
                                                                    --------------       -------------
         Total Allowance                                         $        851,500              100.00%
                                                                    ==============       =============

</TABLE>

         The specifically allocated portion of the allowance for credit losses
increased in 2003. This occurred because the Company maintained an overall
reserve level of 1.25% while the underlying portfolio experienced a moderate
shift in the mix of loans by risk grade. The shift in the mix of loans by risk
grade is a normal result of the addition of new loans, the decrease in balances
of more mature loans, and the ongoing reassessment of all loans.

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, 2003 the Company had one loan with
a balance of $4,087 classified as a non-accrual loan. This loan was subsequently
charged off in January 2004. As of December 31, 2002, the Company did not have
any non-accrual 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 credit 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 with external inspections on at
least a quarterly basis. As of December 31, 2003, and December 31, 2002, the
Company held no real estate acquired as a result of foreclosure.


                                       29
<PAGE>


         The Company applies the provisions of Statements of Financial
Accounting Standards No. 114 ("SFAS No. 114"), "Accounting by Creditors for
Impairment of a Loan," as amended by Statements of Financial Accounting
Standards No. 118 ("SFAS No. 118"), "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure." SFAS No. 114 and SFAS No. 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 No. 114 impairment test to these loans.
Impaired loans will be written off when collection of the loan is doubtful.

         Other than the one non-accrual loan discussed above, the Company had no
impaired loans as of December 31, 2003 or December 31, 2002.

INVESTMENT PORTFOLIO

         The Company has chosen to invest its available funds primarily in
federal funds sold and other overnight investments. As a result, investment
securities as of December 31, 2003, consist of $312,690 of Federal Reserve Bank
stock, $168,400 of Federal Home Loan Bank stock, and $1,547,798 of U.S. Treasury
securities which mature within 3 months. Investment securities for the year
ended December 31, 2002, consisted only of $275,940 of Federal Reserve Bank
stock, $79,900 of Federal Home Loan Bank stock, and $948,361 of U.S. Treasury
securities which matured within 3 months. Management has made the decision to
maintain its available funds in highly liquid assets because it desires to
ensure that funds are readily available to fund the growth of the loan
portfolio, and because the yields available on other longer-term securities are
not substantially better than those currently being earned on short-term
investments. Management believes that this strategy will allow the Company to
maximize interest margins while maintaining appropriate levels of liquidity to
fund loan growth.

SOURCES OF FUNDS

         Deposits, short-term borrowings in the form of repurchase agreements,
and 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.

         The following table sets forth the composition of the Company's
deposits as of December 31, 2003 and December 31, 2002:


<TABLE>
<CAPTION>
                                                                 2003                           2002
                                                                 ----                           ----
<S>                                             <C>                    <C>        <C>                     <C>
      Demand Deposits                           $     36,345,970       33.49%     $    25,154,309         33.06%
      Savings                                          3,202,587        2.95            2,632,826          3.46
      Money Market and sweep                          18,554,644       17.10           14,197,030         18.66
      Certificates of deposit                         50,427,700       46.46           34,094,566         44.82
                                                 ----------------------------      --------------- -------------
               Total deposits                   $    108,530,901      100.00%     $    76,078,731        100.00%
                                                 ============================      =============== =============
</TABLE>


                                       30
<PAGE>


         The mix of deposits has remained relatively steady from year to year.
The slight increase in the percentage of deposits represented by certificates of
deposit is due to depositors seeking the best available return in the prevailing
low interest rate environment.

         The following table sets forth the maturity distribution for the
Company's deposits at December 31, 2003. 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                           $   36,345,970  $             -  $              -  $             -
      Savings                                        3,202,587                -                 -                -
      Money Market and sweep                        18,554,644                -                 -                -
      Certificates of deposit                       26,671,172        8,679,932        15,076,596                -
                                                 --------------  ---------------  ----------------  --------------
               Total                            $   84,774,373  $     8,679,932  $     15,076,596  $             -
                                                 ==============  ===============  ================  ==============
</TABLE>

          Certificates of deposit in amounts of $100,000 or more and their
remaining maturities at December 31, 2003 are as follows:


<TABLE>
<CAPTION>
<S>                                                                                                <C>
      Three months or less                                                                         $     4,258,011
      Over three months through six months                                                               3,069,247
      Over six months through twelve months                                                              2,897,570
      Over twelve months                                                                                 5,226,650
                                                                                                      ------------
           Total                                                                                   $    15,451,478
                                                                                                      ============
</TABLE>

         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 has
chosen to selectively compete for large certificates of deposits. The Company
will choose to pursue such deposits when expected loan growth provides for
adequate spreads to support the cost of those funds. As of December 31, 2003,
the Company had outstanding certificates of deposit of approximately $25 million
that were obtained through the listing of certificate of deposit rates on two
Internet based listing services. These certificates of deposit were issued with
an average yield of 2.75% and an average term of 27.4 months. Included in the
$25 million of Internet originated certificates of deposit is $790,157 that has
been classified as "Brokered Deposits" for bank regulatory purposes. These
"Brokered Deposits" were issued in average amounts of approximately $99,000 with
an average yield of 3.81% and an average term of 30.6 months. As of December 31,
2002, the total certificates of deposit obtained through the listing of
certificate of deposit rates on the Internet based listing services was
approximately $15.9 million, of which $4.0 million were classified as "Brokered
Deposits." The Company has never paid broker fees for deposits and has not
accepted any new "Brokered Deposits" since August 2002.

INTEREST RATE SENSITIVITY

         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 works 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.


                                       31
<PAGE>


         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.

         The following table sets forth the amount of the Company's
interest-earning assets and interest-bearing liabilities as of December 31,
2003, which are expected to mature or reprice in each of the time periods shown:

<TABLE>
<CAPTION>
                                                                            Maturity or repricing within
                                                   Percent
                                                      of          0 to 3       4 to 12         1 to 5      Over 5
                                        Amount       Total         Months       Months          Years       Years
                                       ---------    --------      ----------   ---------       --------    --------
<S>                                 <C>               <C>      <C>                          <C>         <C>
  Interest-earning assets
        Federal   funds  sold  and
           other overnight
           investments             $  17,486,981       14.35%  $  17,486,981  $          -   $           -  $          -
        Loans held for sale              923,825         .76         923,825             -               -             -
        Investment securities
           available for sale          1,547,798        1.27       1,547,798             -               -             -
        Loans - Variable rate         70,603,659       57.95      70,603,659             -               -             -
        Loans - Fixed rate            30,788,316       25.27       2,354,630     5,796,536      21,327,405      1,309,745
        Other earning assets             481,090         .40               -             -               -        481,090
                                       ---------    --------      ----------    ---------       ----------  ------------
         Total interest-earning
            assets                 $ 121,831,669      100.00%  $  92,916,893  $  5,796,536   $  21,327,405  $   1,790,835
                                       =========    ========      ==========    =========      ==========   ============

  Interest-bearing liabilities
     Deposits - Variable rate      $  43,825,292       45.90%  $  43,825,292  $          -   $           -  $           -
     Deposits - Fixed rate            50,427,700       52.82       9,734,933    16,936,239      23,756,528              -
     Short-term borrowings             1,222,000        1.28       1,222,000             -               -              -
                                       ---------    --------      ----------    ---------       ----------  ------------
        Total interest-bearing
           liabilities             $  95,474,992      100.00%  $  54,782,225  $ 16,936,239   $  23,756,528  $           -
                                       =========    ========      ==========    =========      ==========   ============

  Periodic repricing differences
     Periodic gap                                              $  38,134,668  $(11,139,703)  $  (2,429,123)     1,790,835
                                                                  ==========    ==========       ==========  ============
     Cumulative gap                                            $  38,134,668  $ 26,994,965   $  24,565,842  $  26,356,677
                                                                  ==========   ===========       ==========  ============

  Ratio of rate  sensitive  assets
      to  rate sensitive  liabilities                                 169.61%        34.23%          89.78%           N/A



</TABLE>

         The Company has 72.30% of its interest-earning assets, and 47.18% of
its interest-bearing liabilities in variable rate balances. The excess of
interest-earning assets over interest-bearing liabilities of $26,994,965 in the
categories of items maturing or repricing within 12 months comprises the
majority of the overall gap. This gap is generally reflective of the Company's
emphasis on originating variable rate loans, and the demand in the market for
higher yielding fixed rate deposits. 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-




                                       32
<PAGE>

earning assets and interest-bearing liabilities 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 and short-term fixed rate loans will best
facilitate the goal of minimizing interest rate risk. However, management will
opportunistically enter into longer term fixed rate loans and/or investments
when, in management's judgment, rates adequately compensate the Company for the
interest rate risk. The Company's current investment concentration in federal
funds sold and other overnight investments provides the most flexibility 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 deposit
maturity difficult.

         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 attempts 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.

LIQUIDITY

         The Company's overall asset/liability strategy takes into account the
need to maintain adequate liquidity to fund asset growth and deposit runoff.
Management monitors the liquidity position daily.

         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, 2003, the Company had $573,124 in cash and
due from banks, and $17,486,981 in federal funds sold and other overnight
investments. As of December 31, 2002, the Company had $363,031 in cash and due
from banks, and $11,752,705 in federal funds sold and other overnight
investments. The increase in the overall level of liquid assets is the result of
an ongoing effort by management to maintain adequate liquidity to fund loan
growth and declines in deposit levels. Growth in the Company's loan portfolio,
without corresponding growth in deposits, would reduce liquidity, as would
reductions in the level of customer deposits.

         During the first quarter of 2004, the Company received commitments for
a total of $4.0 million of borrowing availability under unsecured Federal funds
lines of credit with two separate financial institutions. The credit facilities
can be used in conjunction with the normal deposit strategies, which include
pricing changes to increase deposits as necessary. The Company can also sell or
pledge investment securities to create additional liquidity. From time to time
the Company may sell or participate out loans to create additional liquidity as
required.

         The Company has sufficient liquidity to meet its loan commitments as
well as fluctuations in deposits. The Company will choose to retain maturing
certificates of deposit, when necessary, by offering competitive rates.
Management is not aware of any demands, trends, commitments, or events that
would result in the Company's inability to meet anticipated or unexpected
liquidity needs.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND
OFF-BALANCE SHEET ARRANGEMENTS

         The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business. These financial instruments primarily
include commitments to extend credit, lines of credit and standby letters of
credit. In addition, the Company also has operating lease obligations and
purchase commitments. The Company uses these financial instruments to meet the
financing needs of its customers. These financial instruments involve, to
varying degrees, elements of credit, interest rate, and liquidity risk.


                                       33
<PAGE>


         Outstanding loan commitments and lines and letters of credit at
December 31 of 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                       2003                2002
                                                                                       ----                ----
<S>                                                                               <C>                 <C>
             Loan commitments                                                     $   11,458,333      $   2,421,928
             Unused lines of credit                                                   32,234,145         19,989,764
             Letters of credit                                                         2,167,501            733,278
</TABLE>

         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.
Commitments generally have interest rates fixed at current market amounts, fixed
expiration dates or other termination clauses and may require payment of a fee.
Unused lines of credit represent the unused portion of lines of credit
previously extended and available to the customer so long as there is no
violation of any contractual condition. These lines generally have variable
interest rates. Since many of the commitments are expected to expire without
being drawn upon, and since it is unlikely that customers will draw upon their
lines of credit in full at any time, the total commitment amount or line of
credit amount does not necessarily represent future cash requirements. The
Company is not aware of any loss it would incur by funding its committments or
lines of credit.

         Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. The Company's exposure
to credit loss in the event of nonperformance by the customer is the contract
amount of the committment.

         In general, loan commitments, lines of credit and letters of credit are
made on the same terms, including with respect to collateral, as outstanding
loans. Each customer's credit-worthiness and the collateral required is
evaluated on a case-by-case basis.

         The increase in the overall level of loan commitments and unused lines
of credit as of December 31, 2003 as compared to loan commitments and unused
lines of credit as of December 31, 2002, is a direct result of the same
marketing activities that resulted in the 44.3% increase in outstanding loans.

         The Company has various financial obligations, including contractual
obligations and commitments that may require future cash payments.

         The following table presents, as of December 31, 2003, significant
fixed and determinable contractual obligations to third parties by payment date.


<TABLE>
<CAPTION>
                                                  Within one     One to three         Three to        Over five
                                                     year            years           five years         years
                                                 --------------  ---------------  ----------------  --------------
<S>                                             <C>             <C>              <C>               <C>
      Deposits without a
       stated maturity(a)                       $   58,103,526  $      -         $       -         $      -
      Certificates of deposit (a)                   26,801,697        8,879,932        15,076,596         -
      Short-term borrowings                          1,222,000         -                 -                -
      Operating leases                                 189,579           37,809          -                -
      Purchase obligations                             288,321         -                 -                -
                                                 --------------  ---------------  ----------------  --------------
               Total                            $   86,605,123  $     8,917,741  $     15,076,596  $      -
                                                 ==============  ===============  ================  ==============
</TABLE>

(a) Includes accrued interest payable.

        The Company's operating lease obligations represent short and long-term
lease and rental payments for facilities. Purchase obligations represent
estimated obligations under agreements to purchase goods or services that are
enforceable and legally binding on the Company. The purchase obligation amounts
presented above primarily relate to estimated obligations under data and item
processing contracts, and accounts payable for goods and services received
through December 31, 2003.



                                       34
<PAGE>


CAPITAL RESOURCES

         The Company had stockholders' equity at December 31, 2003 of
$12,066,500 as compared to $7,609,658 at December 31, 2002. The increase in
capital is a result of the positive operating results and completion of a
private offering with 620,690 shares issued and net proceeds after offering
costs of $4,449,261. 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 that 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, 2003.

         Management and the Board of Directors regularly monitor capital levels,
and proactively evaluate various alternatives for raising capital in advance of
the actual need. See "Item 5 Market for Common Equity and Related Stockholder
Matters - Recent Sales of Unregistered Securities."

         The tables below present the Bank's capital position relative to its
various minimum regulatory capital requirements as of December 31, 2003, and
2002. For a discussion of these capital requirements, see "Item 1 Description of
Business - Supervision and Regulation - Bay National Bank - Capital Adequacy
Guidelines."

<TABLE>
<CAPTION>

<S>                                   <C>              <C>       <C>                 <C>      <C>                <C>
                                                   December 31, 2003
-------------------------------------------------------------------------------------------------------------------------
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                         For Capital              Prompt Corrective
                                               Actual                 Adequacy Purpose            Action Provisions
                                      -----------------------------------------------------------------------------------
                                          Amount      Ratio         Amount        Ratio           Amount       Ratio
Total Capital (to Risk Weighted       -----------------------------------------------------------------------------------
    Assets):                          $  11,729,127    10.16  %  $  9,238,000        8.00  %  $  11,547,000      10.00  %
Tier I Capital (to Risk Weighted
    Assets):                             10,462,627     9.06  %     4,619,000        4.00  %      6,928,000       6.00  %
Tier I Capital (to Average Assets):      10,462,627     8.93  %     3,516,000        3.00  %      5,860,000       5.00  %


                                                   December 31, 2002
-------------------------------------------------------------------------------------------------------------------------
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                         For Capital              Prompt Corrective
                                               Actual                 Adequacy Purpose            Action Provisions
                                      -----------------------------------------------------------------------------------
                                          Amount      Ratio         Amount        Ratio           Amount       Ratio
                                      -----------------------------------------------------------------------------------
Total Capital (to Risk Weighted
    Assets):                          $  7,808,473     10.21  %  $  6,120,000        8.00  %  $  7,650,000      10.00  %
Tier I Capital (to Risk Weighted
    Assets):                             6,956,973      9.09  %     3,060,000        4.00  %     4,590,000       6.00  %
Tier I Capital (to Average Assets):      6,956,973      9.13  %     2,286,000        3.00  %     3,810,000       5.00  %


</TABLE>

Impact Of Inflation And Changing Prices
---------------------------------------

         The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America, which require the


                                       35
<PAGE>


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.

Application Of Critical Accounting Policies
--------------------------------------------

        The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America and follow general practices within the industries in which it operates.
Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments
are based on information available as of the date of the financial statements;
accordingly, as this information changes, the financial statements could reflect
different estimates, assumptions, and judgments. Certain policies inherently
have a greater reliance on the use of estimates, assumptions, and judgments and
as such have a greater possibility of producing results that could be materially
different than originally reported. Estimates, assumptions, and judgments are
necessary when assets and liabilities are required to be recorded at fair value,
when a decline in the value of an asset not carried on the financial statements
at fair value warrants an impairment write-down or valuation reserve to be
established, or when an asset or liability must be recorded contingent upon a
future event. Carrying assets and liabilities at fair value inherently results
in more financial statement volatility. The fair values and the information used
to record valuation adjustments for certain assets and liabilities are based
either on quoted market prices or are provided by other third-party sources,
when available.

        The most significant accounting policies followed by the Company are
presented in Note 1 to the consolidated financial statements. These policies,
along with the disclosures presented in the other financial statement notes and
in this financial review, provide information on how significant assets and
liabilities are valued in the financial statements and how those values are
determined. Based on the valuation techniques used and the sensitivity of
financial statement amounts to the methods, assumptions, and estimates
underlying those amounts, management has identified the determination of the
allowance for credit losses as the accounting area that requires the most
subjective or complex judgments, and as such could be most subject to revision
as new information becomes available.

        The allowance for credit losses represents management's best estimate of
losses known and inherent in the loan portfolio that are both probable and
reasonable to estimate, based on, among other factors; prior loss experience of
the Company and peer institutions, current economic conditions, review of the
ongoing financial conditions of borrowers, and the views of the Company's
regulators and the firm that conducts an annual independent loan review.
Determining the amount of the allowance for credit losses is considered a
critical accounting estimate because it requires significant estimates,
assumptions, and judgments. The loan portfolio also represents the largest asset
type on the consolidated balance sheets.

         The Company uses a loan grading system where loans are graded based on
management's evaluation of the risk associated with each loan. A factor, based
on the loan grading is applied to the loan balance to reserve for losses. In
addition, management judgmentally establishes an additional nonspecific reserve.
The nonspecific portion of the allowance reflects management's estimate of
probable inherent but undetected losses within the portfolio due to
uncertainties in economic conditions, delays in obtaining information, including
unfavorable information about a borrower's financial condition, the difficulty
in identifying triggering events that correlate perfectly to subsequent loss
rates, and risk factors that have not yet manifested themselves in loss
allocation factors.


                                       36
<PAGE>


         Management has significant discretion in making the judgments inherent
in the determination of the provision and allowance for credit losses, including
in connection with the valuation of collateral and the financial condition of
the borrower, and in establishing allowance percentages and risk ratings. The
establishment of allowance factors is a continuing exercise and allowance
factors may change over time, resulting in an increase or decrease in the amount
of the provision or allowance based upon the same volume and classification of
loans.

         Changes in allowance factors or in management's interpretation of those
factors will have a direct impact on the amount of the provision, and a
corresponding effect on income and assets. Also, errors in management's
perception and assessment of the allowance factors could result in the allowance
not being adequate to cover losses in the portfolio, and may result in
additional provisions or charge-offs, which would adversely affect income and
capital. For additional information regarding the allowance for loan and lease
losses, see the "Provision for Credit Losses and Credit Risk Management" section
of this financial review.

Recent Accounting Pronouncements And Developments
--------------------------------------------------

        Note 1 to the consolidated financial statements discusses new accounting
policies adopted by the Company during 2003 and the expected impact of
accounting policies recently issued or proposed but not yet required to be
adopted. To the extent the adoption of new accounting standards materially
affects the Company's financial condition, results of operations, or liquidity,
the impacts are discussed in the applicable section(s) of this financial review
and notes to the consolidated financial statements.

Risk Management
---------------

        The Board of Directors is the foundation for effective corporate
governance and risk management. The Board demands accountability of management,
keeps stockholders' and other constituencies' interests in focus, and fosters a
strong internal control environment. Through its Executive, Loan, Investment and
Audit Committees, the Board actively reviews critical risk positions, including
market, credit, liquidity, and operational risk. The Company's goal in managing
risk is to reduce earnings volatility, control exposure to unnecessary risk, and
ensure appropriate returns for risk assumed. Senior management actively manages
risk at the line of business level, supplemented with corporate-level oversight
through the Asset Liability Committee, the internal audit process and quality
control functions, and other risk management groups within the Company. This
risk management structure is designed to surface risk issues through a
systematic process, enabling timely and appropriate action to avoid and mitigate
risk. The risk management process establishes risk limits and other measurement
systems, with a focus on risk reduction strategies, and capital allocation
practices.


                                       37
<PAGE>



Item 7.  Financial Statements

         The following consolidated financial statements are filed with this
         report:

         Independent Auditors' Report

         Consolidated Balance Sheets - December 31, 2003 and 2002

         Consolidated Statements of Operations - For the years ended December
         31, 2003, 2002 and 2001

         Consolidated Statements of Changes in Stockholders' Equity - For the
         years ended December 31, 2003, 2002 and 2001

         Consolidated Statements of Cash Flows - For the year ended December 31,
         2003, 2002 and 2001

         Notes to Consolidated Financial Statements




                                       38
<PAGE>



                          INDEPENDENT AUDITORS' REPORT


Audit Committee of the
Board of Directors and Stockholders
Bay National Corporation

           We have audited the accompanying consolidated balance sheets of Bay
National Corporation and subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2003. 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 of America. 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, 2003 and 2002, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Stegman & Company
Baltimore, Maryland
January 16, 2004





                                       39
<PAGE>



<TABLE>
<CAPTION>

                            BAY NATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                           December 31, 2003 and 2002

                                                                                     2003                  2002
                                                                                ----------------      ---------------
ASSETS
<S>                                                                           <C>                    <C>
     Cash and due from banks                                                  $         573,124      $       363,031
     Federal funds sold and other overnight investments                              17,486,981           11,752,705
     Loans held for sale                                                                923,825            2,818,500
     Investment securities available for sale (AFS) - at fair value                   1,547,798              948,361
     Other equity securities                                                            481,090              355,840
     Loans, net of unearned fees                                                    101,391,975           68,078,261
         Less: Allowance for credit losses                                           (1,266,500)            (851,500)
                                                                                ----------------      ---------------
              Loans, net                                                            100,125,475           67,226,761
     Premises and equipment, net                                                        637,612              709,203
     Accrued interest receivable and other assets                                       552,351              434,782
                                                                                ----------------      ---------------

              Total Assets                                                    $     122,328,256      $    84,609,183
                                                                                ================      ===============


LIABILITIES

     Non-interest-bearing deposits                                            $      14,277,909      $    10,834,350
     Interest-bearing deposits                                                       94,252,992           65,244,381
                                                                                ----------------      ---------------
         Total deposits                                                             108,530,901           76,078,731

     Short-term borrowings                                                            1,222,000              507,000
     Accrued expenses and other liabilities                                             508,855              413,794
                                                                                ----------------      ---------------

              Total Liabilities                                                     110,261,756           76,999,525
                                                                                ----------------      ---------------

STOCKHOLDERS' EQUITY

     Common stock - $.01 par value, authorized:
         9,000,000 shares authorized, 1,862,710 and 1,242,020 issued and
         outstanding as of December 31, 2003 and 2002, respectively:                     18,627               12,420
     Additional paid in capital                                                      16,850,834           12,407,780
     Accumulated deficit                                                             (4,802,961)          (4,810,542)
                                                                                ----------------      ---------------

              Total Stockholders' Equity                                             12,066,500            7,609,658
                                                                                ----------------      ---------------

              Total Liabilities and Stockholders' Equity                      $     122,328,256      $    84,609,183
                                                                                ================      ===============


                             See accompanying notes to consolidated financial statements.

</TABLE>



                                       40
<PAGE>

<PAGE>
<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------
              For the years ended December 31, 2003, 2002 and 2001

                                                                         2003             2002              2001
                                                                     -------------    -------------     -------------

INTEREST INCOME:
<S>                                                                <C>               <C>               <C>
   Interest and fees on loans                                      $    5,367,997    $   3,342,790     $   1,431,030
   Interest on federal funds sold and other overnight
        Investments                                                       114,754          117,563           434,757
   Taxable interest and dividends on investment securities                 37,317           25,949            16,200
                                                                     -------------    -------------     -------------
     Total interest income                                              5,520,068        3,486,302         1,881,987
                                                                     -------------    -------------     -------------

INTEREST EXPENSE:
   Interest on deposits                                                 1,925,042        1,362,625           759,938
   Interest on short-term borrowings                                       11,684            4,877           -
                                                                     -------------    -------------     -------------
     Total interest expense                                             1,936,726        1,367,502           759,938
                                                                     -------------    -------------     -------------

Net interest income                                                     3,583,342        2,118,800         1,122,049

Provision for credit losses                                               415,000          404,500           377,000
                                                                     -------------    -------------     -------------

Net interest income after provision for credit losses                   3,168,342        1,714,300           745,049
                                                                     -------------    -------------     -------------

NON-INTEREST INCOME:
   Service charges on deposit accounts                                    212,787          105,766            26,630
   Gain on sale of mortgage loans                                         370,326          334,815           120,570
   Other income                                                            42,150           37,935            39,551
                                                                     -------------    -------------     -------------
     Total non-interest income                                            625,263          478,516           186,751
                                                                     -------------    -------------     -------------

NON-INTEREST EXPENSE:
   Salaries and employee benefits                                       2,115,351        1,813,629         1,408,243
   Occupancy expenses                                                     259,719          212,667           191,848
   Furniture and equipment expenses                                       215,254          192,900           175,376
   Legal and professional fees                                            158,406          143,778           129,588
   Data processing and other outside services                             536,433          399,702           332,564
   Advertising and marketing related expenses                             210,289          173,854           128,048
   Other expenses                                                         290,572          248,780           182,012
                                                                     -------------    -------------     -------------
     Total non-interest expenses                                        3,786,024        3,185,310         2,547,679
                                                                     -------------    -------------     -------------

Income (Loss) before income taxes                                           7,581         (992,494)       (1,615,879)
Income tax (expense) benefit                                                   -                -                 -
                                                                     -------------    -------------     -------------
Net Income (Loss)                                                  $        7,581    $    (992,494)    $  (1,615,879)
                                                                     =============    =============     =============


Per Share Data:
   Net Income (Loss) (Basic)                                       $          .00    $        (.80)    $       (1.30)
   Net Income (Loss) (Diluted)                                     $          .00    $        (.80)    $       (1.30)
   Average Shares Outstanding (Basic)                                   1,660,348        1,242,020         1,242,020
   Average Shares Outstanding (Diluted)                                 1,682,905        1,242,020         1,242,020


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


                                       41
<PAGE>



<TABLE>
<CAPTION>
                                                                 BAY NATIONAL CORPORATION
                                                 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                 ----------------------------------------------------------
                                                    For the years ended December 31, 2003, 2002 and 2001



                                                            Additional
                                                              Paid in           Accumulated
                                         Common Stock         Capital             Deficit            Total
                                         -------------     --------------    -----------------    -------------
<S>                                     <C>               <C>               <C>                  <C>
Balances at December 31, 2000           $      12,420     $   12,407,780    $     (2,202,169)    $  10,218,031

Net Loss                                      -                  -                (1,615,879)       (1,615,879)
                                         -------------     --------------    -----------------    -------------
Balances at December 31, 2001                  12,420         12,407,780          (3,818,048)        8,602,152

Net Loss                                      -                  -                  (992,494)         (992,494)
                                         -------------     --------------    -----------------    -------------
Balances at December 31, 2002                  12,420         12,407,780          (4,810,542)        7,609,658

Issuance of Common Stock                        6,207          4,443,054            -                4,449,261

Net Income                                    -                  -                     7,581             7,581
                                         -------------     --------------    -----------------    -------------
Balances at December 31, 2003           $      18,627     $   16,850,834    $     (4,802,961)    $  12,066,500
                                         =============     ==============    =================    =============





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


                                       42
<PAGE>


<TABLE>
<CAPTION>

                                                BAY NATIONAL CORPORATION
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        -------------------------------------
                                 For the years ended December 31, 2003, 2002 and 2001


                                                                  2003                2002                2001
                                                              --------------     ---------------     ---------------
Cash Flows From Operating Activities:
<S>                                                          <C>                <C>                 <C>
   Net Income (Loss)                                         $        7,581     $      (992,494)    $    (1,615,879)
   Adjustments to reconcile net income (loss) to net cash
     provided (used) by operating activities:
       Depreciation                                                 189,858             189,872             179,736
       Amortization of investment (discounts) premiums, net         (14,804)             (7,648)           -
       Provision for credit losses                                  415,000             404,500             377,000
       Gain on sale of loans                                       (370,326)           (334,815)           (120,570)
       Origination of loans held for sale                       (35,629,285)        (32,594,732)        (13,710,790)
       Proceeds from sale of loans                               37,894,286          30,793,047          13,149,360
       Net increase in accrued interest
              receivable and other assets                          (117,569)           (166,517)           (184,720)
       Net (decrease) increase in accrued
                 expenses and other liabilities                      95,061             129,247             133,393
                                                              --------------     ---------------     ---------------
            Net cash provided (used) by operating
                activities                                       2,469,802           (2,579,540)         (1,792,470)
                                                              --------------     ---------------     ---------------

Cash Flows From Investing Activities:
   Purchases of investment securities                            (6,284,633)         (2,440,713)           -
   Maturities of investment securities                            5,700,000           1,500,000            -
   Purchase of Federal Reserve Bank stock                           (36,750)           -                   -
   Purchase of Federal Home Loan Bank of Atlanta
     stock                                                          (88,500)            (79,900)           -
   Net increase in loans                                        (33,313,714)        (32,216,206)        (30,213,734)
   Expenditures for premises and equipment                         (118,267)            (68,449)            (70,858)
                                                              --------------     ---------------     ---------------
            Net cash used by investing activities               (34,141,864)        (33,305,268)        (30,284,592)
                                                              --------------     ---------------     ---------------

Cash Flows From Financing Activities:
   Net increase in deposits                                      32,452,170          37,939,604          24,482,487
   Net increase in short-term borrowings                            715,000             507,000            -
   Issuance of common stock                                       4,449,261            -                   -
                                                              --------------     ---------------     ---------------
            Net cash provided by financing activities            37,616,431          38,446,604          24,482,487
                                                              --------------     ---------------     ---------------

Net increase (decrease) in cash and cash equivalents              5,944,369           2,561,796          (7,594,575)
Cash and cash equivalents at beginning of year                   12,115,736           9,553,940          17,148,515
                                                              --------------     ---------------     ---------------

Cash and cash equivalents at end of period                   $   18,060,105     $    12,115,736     $     9,553,940
                                                              ==============     ===============     ===============

Cash paid for:
   Interest                                                  $    1,926,169     $     1,296,200     $       731,603
                                                              ==============     ===============     ===============
   Income taxes                                              $            -     $      -            $      -
                                                              ==============     ===============     ===============


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




                                       43
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


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 of America and to general
practices in the banking industry.

         Certain reclassifications have been made to amounts previously reported
to conform to the classifications made in 2003.

         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 accounting
principles generally accepted in the United States of America 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.



                                       44
<PAGE>

                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


         Investments Available-for-Sale and Other Equity Securities
         ----------------------------------------------------------

         Marketable equity securities and debt securities not classified as
held-to-maturity or trading are classified as available-for-sale. Securities
available-for-sale are acquired as part of the Company's asset/liability
management strategy and may be sold in response to changes in interest rates,
loan demand, changes in prepayment risk and other factors. Securities
available-for-sale are carried at fair value, with unrealized gains or losses
based on the difference between amortized cost and fair value reported as
accumulated other comprehensive income, a separate component of stockholders'
equity, net of deferred tax. Realized gains and losses, using the specific
identification method, are included as a separate component of non-interest
income. Related interest and dividends are included in interest income. Declines
in the fair value of individual available-for-sale securities below their cost
that are other than temporary result in write-downs of the individual securities
to their fair value. Factors affecting the determination of whether an
other-than-temporary impairment has occurred include a downgrading of the
security by a rating agency, a significant deterioration in the financial
condition of the issuer, or that management would not have the intent and
ability to hold a security for a period of time sufficient to allow for any
anticipated recovery in fair value.

         Other equity securities represent Federal Reserve Bank and Federal Home
Loan Bank of Atlanta stock, which are considered restricted as to marketability.

         Loans Held for Sale
         -------------------

         The Company engages in sales of residential mortgage loans originated
by the Bank. Loans held for sale are carried at the lower of aggregate cost or
fair value. Fair value is derived from secondary market quotations for similar
instruments. Gains and losses on sales of these loans are recorded as a
component of non-interest income in the accompanying consolidated statements of
operations. The Company's current practice is to sell loans on a servicing
released basis, and, therefore, it has no intangible asset recorded for the
value of such servicing at either December 31, 2003 or December 31, 2002.

         Loans
         -----

         Loans are stated at the principal amount outstanding net of any
deferred fees and direct costs. 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.

         Loans are considered impaired when, based on current information, it is
probable that the Company will not collect all principal and interest payments
according to contractual terms. Generally, loans are considered impaired once
principal and interest payments are past due and they are placed on non-accrual.
Management also considers the financial condition of the borrower, cash flows of
the loan and the value of the related collateral. Impaired loans do not include
large groups of smaller balance homogeneous credits such as residential real
estate, consumer installment loans, and commercial leases, which are evaluated
collectively for impairment. Loans specifically reviewed for impairment are not
considered impaired during periods of "minimal delay" in payment (usually ninety
days or less) provided eventual collection of all amounts due is expected.
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


                                       45
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


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. A factor, based
on the loan grading is applied to the loan balance to reserve for losses. In
addition, management judgmentally establishes an additional nonspecific reserve.
The nonspecific portion of the allowance reflects management's estimate of
probable inherent but undetected losses within the portfolio due to
uncertainties in economic conditions, delays in obtaining information, including
unfavorable information about a borrower's financial condition, the difficulty
in identifying triggering events that correlate perfectly to subsequent loss
rates, and risk factors that have not yet manifested themselves in loss
allocation factors. The adequacy of the allowance is determined through careful
and continuous evaluation of the credit portfolio, and involves consideration of
a number of factors to establish a prudent level. Determination of the allowance
is inherently subjective and requires significant estimates, including estimated
losses on pools of homogeneous loans based on historical loss experience and
consideration of current economic trends, which may be susceptible to
significant change.

         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. Useful lives
range from five to 10 years for furniture, fixtures, and equipment; three to
five years for software, hardware, and data handling equipment; and leasehold
improvements are amortized over the term of the respective lease plus the first
optional renewal period, if applicable. Maintenance and repairs are charged to
expense as incurred, while improvements, which extend the useful life, are
capitalized and depreciated over the estimated remaining life of the asset.


                                       46
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements

         Long-lived depreciable assets are evaluated periodically for impairment
when events or changes in circumstances indicate the carrying amount may not be
recoverable. Impairment exists when the expected undiscounted future cash flows
of a long-lived asset are less than its carrying value. In that event, the
Company recognizes a loss for the difference between the carrying amount and the
estimated fair value of the asset based on a quoted market price, if applicable,
or a discounted cash flow analysis.

         Transfers of Financial Assets
         -----------------------------

         Transfers of financial assets are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when; (1) the assets have been isolated from the Company, (2)
the transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred assets,
and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.

         Stock-Based Compensation
         ------------------------

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock option plan.
Compensation expense for stock option awards is disclosed as a pro forma income
adjustment ratably recognized over the vesting period, based on the fair value
of the stock on the date of grant under SFAS No. 123, and SFAS No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure."

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the year ended December 31:

<TABLE>
<CAPTION>
                                                                                          2002           2001
                                                                                       -----------     ---------
<S>                                                                                          <C>          <C>
           Dividend yield                                                                   -             -
           Expected volatility                                                               20.00 %      20.00  %
           Risk-free interest rate                                                            4.17 %       5.23  %
           Expected lives (in years)                                                             8            8
</TABLE>



                                       47
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


         No compensation expenses related to the Company's stock option plans
was recorded during the years ended December 31, 2003, 2002 and 2001. The
following table illustrates the effect on net income (loss) and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation for the years ending December 31:


<TABLE>
<CAPTION>
                                                                         2003            2002            2001
<S>                                                                 <C>              <C>             <C>
Net income (loss), as reported                                      $       7,581    $   (992,494)   $ (1,615,879)

 Less pro forma stock-based compensation expense determined
   under the fair value method, net of related tax effects                (84,163)        (15,445)         -
                                                                     -------------    ------------    ------------
 Pro forma net loss                                                 $     (76,582)   $ (1,007,939)   $ (1,615,879)
                                                                     =============    ============    ============

 Net income (loss) per share:
   Basic - as reported                                              $         .00    $       (.80)   $      (1.30)
   Diluted - as reported                                                      .00            (.80)          (1.30)
   Basic and Diluted - pro forma                                    $        (.05)   $       (.81)   $      (1.30)
</TABLE>


         Advertising Costs
         -----------------

         Advertising costs are generally expensed as 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
         ------------------

         Earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the period, including any
potential dilutive common shares outstanding, such as options and warrants. For
the year ended December 31, 2003 there were 56,250 shares excluded from the
diluted net income per share computation because the exercise price exceeded the
average market price and therefore, their effect would be anti-dilutive.

           The Company's common stock equivalents were not considered in the
computation of diluted earnings per share for the years ended December 31, 2002
and 2001 because the result would have been anti-dilutive.


                                       48
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


         New Accounting Standards
         ------------------------

         In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
which covers guarantees such as standby letters of credit, performance
guarantees, and direct or indirect guarantees of the indebtedness of others, but
not guarantees of funding. FIN 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability in an amount equal to the fair value of
the obligation undertaken in issuing the guarantee, and requires disclosure
about the maximum potential payments that might be required, as well as the
collateral or other recourse obtainable. The recognition and measurement
provisions of FIN 45 were effective on a prospective basis after December 31,
2002, and its adoption by the Company on January 1, 2003 has not had a
significant effect on the Company's consolidated financial statements.

         In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities"
("Interpretation No. 46"), which explains identification of variable interest
entities and the assessment of whether to consolidate these entities.
Interpretation No. 46 requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among the involved parties. The provisions of
Interpretation No. 46 are effective for all financial statements issued after
January 1, 2003. The Company has no significant variable interests in any
entities which would require disclosure or consolidation.

         In April 2003, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Statement is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. There was no material impact on
the Company's financial condition or results of operations upon adoption of this
Statement.

         In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both a liability and equity. It requires that an issuer classify certain
financial instruments as a liability, although the financial instrument may
previously have been classified as equity. This Statement is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. There was no material impact on the Company's financial condition or
results of operations upon adoption of this Statement.




                                       49
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements

2.       INVESTMENT SECURITIES

         Investments available-for-sale
         ------------------------------

         The amortized cost and estimated fair values of investments
available-for-sale at December 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                     Gross
                                                   Amortized       Unrealized     Gross Unrealized    Estimated
                                                     Cost            Gains             Losses        Fair Value
                                                 --------------  ---------------  ----------------  --------------
<S>                                             <C>             <C>              <C>               <C>
      U.S. Treasury securities                  $    1,547,798  $      -         $       -         $    1,547,798
                                                 --------------  ---------------  ----------------  --------------
         Total investments available-for-sale   $    1,547,798  $      -         $       -         $    1,547,798
                                                 ==============  ===============  ================  ==============
</TABLE>

         The amortized cost and estimated fair values of investments
available-for-sale at December 31, 2003 by contractual maturity are shown below.

<TABLE>
<CAPTION>
                                                                                      Amortized       Estimated
                                                                                         Cost          Fair Value
                                                                                  ----------------  --------------
<S>                                                                              <C>               <C>
      Due in one year or less                                                    $      1,547,798  $    1,547,798
                                                                                  ----------------  --------------
         Total investments available-for-sale                                    $      1,547,798  $    1,547,798
                                                                                  ================  ==============
</TABLE>

         The amortized cost and estimated fair values of investments
available-for-sale at December 31, 2002 were as follows:

<TABLE>
<CAPTION>
                                                                     Gross              Gross
                                                   Amortized      Unrealized         Unrealized       Estimated
                                                     Cost            Gains             Losses        Fair Value
                                                 --------------  ---------------  ----------------  --------------
<S>                                             <C>             <C>              <C>               <C>
      U.S. Treasury securities                  $      948,361  $      -         $       -         $      948,361
                                                 --------------  ---------------  ----------------  --------------
         Total investments available-for-sale   $      948,361  $      -         $       -         $      948,361
                                                 ==============  ===============  ================  ==============
</TABLE>


        The amortized cost and estimated fair values of investments
available-for-sale at December 31, 2002 by contractual maturity are shown below.

<TABLE>
<CAPTION>
                                                                                                      Estimated
                                                                                   Amortized Cost    Fair Value
                                                                                  ----------------  --------------
<S>                                                                              <C>               <C>
      Due in one year or less                                                    $        948,361  $      948,361
                                                                                  ----------------  --------------
         Total investments available-for-sale                                    $        948,361  $      948,361
                                                                                  ================  ==============
</TABLE>


        There were no sales of investments available-for-sale during 2003, 2002
or 2001.

        At December 31, 2003 and 2002 investments available-for-sale with a
carrying value of $1,222,000 and $507,000, respectively, were pledged as
collateral for certain short-term borrowings.



                                       50
<PAGE>


        Other equity securities
        -----------------------

        At December 31 the Company's investment in other equity securities
consisted of:

<TABLE>
<CAPTION>
                                                                                    2003              2002
                                                                              ----------------   ---------------
<S>                                                                          <C>                <C>
              Federal Reserve Bank stock                                     $        312,690   $       275,940
              Federal Home Loan Bank stock                                            168,400            79,900
                                                                              ----------------   ---------------
                   Total investments in other equity securities              $        481,090   $       355,840
                                                                              ================   ===============
</TABLE>

3.    LOANS AND ALLOWANCE FOR CREDIT LOSSES

         Major loan categories at December 31 are presented below:

<TABLE>
<CAPTION>
                                                                        2003                 2002
<S>                                                              <C>                  <C>
Real Estate - Home Equity Line of Credit                         $     16,078,166     $     9,960,943
Real Estate - Construction                                              8,101,017           3,700,389
Real Estate - Mortgage                                                 13,687,709           7,816,997
Commercial                                                             61,868,002          42,566,165
Consumer                                                                1,657,081           4,033,767
                                                                    --------------       -------------
     Total Loans                                                      101,391,975          68,078,261
Less: Allowance for credit losses                                      (1,266,500)           (851,500)
                                                                    --------------       -------------
     Net Loans                                                   $    100,125,475     $    67,226,761
                                                                    ==============       =============
</TABLE>

         Activity in the allowance for credit losses for the year ended December
31, 2003, 2002 and 2001 is shown below:

<TABLE>
<CAPTION>
                                                                           2003            2002             2001
<S>                                                                   <C>             <C>               <C>
             Balance at beginning of year                             $    851,500    $     447,000     $    70,000
             Provision for credit losses                                   415,000          404,500         377,000
             Loan charge-offs                                               -               -                -
             Loan recoveries                                                -               -                -
                                                                       -------------   -------------     -----------
             Net charge-offs                                                -               -                -
                                                                       -------------   -------------     -----------
             Balance at end of year                                   $  1,266,500    $     851,500     $   447,000
                                                                       =============   =============     ===========
</TABLE>

         There were no loans that were considered impaired under SFAS No. 114 as
of December 31, 2003, 2002 and 2001 and for the years then ended.


                                       51
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements



4.   PREMISES AND EQUIPMENT

         Premises and equipment at December 31 include the following:

<TABLE>
<CAPTION>
                                                                                          2003              2002
                                                                                   ---------------    ---------------
<S>                                                                                <C>                <C>
             Furniture and equipment                                               $       389,594    $       348,982
             Computer hardware and software                                                582,703            540,654
             Leasehold improvements                                                        329,580            293,974
                                                                                   ---------------    ---------------
                                                                                         1,301,877          1,183,610
                Less accumulated depreciation                                             (664,265)          (474,407)
                                                                                   ---------------    ---------------

                  Net premises and equipment                                       $       637,612    $       709,203
                                                                                   ===============    ===============
</TABLE>

         The Company rents office space in three locations under four
non-cancelable lease arrangements accounted for as operating leases. The initial
lease periods are from one to five years and provide for one or more one to
five-year renewal options. The two leases for the Baltimore location provide for
percentage annual rent escalations. One of the leases 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:

<TABLE>
<CAPTION>
                                                                            2003            2002             2001
                                                                       -------------   -------------     -----------
<S>                                                                   <C>             <C>               <C>
             Minimum rentals                                          $    202,720    $     187,760     $   181,021
             Less: Sublease rentals                                        (23,843)         (40,784)        (39,215)
                                                                       -------------   -------------     -----------
                Net rent expense                                      $    178,877    $     146,976     $   141,806
                                                                       =============   =============     ===========
</TABLE>


         At December 31, 2003, future minimum lease payments under
non-cancelable operating leases having an initial term in excess of one year are
as follows:

<TABLE>
<CAPTION>
             Years ending December 31:
<S>                   <C>                                                                             <C>
                      2004                                                                            $     189,579
                      2005                                                                                   37,809
                      2006                                                                                   -
                      2007                                                                                   -
                      2008                                                                                   -
                                                                                                        ------------
                      Total minimum lease payments                                                    $     227,388
                                                                                                        ============
</TABLE>

         Total minimum future rental payments have not been reduced by $26,424
of sublease rentals expected to be received in 2004 and 2005 under a
non-cancelable sublease expiring in March 2005.



                                       52
<PAGE>



5.    DEPOSITS

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

<TABLE>
<CAPTION>
                                                                               2003             2002
                                                                           -------------    -------------
<S>                                                                     <C>              <C>
Three months or less                                                    $      4,258,011 $     2,412,699
Over three months through six months                                           3,069,247       1,746,820
Over six months through twelve months                                          2,897,570       2,512,425
Over twelve months                                                             5,226,650       4,726,376
                                                                           -------------    -------------
     Total                                                              $     15,451,478 $    11,398,320
                                                                           =============    =============
</TABLE>


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

<TABLE>
<CAPTION>
                                                                          2003            2002             2001
<S>                                                                 <C>              <C>              <C>
              Interest-bearing transaction                          $     206,695    $      141,073   $       8,753
              Savings and money market                                    195,822           384,789         563,030
              Time, $100,000 or more                                      444,882           281,304          82,990
              Other time                                                1,077,643           555,459         105,165
                                                                     --------------   --------------   -------------
                  Total interest on deposits                        $   1,925,042    $    1,362,625   $     759,938
                                                                     ==============   ==============   =============
</TABLE>

6. SHORT-TERM BORROWINGS

         Information relating to short-term borrowings as of December 31, 2003
and 2002 is as follows:

<TABLE>
<CAPTION>
                                                              2003                             2002
                                                 -------------------------------  --------------------------------
                                                    Amount            Rate             Amount           Rate
<S>                                             <C>                       <C>    <C>                         <C>
      As of year end                            $    1,222,000            .50%   $        507,000            1.00%

      Average for the year                      $    1,172,658           1.00%   $        325,786            1.50%

      Maximum month end balance                 $    1,550,000                   $        724,035
</TABLE>


         The Company had no short-term borrowings during the year ended December
31, 2001.

         The Company pledges U.S. Government Treasury Securities, based upon
their market values, as collateral for 100% of the principal and accrued
interest of its short-term borrowings.

         In the first quarter of 2004, the Company received commitments for a
total of $4.0 million of borrowing availability under unsecured federal funds
lines of credit with two separate financial institutions. These borrowing
facilities will be used, as necessary, to supplement short-term liquidity needs.


                                       53
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


7.   ISSUANCE OF COMMON STOCK

         On October 31, 2002, Bay National Corporation commenced a private
offering to accredited investors only, of an aggregate of 550,000 shares of its
common stock, which was subsequently increased to 620,690 shares of its common
stock. The purchase price per share was $7.25 for an aggregate purchase price of
$4,500,002. The private offering terminated on April 30, 2003 with all shares
issued and net proceeds after offering costs of $4,449,261.

8.   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 April 30, 2001 and are exercisable in whole or in part until
November 16, 2004. No warrants have been exercised as of December 31, 2003.

         The Company's 2001 Stock Option Plan ("Option Plan") provides for the
granting of incentive and non-qualifying stock options to the Company's
directors and to selected employees on a periodic basis at the discretion of the
Board of Directors. The Option Plan authorizes the issuance of up to 200,000
shares of common stock, has a term of ten years, and is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
consists of at least two non-employee directors appointed by the Board of
Directors. In general, the options have an exercise price, which may not be less
than 100% of the fair market value on the date of the grant, must be exercised
within eight years and vest over a period of six years.



                                       54
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


         The following is a summary of changes in shares under options for the
years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                                       Weighted
                                                                                                        Average
                                                                                    Number of          Exercise
                                                                                     Shares              Price
                                                                                   ------------      --------------
<S>                                                                                    <C>                    <C>
         Balance, January 1, 2001                                                       -         $        -
               Granted                                                                 141,533                7.58
               Cancelled                                                                -                  -
               Exercised                                                                -                  -
                                                                                   ------------       -------------
         Balance, December 31, 2001                                                    141,533                7.58
              Granted                                                                   16,815                8.37
              Cancelled                                                                 (9,523)               7.58
              Exercised                                                                 -                  -
                                                                                   ------------      --------------
         Balance, December 31, 2002                                                    148,825                7.67
              Granted                                                                   -                  -
              Cancelled                                                                   (919)               7.58
              Exercised                                                                 -                  -
                                                                                   ------------      --------------
         Balance, December 31, 2003                                                    147,906    $           7.67
                                                                                   ============      ==============

         Weighted average fair value of options granted
              during 2001                                                       $         3.05
                                                                                   ============

         Weighted average fair value of options granted
              during 2002                                                       $         3.05
                                                                                   ============

</TABLE>

         The following table summarizes information about options outstanding at
December 31, 2003:

<TABLE>
<CAPTION>
             Range of Exercise                   Options Outstanding                       Options Exercisable
                   Price
           ----------------------     -------------------------------------------    -- --------------------------
           Price                       Number         Weighted        Weighted           Number        Weighted
                                     Average         Contractual       Average                          Average
                                    Remaining            Life         Exercise                         Exercise
                                                      (in years)        Price                            Price


<S>        <C>                          <C>              <C>      <C>                    <C>       <C>
           $  7.58                      131,091          6        $         7.58         39,031    $     7.58
           $  8.37                       16,815          7                  8.37            -              -
                                      ----------
                                        147,906
                                      ==========

</TABLE>



                                       55
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


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. Expenses under this
plan totaled $67,388, $58,447 and $32,069 for the years ended December 31, 2003,
2002 and 2001, respectively.

9.   INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                          2003            2002             2001
                                                                     --------------   --------------   -------------
<S>                                                                 <C>              <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:                                                       2003                2002
<S>                                                                               <C>                 <C>
                 Net operating loss carryforwards                                 $    1,506,000      $    1,620,000
                 Other                                                                     4,000               6,000
                 Deferred loan fees, net                                                 -                    12,000
                 Allowance for credit losses                                             333,000             205,000
                                                                                   --------------      --------------
                     Total deferred tax assets                                         1,843,000           1,843,000
                    Less valuation allowance                                          (1,791,000)         (1,783,000)
                                                                                   --------------      --------------
                     Deferred tax assets, net of valuation allowance                      52,000              60,000
                                                                                   --------------      --------------
            Deferred tax liabilities:
                  Depreciation and amortization                                          (46,000)            (60,000)
                  Deferred loan costs, net                                                (6,000)            -
                                                                                   --------------      --------------
            Net deferred tax assets (liabilities)                                 $      -            $      -
                                                                                   ==============      ==============
</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, 2003 the Company had approximately $3.9 million in tax
loss carryforwards, which expire between 2019 and 2022. 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



                                       56
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements

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 2003 and 2002.

<TABLE>
<CAPTION>
                                                                                       2003                2002
<S>                                                                               <C>                 <C>
                 Balance at beginning of period                                   $    4,972,128      $    2,670,548
                 Additions                                                             7,969,736          11,124,909
                 Repayments                                                           (8,269,760)         (8,823,329)
                                                                                   --------------      --------------
                 Balance at December 31                                           $    4,672,104      $    4,972,128
                                                                                   ==============      ==============
</TABLE>

         An individual who is a director of the Company owns an office building,
which is leased 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 for each of the
periods ended December 31, 2003, 2002 and 2001, respectively. Management
believes that 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.

         An individual who became a director of the Company in 2003 is an
executive officer for the company which owns an office building, in which the
Company has leased space under two separate operating leases. The first lease,
which commenced on July 26, 1999, runs for five years and five months. The
Company has the option to extend the term of this lease for one five-year
renewal term. Rent expense under this agreement was $26,079, $25,076 and $24,111
for the periods ended December 31, 2003, 2002 and 2001, respectively. The second
lease, which commenced on March 1, 2000, runs for five years. The Company has
the option to extend the term of this lease for one five-year renewal term. Rent
expense under this agreement was $144,020, $138,480 and $133,154 for the periods
ended December 31, 2003, 2002 and 2001, respectively. Management believes that
the terms of the foregoing leases 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.



                                       57
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


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

<TABLE>
<CAPTION>
                                                                                       2003                2002
                                                                                       ----                ----
<S>                                                                               <C>                 <C>
             Loan commitments                                                     $   11,458,333      $   2,421,928
             Unused lines of credit                                                   32,234,145         19,989,764
             Letters of credit                                                         2,167,501            733,278
</TABLE>

         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.
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, 2003, the Company was required to maintain a weekly
average of $543,000 of non-interest-bearing deposits with the Federal Reserve
Bank. As of December 31, 2002, the Company was not required to maintain
non-interest-bearing deposits with the Federal Reserve Bank. The average balance
maintained with the Federal Reserve Bank for the weekly period ended December
31, 2003 was $598,000. The actual balance maintained with the Federal Reserve
Bank at December 31, 2003 and 2002 were $428,616 and $189,609, respectively.

         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, 2003, that the Bank
met all capital adequacy requirements to which it is subject.

         The Bank has been categorized as "well capitalized" by the OCC under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-


                                       58
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


based, Tier I risk-based, and Tier I leverage ratios. There are no conditions or
events that management believes would prevent the Bank from continuing to be
categorized as well capitalized.

         The Bank's actual capital amounts and ratios as of December 31, 2003
and 2002 are presented in the following table:

<TABLE>
<CAPTION>

<S>                                   <C>              <C>       <C>                  <C>      <C>               <C>
                                                                         December 31, 2003
-------------------------------------------------------------------------------------------------------------------------
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                         For Capital              Prompt Corrective
                                               Actual                 Adequacy Purpose            Action Provisions
                                       -----------------------    --------------------------   --------------------------
                                          Amount      Ratio         Amount        Ratio           Amount       Ratio
Total Capital (to Risk Weighted        -----------------------    --------------------------   --------------------------
    Assets):                          $  11,729,127    10.16  %  $  9,238,000         8.00  %  $ 11,547,000      10.00  %
Tier I Capital (to Risk Weighted
    Assets):                             10,462,627     9.09  %     4,619,000         4.00  %     6,928,000       6.00  %
Tier I Capital (to Average Assets):      10,462,627     8.93  %     3,516,000         3.00  %     5,860,000       5.00  %



                                                                         December 31, 2002
-------------------------------------------------------------------------------------------------------------------------
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                         For Capital              Prompt Corrective
                                               Actual                 Adequacy Purpose            Action Provisions
                                       -----------------------    --------------------------   --------------------------
                                          Amount      Ratio         Amount        Ratio           Amount       Ratio
                                       -----------------------    --------------------------   --------------------------
Total Capital (to Risk Weighted
    Assets):                          $  7,808,473     10.21  %  $  6,120,000        8.00  %  $  7,650,000      10.00  %
Tier I Capital (to Risk Weighted
    Assets):                             6,956,973      9.09  %     3,060,000        4.00  %     4,590,000       6.00  %
Tier I Capital (to Average Assets):      6,956,973      9.13  %     2,286,000        3.00  %     3,810,000       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, 2003.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company discloses fair value information about financial
instruments for which it is practicable to estimate the value, whether or not
such financial instruments are recognized on the balance sheet. Financial
instruments have been defined broadly to encompass 99.3% of the Company's assets
and 99.7% of its liabilities. Fair value is the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation, and is best evidenced by a quoted
market price, if one exists.

         Quoted market prices, where available, are shown as estimates of fair
market values. Because no quoted market prices are available for a significant
part of the Company's financial instruments, the fair values of such instruments
have been derived based on the amount and timing of future cash flows and
estimated discount rates.



                                       59
<PAGE>


                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


         Present value techniques used in estimating the fair value of many of
the Company's financial instruments are significantly affected by the
assumptions used. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate cash settlement of the instrument. Additionally, the
accompanying estimates of fair values are only representative of the fair values
of the individual financial assets and liabilities, and should not be considered
an indication of the fair value of the Company.

              The estimated fair values of the Company's financial instruments
at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                  2003                            2002
 --------------------------------------------------------------------------------------------------------------------
                                                                        Estimated                      Estimated
                                                         Carrying         Fair         Carrying          Fair
 (In thousands)                                           Amount          Value         Amount           Value
 --------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>            <C>             <C>
 Financial Assets
    Cash and temporary investments (1)                $   18,983,930  $  18,983,930  $  14,934,236   $   14,934,236
    Investments available-for-sale                         1,547,798      1,547,798        948,361          948,361
    Other equity securities                                  481,090        481,090        355,840          355,840
    Loans, net of allowances                             100,125,475    100,408,763     67,226,761       67,744,956
    Accrued interest receivable and other assets (2)         380,088        380,088        250,431          250,431

 Financial Liabilities
    Deposits                                          $  108,530,901  $ 108,144,977  $  76,078,731   $   75,753,099
    Short-term borrowings                                  1,222,000      1,222,000        507,000          507,000
    Accrued interest payable and other liabilities (2)       130,851        130,851        120,294          120,294

<FN>
         (1)      Temporary investments include federal funds sold and overnight
                  investments, and loans held for sale.
         (2)      Only financial instruments as defined in Statement of
                  Financial Accounting Standards No. 107, "Disclosure about Fair
                  Value of Financial Instruments", are included in other assets
                  and other liabilities.
</FN>
</TABLE>

          The following methods and assumptions were used to estimate the fair
value of each category of financial instruments for which it is practicable to
estimate that value:

Cash and due from banks, federal funds sold and overnight investments. The
carrying amount approximated the fair value.

Loans held for sale. The fair value of residential mortgage loans held for sale
was derived from secondary market quotations for similar instruments.

Investment Securities. The fair value for U.S. Treasury securities was based
upon quoted market bids.

Loans. The fair value was estimated by computing the discounted value of
estimated cash flows, adjusted for potential credit losses, for pools of loans
having similar characteristics. The discount rate was based upon the current
loan origination rate for a similar loan. Non-performing loans have an assumed
interest rate of 0%.


                                       60
<PAGE>



                            BAY NATIONAL CORPORATION

                   Notes to Consolidated Financial Statements


Accrued interest receivable. The carrying amount approximated the fair value of
accrued interest, considering the short-term nature of the receivable and its
expected collection.

Other assets. The carrying amount approximated the fair value.

Deposit liabilities. The fair value of demand, money market savings and regular
savings deposits, which have no stated maturity, were considered equal to their
carrying amount, representing the amount payable on demand. These estimated fair
values do not include the intangible value of core deposit relationships, which
comprise a significant portion of the Bank's deposit base. Management believes
that the Bank's core deposit relationships provide a relatively stable, low-cost
funding source that has a substantial intangible value separate from the value
of the deposit balances.

The fair value of time deposits was based upon the discounted value of
contractual cash flows at current rates for deposits of similar remaining
maturity.

Short-term borrowings. The carrying amount approximated the fair value of
repurchase agreements due to their variable interest rates.

Other liabilities. The carrying amount approximated the fair value of accrued
interest payable, accrued dividends and premiums payable, considering their
short-term nature and expected payment.

Off-balance sheet instruments. The Company charges fees for commitments to
extend credit. Interest rates on loans for which these commitments are extended
are normally committed for periods of less than one month. Fees charged on
standby letters of credit and other financial guarantees are deemed to be
immaterial and these guarantees are expected to be settled at face amount or
expire unused. It is impractical to assign any fair value to these commitments.



                                       61
<PAGE>


14. PARENT COMPANY FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
                                            CONDENSED BALANCE SHEETS
                                            ------------------------
                                           December 31, 2003 and 2002

                                                                                  2003                 2002
                                                                            -----------------   ----------------

<S>                                                                       <C>                  <C>
ASSETS
     Cash and cash equivalents                                            $          653,687   $        652,241
     Due from subsidiary                                                             950,186            250,736
     Investment in subsidiary                                                     10,462,627          6,956,973
                                                                            -----------------   ----------------

              Total Assets                                                $       12,066,500   $      7,859,950
                                                                            =================   ================


LIABILITIES
     Accrued expenses and other liabilities                               $        -           $        250,292
                                                                            -----------------   ----------------

              Total Liabilities                                                    -                    250,292
                                                                            -----------------   ----------------

STOCKHOLDERS' EQUITY

     Common stock - $.01 par value, authorized:
         9,000,000 shares authorized, 1,862,710 and 1,242,020 issued and
         outstanding as of December 31, 2003 and 2002, respectively:
                                                                                      18,627             12,420
     Additional paid in capital                                                   16,850,834         12,407,780
     Accumulated Deficit                                                          (4,802,961)        (4,810,542)
                                                                            -----------------   ----------------

              Total Stockholders' Equity                                          12,066,500          7,609,658
                                                                            -----------------   ----------------

              Total Liabilities and Stockholders' Equity                  $       12,066,500   $      7,859,950
                                                                            =================   ================
</TABLE>




                                       62
<PAGE>


<TABLE>
<CAPTION>

                            BAY NATIONAL CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
                       ----------------------------------
              For the years ended December 31, 2003, 2002 and 2001


                                                                         2003             2002              2001
                                                                     -------------    -------------     -------------

<S>                                                                 <C>              <C>             <C>
Interest and dividends on investment securities                     $       5,146    $      23,931   $        98,610
Non-interest expense                                                        3,219            2,886             6,015
                                                                     -------------    -------------     -------------
   Income before income taxes and equity in undistributed losses            1,927           21,045            92,595
   of subsidiary
Income tax expense (benefit)                                              -                -                 -
                                                                     -------------    -------------     -------------
   Income before equity in undistributed income (losses) of                 1,927           21,045            92,595
   subsidiary
Equity in undistributed income (losses) of subsidiary                       5,654       (1,013,539)       (1,708,474)
                                                                     -------------    -------------     -------------
   Net Income (Loss)                                                $       7,581    $    (992,494)  $    (1,615,879)
                                                                     =============    =============     =============
</TABLE>



<TABLE>
<CAPTION>

                       CONDENSED STATEMENTS OF CASH FLOWS
                       ----------------------------------
              For the years ended December 31, 2003, 2002 and 2001

                                                                         2003             2002              2001
                                                                     -------------    -------------     -------------
Cash Flows From Operating Activities
<S>                                                                 <C>              <C>               <C>
   Net Income (Loss)                                                $       7,581    $    (992,494)    $  (1,615,879)
   Adjustments to reconcile net income (loss) to net cash
     (used) provided by operating activities:
       Equity in undistributed (income) loss of subsidiary                 (5,654)       1,013,539         1,708,474
       Net increase in other assets                                      (699,450)        (250,736)          -
       Net (decrease) increase in other liabilities                      (250,292)         250,240          (194,385)
                                                                     -------------    -------------     -------------

            Net cash (used) provided by operating activities             (947,815)          20,549          (101,790)
                                                                     -------------    -------------     -------------

Cash Flows From Investing Activities
   Investment in subsidiary                                            (3,500,000)      (2,000,000)          -
                                                                     -------------    -------------     -------------
            Net cash used by investing activities                      (3,500,000)      (2,000,000)          -
                                                                     -------------    -------------     -------------

Cash Flows From Financing Activities
   Issuance of common stock                                             4,449,261          -                 -
                                                                     -------------    -------------     -------------
            Net cash provided by financing activities                   4,449,261          -                 -
                                                                     -------------    -------------     -------------

Net increase (decrease) in cash and cash equivalents                        1,446       (1,979,451)         (101,790)
Cash and cash equivalents at beginning of year                            652,241        2,631,692         2,733,482
                                                                     -------------    -------------     -------------

Cash and cash equivalents at end of period                          $     653,687    $     652,241     $   2,631,692
                                                                     =============    =============     =============
</TABLE>


                                       63
<PAGE>



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

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

Item 8A.  Controls and Procedures

         As of the end of the period covered by this annual report on Form
10-KSB, Bay National Corporation's Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of Bay National Corporation's disclosure
controls and procedures. Based upon that evaluation, Bay National Corporation's
Chief Executive Officer and Chief Financial Officer concluded that Bay National
Corporation's disclosure controls and procedures are effective. Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by Bay National Corporation in
the reports that it files or submits under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

         In addition, there were no changes in Bay National Corporation's
internal controls over financial reporting (as defined in Rule 13a-15 or Rule
15d-15 under the Securities Act of 1934, as amended) during the quarter ended
December 31, 2003, that have materially affected, or are reasonably likely to
materially affect, Bay National Corporation's internal control over financial
reporting.



                                       64
<PAGE>


                                    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

        The directors of Bay National Corporation, their ages, the years in
which their terms expire and the year in which they became directors are as
follows:

<TABLE>
<CAPTION>
              Name          Age        Term to Expire (1)      Director Since
              ----          ---        ------------------      --------------
<S>                          <C>       <C>                            <C>
 Hugh W. Mohler              58        2006 Annual Meeting       June 1999
 Carroll A. Bodie            58        2005 Annual Meeting       June 1999
 Charles E. Bounds           85        2005 Annual Meeting       June 1999
 Gary T. Gill                51        2005 Annual Meeting      January 2003
 John R. Lerch               59        2005 Annual Meeting       June 1999
 Donald G. McClure, Jr.      60        2006 Annual Meeting       April 2000
 Robert L. Moore             50        2006 Annual Meeting     February 2001
 H. Victor Rieger, Jr.       66        2006 Annual Meeting       June 1999
 Margaret Knott Riehl        70        2006 Annual Meeting       June 1999
 William B. Rinnier          62        2004 Annual Meeting      August 1999
 Edwin A. Rommel, III        54        2004 Annual Meeting       June 1999
 Henry H. Stansbury          64        2004 Annual Meeting       June 1999
 Kenneth H. Trout            55        2004 Annual Meeting      October 1999
 Eugene M. Waldron, Jr.      60        2004 Annual Meeting       June 1999
 Carl A.J. Wright            49        2005 Annual Meeting       March 2003


(1)      All of the directors with terms to expire in 2004 have been nominated
         to serve on the Board of Directors for an additional three (3) year
         term. Elections for these directors will take place at the 2004 Annual
         Meeting of Stockholders to be held in May 2004.
</TABLE>


                                       65
<PAGE>




Biographical information concerning the directors is set forth below.

         Hugh W. Mohler serves as chairman, president, and 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 36 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 1977 to 1994, he was president of Mercantile's Salisbury,
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 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.

         Carroll A. Bodie 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 the Baltimore County, Maryland Bar Association, the
American Bar Association and the American Corporate Counsel Association. Mr.
Bodie is immediate past chairman of the board of trustees of Loyola Blakefield,
and a Trustee at the College of Notre Dame of Maryland. He is a past director
and board chairman for the YMCA of Central Maryland, and a past board member of
the Independent College Fund.

         Charles E. Bounds 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.



                                       66
<PAGE>


         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.

         Gary T. Gill has been a director of Bay National Corporation and Bay
National Bank since January 2003. Mr. Gill is president and chief executive
officer of the MacKenzie Companies, a Baltimore-based full-service commercial
real estate firm comprising Mackenzie Commercial Real Estate Services, LLC,
Mackenzie Management Corporation, MacKenzie Services Corporation, MacKenzie
Contracting Company, LLC, and MacKenzie Drywall Construction. Mr. Gill joined
MacKenzie in 1977 and has served in his capacity as president since 1985. Mr.
Gill serves also as executive vice president of MacKenzie Properties, Inc., the
managing partner of over 35 partnerships of income-producing commercial
properties.

         A native of Towson, Maryland, Mr. Gill received his Bachelor of Arts
degree in Business Administration in 1974 from Towson University. Mr. Gill
currently serves on the Baltimore County Economic Advisory Board, Towson
University Stadium Committee, USLacrosse Foundation Board, and chairs the Lax 4
Baltimore Committee for the NCAA National Men's Lacrosse Championships.

         John R. Lerch 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
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. 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 has been a director of Bay National Corporation since
February 2001 and Bay National Bank since June 2001. Mr. Moore is a certified
public accountant. He received his CPA designation twenty-five years ago, and is
the owner and founder of the Salisbury, Maryland accounting firm


                                       67
<PAGE>


of Moore & Company, P.A. His professional concentration is income tax and all
facets of 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 board member of Salisbury-Wicomico Economic
Development Corporation, a board member of the Greater Salisbury Committee, 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. 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 has been a director of Bay National Corporation since
June 1999, and a director of Bay National Bank since 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 again from
1993 to present. She serves as a trustee of St. Mary's Seminary & University,
also in Baltimore. Mrs. Riehl is a former chair of the board of trustees of
Baltimore's Associated Catholic Charities, Inc., and 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 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.


                                       68
<PAGE>


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 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 & Stephens, 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 Chairman-Elect of the Maryland
Association of Certified Public Accountants, and is a member of the governing
board of the American Institute of Certified Public Accountants. 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 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., an independently owned premium finance company. 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 a past president of the Maryland Association of Premium Finance
Companies and is a past president of the National Association of Premium Finance
Companies.

         Mr. Stansbury is a vice president and trustee of the Maryland
Historical Society, and a trustee of the Ward Museum of Wildfowl Art. 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 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 two books; LLOYD J. TYLER: FOLK ARTIST AND DECOY MAKER and IRA HUDSON
AND FAMILY, CHINCOTEAGUE CARVERS. He is also a contributing writer for Decoy
Magazine. Mr. Stansbury is an alumnus of the University of Maryland and holds a
master of business administration degree from George Washington University.

         Kenneth H. Trout 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.



                                       69
<PAGE>


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

         Eugene M. Waldron, Jr. 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 institutional
investment management. 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.

         Carl A.J. Wright has been a director of Bay National Corporation and
Bay National Bank since March 2003. Mr. Wright is the senior vice president of
Spherion (formerly Interim Financial Solutions), an executive search and
staffing firm specializing in finance, human resources and information systems,
and he has served in that capacity since 1998. Mr. Wright operated the Baltimore
office of A.J. Burton from 1980 until its sale to Spherion in 1998. Mr. Wright
served in the auditing and tax departments of Ernst & Young from 1976 to 1980.
Along with his corporate responsibilities, he is an involved community member
and active in professional, civic and political organizations.

         Mr. Wright is an alumnus of Loyola College and Loyola Blakefield and
has served on boards and committees of both institutions. He is past president
of the Baltimore Junior Association of Commerce and serves on Maryland Governor
Robert Ehrlich's Strategic and Finance Committees. He was appointed as the
chairman of the Maryland Stadium Authority in 2003. In addition, he is an active
supporter of the Catholic Charities and Maryland Business for Responsive
Government.

         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.

         The one executive officer and significant employee of Bay National
Corporation and Bay National Bank that does not serve on the Board of Directors
of Bay National Corporation is Mark A. Semanie.

         Mr. Semanie, age 40, serves as Executive Vice President and Chief
Financial Officer, Treasurer and Secretary of Bay National Corporation and
Executive Vice President and Chief Financial Officer, Chief Compliance Officer,
Treasurer and Secretary of Bay National Bank. Mr. Semanie is a Certified Public
Accountant. Mr. Semanie worked in the insurance industry for over seven 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., an insurance premium finance company,
and Agency Insurance Company of Maryland, Inc., a multi-line property/casualty
insurance company. 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,


                                       70
<PAGE>


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 regulatory compliance.

         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 also serves as a
director of the Baltimore Child Abuse Center and as Chairman of its Finance
Committee. He is a member of the American Institute of Certified Public
Accountants, the American Institute of Chartered Property Casualty Underwriters,
and Financial Executives International.

         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
24, 2004, the number of directors has been fixed at 15 with all positions
filled. Pursuant to Bay National Corporation's charter and bylaws, the Board of
Directors is divided into three classes, with each class serving a three-year
term, and the term of one class expiring each year. 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.

         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.

         As Bay National Corporation is the sole stockholder of Bay National
Bank, each director of Bay National Bank is elected by the Board of Directors of
Bay National Corporation. Directors of Bay National Bank serve for a term of one
year and are 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 provide
advice to Bay National Corporation's and Bay National Bank's Board of Directors
and who 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.



                                       71
<PAGE>



Audit Committee Matters

         Bay National Corporation has a standing Audit Committee. The Audit
Committee currently has four members: Carroll A. Bodie, William B. Rinnier,
Henry H. Stansbury, and Kenneth H. Trout. As of the date of this report, each of
the members of the Audit Committee is "independent" under the rules promulgated
by the Securities and Exchange Commission. The Audit Committee's functions and
responsibilities are described in a written charter that was adopted by Bay
National Corporation's Board of Directors.

         Pursuant to Securities and Exchange Commission regulations, Bay
National Corporation is required to disclose in this annual report whether one
or more members of the audit committee are "audit committee financial experts"
and the names of those members. If Bay National Corporation does not have an
audit committee financial expert on the audit committee, it is required to
explain why that is the case.

         The Securities and Exchange Commission has defined "audit committee
financial expert" as a person who has the following attributes:

     o    An understanding of generally accepted accounting principles and
          financial statements;

     o    The ability to assess the general application of such principles in
          connection with the accounting for estimates, accruals, and reserves;

     o    Experience preparing, auditing, analyzing or evaluating financial
          statements that present a breadth and level of complexity of
          accounting issues that are generally comparable to the breadth and
          complexity of issues that can reasonably be expected to be raised by
          the financial statements or experience actively supervising one or
          more persons engaged in such activities;

     o    An understanding of internal controls and procedures for financial
          reporting; and

     o    An understanding of audit committee functions.

         Bay National Corporation's Board of Directors determined that none of
the members of the audit committee meet this definition and, accordingly, the
audit committee does not have an "audit committee financial expert. In its
proposing release regarding financial experts on audit committees, the
Securities and Exchange Commission, indicated that a "primary benefit of having
a financial expert serving on a company's audit committee is that the person,
with his or her enhanced level of financial sophistication or expertise, can
serve as a resource for the audit committee as a whole in carrying out its
functions."

         The Board of Directors believes that the audit committee, as it is
presently constituted, is able to carry out its functions fully and in the best
interests of stockholders notwithstanding the lack of an audit committee
financial expert. In that regard, the board of directors believes that the
combined knowledge and experience of the committee's four members, as described
under the heading "Directors, Executive Officers, Promoters and Control
Persons," serve as a valuable resource to that committee. In light of the
foregoing, the Board of Directors has no current plans to seek to add a new
director to the audit committee who would qualify as an audit committee
financial expert.

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 (the "Exchange
Act"), at any time during the Company's fiscal year ended December 31, 2003.
Accordingly, there is no requirement upon the Company's officers, directors and
10% or greater shareholders to file any reports required pursuant to Section
16(a) of the Exchange Act.

Code of Ethics

         Bay National Corporation's Board of Directors has adopted a code of
ethics that applies to its principal executive officer, principal accounting
officer or controller, or persons performing similar functions. That Code of
Ethics for Senior Financial Officers has been posted on Bay National Bank's
internet website at


                                       72
<PAGE>


www.baynational.com. A copy of the Code of Ethics for Senior Financial Officers
is also included as an exhibit to this annual report.

Item 10.  Executive Compensation

Director Compensation

         Except for discretionary grants of options to purchase shares of common
stock as described below and discretionary payments based on special
circumstances, the directors of Bay National Corporation and Bay National Bank
are not currently compensated for their attendance at regularly scheduled or
special board meetings or for other services. Bay National Corporation and Bay
National Bank reserve the right to pay directors' fees at any time. Directors
are reimbursed for reasonable expenses incurred on behalf of Bay National
Corporation and Bay National Bank.

         In December 2003, December 2002 and October 2001, the Board of
Directors of Bay National Corporation authorized special payments of $10,000 to
Mr. H. Victor Rieger, Jr., a director of Bay National Corporation and Bay
National Bank. These payments were authorized in recognition of Mr. Rieger's
outstanding service as a key member of the Bay National Bank Loan Committee.
These amounts were paid in December 2003, December 2002 and December 2001.

         In November 2001, each then director of Bay National Corporation was
granted options to purchase 3,000 shares of Bay National Corporation common
stock. The options vest in four (4) equal installments with the first 25%
installment vesting on the third anniversary of the individual directors
appointment to the Board of Directors of Bay National Corporation. The remaining
25% installments vest on the fourth, fifth, and sixth anniversary of the
individual director's appointment to the Board of Directors of Bay National
Corporation. As of December 31, 2003, options to purchase 17,250 shares were
exercisable. The options expire on November 19, 2009. They are exercisable at
$7.58 per share. None have been exercised.



                                       73
<PAGE>

Executive Compensation

Summary Compensation Table

         The following table sets forth the compensation paid by Bay National
Corporation and Bay National Bank to the Chief Executive Officer of Bay National
Corporation and Bay National Bank and to any other executive officer of Bay
National Corporation and Bay National Bank who received compensation in excess
of $100,000 during 2003. Other than the grant of options, all compensation below
was paid by the Bay National Bank.

<TABLE>
<CAPTION>

                                                        Summary Compensation Table
                                                        --------------------------

                                                                         Long Term Compensation
                                                                   ------------------------------------
                                       Annual Compensation                  Awards            Payouts
                                ---------------------------------- ------------------------- ----------
 Name and Principal             Salary    Bonus     Other Annual    Restricted   Securities  LTIP        All Other
                                                                                 Underlying
                                                    Compensation      Stock       Options/   Payouts    Compensation
 Position                Year     ($)       ($)          ($)       Award(s) ($)   SARs (#)      ($)         ($)
 ----------------------- ------ --------- --------- -------------- ------------- ----------- ---------- -------------
<S>                      <C>    <C>                                                                         <C>
 Hugh W. Mohler
 President and Chief
 Executive Officer (1)   2003  $164,000     -            -             -            -           -          $6,798

                         2002  $164,000     -            -             -            -           -          $6,032

                         2001  $154,000     -            -             -            40,261      -          $6,189
 Mark A. Semanie
 Executive Vice
 President and CFO (2)   2003  $135,000   $30,000        -             -            -           -          $6,826

                         2002  $135,000   $30,000        -             -            -           -          $6,838

                         2001  $125,000     -            -             -            18,630      -          $5,233

(1)      Other compensation includes $6,150, $5,533 and $5,775 of contributions
         to the Company's 401(k) retirement plan for 2003, 2002 and 2001,
         respectively, and $648, $499 and $414 of term life insurance premiums
         paid by the Bank on Mr. Mohler's behalf for 2003, 2002 and 2001,
         respectively.

(2)      Other compensation includes $5,962, $5,947, $4,543 of contributions to
         the Company's 401(k) retirement plan for 2003, 2002 and 2001,
         respectively, and $864, $891, and $690 of term life insurance premiums
         paid by the Bank on Mr. Semanie's behalf for 2003, 2002 and 2001,
         respectively.


                                       74
<PAGE>



Aggregate Options Table

     The following table sets forth information on the aggregate number of
shares of common stock underlying unexercised options held as of December 31,
2003 by Mr. Mohler and Mr. Semanie and the aggregate dollar value of
in-the-money unexercised options held as of December 31, 2003 by Mr. Mohler and
Mr. Semanie.

                                             Number of Securities
                                            Underlying Unexercised        Value of Unexercised
                                                  Options at             in-the-Money Options at
                 Name                         December 31, 2003             December 31, 2003
---------------------------------------- ----------------------------- -----------------------------
                                         Exercisable   Unexercisable      Exercisable   Unexercisable
                                         -----------   -------------     -----------   -------------
Hugh W. Mohler                               10,815        29,446          $  27,254     $  74,204
Mark A. Semanie                               4,658        13,972             11,738        35,209

</TABLE>


         The exercise price of these options is $7.58 per share. The market
value of the common stock was $10.10 per share, which is the sales price at
which shares of common stock were last sold in over the counter trading on
December 31, 2003.

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 Bank 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 had 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.
Written notice was not provided by either party 90 days before the expiration of
the initial term and accordingly the new term will expire in May 2005.

         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, 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



                                       75
<PAGE>

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, pursuant to the employment agreement, upon adoption of a
stock option plan by Bay National Corporation's Board of Directors, Mr. Mohler
was entitled to options to purchase 3% of the shares of common stock outstanding
after the initial public offering. Accordingly, options to purchase 37,261
shares of common stock were granted to Mr. Mohler in November 2001. These
options are exercisable at $7.58 per share.

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

         Bay National Bank and Bay National Corporation have not entered into
written employment agreements with any other employees.




                                       76
<PAGE>



Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters

Securities Authorized For Issuance Under Equity Compensation Plans

     The following table sets forth certain information as of December 31, 2003,
with respect to compensation plans under which equity securities of Bay National
Corporation are authorized for issuance.

<TABLE>
<CAPTION>

                                          Equity Compensation Plan Information

 ---------------------------------------------------------------------------------------------------------------------
 Plan category                            Number of securities          Weighted-average        Number of securities
                                           to be issued upon           exercise price of         remaining available
                                              exercise of           outstanding options and      for future issuance
                                          outstanding options               warrants                under equity
                                              and warrants                                       compensation plans
                                                                                                     (excluding
                                                                                                securities reflected
                                                                                                   in column (a))
                                                  (a)                           (b)                     (c)
 ---------------------------------------------------------------------------------------------------------------------

 Equity compensation plans approved
<S>                                              <C>                          <C>                       <C>
 by security holders                             147,906                      $ 7.67                    52,094
 ---------------------------------------------------------------------------------------------------------------------
                                                  56,250                       10.00                      -
 Equity compensation plans not
 approved by security holders
 ---------------------------------------------------------------------------------------------------------------------
 Total                                           204,156                      $ 8.31                    52,094
 ---------------------------------------------------------------------------------------------------------------------

</TABLE>


         Bay National Corporation issued warrants to purchase 56,250 shares of
common stock on September 10, 1999 to 23 purchasers in Bay National
Corporation's organizational offering. The warrants were issued in recognition
of the financial and organizational risks undertaken by those investors. The
warrants became exercisable on April 30, 2001, and they expire on November 16,
2004. Investors were given one warrant for every two shares purchased in the
organizational offering. The warrants are exercisable at $10 per share. None of
the warrants have been exercised.


                                       77
<PAGE>


Security Ownership

         The following table sets forth the beneficial ownership of Bay National
Corporation's common stock as of March 24, 2004 by its directors, executive
officers named in the Summary Compensation Table in Item 10 above, directors and
officers as a group and persons believed by management to beneficially own more
than five percent (5%) of the common stock. The table includes warrants and
options beneficially owned by these persons. Unless otherwise noted below,
management believes 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 beneficially owned by such person.

Name and Address
of Beneficial Owner                                Number of Shares   Percentage
(16)                                                    (16)          of Class
--------------------------------------------------------------------------------

Carroll A. Bodie (1)
4005 Greenway
Baltimore, MD 21218                                      17,500          .90%

Charles E. Bounds (2)
1707 Upper Millstone Lane
Salisbury, MD 21801                                       7,630          .39%

Citizens, Inc. (3)
P.O. Box 1550
Butler, PA 16003                                        163,624         8.42%

Gary T. Gill
6 Brierleigh Court
Lutherville, Maryland   21093                             5,943          .31%

John R. Lerch (4)
618 Indian Lane
Salisbury, MD 21801                                      44,500         2.29%

Donald G. McClure, Jr. (5)
24 Dockside Lane
Key Largo, FL 33037                                      15,500          .80%

Hugh W. Mohler (6)
23 Buchanan Road
Baltimore, MD 21212                                      73,931         3.80%

Robert L. Moore (7)
10 79th #403
Ocean City, MD 21842                                      8,250          .42%

H. Victor Rieger, Jr. (8)
1015 Ivy Hill Road
Cockeysville, MD 21030                                   27,500         1.42%



                                       78
<PAGE>


Margaret K. Riehl (9)
7A Devon Hill Road
Baltimore, MD 21210                                      24,000         1.23%

William B. Rinnier (10)
616 Manor Drive
Salisbury, MD 21801                                      14,000          .72%

Edwin A. Rommel, III (11)
5281 Silver Run Lane
Salisbury, MD 21801                                      32,000         1.65%

Mark A. Semanie (12)
1200 Corinthian Court
Bel Air, MD 21014                                         6,338          .33%

Henry H. Stansbury (13)
6200 Foxhall Farm Road
Catonsville, MD 21228                                    40,300         2.07%

Kenneth H. Trout (14)
804 Hillstead Drive
Lutherville, MD 21093                                     3,500          .18%

Eugene M. Waldron, Jr. (15)
5309 Woodlawn Avenue
Chevy Chase, MD 20815                                    41,500         2.14%

Carl A.J. Wright
8609 Marburg Manor Drive
Lutherville, MD  21093                                   14,000          .72%

All directors and executive officers as a group:
Sixteen persons                                         376,391        19.37%


(1)  Includes 2,500 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004.

(2)  Includes 1,250 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004.

(3)  Includes 2,500 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004.



                                       79
<PAGE>


(4)  Includes 4,000 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004. 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
     March 24, 2004. Mr. Lerch disclaims beneficial ownership as to the shares
     and warrants held by his spouse.

(5)  Includes 1,500 shares issuable upon the exercise of options that are
     exercisable within 60 days of March 24, 2004. Excludes 1,500 shares
     issuable upon the exercise of options that are exercisable starting in
     April 2005. 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 March 24, 2004. Includes 20,131 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 20,130 shares issuable upon the exercise of
     options that are exercisable starting in June 2004. 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 March 24, 2004. Includes 750 shares issuable
     upon the exercise of options that are exercisable within 60 days of March
     24, 2004. Excludes 2,250 shares issuable upon the exercise of options that
     are exercisable starting in February 2005.

(8)  Includes 2,500 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004. 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 March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004. 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 March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in August 2004. 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 March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004.


                                       80
<PAGE>


(12) Includes 4,658 shares issuable upon the exercise of options that are
     exercisable within 60 days of March 24, 2004. Excludes 13,972 shares
     issuable upon the exercise of options that are exercisable starting in
     October 2004.

(13) Includes 2,500 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2004. 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 March
     24, 2004. Mr. Stansbury disclaims beneficial ownership as to the shares and
     warrants held by his spouse.

(14) Includes 1,500 shares issuable upon the exercise of options that are
     exercisable within 60 days of March 24, 2004. Excludes 1,500 shares
     issuable upon the exercise of options that are exercisable starting in
     October 2004.

(15) Includes 5,000 shares issuable upon the exercise of warrants that are
     exercisable within 60 days of March 24, 2004. Includes 1,500 shares
     issuable upon the exercise of options that are exercisable within 60 days
     of March 24, 2004. Excludes 1,500 shares issuable upon the exercise of
     options that are exercisable starting in June 2003. Includes 3,000 shares
     held by Mr. Waldron's children. Mr. Waldron disclaims beneficial ownership
     as to the shares held by his children.

(16) All of the named individuals, other than Mr. Semanie, are directors of Bay
     National Corporation. Mr. Mohler is a director and executive officer of Bay
     National Corporation.

         The number of shares beneficially owned includes shares of common stock
subject to options or warrants held by the named persons that are exercisable as
of, or within 60 days of, March 23, 2004. Such shares are deemed outstanding for
the purpose of computing the percentage ownership of the person holding the
options or warrants, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.

         Bay National Corporation issued warrants to purchase 56,250 shares of
common stock on September 10, 1999 to purchasers of Bay National Corporation's
organizational offering. The warrants were issued in recognition of the
financial and organizational risks undertaken by those investors. The warrants
became exercisable on April 30, 2001, and they expire on November 16, 2004.
Investors were given one warrant for every two shares purchased in the
organizational offering. The warrants are exercisable at $10 per share. None of
the warrants have been exercised.

         In November 2001, each director of Bay National Corporation, including
Mr. Mohler, was granted options to purchase 3,000 shares of Bay National
Corporation common stock. The options vest in four (4) equal installments with
the first 25% installment vesting on the third anniversary of the individual
director's appointment to the Board of Directors of Bay National Corporation.
The remaining 25% installments vest on the fourth, fifth, and sixth anniversary
of the individual director's appointment to the Board of Directors of Bay
National Corporation. A total of 18,750 of these options to purchase shares were
exercisable as of, or within 60 days of March 24, 2004. The options expire on
November 19, 2009. They are exercisable at $7.58 per share. None have been
exercised.


                                       81
<PAGE>


         In November 2001, Mr. Mohler was granted options to purchase 37,261
shares of Bay National Corporation common stock, and Mr. Semanie was granted
options to purchase 18,630 shares of Bay National Corporation common stock. The
options vest in four (4) equal installments with the first 25% installment
vesting on the third anniversary of the officer's date of employment with Bay
National Bank. The remaining 25% installments vest on the fourth, fifth, and
sixth anniversary of the individual officer's date of employment with Bay
National Bank. A total of 23,289 of these options to purchase shares were
exercisable as of, or within 60 days of March 24, 2004.The options expire on
November 19, 2009. They are exercisable at $7.58 per share. None have been
exercised.

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, on September 10, 1999, the
purchasers 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 April 30, 2001 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. Among other requirements, 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 100% 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 monthly rent of approximately
$1,980 plus all real estate taxes and utilities. Bay National Corporation
believes that the lease rate, at the time of entering into the lease, was 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.

         Director Gary T. Gill is president and chief executive officer of the
MacKenzie Companies, which owns the property being leased for Bay National
Bank's Lutherville, Maryland corporate and branch offices. Bay National
Corporation is a party to two leases for this property. Pursuant to the first
lease, which is for a five year and five month term and commenced on July 26,
1999, Bay National Corporation agreed to pay monthly rent of approximately
$1,900, which amount increases at the rate of four percent per year. The monthly
rent as of December 31, 2003 was $2,223. Pursuant to the second lease, which is
for a five year term and commenced on March 1, 2000, Bay National Corporation
agreed to pay monthly rent of approximately $10,773, which amount increases at
the rate of four percent per year. The monthly rent as of December 31, 2003 was
$12,118. The monthly rent under both leases includes Bay National Corporation's
share of taxes


                                       82
<PAGE>


and building operating costs. Both leases were entered into well in advance of
Mr. Gill's appointment to the Board of Directors in January 2003. Bay National
Corporation believes that the lease rates, at the time of entering into the
lease, were at fair market value,

         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 Bay National Corporation and Bay National
Bank have loans due to Bay National Bank of $4,672,104 at December 31, 2003. All
loans were 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.




                                       83
<PAGE>


Item 13.  Exhibits and Reports on Form 8-K

         (a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report.

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
10.7#       Bay National Corporation Stock Option Plan
14          Code of Ethics for Senior Financial Officers
21.1*       Subsidiaries of Bay National Corporation
23.1        Consent of Stegman & Company
31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002
31.2        Certification of Chief Financial Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002
32          Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

         The exhibits which are denominated with 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.

         The exhibit which are denominated by the number sign (#) was previously
filed by Bay National Corporation as a part of, and is hereby incorporated by
reference from, Bay National Corporation's Registration Statement on Form S-8,
as amended, under the Securities Act of 1933, Registration Number 333-69428.

(b) Reports of Form 8-K.

           Form 8-K filed, dated October 22, 2003, Items 7 and 9.




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<PAGE>


Item 14.  Principal Accountant Fees and Services.

Audit and Non-Audit Fees

         The following table presents fees for professional audit services
rendered by Stegman & Co. for the audit of Bay National Corporation's annual
consolidated financial statements for the years ended December 31, 2003 and
December 31, 2002 and fees billed for other services rendered by Stegman & Co.
during those periods.

                                                 Years Ended December 31
                                              -------------------------------
                                                  2003              2002
                                              -------------     -------------
Audit Fees (1)                               $      34,151     $      32,622
Audit Related Fees (2)                                   -                 -
Tax Fees (3)                                         4,000             4,000
All Other Fees (4)                                       -                 -
                                              -------------     -------------
     Total                                   $      38,151     $      36,622
                                              =============     =============



(1)  Audit Fees consist of fees billed for professional services rendered for
     the audit of the Company's consolidated annual financial statements and
     review of the interim consolidated financial statements included in
     quarterly reports, and services that are normally provided by Stegman &
     Company in connection with statutory and regulatory filings or engagements.

(2)  Audit-Related Fees would normally consist of fees billed for assurance and
     related services that are reasonably related to the performance of the
     audit or review of the Company's consolidated financial statements and are
     not reported under "Audit Fees."

(3)  Tax Fees consist of fees billed for professional services rendered for
     federal and state tax compliance, tax advice and tax planning.

(4)  All Other Fees would normally consist of fees for services other than the
     services reported above.



Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditor

         Before the accountant is engaged by Bay National Corporation or Bay
National Bank to render any audit or non-audit services, the engagement is
approved by Bay National Corporation's audit committee.




                                       85
<PAGE>



                                   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 23, 2004                       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>
/s/ Hugh W. Mohler
---------------------------       Director and President
Hugh W. Mohler                    (Principal Executive Officer)      March 23, 2004


/s/ Mark A. Semanie               Executive Vice President and CFO   March 22, 2004
---------------------------       (Principal Accounting and
Mark A. Semanie                   Financial Officer)

/s/ Carroll A. Bodie              Director                           March 23, 2004
---------------------------
Carrol1 A. Bodie

/s/ Charles E. Bounds             Director                           March 23, 2004
---------------------------
Charles E. Bounds

/s/ Gary T. Gill                  Director                           March 23, 2004
---------------------------
Gary T. Gill

/s/ John R. Lerch                 Director                           March 23, 2004
---------------------------
John R. Lerch

/s/ Donald G. McClure, Jr.        Director                           March 25, 2004
---------------------------
Donald G. McClure, Jr.

/s/ Robert L. Moore               Director                           March 23, 2004
---------------------------
Robert L. Moore

/s/ H. Victor Rieger              Director                           March 23, 2004
---------------------------
H. Victor Rieger, Jr.

/s/ Margaret Knott Riehl          Director                           March 23, 2004
---------------------------
Margaret Knott Riehl



                                       86
<PAGE>


/s/ William B. Rinnier            Director                           March 23, 2004
---------------------------
William B. Rinnier

/s/ Edwin A. Rommel, III          Director                           March 23, 2004
---------------------------
Edwin A. Rommel, III

/s/ Henry H. Stansbury            Director                           March 23, 2004
---------------------------
Henry H. Stansbury

/s/ Kenneth H. Trout              Director                           March 23, 2004
---------------------------
Kenneth H. Trout

/s/ Eugene M. Waldron, Jr.        Director                           March 24, 2004
---------------------------
Eugene M. Waldron, Jr.

/s/ Carl A.J. Wright              Director                           March 23, 2004
---------------------------
Carl A.J. Wright


</TABLE>



                                       87
<PAGE>



     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.



                                       88
<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
10.7#       Bay National Corporation Stock Option Plan
14          Code of Ethics for Senior Financial Officers
21.1*       Subsidiaries of Bay National Corporation
23.1        Consent of Stegman & Company
31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002
31.2        Certification of Chief Financial Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002
32          Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



* 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

# Previously filed by Bay National Corporation as a part of Bay National
Corporation's Registration Statement on Form S-8, as amended, under the
Securities Act of 1933, Registration Number 333-69428




                                       89