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


                                   FORM 10-QSB


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


                 For the quarterly period ended March 31, 2004.

                        Commission file number: 333-87781



                            Bay National Corporation
        (Exact name of small business issuer as specified 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, MD 21093
                     Address of principal executive offices

                                 (410) 494-2580
                            Issuer's telephone number

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

           Yes           X                                   No
                     ----------                                       ---------

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

         At May 13, 2004, the issuer had 1,862,710 shares of Common Stock
outstanding.

   Transitional Small Business Disclosure Format (Check One): Yes ____ No X__


<PAGE>


PART I  -     FINANCIAL INFORMATION

Item 1.       Financial Statements

                                               BAY NATIONAL CORPORATION

                                              CONSOLIDATED BALANCE SHEETS
                                      As of March 31, 2004 and December 31, 2003

<TABLE>
<CAPTION>
                                                                                   March 31,           December 31,
                                                                                      2004                 2003
                                                                                ----------------      ---------------
ASSETS                                                                            (Unaudited)
<S>                                                                           <C>                    <C>
     Cash and due from banks                                                  $       1,151,245      $       573,124
     Federal funds sold and other overnight investments                              35,150,037           17,486,981
     Loans held for sale                                                                951,540              923,825
     Investment securities available for sale (AFS) - at fair value                   1,447,788            1,547,798
     Other equity securities                                                            532,290              481,090
     Loans, net of unearned fees                                                    109,588,647          101,391,975
         Less: Allowance for credit losses                                           (1,370,000)          (1,266,500)
                                                                                ----------------      ---------------
              Loans, net                                                            108,218,647          100,125,475
     Premises and equipment, net                                                        698,815              637,612
     Accrued interest receivable and other assets                                       602,095              552,351
                                                                                ----------------      ---------------

              Total Assets                                                    $     148,752,457      $   122,328,256
                                                                                ================      ===============


LIABILITIES

     Non-interest-bearing deposits                                            $      16,572,494      $    14,277,909
     Interest-bearing deposits                                                      118,174,050           94,252,992
                                                                                ----------------      ---------------
         Total deposits                                                             134,746,544          108,530,901

     Short-term borrowings                                                            1,450,000            1,222,000
     Accrued expenses and other liabilities                                             428,337              508,855
                                                                                ----------------      ---------------

              Total Liabilities                                                     136,624,881          110,261,756
                                                                                ----------------      ---------------

STOCKHOLDERS' EQUITY

     Common stock - $.01 par value, authorized: 9,000,000 shares authorized,
         1,862,710 issued and outstanding as of March 31, 2004 and
         December 31, 2003, respectively:                                                18,627               18,627
     Surplus                                                                         16,850,834           16,850,834
     Accumulated deficit                                                             (4,741,885)          (4,802,961)
                                                                                ----------------      ---------------

              Total Stockholders' Equity                                             12,127,576           12,066,500
                                                                                ----------------      ---------------

              Total Liabilities and Stockholders' Equity                      $     148,752,457      $   122,328,256
                                                                                ================      ===============








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





                                                          2
<PAGE>
<TABLE>
<CAPTION>

                                             BAY NATIONAL CORPORATION

                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                For the three-months ended March 31, 2004 and 2003
                                                    (Unaudited)

                                                                                        2004            2003
                                                                                    -------------    ------------
<S>                                                                                <C>              <C>
INTEREST INCOME:
   Interest and fees on loans                                                      $   1,530,644    $  1,144,325
   Interest on federal funds sold and other
     overnight investments                                                                25,942          21,047
   Taxable interest and dividends on investment
     securities                                                                            4,895           3,960
                                                                                    -------------    ------------
     Total interest income                                                             1,561,481       1,169,332
                                                                                    -------------    ------------

INTEREST EXPENSE:
   Interest on deposits                                                                  508,437         438,935
   Interest on short-term borrowings                                                       2,908           1,836
                                                                                    -------------    ------------
     Total interest expense                                                              511,345         440,771
                                                                                    -------------    ------------

Net interest income                                                                    1,050,136         728,561

Provision for credit losses                                                              109,721         169,500
                                                                                    -------------    ------------

Net interest income after provision for
   credit losses                                                                         940,415         559,061
                                                                                    -------------    ------------

NON-INTEREST INCOME:
   Service charges on deposit accounts                                                    54,455          40,566
   Gain on sale of mortgage loans                                                         56,949          81,979
   Other income                                                                           13,923           9,167
                                                                                    -------------    ------------
     Total non-interest income                                                           125,327         131,712
                                                                                    -------------    ------------

NON-INTEREST EXPENSES:
   Salaries and employee benefits                                                        594,677         515,168
   Occupancy expenses                                                                     69,821          61,015
   Furniture and equipment expenses                                                       54,103          45,127
   Legal and professional fees                                                            38,748          36,169
   Data processing and other outside services                                            130,671         136,244
   Advertising and marketing related expenses                                             43,498          37,524
   Other expenses                                                                         73,148          65,927
                                                                                    -------------    ------------
     Total non-interest expenses                                                       1,004,666         897,174
                                                                                    -------------    ------------

Income (loss) before income taxes                                                         61,076        (206,401)
Income tax benefit                                                                             -                -
                                                                                    -------------    ------------
NET INCOME (LOSS)                                                                  $      61,076    $   (206,401)
                                                                                    -------------    ------------

Per Share Data:
   Cash Dividends Paid                                                             $           -    $         -

   Net Income (Loss) (basic)                                                       $         .03    $       (.17)
   Net Income (Loss) (diluted)                                                               .03    $       (.17)
   Average shares outstanding (basic)                                                  1,862,710       1,242,020
   Average shares outstanding (diluted)                                                1,917,415       1,242,020


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




                                                        3
<PAGE>

<TABLE>
<CAPTION>
                                            BAY NATIONAL CORPORATION

                           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                               For the three-months ended March 31, 2004 and 2003
                                                   (Unaudited)




                                                            Additional
                                                              Paid in           Accumulated
                                         Common Stock         Capital             Deficit            Total
                                         -------------     --------------    -----------------    -------------
<S>                                     <C>               <C>               <C>                  <C>
Balances at December 31, 2003           $      18,627     $   16,850,834    $     (4,802,961)    $  12,066,500

Net Income                                    -                  -                    61,076            61,076
                                         -------------     --------------    -----------------    -------------
Balances at March 31, 2004              $      18,627     $   16,850,834    $     (4,741,885)    $  12,127,576
                                         =============     ==============    =================    =============


                                                            Additional
                                                              Paid in           Accumulated
                                         Common Stock         Capital             Deficit            Total
                                         -------------     --------------    -----------------    -------------
Balances at December 31, 2002           $      12,420     $   12,407,780    $     (4,810,542)    $   7,609,658

Net Loss                                      -                  -                  (206,401)         (206,401)
                                         -------------     --------------    -----------------    -------------
Balances at March 31, 2003              $      12,420     $   12,407,780    $     (5,016,943)    $   7,403,257
                                         =============     ==============    =================    =============




























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




                                                        4
<TABLE>
<CAPTION>
                                             BAY NATIONAL CORPORATION

                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                For the three-months ended March 31, 2004 and 2003
                                                   (Unaudited)

                                                                                2004                   2003
                                                                            -------------          -------------
<S>                                                                        <C>                    <C>
Cash Flows From Operating Activities
   Net income (loss)                                                       $      61,076          $    (206,401)
   Adjustments to reconcile net income (loss) to net cash provided (used)
     by operating activities:
       Depreciation                                                               43,158                 43,992
       Accretion of investment discounts                                          (3,415)                (2,986)
       Provision for credit losses                                               109,721                169,500
       Gain on sale of loans                                                     (56,949)               (81,979)
       Origination of loans held for sale                                     (5,449,684)           (10,200,548)
       Proceeds from sale of loans                                             5,478,918              9,044,684
       Net increase in accrued interest receivable and other assets              (49,744)               (59,920)
       Net decrease in accrued expenses and other liabilities                    (80,518)               (98,199)
                                                                            -------------          -------------

            Net cash provided (used) by operating activities                      52,563             (1,391,857)
                                                                            -------------          -------------

Cash Flows From Investing Activities
   Purchases of investment securities - AFS                                   (1,446,575)            (1,196,505)
   Maturities of investment securities - AFS                                   1,550,000                950,000
   Purchase of Federal Home Loan Bank of Atlanta stock                           (51,200)               (88,500)
   Loan disbursements in excess of principal payments                         (8,202,893)           (13,576,252)
   Capital expenditures                                                         (104,361)               (35,191)
                                                                            -------------          -------------

            Net cash used by investing activities                             (8,255,029)           (13,946,448)
                                                                            -------------          -------------

Cash Flows From Financing Activities
   Net increase in deposits                                                   26,215,643             20,021,253
   Net increase in short-term borrowings                                         228,000                664,000
   Stock subscriptions received                                                  -                    2,442,931
                                                                            -------------          -------------

           Net cash provided by financing activities                          26,443,643             23,128,184
                                                                            -------------          -------------

Net increase in cash and cash equivalents                                     18,241,177              7,789,879
Cash and cash equivalents at beginning of period                              18,060,105             12,115,736
                                                                            -------------          -------------

Cash and cash equivalents at end of period                                 $  36,301,282          $  19,905,615
                                                                           =============          =============

Cash paid for:
   Interest                                                                $     491,803          $     431,760
   Income taxes                                                            $           -          $           -










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


                                                       5
<PAGE>


                            BAY NATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   GENERAL

         Organization

         Bay National Corporation (the "Company") 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 (the "Bank"). On May
12, 2000, the Company purchased all the shares of common stock issued by 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.

         Basis of Presentation

         The accompanying consolidated financial statements include the activity
of Bay National Corporation and its wholly owned subsidiary, Bay National Bank.
All significant intercompany transactions and balances have been eliminated in
consolidation.

         The foregoing consolidated financial statements are unaudited; however,
in the opinion of management, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the results of the interim period
have been included. The balances as of December 31, 2003 have been derived from
audited financial statements. These statements should be read in conjunction
with the financial statements and accompanying notes included in Bay National
Corporation's 2003 Annual Report on Form 10-KSB. There have been no significant
changes to the Company's Accounting Policies as disclosed in the 2003 Annual
Report. The results shown in this interim report are not necessarily indicative
of results to be expected for the full year 2004.

         The accounting and reporting policies of the Company conform to
accounting principles generally accepted in the United States of America.

         Reclassifications

         Certain reclassifications have been made to amounts previously reported
to conform to the current presentation. These reclassifications had no effect on
previously reported results of operations or retained earnings.

2.   REGULATORY MATTERS

         The Bank is 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 financial statements. Under capital 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 weighting and other factors.




                                        6
<PAGE>

         Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios. Management
believes, as of March 31, 2004, that the Bank meets all capital adequacy
requirements to which it is subject.

         As of March 31, 2004, 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-based, Tier I risk-based, and Tier I leverage ratios.

3.   INCOME TAXES

         The Company uses the liability method of accounting for income taxes as
required by SFAS No. 109, "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.

4.   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.

           The Company's common stock equivalents were not considered in the
computation of diluted earnings per share for the three-month period ended March
31, 2003 because the result would have been anti-dilutive.

5.    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. No
compensation expenses related to the Company's stock option plan were recorded
during the three-month periods ended March 31, 2004 and 2003.





                                       7
<PAGE>


         The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 and SFAS No. 148 to stock-based employee compensation
for the three-month periods ended March 31:

<TABLE>
<CAPTION>
                                                                                      Three Months Ending
                                                                                           March 31
                                                                                     2004               2003
                                                                                 -------------       ------------
<S>                                                                             <C>                 <C>
INTEREST INCOME:
Net income (loss), as reported                                                  $      61,076       $   (206,401)

 Less pro forma stock-based compensation
   expense determined under the fair value
   method                                                                             (15,609)           (16,623)

                                                                                 -------------       ------------
 Pro forma net income (loss)                                                    $      45,467       $   (223,024)
                                                                                 =============       ============

 Net income (loss) per share:
   Basic - as reported                                                          $         .03       $       (.17)
   Diluted - as reported                                                        $         .03       $       (.17)
   Basic - pro forma                                                            $         .02       $       (.18)
   Diluted - pro forma                                                          $         .02       $       (.18)

</TABLE>





                                       8
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

         This discussion and analysis provides an overview of the financial
condition and results of operations of Bay National Corporation (the "Parent")
and its national bank subsidiary, Bay National Bank (the "Bank"), collectively
(the "Company"), as of March 31, 2004 and December 31, 2003 and for the
three-month periods ended March 31, 2004 and 2003.

General

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

         The Bank was formed to serve the business communities of North
Baltimore and Salisbury, Maryland.

Overview

         The Company continued a pattern of strong growth during the three-month
period ended March 31, 2004. This growth has resulted in improved operating
results as compared to prior periods. Key measurements for the three-month
period ended March 31, 2004 include the following:

          o    Total assets at March 31, 2004 increased by 21.60% to $148.8
               million as compared to $122.3 million as of December 31, 2003.

          o    Net loans outstanding increased by 8.08% from $100.1 million as
               of December 31, 2003 to $108.2 million as of March 31, 2004.

          o    There were no nonperforming loans at March 31, 2004; however,
               appropriate reserves for loan losses continue to be maintained.

          o    Deposits at March 31, 2004 were $134.7 million, an increase of
               $26.2 million or 24.16% from December 31, 2003.

          o    The Company realized net income of $61,076 for the three-month
               period ended March 31, 2004, as compared to a loss of $206,401
               for the three-month period ended March 31, 2003.

          o    Net interest income, the Company's main source of income, was
               $1,050,136 during the first quarter of 2004 compared to $728,561
               during the first quarter 2003, an increase of 44.14%.

          o    Loan charge-offs were $6,221 for the three-month period ended
               March 31, 2004. There were no charge-offs for the same period in
               2003.

          o    Non-interest income declined by $6,385, or 4.85%, for the
               three-month period ended March 31, 2004, as compared to the
               three-month period ended March 31, 2003.


                                       9
<PAGE>

          o    Non-interest expenses increased by $107,492, or 11.98% for the
               three-month period ended March 31, 2004, as compared to the
               three-month period ended March 31, 2003.

          o    The market price of common shares ended the quarter at $11.40, up
               12.87% from the closing price of $10.10 on December 31, 2003.

         A detailed discussion of the factors leading to these changes can be
found in the discussion below.

Results of Operations

Overview

         The Company recorded net income of $61,076 for the three-month period
ended March 31, 2004. This is an improvement of $267,477 or 129.59% over a net
loss of $206,401 for the three-month period ended March 31, 2003. 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. The losses
incurred in the first quarter of 2003 were expected since loan and deposit
growth initially were not expected to produce net interest income sufficient to
cover operating expenses. On average, community banks do not achieve
profitability for the first 24 to 36 months of operation. The Company achieved
marginal monthly profitability for the month of June 2003, its 37th full month
of operations. This milestone was achieved during a very challenging economic
environment in which interest margins have been compressed by historically low
interest rates.

         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. Since its
inception in February 2001, the mortgage division has been a significant
contributor to operating results. For the three-month periods ended March 31,
2004 and 2003, gains on the sale of mortgage loans totaled $56,949 and $81,979,
respectively. The level of gains on the sale of mortgage loans has declined in
the first quarter of 2004 due to the strengthening of economic conditions which
have resulted in an increase in long term interest rates as compared to the
rates in effect during the first quarter of 2003. An increase in rates
traditionally has a negative impact on mortgage loan production due to a
reduction in the incentive for borrowers to refinance existing mortgages or
purchase new homes.

         Management expects continued improvement in operating results over the
remainder of 2004; 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.

Net Interest Income

         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.


                                       10
<PAGE>

         Interest income from loans and investments for the three-month period
ended March 31, 2004 was $1,561,481, compared to $1,169,332 for the three-month
period ended March 31, 2003. The 33.54% increase over 2003 is directly related
to the 42.14% increase in average interest- earning assets from 2003. The
increase in average earning assets was somewhat offset by declines in average
yields due to a declining interest rate environment. The yields on these assets
declined from 5.35% for the three months ended March 31, 2003 to 5.03% for the
three months ended March 31, 2004.

         The percentage of average interest-earning assets represented by loans
was 85.98% and 86.80% for the three-month periods ended March 31, 2004 and 2003,
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 declined as
a result of actions taken by the Federal Reserve to reduce its target for the
federal funds rate from 1.25% at December 31, 2002 to 1.00% effective June 25,
2003. For the three-month period ended March 31, 2004, the average yield on the
loan portfolio decreased to 5.73% from 6.03% for the three-month period ended
March 31, 2003. This decrease is due to the difference in the target federal
funds rate in effect for the periods.

        The average yield on the investment portfolio, including overnight
investments, was .71% for the three-month period ended March 31, 2004 as
compared to .87% for the same period in 2003. The decline in the average yields
was a direct result of the Federal Reserve actions discussed above, which was
somewhat offset by an increase in the holdings of Federal Reserve and Federal
Home Loan bank stocks, which pay dividend yields that are higher than the
prevailing federal funds rates. The percentage of average interest-earning
assets represented by investments was 14.02% and 13.20% for the three-month
periods ended March 31, 2004 and 2003, respectively.

         Interest expense from deposits and short-term borrowings for the
three-month period ended March 31, 2004 was $511,345, compared to $440,771 for
the comparable period in 2003. The 16.01% increase over 2003 is a result of the
39.42% increase in average interest-bearing liabilities from 2003. The increase
in average interest-bearing liabilities was significantly offset by declines in
average rates paid due to the declining interest rate environment. The average
rates paid on these liabilities declined from 2.50% for the three-month period
ended March 31, 2003 to 2.08% for the three-month period ended March 31, 2004.


                                       11
<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>
                        Three Months Ended March 31, 2004

                                                                      Average          Interest         Yield/
                                                                      Balance          and fees          Rate
<S>                                                              <C>                 <C>                     <C>
ASSETS
Loans                                                            $    106,823,760    $  1,530,644            5.73%
Investment Securities                                                   1,938,267           4,895            1.01
Federal funds sold and other overnight investments                     15,477,632          25,942             .67
                                                                  ----------------    ------------
         Total Earning Assets                                         124,239,659       1,561,481            5.03%
                                                                                      ------------
Less: Allowance for credit losses                                      (1,307,128)
Cash and due from banks                                                   737,346
Premises and equipment, net                                               627,785
Accrued interest receivable and other assets                              460,430
                                                                  ----------------
         Total Assets                                            $    124,758,092
                                                                  ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                 $     39,595,098         101,222            1.02%
Regular savings deposits                                                3,413,533           5,529             .65
Time deposits                                                          53,853,033         401,686            2.98
Short-term borrowings                                                   1,321,406           2,908             .88
                                                                  ----------------    ------------
         Total interest-bearing liabilities                            98,183,070         511,345            2.08%
                                                                                      ------------    ------------
         Net interest income and spread                                              $  1,050,136            2.95%
                                                                                      ============    ============
Non-interest-bearing demand deposits                                   14,020,473
Accrued expenses and other liabilities                                    409,827
Stockholders' equity                                                   12,144,722
                                                                  ----------------
         Total Liabilities and Stockholders' Equity              $    124,758,092
                                                                  ================

Interest and fee income/earning assets                                       5.03 %
Interest expense/earning assets                                              1.65
                                                                  ----------------
Net interest margin                                                          3.38 %
                                                                  ================



                                       12
<PAGE>



                        Three Months Ended March 31, 2003

                                                                       Average         Interest         Yield/
                                                                       Balance         and fees          Rate
ASSETS
Loans                                                               $  75,870,243    $  1,144,325            6.03%
Investment Securities                                                   1,363,514           3,960            1.16
Federal funds sold and other overnight investments                     10,172,444          21,047             .83
                                                                     -------------    ------------
         Total Earning Assets                                          87,406,201       1,169,332            5.35%
                                                                                      ------------
Less: Allowance for credit losses                                        (889,383)
Cash and due from banks                                                   801,374
Premises and equipment, net                                               702,884
Accrued interest receivable and other assets                              418,902
                                                                     -------------
         Total Assets                                               $  88,439,978
                                                                     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits                                    $  28,171,458          93,094            1.32%
Regular savings deposits                                                2,139,557           4,508             .84
Time deposits                                                          39,457,735         341,333            3.46
Short-term borrowings                                                     652,482           1,836            1.13
                                                                     -------------    ------------
         Total interest-bearing liabilities                            70,421,232         440,771            2.50%
                                                                                      ------------    ------------
         Net interest income and spread                                              $    728,561            2.85%
                                                                                      ============    ============
Non-interest-bearing demand deposits                                    8,427,739
Accrued expenses and other liabilities                                  2,011,353
Stockholders' equity                                                    7,579,654
                                                                     -------------
         Total Liabilities and Stockholders' Equity                 $  88,439,978
                                                                     =============

Interest and fee income/earning assets                                       5.35 %
Interest expense/earning assets                                              2.02
                                                                     -------------
Net interest margin                                                          3.33 %
                                                                     =============
</TABLE>


Provision for Credit Losses

         The provision for credit losses was $109,721 for the three-month period
ended March 31, 2004, as compared to $169,500 for the three-month period ended
March 31, 2003. The provisions for each period were the direct result of growth
in loan balances outstanding in all segments of the portfolio. The provision for
the three-month period ended March 31, 2004 was lower than the same period in
the prior year due to fact that gross loans outstanding increased by
approximately $8.2 million for the period in 2004 as compared to an increase of
approximately $13.6 million for the period in 2003. The fluctuations are
reflective of the high concentration of revolving credit facilities in the loan
portfolio and the unpredictable nature of customer needs to draw on these
facilities. 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."

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
three-month period ended March 31, 2004, the Company realized non-interest
income in the amount of $125,327 as compared to $131,712 for the three-month
period ended March 31, 2003. Gains on the sale of mortgage loans of $56,949
comprise 45.44% of the total for the period ended March 31, 2004. This compares



                                       13
<PAGE>

to gains on the sale of mortgage loans of $81,979, or 62.24% of total
non-interest income, for the three-month period ended March 31, 2003. The level
of gains on the sale of mortgage loans has declined due to recent increases in
long-term interest rates driven by stronger economic conditions. Additional
increases in interest rates, or a slow down in the housing market, could further
impact the Company's ability to maintain the same level of income associated
with mortgage loan production.

         Service charges on deposit accounts totaled $54,455 for the three-month
period ended March 31, 2004, as compared to $40,566 for the three-month period
ended March 31, 2003. The increases of 34.24% over 2003 can be directly
attributed to the ongoing growth in the Company's deposit portfolio.

         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, 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 three-month period ended March 31, 2004
totaled $1,004,666 compared to $897,174 for the three-month period ended March
31, 2003. The increase of $107,492, or 11.98%, was primarily related to an
increase in salaries and benefits of $79,509 or 15.43% related to benefit cost
increases, salary increases, and staffing growth initiated to increase marketing
efforts, manage the growth of the loan and deposit portfolios and support
increased operational volume. All other non-interest expenses increased a total
of $27,983 or 7.33% for the 2004 period as compared to 2003. The increase in
these other expenses relates to various costs associated with the increased size
and complexity of the Company.

        The rate of increase in non-interest expenses is substantially less than
the 41.07% increase in average assets for the three-month period ended March 31,
2004 as compared to average assets for the three-month period ended March 31,
2003. Management believes this indicates that the Company is beginning to
effectively leverage its cost structure to generate profitable growth. While
management expects that the ongoing 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 additional growth in the
customer base can continue to be accomplished without proportionate increases in
these costs.

Financial Condition

Composition of the Balance Sheet

         As of March 31, 2004, total assets were $148,752,457. This represents
growth of $26,424,201 or 21.6% since December 31, 2003. The growth in total
assets included increases of $578,121 in cash and due from banks, $17,663,056 in
federal funds sold and other overnight investments, $27,715 in loans held for
sale, $51,200 in other equity securities, $8,093,172 in loans net of the
allowance for credit losses, and $110,947 in other non-earning assets. These
increases were offset by a decrease of $100,010 in investment securities
available for sale.

         As of March 31, 2004, loans, excluding loans held for sale (net of a
$1,370,000 allowance for credit losses), totaled $108,218,647. The increase of
8.08%, from a balance of $100,125,475 as of December 31, 2003, is a continuation
of the growth trend established in prior periods. The Company continues to
emphasize prudent growth through the hiring of experienced commercial lenders,
and the development and use of referral sources including accountants, lawyers
and existing customers, as well as members of the Board of Directors and the
Baltimore and Salisbury Advisory Boards.




                                       14
<PAGE>

         The composition of the loan portfolio as of March 31, 2004 was
approximately $68.6 million of commercial loans, $2.0 million of consumer loans,
and $39.0 million of real estate loans (excluding mortgage loans held for sale).
The composition of the loan portfolio as of December 31, 2003 was approximately
$61.9 million of commercial loans, $1.7 million of consumer loans, and $37.8
million of real estate loans (excluding mortgage loans held for sale). There
were $951,540 and $923,825 of mortgage loans held for sale as of March 31, 2004
and December 31, 2003, respectively. The mix of loans is consistent with the
business plan.

         Funds not extended in loans are invested in cash and due from banks,
federal funds sold and other overnight investments, and short-term U.S. Treasury
securities. At March 31, 2004, the Company had federal funds sold and other
overnight investments totaling $35,150,037 as compared to $17,486,981 as of
December 31, 2003. Management has made a decision to maintain a high level of
liquidity in the investment portfolio in order to ensure that funds are readily
available to fund the growth of the loan portfolio and to meet the needs of
deposit customers.

         The Company held $312,690 of Federal Reserve Bank stock at March 31,
2004 and December 31, 2003, respectively. The Company also held Federal Home
Loan Bank of Atlanta stock of $219,600 and $168,400 as of March 31, 2004 and
December 31, 2003, respectively, and United States Treasury bills with a
maturity value of $1,450,000 and $1,550,000 as of March 31, 2004 and December
31, 2003, respectively. The Treasury securities are used to collateralize
repurchase agreements which are classified as short-term borrowings under which
$1,450,000 and $1,222,000 were outstanding as of March 31, 2004 and December 31,
2003, respectively. The growth in assets was funded by deposit growth of
$26,215,643, or 24.16%, and an increase in short-term borrowings of $228,000.

         Deposits at March 31, 2004 were $134,746,544, of which $19,081,321, or
14.16% are related to two customers in one industry. Deposits at December 31,
2003 were $108,530,901, of which deposits for these same customers stood at
$7,749,590 or 7.14% of total deposits. The deposits for these customers tend to
fluctuate significantly; as a result, management monitors these deposits on a
daily basis to ensure that liquidity levels are adequate to compensate for these
fluctuations. The remaining deposit growth resulted from the continued marketing
efforts of officers and directors, direct mail campaigns and the listing of
money market and certificate of deposit rates in print publications and on the
Internet. Management has set the interest rates paid on deposits to be
competitive in the market and will continue its marketing activities to generate
growth in deposits.

         The market in which the Company operates is very competitive;
therefore, 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 March 31, 2004,
the Company had outstanding certificates of deposit of approximately $31.2
million that were obtained through the listing of certificate of deposit rates
on two Internet-based listing services (such deposits are sometimes referred to
herein as national market certificates of deposit). These certificates of
deposit were issued with an average yield of 2.65% and an average term of 26.3
months. Included in the $31.2 million of Internet-originated certificates of
deposit is $691,751 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 31.8
months. As of December 31, 2003, the total certificates of deposit obtained
through the listing of certificate of deposit rates on the Internet-based
listing services were approximately $25 million, of which $790,157 were
classified as "Brokered Deposits." The Company has never paid broker fees for
deposits. Additionally, the Company has not accepted any new "Brokered Deposits"
since August 2002.




                                       15
<PAGE>

         Core deposits, which management categorizes as all deposits other than
national market certificates of deposit and all but $2.0 million of deposits
from the two large customers described above (which management considers to be a
stable deposit amount from these customers based upon historical trends), stood
at $86,485,674 as of March 31, 2004, up 11.25% from $77,742,031 as of December
31, 2003. Core deposits are closely monitored by management because they
consider such deposits not only a relatively stable source of funding but also
reflective of the growth of commercial and consumer depository relationships.

         Short-term borrowings consist of repurchase agreements collateralized
by pledges of U.S. Government Treasury Securities, based upon their market
values, equal to 100% of the principal and accrued interest of its short-term
borrowings. The outstanding balance of short-term borrowings increased from
$1,222,000 at December 31, 2003 to $1,450,000 at March 31, 2004, due to
increases in the balance of available funds of the customers participating in
this program.

         Total stockholders' equity at March 31, 2004 was $12,127,576 as
compared to $12,066,500 at December 31, 2003. The increase in stockholders'
equity is a result of the positive operating results for the three months ended
March 31, 2004. Management believes that this level of capital is adequate to
support expected asset growth for at least the next 12 months.

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
upon 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
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.




                                       16
<PAGE>

         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 March 31, 2004 and December 31,
2003 was $1,370,000 and $1,266,500, respectively. The amount equates to 1.25% of
outstanding loans, net of loans held for sale, as of March 31, 2004 and December
31, 2003. 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.

         As of March 31, 2004 the Company had no loans that were more than 90
days past due. The Company has no loans that are classified as non-accrual loans
as of March 31, 2004. The Company had loan charge-offs of $6,221 during the
three months ended March 31, 2004. These charge-offs are the first losses
incurred since the Company's inception.

Liquidity and Interest Rate Sensitivity

         The Company's principal sources of liquidity are cash and assets that
can be readily converted into cash, including investment securities. The Company
also has 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.

         As of March 31, 2004, the Company had $1,151,245 in cash and due from
banks, and $35,150,037 in federal funds sold and other overnight investments.
This represents an increase in liquid assets of $18,241,177, or 101%, since
December 31, 2003, at which time liquid assets consisted of $573,124 in cash and
due from banks, and $17,486,981 in federal funds sold and other overnight
investments. The increase in the overall level of liquid assets is the result of
an increase of $18,426,360 in non-core deposits with $11,331,731 related to two
significant customers, and the remainder related to national market certificates
of deposit.

         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.

          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.

         The measurement of the Company's interest rate sensitivity, or "gap,"
is one of the principal techniques used in asset/liability management. The





                                       17
<PAGE>

interest sensitive gap is the dollar difference between assets and liabilities
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 March 31, 2004,
which are expected to mature or reprice in each of the time periods shown:

<TABLE>
<CAPTION>
                                                                       Maturity or repricing within
                                               Percent       0 to 3      4 to 12      1 to 5     0ver 5
                                     Amount    of Total      Months      Months       Years     Years
<S>                               <C>               <C>     <C>          <C>           <C>        <C>
Interest-earning assets
   Federal funds sold and other
   overnight investments           $35,150,037      23.80%  $35,150,037   $   -        $    -      $     -
   Loans - Variable rate            79,470,915      53.82    79,470,915       -             -            -
   Loans - Fixed rate               31,069,272      21.04     2,215,252    4,921,721   22,675,398    1,256,901
   Other earning assets              1,980,078       1.34     1,447,788      -             -           532,290
                                  ------------     ------  ------------   ----------  -----------   ----------
      Total interest-earning
         assets                   $147,670,302     100.00% $118,283,992   $4,921,721  $22,675,398   $1,789,191
                                  ============     ======  ============   ==========  ===========   ==========

Interest-bearing liabilities
   Deposits - Variable rate        $59,109,290      49.41%  $59,109,290  $    -        $    -      $     -
   Deposits - Fixed rate            59,064,760      49.38     9,109,637   24,111,428   25,843,695        -
   Short-term borrowings -
      Variable rate                  1,450,000       1.21     1,450,000      -             -             -
                                  ------------     ------  ------------   ----------  -----------   ----------
      Total interest-bearing
         liabilities              $119,624,050     100.00%  $69,668,927  $24,111,428  $25,843,695  $     -
                                  ============     ======  ============   ==========  ===========   ==========

Periodic repricing differences
   Periodic gap                                             $48,615,065 $(19,189,707) $(3,168,297) $ 1,789,191
                                                            =========== ============  ===========  ===========
   Cumulative gap                                           $48,615,065  $29,425,358  $26,257,061  $28,046,252
                                                            =========== ============  ===========  ===========

Ratio of rate sensitive assets
    to rate sensitive liabilities                                169.78%      20.41%       87.74%    N/A

</TABLE>

         The Company has 77.62% of its interest-earning assets and 50.62% of its
interest-bearing liabilities in variable rate balances. Interest-earning assets
exceed interest-bearing liabilities by $28,046,252. The majority of this gap is
concentrated in items maturing or repricing within 12 months. 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 constantly monitors and manages the structure of the
Company's balance sheet, seeks to control interest rate exposure, and evaluate
pricing strategies. Strategies to better match maturities of interest-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





                                       18
<PAGE>

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.

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. 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.

         Outstanding loan commitments and lines and letters of credit as of
March 31, 2004 and December 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                        March 31 2004       December 31 2003
<S>                                                                   <C>                <C>
         Loan commitments                                             $      11,828,019  $      11,458,333
         Unused lines of credit                                              35,472,108         32,234,145
         Letters of credit                                                    2,038,001          2,167,501
</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 as 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
line 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 commitments 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 commitment.

         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 March 31, 2004 as compared to loan commitments and unused lines
of credit as of December 31, 2003, is a direct result of the same marketing
activities that resulted in the 8.08% increase in outstanding loans.



                                       19
<PAGE>

Capital Resources

         The Company had stockholders' equity at March 31, 2004 of $12,127,576
as compared to $12,066,500 at December 31, 2003. The increase in capital is a
result of the positive operating results for the three-month period ended March
31, 2004. 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 March 31, 2004.

Reconciliation of Non-GAAP Application of Critical Accounting Policies  Measures

         Below is a reconciliation of total deposits to core deposits as of
March 31, 2004 and December 31, 2003, respectively:

<TABLE>
<CAPTION>
                                                                     March 31          December 31
                                                                       2004                2003
<S>                                                             <C>                  <C>
Total deposits                                                  $     134,746,544    $    108,530,901
National market certificates of deposit                               (31,179,549)        (25,039,281)
Variable balance accounts (2 customers)                               (17.081,321)         (5,749,590)
                                                                 -----------------    ----------------
Core deposits                                                   $      86,485,674    $     77,742,030
                                                                 =================    ================
</TABLE>

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.

        Based on the valuation techniques used and the sensitivity of financial
statement amounts to the methods, assumptions and estimates underlying those




                                       20
<PAGE>

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.

         Management has significant discretion in making the judgments inherent
in the determination of the provision and allowance for credit losses. 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 "Allowance for Credit Losses and Credit Risk Management" section
of this financial review.

Item 3.  Controls and Procedures

         As of the end of the period covered by this quarterly report on Form
10-QSB, 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
March 31, 2004, that have materially affected, or are reasonably likely to
materially affect, Bay National Corporation's internal control over financial
reporting.

Information Regarding Forward-Looking Statements

         In addition to the historical information contained in Part I of this
Quarterly Report on Form 10-QSB, the discussion in Part I of this Quarterly
Report on Form 10-QSB contains certain forward-looking statements.
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. Our actual
results and the actual outcome of our expectations and strategies could be
different from those anticipated or estimated.

         The statements presented herein with respect to, among other things,
Bay National Corporation's plans, objectives, expectations and intentions,
including statements regarding profitability, liquidity, allowance for loan
losses, interest rate sensitivity, market risk and financial and other goals are
forward looking. These statements are based on Bay National Corporation's
beliefs and assumptions, and on information available to Bay National
Corporation as of the date of this filing, and involve risks and uncertainties.
These risks and uncertainties include, among others, those discussed in this
Quarterly Report on Form 10-QSB; Bay National Corporation's limited operating




                                       21
<PAGE>

history; dependence on key personnel; risks related to Bay National Bank's
choice of loan portfolio; risks related to Bay National Bank's lending limit;
risks of a competitive market; impact of government regulation on operating
results; and effect of developments in technology. For a more complete
discussion of these risks and uncertainties see the discussion under the caption
"Factors Affecting Future Results" in Bay National Corporation's Form 10-KSB.

         Bay National Corporation's actual results could differ materially from
those discussed herein 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.





                                       22
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                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

           None

Item 2.    Changes in Securities.

           None
Item 3.    Defaults Upon Senior Securities.

           Not applicable.

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

           None

Item 5.    Other Information.

           None





                                       23
<PAGE>


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

           (a) Exhibits.

          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.


(b) Reports on Form 8-K.

               Form 8-K filed, dated February 3, 2004, Items 7, 9 and 12.









                                       24
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                                   SIGNATURES

         In accordance with the requirements 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: May 14, 2004              By: /s/ Hugh W. Mohler
                                    --------------------------------------------
                                    Hugh W. Mohler, President
                                    (Principal Executive Officer)


Date: May 14, 2004              By: /s/ Mark A. Semanie
                                    --------------------------------------------
                                    Mark A. Semanie, Treasurer
                                    (Principal Accounting and Financial Officer)







                                       25
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