EXHIBIT 13 Annual Report to Stockholders for the fiscal year ended June 30, 1999

<PAGE>






                              SWVA BANCSHARES, INC.
                               1999 ANNUAL REPORT


--------------------------------------------------------------------------------

TABLE OF CONTENTS

--------------------------------------------------------------------------------


Corporate Profile and Related Information....................................  1


Stock Market Information.....................................................  1


Selected Financial and Other Data............................................  3


President's Message..........................................................  4


Management's Discussion and Analysis of
  Financial Condition and Results of Operations..............................  7


Report of Independent Auditors............................................... 16


Consolidated Financial Statements............................................ 17


Notes to Consolidated Financial Statements................................... 23


Office Locations............................................................. 50


Directors and Executive Officers............................................. 50


Other Corporate Information.................................................. 50

                                       i
<PAGE>


                              SWVA BANCSHARES, INC.


Corporate Profile and Related Information

         SWVA  Bancshares,  Inc.  (the  "Company")  is the  parent  company  for
Southwest  Virginia  Savings  Bank,  FSB  ("Southwest  Virginia  Savings" or the
"Savings Bank").  The Company was formed as a Virginia  corporation in June 1994
at the  direction of the Savings  Bank to acquire all of the capital  stock that
the Savings Bank issued upon its conversion from the mutual to the stock form of
ownership (the  "Conversion")  in connection  with a $5.7 million initial public
offering completed on October 7, 1994. The Company is a unitary savings and loan
holding company which,  under existing laws,  generally is not restricted in the
types of business  activities  in which it may engage  provided that the Savings
Bank retains a specified amount of its assets in housing-related investments. At
the present time,  since the Company does not conduct any active  business,  the
Company  does not intend to employ any person  other than  officers but utilizes
the support staff and facilities of the Savings Bank from time to time.

         Southwest Virginia Savings is a federally  chartered stock savings bank
headquartered  in Roanoke,  Virginia.  The  Savings  Bank was founded in 1927 as
Southwest Virginia Building and Loan Association and originally chartered by the
Commonwealth  of Virginia.  In 1990, a federal charter was obtained and the name
was changed to Southwest  Virginia  Savings  Bank,  FSB. Its deposits  have been
federally  insured since 1945. The Savings Bank is a community  oriented savings
institution  offering a variety of  financial  services to meet the needs of the
communities  that it serves.  Southwest  Virginia  Savings conducts its business
from its main office in Roanoke, Virginia, four full service branch offices, one
of which is also  located in the City of  Roanoke,  one in the City of Salem and
two in the County of Roanoke, and a loan production office in Roanoke County.

         The Savings  Bank is primarily  engaged in the  business of  attracting
deposits  from  the  general  public  and  originating  loans  secured  by first
mortgages on one- to  four-family  residences in the Savings Bank's market area.
The Savings Bank also makes  nonresidential  and multi-family real estate loans,
construction loans, consumer loans, commercial loans and other loans.


Stock Market Information

         Since its issuance in October 1994, the Company's common stock has been
traded  over-the-counter  with trades reported in the National  Quotation Bureau
"pink sheets" under the trading symbol of "SWVB".  The following  table reflects
high and low bid  information  as  furnished  by  Wheat  First  Union,  Roanoke,
Virginia. This information reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual trades.

                                                   HIGH              LOW
                                                   ----              ---
      July 1 - September 30, 1997                 21.000            16.000
      October 1 - December 31, 1997               21.000            19.000
      January 1 - March 31, 1998                  21.030            19.750
      April 1 - June 30, 1998                     21.000            20.250
      July 1 - September 30, 1998                 20.380            15.500
      October 1 - December 31, 1998               17.250            10.000
      January 1 - March 31, 1999                  16.030            13.500
      April 1 - June 30, 1999                     15.500            13.000


                                       1
<PAGE>

         The number of  shareholders  of record of common stock as of August 15,
1999 was  approximately  223.  This does not  reflect  the  number of persons or
entities who held stock in "street" name through  various  brokerage  firms.  At
August 15, 1999, there were 423,612 shares outstanding.

         Declarations  of  dividends  by the Board of  Directors  of the Company
depend upon a number of factors,  including the amount of cash and liquid assets
held by the Company,  investment  opportunities  available to the Company or the
Savings Bank, capital requirements,  regulatory  limitations,  the Company's and
the  Savings  Bank's  results  of  operations  and  financial   condition,   tax
considerations  and general economic  conditions.  Certain of these restrictions
are discussed in notes 12 and 14 to the consolidated financial statements.


                           Dividends Declared and Paid

                     Amount Per
Date Declared        Common Share     Record Date            Date Payable
-------------        ------------     -----------            ------------
February 1, 1995        $0.15         March 1, 1995          March 31, 1995
July 28, 1995           $0.15         August 31, 1995        September 30, 1995
February 21, 1996       $0.15         March 11, 1996         March 31, 1996
August 21, 1996         $0.15         September 9, 1996      September 30, 1996
February 19, 1997       $0.15         March 14, 1997         March 31, 1997
August 20, 1997         $0.15         September 15, 1997     September 30, 1997
September 3, 1997       $1.00         September 15, 1997     September 30, 1997
February 18, 1998       $0.15         March 20, 1998         March 31, 1998
August 19, 1998         $0.20         September 15, 1998     September 30, 1998
February 25, 1999       $0.20         March 15, 1999         March 31, 1999
August 18, 1999         $0.20         September 15, 1999     September 30, 1999



                                       2
<PAGE>
                        SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Financial Condition (Dollars in Thousands)
At June 30,                                              1999             1998            1997             1996             1995

------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

<S>                                                      <C>              <C>              <C>             <C>              <C>
Total assets                                             $ 81,714         $ 84,387         $70,753         $ 66,987         $ 66,265
Loans receivable, net                                      45,576           48,211          50,982           46,757           51,064
Mortgage-backed & investment securities                    23,817           22,886          10,074            7,939            7,048
Interest-bearing deposits                                   6,278            5,897           5,304            3,841            3,061
Cash and cash equivalents                                   2,454            3,193           1,276            5,262              830
Savings deposits                                           62,094           68,288          57,933           57,643           54,642
Borrowed funds                                             12,000            7,000           3,500               --            1,800
Equity capital/stockholders' equity                         6,791            8,327           8,602            8,675            9,313
------------------------------------------------------------------ ---------------- --------------- ---------------- ---------------


Summary of Operations (Dollars in Thousands)
Year Ended June 30,                                       1999             1998           1997             1996             1995

------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

Interest income                                            $5,791           $5,808         $ 5,310           $4,906           $4,539
Interest expense                                            3,338            3,226           2,673            2,622            2,314
   Net interest income                                      2,453            2,582           2,637            2,284            2,225
Provision for credit losses                                    13               33              23               --                1
                                                            -----            -----          ------            -----            -----
  Net interest income after provision
for        credit losses                                    2,440            2,549           2,614            2,284            2,224
Noninterest income                                            575              428             398              455              315
                                                            -----            -----          ------            -----            -----
Noninterest expense                                         2,493            2,198           2,392            2,242            2,045
                                                            -----            -----           -----            -----            -----
Income before income taxes                                    522              779             620              497              494
Provision for income taxes                                    177              318             206              191              190
                                                            -----            -----          ------            -----            -----
     Net income                                          $    345         $    461        $    414         $    306         $    304
                                                          =======          =======         =======          =======          =======
------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

Other Selected Data
Year Ended June 30,                                      1999             1998            1997             1996             1995

------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

Return on average assets                                     0.42%            0.59%           0.60%            0.46%           0.47%
Return on average equity                                     4.41             5.41            4.87             3.50            3.77
Interest rate spread                                         2.65             3.10            3.55             3.17            3.37
Non-performing loans to total loans                          0.13             0.00            0.10             0.00            0.12
Non-performing loans to total assets                         0.07             0.00            0.08             0.00            0.09
Allowance for credit losses to total loans                   0.45             0.43            0.43             0.40            0.37
------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

Per share data
Year Ended June 30,                                      1999             1998            1997             1996             1995

------------------------------------------------- ---------------- ---------------- --------------- ---------------- ---------------

Basic earnings per share                                    $ .78            $ .97           $ .85            $ .60             .57
Diluted earnings per share                                    .78              .95             .85              .60             .57
Stockholders' equity                                        14.89            16.76           16.83            15.97           16.32
Dividends                                                     .40             1.30             .30              .30             .15
Dividend payout ratio                                          51%             134%             35%              50%             26%
Average equity to average assets ratio                       9.43            10.98           12.26            13.08           12.38

</TABLE>

                                       3
<PAGE>



                               President's Message


Dear Shareholder:

         We are pleased to provide  this Annual  Report for 1999.  This year was
marked by change . . . change in the management team and the beginning of change
in our corporate culture.

         Our  first  change  in  management  occurred  on  March  1st  with  the
transition  of Mr. John L. Hart to  Chairman  Emeritus,  elevation  of Mr. B. L.
Rakes to Chairman and CEO, and the promotion of D. W. Shilling to President.  In
April we were  saddened  by the death of Mr.  Hart.  Mr.  Hart  served your Bank
faithfully  for  nearly 40 years and is missed  tremendously  by all  within the
Bank,  his legal  community  and his family.  In June,  Mr. Rakes  announced his
retirement and Mr. Shilling was elected Chief Executive Officer.  Mr. Rakes will
remain as Chairman and will serve the Company as  consultant  for one year.  Mr.
Rakes joined our Bank in 1959 and led us skillfully and  diligently.  Guiding us
through the difficult eighties when many thrifts did not survive,  and directing
our conversion to a savings bank in the early nineties, stand as a couple of his
outstanding accomplishments.

         Our change in culture has its beginnings in fiscal 1999, however,  this
change will be more  pronounced  in Year 2000.  The pace of change will  quicken
throughout  the year,  gathering  momentum  as we go. This  culture  change is a
change in how we do business.  Meeting the mortgage  needs of our community will
continue to be our  foundation,  however,  to compete  effectively  then we must
alter our role as a traditional thrift and become more mainstream as a financial
provider.

         For  over 70 years we have  been  primarily  a  mortgage  lender  and a
procurer of savings,  both of which result in satisfied  customers  but leave us
with a narrow net interest margin and low financial returns. Our challenge is to
transition the balance sheet from this dependence on residential real estate and
time deposits to one balanced with  commercial and consumer loans and lower cost
deposits such as checking accounts.  Our commercial lending unit is in place and
actively seeking business. Our concentration is in the small business sector and
commercial real estate,  and we are pleased that the incoming  business has been
of good credit  quality and  competitively  priced.  Business  lending will have
expanded  focus in  fiscal  2000  with loan and  deposit  products  that fit the
financial needs of small business.  As we seek new relationships our business ad
slogan says it best . . . "A community bank banking community business".

         Change in culture must include  change in our process of how we deliver
the right product to the right person.  Historically our deposit  customers have
been savers and a very loyal group to us over the years.  Going  forward we must
recognize that our customers and potential  customers are increasingly  becoming
investors and not savers,  are more  knowledgeable,  and have  fingertip 24 hour
access to financial  alternatives.  How we meet their needs and demands with the
right product, affordably priced, will be a determinant in our future growth and
viability as a bank of choice.  How can we best package our  products,  what new
offerings  can we extend,  and how do we best  deliver  those  products  are all
topical  projects at the present  time.  We plan to have new business and retail
products ready for our community  soon. Part of our delivery needs have been met
with  installation  of ATMs at our Oak  Grove and  Vinton  offices.  These  were
installed  in June and early user  feedback is all  positive.  ATMs at our other
locations will be considered as demand and conditions allow. Also, introduced in
early July is a new credit card product for both consumer and business,  as well
as an enhanced  merchant card program that will allow website  transactions  for
those merchants that sell over the Internet.

        Any discussion of the last fiscal year and the upcoming  fiscal year is
not  complete  without  comment  regarding  our  systems  readiness  for the New
Millennium.  As for Y2K, your Bank is ready.  During the past year a significant
amount of energy, time and resources have been extended as we tested,  re-tested
and tested again.  Contingency plans are in place and we are confident as to our
state of  preparedness.  We

                                       4
<PAGE>

anticipate  a  smooth  New  Year  transition,  although  there  are no  absolute
guarantees  that there won't be any temporary  disruptions.  We are available to
help ensure an easy entry into the new century.  In the  meantime,  we encourage
you to contact any of our branches if you want to know more about our  readiness
and preparation.

         Our  commitment  to the  excellent  quality  service  that we strive to
extend on your each and every visit or transaction will always be a priority. In
fact, as we improve our products,  expand our  financial  menu,  and improve our
delivery system,  we are improving the quality of our service.  We're very proud
of our staff as their measure of service is outstanding. It is our people in the
branches,  in our mortgage department,  in our support areas that must implement
change and they are up to the challenge.  If you are not a customer of our bank,
then try us, I'm confident you'll like our responsive team.

         We   implement   change  to  provide   vehicles  for  both  growth  and
profitability,   although   our  priority  for  the  new  fiscal  year  will  be
profitability. Through profitability we will be able to afford, and to fund, our
future growth,  and through  profitability  we will be able to provide  enhanced
shareholder value. A full discussion and analysis or our financial  condition is
included in your Annual Report.

         On behalf of our Board of Directors,  management and staff we thank you
for your past and continued support. You have a strongly  capitalized  community
bank  that has an  exciting  future  as we share  in the vast  resources  of the
Roanoke  Valley.  Your investment in SWVA  Bancshares,  Inc. is an investment of
value.

                                   Sincerely,



                                   /s/D.W. Shilling
                                   ---------------------------------------------
                                   D. W. Shilling
                                   President & CEO




                                       5
<PAGE>


                                  In Memoriam



                                    Picture






                                  John L. Hart
                               Board of Directors
                                  1960 - 1999
                              Sadly missed by all





                                       6
<PAGE>



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

General

         The  business  of the  Savings  Bank  consists  of  receiving  monetary
deposits from the general public and  reinvesting  those funds  typically in its
primary market area in the form of mortgage loans secured by one- to four-family
residences.  To a lesser extent, the Savings Bank originates nonresidential real
estate, multi-family,  construction, commercial, and consumer loans. The Savings
Bank  also   purchases   U.S.   government   and  federal   agency   securities,
mortgage-backed and mortgage-related  securities and invests in interest-bearing
deposits with other insured financial institutions.

         Currently,  the Savings  Bank's primary market area consists of Roanoke
County, the City of Roanoke, the City of Salem, and the County of Botetourt. The
Savings Bank regards this area as its "basic"  lending area,  but loans are also
made in the adjoining counties of Bedford and Franklin.

         The largest  component of the Savings Bank's net income is net interest
income,  which is the difference  between interest income and interest  expense.
Consequently,  the Savings  Bank's  earnings  are  dependent on its net interest
income,  which is determined by the difference  ("interest rate spread") between
rates of interest earned on  interest-earning  assets and rates of interest paid
on  interest-bearing  liabilities,  and the relative amounts of interest-earning
assets and interest-bearing  liabilities.  The Savings Bank's net income is also
affected by its  provision for losses on loans and  investments,  as well as the
amount of noninterest income and noninterest  expense,  such as compensation and
related  expenses,  federal deposit insurance  premiums,  data processing costs,
occupancy  expenses,  and income  taxes.  Earnings of the Savings  Bank also are
affected   significantly  by  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of  regulatory  authorities  and demand for  financing  of real estate and other
types of loans.

Management Strategy

         The  Savings  Bank's  goal  is  to  serve  its  local  community  as an
independent  community  savings  bank.  Its   consumer-oriented   philosophy  is
dedicated to financing  home ownership and providing  financial  services to its
customers.  The principal  components of the Savings Bank's management strategy,
which are designed to achieve its goal, are discussed below.

         The Savings Bank has been a traditional  lender for one- to four-family
residential  loans since its founding in 1927.  This past fiscal year,  the Bank
generated a total of $40.6 million in mortgage loans of which $28.4 million were
sold in the  secondary  market and $12.2  million  were  retained in the Savings
Bank's  portfolio.  These  types of loans make up 68.94% of the  Savings  Bank's
total loan  portfolio.  Financing  homes for its  community  continues to be the
Savings  Bank's  primary goal,  however  management has initiated a new focus in
commercial  and  consumer  loans this past year for  purposes of  expanding  the
Bank's financial menu,  improving loan yields, and obtaining a better balance in
the loan  portfolio.  The  Bank's  commercial  loan  department  was  formed  in
December,  1998 and is  concentrating  on the small business sector which is the
foundation of stable commerce in any thriving community.  Excellent progress was
made in the first six months in  introducing  the Savings Bank to the commercial
market  resulting  in a growing  pipeline of new  business  and  prospects.  The
consumer  emphasis this past year has been in the home equity arena resulting in
an increase of home equity lines of credit from $2.2 million at June 30, 1998 to
$4.7 million at June 30, 1999, representing a 113% increase.  Consumer loans for
other needs and purposes also  increased as management  and staff  solicited new
business.  Value-added  use of media  and  enhanced  cross-sell  efforts  led to
greatly improved results as non-real estate consumer loans outstanding increased
more than $1 million over the preceding year.

         The Savings Bank  historically  has maintained good asset quality.  Its
emphasis on  one-to-four

                                       7
<PAGE>

family  mortgages  and its  underwriting  policies and practices are intended to
maintain this quality. The new emphasis on commercial and consumer loans may add
credit risk to the loan portfolio due to the risk inherent  nature of the loans.
However,  policies are in place and  practices  are being  monitored in order to
minimize  credit  risk.  Further,  the Savings  Bank's loan loss  provision  and
capital  adequacy justify and support the additional risk. At June 30, 1999, the
Savings Bank had $61,000 in non-performing  assets.  The Savings Bank's ratio of
non-performing loans to total assets at June 30, 1999 was .07%.

         One of the reasons the Savings Bank  converted to a stock  Savings Bank
was to support  growth in savings and lending  activities  as market  conditions
warrant,  which would also leverage the Savings Bank's  existing branch network,
facilities,  and personnel resources.  The assets of the Company increased $26.8
million,  or 48.82%,  from $54.9  million at June 30, 1994,  to $81.7 million at
June 30, 1999. The increase was due primarily to an increase in loans receivable
of $5.2  million  and an  increase  of $16.7  million  in  mortgage  backed  and
investment securities.

         The  Bank  expects  to  continue  to put a  reasonable  portion  of its
originated fixed-rate loans in its portfolio and to purchase mortgage-backed and
related securities during the fiscal year 1999-2000 to enhance asset growth. The
growth is expected to be funded with deposit growth or  borrowings.  The Savings
Bank  expects that its asset growth  policy of retaining  fixed-rate  loans will
increase its interest rate risk.

Asset and Liability Management

         The Savings Bank continues to manage interest rate risk. It has managed
this risk on the asset side of its balance sheet with  adjustable-rate  mortgage
("ARM") loans and government-related  securities.  As regards the Savings Bank's
present and future portfolio of commercial loans, pricing will generally be of a
variable nature based on appropriate money market indexes. Commercial term loans
with longer maturities will generally reprice every 5 to 7 years. Consumer loans
generally  have a maturity of 3 years or less while home equity  lines of credit
are of a variable  nature.  On the  liability  side of its  balance  sheet,  the
Savings Bank has emphasized  certificates  of deposit  ("CDs") with terms of one
year and has managed interest rates paid for deposits. Historically, the Savings
Bank has relied  primarily  upon the cash flows from its  savings  deposits  and
mortgage  repayments  as its  primary  source  of  funds.  Beginning  in  fiscal
1997-1998,  the Savings  Bank used  borrowings  to  leverage  its growth and may
continue to do so in the future.


                                       8
<PAGE>

Average Balance Sheet

         The  following  table sets forth  certain  information  relating to the
Savings  Bank's  average  balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated and the average yields
earned and rates paid.  Such yields and costs are derived by dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods presented. Average balances are derived from daily average balances.

<TABLE>
<CAPTION>
                                                                              For the Year Ended June 30
                                                ------------------------------------------------------------------------------------
                                                                  1999                                          1998
                                                ------------------------------------------      ------------------------------------
                                                   Average                       Average         Average                   Average
                                                   Balance       Interest      Yield/Cost        Balance       Interest   Yield/Cost
                                                   -------       --------      ----------        -------       --------   ----------

                                                                                  (Dollars in Thousands)
<S>                                              <C>            <C>               <C>          <C>             <C>          <C>
Interest-earning assets:
   Loans receivable, net (1)                       $47,834       $ 3,856            8.06%        $49,531        $ 4,182       8.44%
   Investments and mortgage-backed securities:
      Held to maturity, at cost                        298            23             7.84            337             26        7.87
      Available for sale, FMV (2)                   21,267         1,313             6.17         15,079            986        6.54
   Other investments (3)                            10,514           599             5.70          8,830            614        6.95
                                                   -------         -----                          ------          -----
      Total interest-earning assets                 79,913         5,791             7.25         73,777          5,808        7.87
                                                                   -----                                          -----
Non-interest earning assets                          3,050                                         3,736
                                                   -------                                        ------
      Total assets                                 $82,963                                       $77,513
                                                   =======                                       =======

Interest-bearing liabilities:
   Interest-bearing demand accounts                $ 6,083            87             1.43        $ 5,039             92        1.83
   Regular savings & club accounts                   7,865           235             2.99          7,516            222        2.96
   Money market deposit accounts                     3,130            87             2.78          3,168             94        2.95
   Certificates of deposit                          46,555         2,439             5.24         47,487          2,560        5.39
   Borrowed funds                                    9,043           490             5.42          4,400            258        5.87
                                                    ------         -----                          ------          -----
      Total interest-bearing liabilities            72,676         3,338             4.59         67,610          3,226        4.77
                                                                   -----                                          -----
Non-interest-bearing demand accounts                 1,398                                           450
Non-interest bearing liabilities                     1,064                                           945
Equity                                               7,825                                         8,508
                                                   -------                                        ------
      Total liabilities and equity                 $82,963                                       $77,513
                                                   =======                                       =======
Net-interest income                                               $2,453                                         $2,582
                                                                   =====                                          =====
Interest rate spread (4)                                                             2.65                                      3.10
Net yield on interest-earning assets (5)                                             3.07                                      3.50
Ratio of average interest-earning assets to
average interest-bearing liabilities                                               109.96                                    109.12
Average equity to average total assets                                               9.43                                     10.98
</TABLE>

(1)  Includes loans held for sale and non-accrual loans.
(2)  Calculations based on historical cost.
(3)  Includes FHLB Overnight Account.
(4)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(5)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       9
<PAGE>

Rate/Volume Analysis

         The table below sets forth  certain  information  regarding  changes in
interest  income  and  interest  expense  of the  Savings  Bank for the  periods
indicated.   For  each  category  of   interest-earning   and   interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
volume (changes in average volume  multiplied by old rate); (ii) changes in rate
multiplied by old average volume);  (iii) and changes in rate volume (changes in
rate multiplied by the change in volume).

<TABLE>
<CAPTION>

                                       --------------------------------------------------------------------------

                                                                   For the Year Ended June 30,

                                       ---------------------------------------  ---------------------------------
                                                    1999 vs. 1998                     1998 vs. 1997
                                                                       (In Thousands)
                                                              Rate/                                Rate/
                                         Volume        Rate   Volume     Net    Volume     Rate    Volume     Net
                                         ------        ----   ------     ---    ------     ----    ------     ---
<S>                                         <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Interest income:
  Loans receivable, net                      $(143)   $(189)   $   6    $(326)   $ (91)   $ (46)   $   1    $(136)
  Mortgage backed
  securities and investments:
    Held to maturity, at cost                   (3)    --       --         (3)      (6)    --       --         (6)
    Available for sale, FMV                    404      (55)     (22)     327      438      (10)      (8)     420
  Other investments                            117     (111)     (21)     (15)     134       64       22      220
                                             -----    -----    -----    -----    -----    -----    -----    -----
    Total interest-earning assets              375     (355)     (37)     (17)     475        8       15      498
                                             -----    -----    -----    -----    -----    -----    -----    -----

Interest expense:
  Deposits:
    Interest-bearing demand                     19      (20)      (4)      (5)      (4)      (7)    --        (11)
     accounts
    Regular savings & club                      10        3     --         13        5       (5)    --       --
     accounts
    Money market deposit                        (1)      (6)    --         (7)     (17)       1     --        (16)
     accounts
    Certificates of deposit                    (50)     (72)       1     (121)     345      102       17      464
  Borrowed funds                               272      (20)     (20)     232      113        2        1      116
                                             -----    -----    -----    -----    -----    -----    -----    -----
                                               250     (115)     (23)     112      442       93     18        553
                                             -----    -----    -----    -----    -----    -----    -----    -----

Change in net interest income                $ 125    $(240)   $ (14)   $(129)   $  33    $ (85)   $  (3)   $ (55)
                                             =====    =====    =====    =====    =====    =====    =====    ======
</TABLE>


                                       10


<PAGE>

                        Comparison of Financial Condition
                          and Results of Operations for
               Fiscal Years Ended June 30, 1999 and June 30, 1998

         Total  assets at June 30, 1999 were $81.7  million as compared to $84.4
million at June 30, 1998, a decrease of $2.7 million.  The decrease was due to a
decrease  in cash and cash  equivalents  and in loans  receivable  offset  by an
increase in investments and interest bearing deposits. Cash and cash equivalents
decreased from $3.2 million at June 30, 1998 to $2.5 million at June 30, 1999, a
decrease of $739,000.  Interest bearing deposits and investments  increased from
$28.8 million at June 30, 1998 to $30.1 million at June 30, 1999, an increase of
$1.3  million.  The  increases  were due  mainly to an  increase  in  investment
securities  purchased using borrowed funds. Net loans receivable  decreased $2.6
million from $48.2  million at June 30, 1998 to $45.6  million at June 30, 1999,
due to decreased  origination of mortgage  loans,  particularly  in the last six
months as the  refinance  market  declined.  Prepaid  expenses  and other assets
increased  $466,000  from $365,000 at June 30, 1998 to $831,000 at June 30, 1999
due to deferred tax adjustment on the unrealized  loss on investment  securities
and prepaid taxes due to decreased income in fiscal year 1999.

         On the liability side, deposits decreased $6.2 million to $62.1 million
at June 30, 1999 from $68.3 million at June 30, 1998 as higher rate certificates
of deposit  matured and were  allowed to roll out in order to reduce the Savings
Bank's cost of funds.  At June 30,  1999,  there were $12.0  million in advances
outstanding  from the  Federal  Home Loan Bank of  Atlanta,  an increase of $5.0
million  from  June  30,  1998.  The  increase  was  due  to  management  taking
opportunity to obtain some long-term funding at reasonable costs.

         The Savings Bank has generally  depended on higher rate certificates of
deposits of 12 months or less over lower rate core deposits in order to fund its
lending  operations.  This was done to manage interest rate risk. This trend may
continue although management is actively seeking lower cost of funding primarily
through  new  deposit  products  to  attract  new  checking  account  customers.
Management may also use borrowings  rather than  certificates of deposit to fund
operations if such borrowings are available at lower rates than  certificates of
deposit.

         Net Income. Net income for the year ended June 30, 1999 was $345,000 as
compared to $461,000  for the year ended June 30,  1998, a decrease of $116,000.
The decrease was mainly due to higher expenses for personnel,  data  processing,
increased  interest  on  borrowings  and Y2K  expense.  A decrease  in income on
mortgage loans was somewhat offset by decreased interest paid on deposits. Basic
per share earnings for the year ended June 30, 1999 was $0.78.

         Interest Income.  Interest income decreased  $17,000 for the year ended
June 30, 1999.  Interest  income was $5.8 million at June 30, 1999. The decrease
was mainly a result in the  decrease  in  earnings  on a smaller  mortgage  loan
portfolio,  a reduction in rates earned on mortgage loans, offset by an increase
in earnings on a larger investment base.

         Interest Expense. Interest expense for the year ended June 30, 1999 was
$3.3 million as compared to $3.2  million for the year ended June 30,  1998,  an
increase of  $112,000.  The  increase  was due mainly to an increase in borrowed
funds partially offset by a decrease in deposit expense.


                                       11
<PAGE>



         Net  Interest  Income.  Net interest  income  decreased  $129,000.  The
decrease  was due mainly to a  reduction  in  mortgage  loans and an increase in
borrowed funds and an increase in investment securities offset by a reduction in
deposits.

         Provision  for Credit  Losses.  The Bank made an addition of $13,000 to
the  provision  for credit  losses for the year ended June 30, 1999.  During the
quarter  ended March,  1999, a $9,000 loss on a consumer loan was charged to the
allowance for credit losses.  The balance in the allowance for credit losses was
$207,000 on June 30, 1998 and $210,000 on June 30, 1999.

         Noninterest Income. Noninterest income increased $147,000 from $428,000
for the year ended June 30, 1998 to $575,000  for the year ended June 30,  1999.
The increase was mainly due to an increase in gain of sale of mortgage loans.

         Noninterest  Expense.  Noninterest  expense increased from $2.2 million
for the year ended  June 30,  1998 to $2.5  million  for the year ended June 30,
1999,  an increase of $295,000.  This was mainly due to an increase in personnel
expense, data processing, advertising, office equipment, supply expenses and Y2K
expenses.

         Management  continues  their  efforts to expand the Banks  products and
services as well as improve its delivery system to enhance quality service. This
years focus on increasing  retail loan  production  has resulted in doubling the
volume of home equity lines  outstanding  and the new Commercial Loan Department
is now  generating  new business and has a significant  amount of commitments to
fund as  well as a  growing  pipeline  of  proposals.  Management  will  also be
focusing on  non-interest  income  through new  revenue  sources  such as credit
insurance,  title  insurance,  credit  cards,  ATM  exchange  fees and  improved
activity   analysis  on  commercial   deposit   accounts.   Management   expects
non-interest  expense to continue to increase as new equipment and improved data
processing  are  necessary  in order to  provide  a quality  level of  financial
services, for instance, new ATMs have been installed at the Oak Grove and Vinton
offices.  During the year, all expense  categories  will be reviewed such as our
method of check  clearing.  The  thrust on  non-interest  income/expenses  is to
improve the Savings Bank's efficiency ratio and thereby increasing profitability
and enhancing shareholder value.

         Comprehensive  Income  (Loss).  Effective  July 1,  1998,  the  Company
adopted FASB Statement No. 130, "Reporting  Comprehensive Income." Statement No.
130 requires the  reporting  of  comprehensive  income in addition to net income
from operations.  Comprehensive  income is a more inclusive  financial reporting
methodology that includes certain  disclosure of certain  financial  information
that has historically not been recognized in the calculation of net income.  For
the year ended June 30, 1999,  unrealized  losses on  Investments  Available for
Sale,  net of tax  effects,  aggregated  $573,000.  These  unrealized  losses on
securities  when  combined with net  operating  income of $345,000  results in a
comprehensive  loss of $228,000 net of the applicable tax effect. For additional
information,  please refer to  Management's  Discussion on Liquidity and Capital
Resources.

         Provision for Income Taxes. The provision for income taxes for the year
ended June 30, 1999 was $177,000 as compared to $318,000 for the year ended June
30, 1998.  The  decrease  was due to  decreased  net income for the year and the
benefit of purchasing $1.5 million in municipal bonds during the year.


                                       12
<PAGE>



Liquidity and Capital Resources

         The Savings Bank's  primary  sources of funds are deposits and proceeds
from principal and interest  payments on loans and  mortgage-backed  securities.
Additional  sources of liquidity are advances from the FHLB of Atlanta and other
borrowings. The Savings Bank may utilize FHLB of Atlanta borrowing in the future
during periods when management of the Savings Bank believes that such borrowings
provide a lower cost source of funds than deposit  accounts and the Savings Bank
desires liquidity in order to help expand its lending operations. Borrowings are
also used to purchase assets to leverage capital.

         The Savings  Bank's most liquid  assets are cash and  cash-equivalents,
which include  investments in highly  liquid,  short-term  investments,  such as
overnight  investments  in the Federal  Home Loan Bank of  Atlanta.  At June 30,
1999, cash and cash equivalents totaled $2.5 million.

         At June 30, 1999, the Savings Bank had $39.2 million in certificates of
deposits  due  within  one  year  and $4.3  million  due in two to three  years.
Management  estimates  that the Savings Bank will retain the deposits or replace
them with new deposits.  At June 30, 1999,  the Savings Bank had $2.5 million in
outstanding commitments to originate mortgages. The Savings Bank intends to fund
these  commitments with present  liquidity,  proceeds from loan repayments,  and
loan sales in the secondary market.

         Regulations  require that the Savings Bank maintain specified levels of
liquidity.  The liquidity is measured as a ratio of cash and certain investments
to  withdrawable  savings.  At June 30,  1999,  the minimum  level of  liquidity
required by regulations  was 4.00%.  The Savings Bank's  liquidity ratio at June
30, 1999 was 30.11% and at June 30, 1998 was 22.94%.

         The Savings Bank is required to maintain  specified  amounts of capital
pursuant to the Financial  Institutions Reform,  Recovery and Enforcement Act of
1989  ("FIRREA") and regulations  promulgated by the OTS. The capital  standards
generally  require the  maintenance of regulatory  capital  sufficient to meet a
tangible  capital  requirement,  a core  capital  requirement  and a  risk-based
capital  requirement.  At June 30, 1999,  the Savings  Bank's  tangible and core
capital  totaled  $6.9  million.  This  amount  exceeded  the  tangible  capital
requirement of $1.2 million by $5.6 million and the core capital  requirement of
$2.5 million by $4.4 million on that date. At June 30, 1999,  the Savings Bank's
risk-based  capital totaled $7.1 million,  which exceeded its risk-based capital
requirement of $3.2 million by $3.9 million.

         Pursuant to FASB No. 130 the Bank is required to record  changes in the
value of its investment portfolio as regards unrealized gains or losses that may
result from movements in interest  rates.  As of June 30, 1999, the Savings Bank
shows unrealized losses, net of tax effect,  totaling $573,000 due to the recent
upward surge in interest rates as the national money markets  reacted to actions
by the  Federal  Open  Market  Committee.  Management  does not  anticipate  the
realization  of the above loss.  The  unrealized  loss does  however  negatively
impact the Bank's  capital.  The unrealized  losses  combined with net operating
income of $345,000 yields a net reduction in the Bank's capital of $228,000, net
of applicable  taxes, and a corresponding  reduction in the book value of common
stock from $16.76 on June 30, 1998 to $14.67 as of June 30,  1999.  Despite this
reduction,  the Bank's capital  continues to exceed  regulatory  requirements as
discussed in the prior  paragraph and continues to be adequate to support future
asset growth.


                                       13
<PAGE>



Impact of Inflation and Changing Prices

         The  financial  statements  and  related  data  have been  prepared  in
accordance  with  generally  accepted  accounting  principles  which require the
measurement of financial  position and operating  results in terms of historical
dollars without  consideration  for changes in the relative  purchasing power of
money over time caused by inflation.

         Unlike industrial  companies,  nearly all of the assets and liabilities
of a financial  institution are monetary in nature. As a result,  interest rates
have a more  significant  impact on a financial  institution's  performance than
general levels of inflation.  Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services since such
goods and services  are  affected by  inflation.  In the current  interest  rate
environment,  liquidity and the maturity  structure of the Savings Bank's assets
and  liabilities  are  critical to the  maintenance  of  acceptable  performance
levels.

The Year 2000 Issue

         The Bank's Board of Directors has adopted an action plan for addressing
the  computer-related  concerns  raised by Year 2000. An internal  committee has
been appointed by the Board to manage this effort. The Year 2000 committee meets
on a regular  basis to review  and assess  the  current  status of the Year 2000
project.  The committee  then prepares a status  report for  Management  and the
Board of Directors.

Equipment
---------
A process to identify all equipment  that may  potentially  be impacted has been
completed.  All outside servicers and major vendors have been contacted in order
to ascertain their  individual  degree of readiness for Year 2000. This includes
items such as the vault, heating,  ventilation and air conditioning controls and
telephones.  All of the  vendors  have  responded  to  these  inquires.  We have
received  certifications of Year 2000 compliance for systems controlled by third
party  providers or  determined  that the systems  should not be impacted by the
Year 2000. The only upgrade needed was to our telephone  system and this upgrade
has been completed.

Internal Computers
------------------
All internal computers have been tested for the Year 2000. At this time, we have
found no problems with the computers and software used on the computers. We have
completed  testing with Bisys (our data services  provider  which  processes the
Bank's major loan and deposit applications). This testing involved advancing the
date in a test environment  through various critical dates during the millennium
change.  Transactions  were run on the  test  system  to test the date  handling
portions of the upgraded  software.  No problems  were found during the testing.
With the extensive  testing and lack of problems  found, we are confident of our
ability to provide all services to our customers in the Year 2000 and beyond.

Computers used by our customers
-------------------------------
Large loan customers have been contacted in order to both instill  awareness and
to determine  their state of readiness for Year 2000.  All  customers  contacted
have  responded.  At this point,  the Bank has no reason to doubt the ability of
any of these  customers  to  continue  to  operate  effectively  in a Year  2000
environment.  We believe that most of our residential borrowers and that none of
our  commercial  borrowers are so dependent on their  computers that a Year 2000
problem  would render them unable to collect  revenue or rent and in turn hinder
their  ability to make loan payments to the Bank.  New large loan  customers and
commercial  customers (both loan and deposit) are asked to complete a form as to
their state of readiness for the Year 2000. We do not expect any material  costs
to address  this risk area.

                                       14
<PAGE>

Cost
----
The  committee  has  presented to the Board of
Directors,  and the  Board  has  approved  a Year  2000  budget.  The  budget is
approximately  $35,000. At June 30, 1999, total expenses paid were $30,000.  The
major cost is an upgrade and testing  surcharge paid to Bisys.  (Bisys is a data
services   provider   which   processes   the  Bank's  major  loan  and  deposit
applications.)

Contingency & Cash Plan
-----------------------
Our data  services  provider has sponsored  five meetings on their  progress and
test plans for the Year 2000.  Starting in November,  1998 and continuing  until
April,  1999, a test facility was set up to provide for formal  testing  between
the Bank and Bisys.  At this time,  we find no reason to believe that Bisys will
not be able to operate properly in January, 2000.

The committee worked with senior management to develop, validate and implement a
Year 2000 liquidity or "Cash" plan. This plan has been completed and approved by
the Board of Directors.

A Contingency  Plan has been prepared by the committee to facilitate the ability
of the Bank to continue  providing an acceptable  level of service to the Bank's
customers in the event that Bisys encounters problems in January, 2000 or we are
unable  to  communicate  with  Bisys.   Procedures  were  already  in  place  to
accommodate interruptions of online service for periods of short duration. These
procedures have been  re-evaluated  for  effectiveness  over a longer  duration.
Appropriate  adjustments have been made and additional  procedures  required for
longer  duration  "down-time"  have been put into place. At the end of December,
1999, we will generate paper backup of all customer  accounts and general ledger
accounts. In the plan, customer payments will be processed manually,  and due to
the size of the Bank, we believe that we would be able to operate in this manner
indefinitely,  until our existing data servicer,  or a  replacement,  is able to
again provide data processing services. This procedure could require changing of
schedules  and the hiring of  temporary  staff  during  this time,  which  would
increase  our cost.  Should it be  necessary  to change data  service  providers
during the beginning of the Year 2000, the cost could be material.



                                       15
<PAGE>

------------------
Cherry
Bekaert &
Holland
CERTIFIED PUBLIC
ACCOUNTANTS &
CONSULTANTS
-----------------




                         Report of Independent Auditors





The Board of Directors and Stockholders
SWVA Bancshares, Inc.
Roanoke, Virginia


We have audited the accompanying  consolidated statements of financial condition
of SWVA Bancshares,  Inc. and Subsidiaries (the "Company"),  as of June 30, 1999
and 1998,  and the  related  consolidated  statements  of income,  comprehensive
income, changes in stockholders' equity, and cash flows for each of the years in
the three-year  period ended June 30, 1999.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 SWVA Bancshares,
Inc. and  Subsidiaries,  as of June 30, 1999 and 1998,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended June 30, 1999 in conformity with generally accepted accounting principles.






Lynchburg, Virginia
August 10, 1999



                                       16
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                             June 30, 1999 and 1998
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                                     1999           1998
                                                                                                -------------   -------------
<S>                                                                                            <C>             <C>
Assets
   Cash and cash equivalents                                                                    $       2,454   $       3,193
   Interest-bearing deposits                                                                            6,278           5,897
   Investment and mortgage-backed securities
      Held to maturity, at amortized cost (fair value of $292 in 1999 and $327 in 1998)                   283             318
      Available for sale, at fair value                                                                22,934          21,607
      Restricted at cost                                                                                  600             961
   Loans held for sale                                                                                    476           1,608
   Loans receivable, net                                                                               45,576          48,211
   Property and equipment, net                                                                          1,688           1,662
   Accrued interest receivable                                                                            594             565
   Prepaid expenses and other assets                                                                      831             365
                                                                                                  -----------     -----------

          Total assets                                                                          $      81,714   $      84,387
                                                                                                  ===========     ===========



Liabilities and stockholders' equity
Liabilities
   Deposits                                                                                     $      62,094   $      68,288
   Advances from Federal Home Loan Bank                                                                12,000           7,000
   Advances from borrowers for taxes and insurance                                                        210             243
   Other liabilities and deferred income                                                                  619             529
                                                                                                  -----------     -----------

          Total liabilities                                                                            74,923          76,060
                                                                                                  -----------     -----------

Commitments and contingencies

Stockholders' equity
   Preferred stock, par value $.10.  Authorized 275,000 shares, none issued                            -               -
   Common stock, par value $.10.  Authorized 2,225,000 shares, 423,612 and
      496,887 shares outstanding for 1999 and 1998, respectively                                           42              50
   Additional paid-in capital                                                                           2,838           4,050
   Retained earnings, substantially restricted                                                          4,908           4,742
   Unrealized holding loss on securities, available for sale                                      (       515)             58
   Less unearned ESOP shares, 22,819 for 1999 and 27,385 shares for 1998                          (       228)    (       274)
   Less unearned MSBP shares, 14,895 for 1999 and 17,537 shares for 1998                          (       254)    (       299)
                                                                                                  -----------     -----------

          Total stockholders' equity                                                                    6,791           8,327
                                                                                                  -----------     -----------

          Total liabilities and stockholders' equity                                            $      81,714   $      84,387
                                                                                                  ===========     ===========
</TABLE>




See notes to consolidated financial statements.

                                       17
<PAGE>









                            SWVA BANCSHARES, INC. AND
                                  SUBSIDIARIES
           Consolidated Statements of Changes in Stockholders' Equity
                    Years ended June 30, 1999, 1998 and 1997
                    (In thousands, except shares outstanding)
<TABLE>
<CAPTION>
                                                                                        Unrealized
                                                                                         Holding
                                                                                       Gain (Loss)
                                              Common Stock   Additional               on Securities Unearned   Unearned
                                       Shares                 Paid-in     Retained     Available     ESOP        MSBP
                                    Outstanding    Amount     Capital     Earnings     For Sale     Shares      Shares      Total
                                    -----------    ------     -------     --------     --------     ------      ------      -----

<S>                                   <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance at June 30, 1996               543,190    $     54    $  4,750    $  4,636    $    (12)   $   (365)   $   (388)   $  8,675

   Net income                             --          --          --           414        --          --          --           414

   Change in unrealized gain on
      available for sale securities       --          --          --          --            41        --          --            41

   Repurchase of common stock          (32,206)         (3)       (492)       --          --          --          --          (495)

   Allocated/earned ESOP shares           --          --            28        --          --            46        --            74

   Allocated/earned MSBP shares           --          --          --          --          --          --            39          39

   Dividends declared and paid
      ($.30 per share)                    --          --          --          (146)       --          --          --          (146)
                                      --------    --------    --------    --------    --------    --------    --------    --------


Balance at June 30, 1997               510,984          51       4,286       4,904          29        (319)       (349)      8,602

   Net income                             --          --          --           461        --          --          --           461

   Change in unrealized gain on
      available for sale securities       --          --          --          --            29        --          --            29

   Repurchase of common stock          (14,097)         (1)       (292)       --          --          --          --          (293)

   Allocated/earned ESOP shares           --          --            47        --          --            45        --            92

   Allocated/earned MSBP shares           --          --             9        --          --          --            50          59

   Dividends declared and paid
      ($1.30 per share)                   --          --          --          (623)       --          --          --          (623)
                                      --------    --------    --------    --------    --------    --------    --------    --------

Balance at June 30, 1998               496,887          50       4,050       4,742          58        (274)       (299)      8,327

   Net income                             --          --          --           345        --          --          --           345

   Change in unrealized gain on
      available for sale securities       --          --          --          --          (573)       --          --          (573)

   Repurchase of common stock          (73,275)         (8)     (1,202)       --          --          --          --        (1,210)

   Allocated/earned ESOP shares           --          --            12        --          --            46        --            58

   Allocated/earned MSBP shares           --          --           (22)       --          --          --            45          23

   Dividends declared and paid
      ($0.40 per share)                   --          --          --          (179)       --          --          --          (179)
                                      --------    --------    --------    --------    --------    --------    --------    --------

Balance at June 30, 1999               423,612    $     42    $  2,838    $  4,908    $   (515)   $   (228)   $   (254)   $  6,791
                                      ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>



See notes to consolidated financial statements.

                                       18
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                    Years ended June 30, 1999, 1998 and 1997
                      (In thousands, except per-share data)
<TABLE>
<CAPTION>
                                                                                      1999          1998            1997
                                                                                 -------------  -------------   -------------
<S>                                                                             <C>            <C>             <C>
Interest income
   Loans                                                                         $      3,856   $      4,182    $       4,318
   Mortgage-backed and related securities                                                 592            284              407
   U.S. government obligations including agencies                                         675            705              122
   Interest on municipal bonds                                                             69             23            -
   Other investments, including overnight deposits                                        599            614              463
                                                                                   ----------     ----------      -----------

          Total interest income                                                         5,791          5,808            5,310
                                                                                   ----------     ----------      -----------
Interest expense
   Deposits                                                                             2,848          2,968            2,531
   Borrowed funds                                                                         490            258              142
                                                                                   ----------     ----------      -----------

          Total interest expense                                                        3,338          3,226            2,673
                                                                                   ----------     ----------      -----------

          Net interest income                                                           2,453          2,582            2,637

Provision for credit losses                                                                13             33               23
                                                                                   ----------     ----------      -----------

          Net interest income after provision for credit losses                         2,440          2,549            2,614
                                                                                   ----------     ----------      -----------
Noninterest income
   Loan and other customer service fees                                                   158            137              142
   Gain on sale of mortgage loans                                                         324            210              118
   Gross rental income                                                                    102             98               98
   Other                                                                           (        9)    (       17)              40
                                                                                   ----------     ----------      -----------

          Total noninterest income                                                        575            428              398
                                                                                   ----------     ----------      -----------
Noninterest expense
   Personnel                                                                            1,435          1,285            1,155
   Office occupancy and equipment                                                         335            297              292
   Data processing                                                                        232            179              132
   Federal insurance of accounts                                                           40             38              431
   Advertising                                                                             90             63               64
   Other                                                                                  361            336              318
                                                                                   ----------     ----------      -----------

          Total noninterest expenses                                                    2,493          2,198            2,392
                                                                                   ----------     ----------      -----------

Income before income tax expense                                                          522            779              620

Provision for income taxes                                                                177            318              206
                                                                                   ----------     ----------      -----------

           Net income                                                            $        345   $        461    $         414
                                                                                   ==========     ==========      ===========

Basic earnings per share                                                         $         .78  $         .97   $         .85
Diluted earnings per share                                                       $         .78  $         .95   $         .85
</TABLE>

See notes to consolidated financial statements.

                                       19
<PAGE>



                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
                    Years ended June 30, 1999, 1998 and 1997
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                     1999          1998            1997
                                                                                 -------------  -------------   -------------

<S>                                                                             <C>            <C>             <C>
Net income                                                                       $        345   $        461    $         414

Other comprehensive income, net of tax
   Unrealized gains (losses) on securities                                         (      573)            29               41
                                                                                   ----------     ----------      -----------

          Comprehensive income                                                   $ (      228)  $         490   $         455
                                                                                   ==========     ===========     ===========


</TABLE>



































See notes to consolidated financial statements.

                                       20
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 1999, 1998 and 1997
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                          Page 1

                                                                                    1999           1998            1997
                                                                                 -------------  -------------   -------------
<S>                                                                             <C>            <C>             <C>
Operating activities
   Net income                                                                    $        345   $        461    $        414
   Adjustments to reconcile net income to net cash provided by
     (used in) operating activities
         ESOP shares allocated                                                             46             92              74
         MSBP shares allocated                                                             45             59              39
         Provision for credit losses                                                       13             33              23
         Provision for depreciation and amortization                                      106             96              87
         Provision for deferred income tax                                                  3     (       19)     (       85)
         Loans originated for sale                                                 (   29,286)    (   20,467)     (    9,695)
         Proceeds from sales of loans originated for sale                              30,742         19,796          10,071
         Gain on sale of loans                                                     (      325)    (      210)     (      118)
         Loss on disposal of fixed assets                                               -                  1               3
         Net increase in other assets                                              (       64)    (      302)     (       77)
         Net increase in other liabilities                                                 44             35              49
         Net gain on sale of investments, available for sale                       (       18)    (       17)     (       43)
                                                                                   ----------     ----------      ----------

          Net cash provided by (used in) operating activities                           1,651     (      442)            742
                                                                                   ----------     ----------      ----------
Investing activities
   Proceeds from sale of FHLB stock                                                       411          -               -
   Proceeds from maturity of investments and interest-bearing deposits                  6,087          6,793           3,839
   Proceeds from sale of investments, available for sale                               11,490          6,257           4,300
   Purchase of investments and interest-bearing deposits                           (    6,468)    (    6,887)     (    5,302)
   Purchase of investments, available for sale                                     (   17,527)    (   20,408)     (    6,488)
   Purchase of FHLB stock                                                          (       50)         -               -
   Purchase of property and equipment                                              (      132)    (       91)     (       94)
   Net (increase) decrease in loans                                                     3,936          3,080      (    4,226)
   Purchase of loans                                                               (    1,313)    (      343)     (       22)
   Principal repayments on mortgage-backed securities                                   3,759          1,018             116
                                                                                   ----------     ----------      ----------

          Net cash provided by (used in) investing activities                             193     (   10,581)     (    7,877)
                                                                                   ----------     ----------      ----------
Financing activities
   Proceeds from advances                                                               7,000          7,000           7,000
   Curtailment of advances and other borrowings                                    (    2,000)    (    3,500)     (    3,500)
   Net increase (decrease) in savings deposits                                     (    6,194)        10,356             290
   Repurchase of stock                                                             (    1,210)    (      293)     (      495)
   Dividends paid                                                                  (      179)    (      623)     (      146)
                                                                                   ----------     ----------      ----------

          Net cash provided by (used in) financing activities                      (    2,583)        12,940           3,149
                                                                                   ----------     ----------      ----------

          Increase (decrease) in cash and cash equivalents                         (      739)         1,917      (    3,986)

Cash and cash equivalents at beginning of year                                          3,193          1,276           5,262
                                                                                   ----------     ----------      ----------

Cash and cash equivalents at end of year                                         $      2,454   $      3,193    $      1,276
                                                                                   ==========     ==========      ==========
</TABLE>

                                   (continued)

                                       21
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 1999, 1998 and 1997
                                 (In thousands)
                                                                          Page 2

<TABLE>
<CAPTION>
                                                                                    1999           1998            1997
                                                                                 -------------  -------------   -------------
<S>                                                                             <C>            <C>             <C>
Supplemental disclosures:
   Cash paid for
      Interest on deposits and borrowed funds                                    $      3,290   $      3,193    $      2,680
                                                                                   ==========     ==========      ==========

      Income taxes                                                               $        330   $        440    $        172
                                                                                   ==========     ==========      ==========


   Other non-cash activities
      Gross unrealized gain (loss) on securities, available for sale             $ (      780)  $         93    $         44
      Deferred income taxes                                                               265     (       35)     (       15)
                                                                                   ----------     ----------      ----------

             Net unrealized gain (loss)                                          $ (      515)  $         58    $         29
                                                                                   ==========     ==========      ==========


</TABLE>





























See notes to consolidated financial statements.

                                       22
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


SWVA  Bancshares,  Inc.  (Parent  Company),  is a unitary thrift holding company
whose principal asset is its wholly-owned subsidiary, Southwest Virginia Savings
Bank,  FSB  (Bank).  The Bank is a federally  chartered  stock  savings  bank as
provided by the United States Home Owner's Loan Act. The Bank has five locations
in Roanoke, Virginia and the surrounding area. In these financial statements the
consolidated group is referred to collectively as the "Company".

The Office of Thrift  Supervision  (OTS) is the primary  regulator for federally
chartered savings  associations,  as well as savings and loan holding companies.
The  Federal  Deposit  Insurance  Corporation  (FDIC)  is  the  federal  deposit
insurance  administrator for both banks and savings  associations.  The FDIC has
specified  authority to prescribe  and enforce such  regulations  and issue such
orders  as it deems  necessary  to  prevent  actions  or  practices  by  savings
associations  that pose a serious  threat to the Savings  Association  Insurance
Fund (SAIF).

The  accounting  and reporting  policies of the Company  conform with  generally
accepted  accounting  principles  (GAAP).  A brief  description of the Company's
significant accounting policies is presented as follows.


Note 1 - Summary of significant accounting policies

Basis of consolidation

The consolidated  financial  statements include the accounts of SWVA Bancshares,
Inc.,  Southwest  Virginia  Savings  Bank,  its  wholly-owned  subsidiary,   and
Southwest Virginia Service Corporation, the wholly-owned subsidiary of the Bank.
All material  intercompany accounts and transactions have been eliminated in the
consolidation.  The  Company  also  presents  herein  condensed  Parent  Company
financial  information.  Prior year amounts are  reclassified  when necessary to
conform with current year classifications.

Estimates

The  preparation  of  financial  statements  in  conformity  with GAAP  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.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination  of the allowance  for credit losses on loans.  The
estimation process may include management obtaining  independent  appraisals for
significant collateral properties,  but the ultimate collectibility and recovery
of carrying  amounts are  susceptible to changes in local real estate market and
other local economic conditions.

Management  uses available  information to recognize  credit losses on loans and
real estate acquired in settlement of loans currently, while future additions to
the allowances may be necessary  based on changes in local economic  conditions.
In  addition,  regulatory  agencies,  as an integral  part of their  examination
process,  periodically  review the Bank's allowances for credit losses on loans.
Such  agencies  may require the Bank to recognize  additions  to the  allowances
based on their  judgments  about  information  available  to them at the time of
their examination.  Because of these factors, it is possible that the allowances
for credit losses on loans could change materially.

                                       23
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

Cash equivalents

For purposes of the statements of cash flows,  the Company  considers all highly
liquid debt  instruments  with original  maturities,  when  purchased,  of three
months or less to be cash  equivalents.  Cash and cash equivalents for the three
years  presented  include  cash on hand and  demand  deposits.  Certificates  of
deposit with initial  maturities  greater than three months are shown separately
as interest-bearing deposits.

Investment securities

Statement of Financial  Accounting  Standards  No. 115,  Accounting  for Certain
Investments  in  Debt  and  Equity  Securities  (SFAS  115),   requires  certain
securities to be classified as "held to maturity",  "trading" or "available  for
sale", according to management's intent and ability, at the time of purchase.

Debt securities  classified as "held to maturity" are carried at cost,  adjusted
for  amortization  of premium and  accretion  of discount  over the terms of the
securities,  as long as the Company has the ability and  maintains  the positive
intent to hold such securities to maturity. If such securities are sold prior to
maturity,  gains or losses are  recognized  in the year of sale by the  specific
identification method.

Trading securities, if any, are carried at fair value. Realized gains and losses
on sales and  unrealized  changes in fair  values are  included  in  noninterest
income.

Due to the nature of, and  restrictions  placed upon the Company's  common stock
investment in the Federal Home Loan Bank of Atlanta,  these securities have been
classified as restricted equity securities and carried at cost. These restricted
securities are not subject to the investment  security  classifications  of SFAS
115.

Marketable  equity  securities not classified as "trading" or  "restricted"  and
debt securities not classified as "trading" or "held to maturity" are carried at
fair value,  if  marketable,  with  unrealized  gains and losses  excluded  from
earnings and reported as a separate component of stockholders' equity.  Realized
gains and losses on sales are  included in  noninterest  income and are computed
under the specific identification method.

Mortgage-backed and related securities

Mortgage-backed securities, held to maturity,  represent participating interests
in pools of  long-term  first  mortgage  loans  originated  and  serviced by the
issuers of the  securities.  These  securities  are carried at unpaid  principal
balances,  adjusted for  unamortized  premiums and discounts as the Bank has the
ability and intent to hold such  securities to maturity.  Premiums and discounts
are amortized using the interest method over the remaining period to contractual
maturity,  adjusted for  anticipated  prepayments.  If such  securities are sold
prior  to  maturity,   gains  and  losses  are  determined  using  the  specific
identification method.

Securities  classified as available for sale are carried at their current market
value.  The difference  between the amortized cost and current market value, net
of deferred  income tax, is reflected  as a component  of equity  capital and is
designated as unrealized holding gain/loss on securities available for sale.

                                       24
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

Loans held for sale

Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried  at the lower of cost or  estimated  fair  value in the  aggregate.  Net
unrealized  losses  are  recognized  in a  valuation  allowance  by  charges  to
noninterest income. As of June 30, 1999 and 1998 and for each of the three years
ended  June 30,  1999,  1998 and 1997,  these  loans were  originated  with firm
commitments from independent  third parties to be acquired at fixed prices. As a
result, no unrealized gains or losses have been recognized.

Loans and allowances for credit losses

The  Company  adopted the  provisions  of  Statements  of  Financial  Accounting
Standards  No.114,  Accounting by Creditors for Impairment of a Loan (SFAS 114),
and  Accounting by Creditors for Impairment of a Loan - Income  Recognition  and
Disclosures  (SFAS 118),  as of July 1, 1996.  The  adoption has had no material
effect on the financial position or operating results of the Company nor does it
have any effect on the comparability of financial statement information.

Loans  receivable  that  management  has the intent and  ability to hold for the
foreseeable  future,  or until maturity or pay off, are carried at their face or
par values,  net of unearned  discounts,  participation or whole-loan  interests
owned by  others,  unearned  loan fees,  undisbursed  loans in  process,  and an
allowance for credit losses.

Valuation  allowances  for estimated  credit losses on loans are  established by
charges to income when any material and estimable  decline in value is deemed to
have occurred.  The determination of the adequacy of the valuation  allowance is
based on a detailed  analysis  of  individual  loans  with known or  anticipated
adverse performance  characteristics,  and includes  consideration of historical
patterns,   industry  experience,   current  economic  conditions,   changes  in
composition and risk  characteristics  of the loan portfolio,  and other factors
deemed relevant to the collectibility of the loans currently outstanding. A loan
is considered  impaired when,  based on current  information  and events,  it is
probable  that all amounts due  according to the  contractual  terms of the loan
agreement will not be  collectible.  Allowances for impaired loans are generally
determined  based on collateral  values or the present  value of estimated  cash
flows.  The  allowance is increased by a provision for credit  losses,  which is
charged to expense, and reduced by charge-offs, net of recoveries.

Loans that are 90 days or more past due are  individually  reviewed for ultimate
collectibility.  Interest  determined  to be  uncollectible  on  loans  that are
contractually  past due is charged off, or an allowance is established  based on
management's  periodic  evaluation.  The allowance is established by a charge to
interest  income  equal  to all  interest  previously  accrued,  and  income  is
subsequently  recognized  only to the extent  that cash  payments  are  received
until,  in  management's  judgment,  the  borrower's  ability  to make  periodic
interest  and  principal  payments is back to normal,  in which case the loan is
returned to accrual status.

Foreclosed real estate

Foreclosed  real  estate  owned,  if  any,  consists  of  property  acquired  by
foreclosure on delinquent loans or by deed in lieu of foreclosure. Such property
is  recorded  initially  at the lower of cost or fair value and is  subsequently
maintained at the lower of cost or fair value minus the estimated costs to sell.

                                       25
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

Property, equipment and depreciation

The various  classes of property are stated at cost and are  depreciated  by the
straight-line  method over their  estimated  useful  lives of 10 to 50 years for
buildings  and  improvements  and 3 to 12 years  for  furniture,  fixtures,  and
equipment.   Repairs  are  expensed  as  incurred.   The  cost  and  accumulated
depreciation of property are eliminated from the accounts upon disposal, and any
resulting gain or loss is included in the determination of net income.

Income taxes

Deferred  income taxes are  recognized  for the tax  consequences  of "temporary
differences" by applying enacted  statutory tax rates applicable to future years
to  differences  between the financial  statement  carrying  amounts and the tax
bases of existing  assets and  liabilities.  The effect of a change in tax rates
upon  deferred  taxes is  recognized  in income in the period that  includes the
enactment date.

Prior to 1996,  savings  banks  that met  certain  definitional  tests and other
conditions  prescribed  by  the  Internal  Revenue  Code  were  allowed,  within
limitations,  to deduct from taxable  income an allowance for bad debts based on
actual  loss  experience,  a  percentage  of taxable  income  (8%)  before  such
deduction,  or an amount based on a percentage of eligible loans. The cumulative
bad debt reserve,  upon which no taxes have been paid,  was  approximately  $1.7
million as of June 30, 1999.

As a result of 1996 tax  legislation,  the Company will compute its tax bad debt
deduction by use of the actual charge-off  method,  for tax years beginning with
July 1, 1996. According to the legislation, "applicable excess reserves" must be
recaptured as taxable  income over five years  beginning  with fiscal year 1997.
Thrifts can delay those payments by two years if they meet a residential lending
requirement.  The  amount to be  recaptured  is the  excess  of the  accumulated
reserves  since  1987 over the amount  allowed  by use of the actual  charge-off
method for those years.  Since the Bank has provided deferred taxes on those bad
debt  reserves  accumulated  since 1987,  management  does not believe  that the
legislation will have a material effect on the Company's financial statements.

Loan origination fees, costs, discounts and premiums

Loan  origination  fees  are  accounted  for in  accordance  with  Statement  of
Financial  Accounting  Standards No. 91, Accounting for  Nonrefundable  Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases  (SFAS 91).  Under SFAS 91,  loan  origination  and  commitment  fees and
certain  direct loan  origination  costs are  deferred.  Upon the  expiration of
unfunded commitments,  the related fees are recognized into income as loan fees.
Loan  origination  fees on  funded  commitments  and  related  direct  costs are
amortized into income on loans as yield adjustments over the contractual life of
related loans using the level-yield method.

Discounts  and premiums on loans  purchased are  recognized  in interest  income
using the level-yield method over the average life of the loan.

                                       26
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

Sales of mortgage loans, mortgage-related securities and foreclosed real estate

Gains and losses on the sales of loans,  participation  interest  in loans,  and
foreclosed real estate are accounted for by imputing gain or loss on those sales
where a yield  rate  guaranteed  to the buyer is more or less than the  contract
interest  rate  being  collected,  in the case of loans,  and  where  foreclosed
property is sold on financing  terms more or less  favorable than the prevailing
market terms for similar  property.  Such gains or losses are  recognized in the
financial  statements  for the year of sale.  The Bank services  loans that have
been sold with  servicing  retained.  Such loan balances are not included in the
accompanying consolidated statements of financial condition.

Advertising

The Company expenses most advertising costs as incurred. Such expenses are shown
in the  consolidated  statements  of income.  As of June 30, 1999 and 1998,  the
Company's  statements of financial  condition for each period included $6,000 of
prepaid advertising.

Fair values of financial instruments

The  following  methods and  assumptions  were used by the Company in estimating
fair values of financial instruments as disclosed herein:

    Cash  and  short-term  instruments  -  The  carrying  amounts  of  cash  and
short-term instruments approximate their fair value.


o    Available-for-sale  and  held-to-maturity  securities  -  Fair  values  for
     securities,  excluding  restricted equity  securities,  are based on quoted
     market  prices.   The  carrying  values  of  restricted  equity  securities
     approximate fair values.

o    Loans   receivable  -  Fair  values  are  based  on  carrying   values  for
     variable-rate  loans that reprice frequently and have no significant change
     in credit  risk.  Fair  values for  certain  mortgage  loans (for  example,
     one-to-four  family  residential)  and  other  consumer  loans are based on
     quoted   market  prices  of  similar   loans  sold  in   conjunction   with
     securitization    transactions,    adjusted   for   differences   in   loan
     characteristics.  Fair values for  commercial  real  estate and  commercial
     loans are estimated using  discounted cash flow analyses and interest rates
     currently  being  offered  for loans with  similar  terms to  borrowers  of
     similar credit quality.  Fair values for impaired loans are estimated using
     discounted  cash flow  analyses  or  underlying  collateral  values,  where
     applicable.

o    Deposit liabilities - The fair values disclosed for demand deposits are, by
     definition,  equal to the amount  payable on demand at the  reporting  date
     (that is, their carrying  amounts).  The carrying amounts of variable-rate,
     fixed-term   money-market   accounts  and  certificates  of  deposit  (CDS)
     approximate  their  fair  values at the  reporting  date.  Fair  values for
     fixed-rate CDS are estimated using a discounted cash flow  calculation that
     applies  interest  rates  currently  being  offered  on  certificates  to a
     schedule of aggregated expected monthly maturities on time deposits.

                                       27
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

o    Short-term  borrowings - The carrying  amounts of federal funds  purchased,
     borrowings under  repurchase  agreements,  and other short-term  borrowings
     maturing within 90 days approximate their fair values. Fair values of other
     short-term  borrowing are  estimated  using  discounted  cash flow analyses
     based on the  Company's  current  incremental  borrowing  rates for similar
     types of borrowing arrangements.

o    Long-term  debt - The  fair  values  of the  Company's  long-term  debt are
     estimated  using  discounted  cash  flow  analyses  based on the  Company's
     current  incremental   borrowing  rates  for  similar  types  of  borrowing
     arrangements.

o    Accrued  interest - The carrying  amounts of accrued  interest  approximate
     their fair values.

o    Off-balance-sheet  instruments - Fair values for off-balance-sheet  lending
     commitments  are based on fees  currently  charged  to enter  into  similar
     agreements,  taking into account the remaining  terms of the agreements and
     counterparties' credit standings.

Conversion to stock ownership

At a  special  meeting  on July 20,  1994,  the  members  of the  Bank  approved
management's plan to convert the Savings Bank from a Federal Mutual to a Federal
Stock Savings Bank. The plan called for the formation of SWVA  Bancshares,  Inc.
which  would own the stock of the Bank upon its  conversion  to a stock  form of
ownership.  The stock of the Parent  Company  would  then be  offered  through a
Subscription and Community Offering to the Bank's  tax-qualified  employee stock
plans, eligible account holders and others. The transaction was in the form of a
pooling of interests.

On October 7, 1994,  the Parent  Company issued 570,590 shares of $.10 par value
common  stock at $10 per share and became the  parent  company of the Bank.  Net
proceeds,  after deducting  conversion  expenses and underwriters'  discounts of
$469,000,  were $5.2 million and are  reflected  as common stock and  additional
paid-in  capital  in  the  accompanying  consolidated  statements  of  financial
condition.  The Parent  Company's  Articles  of  Incorporation  contain  certain
limitations on voting rights and other "anti-takeover" provisions.

As part of the  conversion  to stock form,  the Bank  formed an  Employee  Stock
Ownership Plan (ESOP) for eligible  employees.  The ESOP purchased 45,647 common
shares of the Parent Company issued in the conversion, which purchase was funded
by a loan  from the  Parent  Company.  In  accordance  with  generally  accepted
accounting  principles,  the unpaid balance of the ESOP loan has been eliminated
on the Company's consolidated  statements of financial condition.  Stockholders'
equity has been reduced by the aggregate  purchase  price of the shares owned by
the ESOP net of the shares  committed to be released.  Contributions to the ESOP
by the Savings Bank are made to fund the principal and interest  payments on the
debt of the  ESOP.  As of June 30,  1999,  a total  of  22,828  shares  had been
released.

                                       28
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 1 - Summary of significant accounting policies (continued)

Impact of new accounting standards

In February 1997, the FASB issued  Earnings per Share (SFAS 128). This statement
is effective for financial  statements,  including  interim  periods  issued for
periods ending after December 15, 1997. SFAS 128 provides for the calculation of
basic and diluted earnings per share, and requires  comparative  information for
prior periods to be restated to conform with this  standard.  Basic earnings per
share  includes no dilution  and is computed  by dividing  income  available  to
common shareholders by the weighted-average  number of common shares outstanding
for the period.  Diluted  earnings per share reflects the potential  dilution of
securities  that could share in earnings of an entity,  similar to fully diluted
earnings per share (see Note 15).  All  previously  reported  earnings per share
amounts have been restated to conform to the  provisions of this new  accounting
standard.

In June 1997, the FASB issued Reporting  Comprehensive  Income (SFAS 130), which
established  standards for reporting and display of  comprehensive  income,  its
components and accumulated balances.  Comprehensive income is defined to include
all changes in equity  except those  resulting  from  investments  by owners and
distributions  to owners.  Among other  disclosures,  SFAS 130 requires that all
items that are required to be recognized under current  accounting  standards as
components of comprehensive  income be reported in a financial statement that is
displayed with the same  prominence as other financial  statements.  SFAS 130 is
effective for financial  statements  for periods  beginning  after  December 15,
1997, and requires comparative information for earlier years to be restated. The
only component of  comprehensive  income to be disclosed under the provisions of
this  statement  is the  changes  in  unrealized  holding  gains  or  losses  on
securities available for sale.

In June 1997, the FASB also issued  Disclosures  about Segments of an Enterprise
and Related  Information  (SFAS  131),  which  changes the way public  companies
report  information  about  segments  of  their  business  in  annual  financial
statements   and  requires   segment   information   in  quarterly   reports  to
shareholders.  It also requires that public business  enterprises report certain
information  about their products and services,  the  geographic  areas in which
they operate, and their major customers.  SFAS 131 is effective for fiscal years
beginning after December 15, 1997. SFAS 131 has not had a material effect on the
Company's financial statements.

In February  1998,  the FASB issued  Employers'  Disclosures  about Pensions and
Other Postretirement  Benefits (SFAS 132), which revises employers'  disclosures
about pension and other  postretirement  benefit plans. SFAS 132 does not change
the  measurement  or  recognition  of  those  plans,  but  requires   additional
information  on changes in benefit  obligations  and fair values of plan assets,
and eliminates certain  disclosures  previously required by SFAS Nos. 87, 88 and
106. SFAS 132 is effective for fiscal years  beginning  after December 15, 1997.
SFAS 132 has not had a material effect on the Company's financial statements.

Reclassifications

Certain items in the 1998 financial  statements have been reclassified to afford
comparability with the 1999 financial statements.

                                       29
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 2 - Investment securities

Investments consisting of U.S. government,  mortgage-backed and other securities
at June 30 of each year were as follows in thousands:

<TABLE>
<CAPTION>
                                                                                         1999
                                                                 ------------------------------------------------------------
                                                                                       Gross Unrealized
                                                                    Amortized    ----------------------------
                                                                     Cost           Gain           Loss           Fair Value
                                                                 --------------  -------------  -------------   -------------
<S>                                                             <C>             <C>            <C>             <C>
Securities, held to maturity
   FHLMC participation certificates                              $          283  $           9  $      -        $         292
                                                                    -----------    -----------    -----------     -----------

Securities, available for sale
   Municipal bonds                                                        2,442         -                  96           2,346
   U.S. Government and agency bonds                                      12,000         -                 524          11,476
   GNMA mortgage-backed securities                                        8,591         -                 179           8,412
   FNMA mortgage-backed securities                                          681             19          -                 700
                                                                    -----------    -----------    -----------     -----------

                                                                         23,714             19            799          22,934
                                                                    -----------    -----------    -----------     -----------

          Total securities                                       $       23,997  $          28  $         799   $      23,226
                                                                    ===========    ===========    ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                         1998
                                                                 ------------------------------------------------------------
                                                                                       Gross Unrealized
                                                                    Amortized    ----------------------------
                                                                     Cost           Gain           Loss           Fair Value
                                                                 --------------  -------------  -------------   -------------
<S>                                                             <C>             <C>            <C>             <C>
Securities, held to maturity
   FHLMC participation certificates                              $          318  $           9  $      -        $         327
                                                                    -----------    -----------    -----------     -----------

Securities, available for sale
   Municipal bonds                                                          930              6          -                 936
   U.S. Government and agency bonds                                       9,750             62          -               9,812
   GNMA mortgage-backed securities                                        9,509          -                 19           9,490
   FNMA mortgage-backed securities                                        1,324             45          -               1,369
                                                                    -----------    -----------    -----------     -----------

                                                                         21,513            113             19          21,607
                                                                    -----------    -----------    -----------     -----------

          Total securities                                       $       21,831  $         122  $          19   $      21,934
                                                                    ===========    ===========    ===========     ===========
</TABLE>


                                       30
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 2 - Investment securities (continued)

The amortized cost and estimated fair value of debt securities at June 30, 1999,
by contractual  maturity,  were as follows in thousands.  Expected maturities of
mortgage-backed  securities  will differ  from  contractual  maturities  because
borrowers may have the right to call or prepay  obligations with or without call
or prepayment penalties.  Values of mutual fund shares are not guaranteed by any
government agency.
<TABLE>
<CAPTION>

                                                                         Held to Maturity             Available for Sale
                                                                    -------------------------     ---------------------------
                                                                    Amortized                     Amortized
                                                                     Cost          Fair Value      Cost           Fair Value
                                                                    -----------    -----------    -----------    ------------
<S>                                                             <C>             <C>            <C>             <C>
        Due in one year or less                                  $        -      $       -      $       -       $       -
        Due after one year through five years                             -              -              -               -
        Due after five years through ten years                            -              -              2,500           2,468
        Due after ten years                                               -              -             11,942          11,354
        Mortgage-backed and related securities                              283            292          9,272           9,112
                                                                    -----------    -----------    -----------    ------------

                                                                         $  283       $    292  $      23,714    $     22,934
                                                                    ===========    ===========    ===========    ============
</TABLE>

Proceeds from maturities of interest-bearing  deposits and investments were $6.1
million in 1999, $6.8 million in 1998, and $3.8 million in 1997.  Gross realized
gains and losses on redemption of investments are summarized below in thousands:

<TABLE>
<CAPTION>
                                                                                      1999           1998            1997
                                                                                 -------------- --------------  ----------------


<S>                                                                             <C>            <C>             <C>
        Gross realized gains                                                     $      -       $       -       $          52
        Gross realized losses                                                      (        18)   (        17)    (         9)
                                                                                   -----------    -----------     -----------

                  Net realized gains (losses)                                    $ (        18) $ (        17)  $          43
                                                                                   ===========    ===========     ===========
</TABLE>

Cost was determined by the specific identification method.



                                       31
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 3 - Loans receivable

Loans receivable at June 30 of each year were as follows in thousands:

<TABLE>
<CAPTION>

                                                                                                     1999           1998
                                                                                                -------------   -------------
<S>                                                                                            <C>             <C>
        Mortgage loans
           Residential, one to four family                                                      $      32,342   $      38,596
           Residential, multifamily                                                                     4,187           4,033
           Nonresidential and land                                                                      2,071           2,513
           Construction                                                                                 4,024           2,980
                                                                                                  -----------     -----------

                                                                                                       42,624          48,122
                                                                                                  -----------     -----------

        Non-mortgage loans
           Consumer loans
              Secured personal                                                                          1,483             725
              Unsecured personal                                                                           92              39
              Auto                                                                                        177              34
              Home improvement                                                                             38              35
              Equity line                                                                               2,316           1,023
              Other                                                                                        80              59
           Commercial
              Unsecured                                                                                 -                  26
              Secured                                                                                     105              43
                                                                                                  -----------     -----------

                                                                                                        4,291           1,984
                                                                                                  -----------     -----------

                  Total loans                                                                          46,915          50,106
                                                                                                  -----------     -----------

        Less
           Deferred loan fees                                                                              42              71
           Undisbursed loans in process                                                                 1,087           1,617
           Allowance for credit losses                                                                    210             207
                                                                                                  -----------     -----------

                                                                                                        1,339           1,895
                                                                                                  -----------     -----------

                  Loans receivable, net                                                         $      45,576   $      48,211
                                                                                                  ===========     ===========
</TABLE>

Real estate loans  pledged as  collateral  for Federal Home Loan Bank of Atlanta
advances  totaled  $12  million  and $7  million  as of June 30,  1999 and 1998,
respectively.

                                       32
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 3 - Loans receivable (continued)

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
statements of financial condition.  The unpaid principal balances of these loans
at June 30 of each year are summarized as follows in thousands:

<TABLE>
<CAPTION>

                                                                                       1999          1998            1997
                                                                                 -------------  -------------   -------------

<S>                                                                             <C>            <C>             <C>
        Federal Home Loan Mortgage Corporation (FHLMC)                           $         292  $         321   $         379
        Virginia Housing Development Authority (VHDA)                                      800            614             583
                                                                                   -----------    -----------     -----------

                                                                                 $       1,092  $         935   $         962
                                                                                   ===========    ===========     ===========

</TABLE>

Custodial  escrow balances at June 30 of each year maintained in connection with
the foregoing loans serviced are summarized as follows in thousands:

<TABLE>
<CAPTION>
                                                                                                     1999           1998
                                                                                                -------------   -------------
<S>                                                                                             <C>             <C>
        FHLMC                                                                                   $           7   $           6
        VHDA                                                                                                6               6
                                                                                                  -----------     -----------

                                                                                                $          13   $          12
                                                                                                  ===========     ===========
</TABLE>

Activity in the  allowance  for credit losses for the years ended June 30, 1999,
1998 and 1997 is summarized as follows in thousands:

<TABLE>
<CAPTION>
                                                                                      1999           1998           1997
                                                                                 -------------- --------------  -------------

<S>                                                                             <C>            <C>             <C>
        Balance at beginning of year                                             $         207  $         217   $         194
        Provision charged to operations                                                     13             33              23
        Charge-offs                                                                (        10)   (        43)          -
                                                                                   -----------    -----------     -----------

                  Balance at end of year                                         $         210  $         207   $         217
                                                                                   ===========    ===========     ===========

</TABLE>


                                       33
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 3 - Loans receivable (continued)

The  following  table sets forth the maturity of the loan  portfolio at June 30,
1999 in thousands. The table does not include prepayments or scheduled principal
repayments.

<TABLE>
<CAPTION>

                                                   Residential
                                    One to Four     Multi-       Nonresidential                     Consumer
                                     Family         Family        and Land         Construction    and Other      Total
                                     ------         ------        --------         ------------    ---------      -----
<S>                               <C>            <C>          <C>                <C>             <C>            <C>
Amounts due
   Within 3 months                $       -      $     -      $           -      $          840  $        590   $       1,430
   3 months to 1 year                         7        -                  -                 849           100             956
                                    -----------    ---------    ---------------    ------------    ----------     -----------

          Total due within 1 year             7        -                  -               1,689           690           2,386
                                    -----------    ---------    ---------------    ------------    ----------     -----------

   After 1 year
      1 to 3 years                          117        -                      8           1,435           351           1,911
      3 to 5 years                          413        -                     99             900           289           1,701
      5 to 10 years                       3,127          990                601           -               392           5,110
      10 to 20 years                      7,153        2,565              1,363           -             2,569          13,650
      Over 20 years                      21,525          632              -               -             -              22,157
                                    -----------    ---------    ---------------    ------------    ----------     -----------

          Total due after 1 year         32,335        4,187              2,071           2,335         3,601          44,529
                                    -----------    ---------    ---------------    ------------    ----------     -----------

          Total due               $      32,342  $     4,187  $           2,071  $        4,024  $      4,291          46,915
                                    ===========    =========    ===============    ============    ==========     -----------

Less
   Allowance for loan loss                                                                                                210
   Loans in process                                                                                                     1,087
   Deferred loan fees                                                                                                      42
                                                                                                                  -----------

                                                                                                                        1,339

          Loans receivable, net                                                                                 $      45,576
                                                                                                                  ===========
</TABLE>

The following table sets forth the dollar amount (in thousands) of all loans due
after June 30,  2000,  which have  predetermined  interest  rates and which have
floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                                                 Floating or
                                                                                    Fixed         Adjustable
                                                                                    Rates          Rates          Total
                                                                                    -----          -----          -----

<S>                                                                             <C>            <C>             <C>
      One to four family                                                         $       7,566  $      24,769   $      32,335
      Multifamily                                                                        3,182          1,005           4,187
      Nonresidential and land                                                            1,658            413           2,071
      Construction                                                                       1,435            900           2,335
      Consumer and other                                                                 1,285          2,316           3,601
                                                                                   -----------    -----------     -----------
                                                                                 $      15,126  $      29,403   $      44,529
                                                                                   ===========    ===========     ===========
</TABLE>

                                       34
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 4 - Foreclosed real estate

There were no foreclosed real estate acquired in settlement of loans at June 30,
1999 and 1998.

The net loss on foreclosed  real estate at June 30 of each year consisted of the
following in thousands:

<TABLE>
<CAPTION>

                                                                                     1999           1998             1997
                                                                                 -------------  -------------   -------------

<S>                                                                             <C>            <C>             <C>
        Net loss on sale of foreclosed real estate                               $       -      $          43   $       -
                                                                                   ===========    ===========     ===========

</TABLE>

Note 5 - Property, equipment and depreciation

Property and equipment at June 30 of each year were as follows in thousands:

<TABLE>
<CAPTION>
                                                                                                      1999           1998
                                                                                                -------------   --------------
<S>                                                                                            <C>             <C>
        Land                                                                                    $         575   $         575
        Office buildings and improvements                                                               1,794           1,788
        Furniture, fixtures and equipment                                                               1,057           1,017
                                                                                                  -----------     -----------

                                                                                                        3,426           3,380

        Less accumulated depreciation                                                                   1,738           1,718
                                                                                                  -----------     -----------

                     Property and equipment, net                                                $       1,688   $       1,662
                                                                                                  ===========     ===========
</TABLE>

Accumulated depreciation at June 30 of each year was as follows in thousands:

<TABLE>
<CAPTION>

                                                                                                       1999          1998
                                                                                                --------------  -------------

<S>                                                                                             <C>             <C>
        Office buildings and improvements                                                       $         937   $         899
        Furniture, fixtures and equipment                                                                 801             819
                                                                                                  -----------     -----------

                                                                                                $       1,738   $       1,718
                                                                                                  ===========     ===========
</TABLE>

Depreciation  expense  for the years ended June 30,  1999,  1998 and 1997 was as
follows in thousands:

<TABLE>
<CAPTION>
                                                                                      1999          1998             1997
                                                                                 -------------- --------------  -------------

<S>                                                                             <C>            <C>             <C>
         Office buildings and improvements                                       $          37  $          37   $          37
         Furniture, fixtures and equipment                                                  70             55              50
                                                                                   -----------    -----------     -----------

                                                                                 $         107  $          92   $          87
                                                                                   ===========    ===========     ===========

</TABLE>

                                       35
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 6 - Accrued interest receivable

Accrued interest receivable at June 30 of each year was as follows in thousands:

<TABLE>
<CAPTION>

                                                                                                      1999           1998
                                                                                                -------------   -------------
<S>                                                                                            <C>             <C>
         Accrued interest on loans                                                              $         261   $         286
         Accrued interest on investments                                                                  333             279
                                                                                                  -----------     -----------

                                                                                                $         594   $         565
                                                                                                  ===========     ===========

</TABLE>

Note 7 - Deposits

Savings  deposits at June 30 of each year,  summarized by interest rate, were as
follows in thousands:

<TABLE>
<CAPTION>
                                                                             1999                          1998
                                                                 -----------------------------  ----------------------------
                                                                      Amount       Percent          Amount        Percent
                                                                      ------       -------          ------        -------
<S>                                                              <C>             <C>            <C>              <C>
    Negotiable order of withdrawal deposits
       Non-interest bearing                                      $        1,284        2.07%    $         953         1.40%
       1.49%                                                              5,434        8.75             -             0.00
       1.74%                                                              -            0.00             4,768         6.98
       2.52%                                                              3,233        5.21             -             0.00
       2.96%                                                              -            0.00             3,168         4.64
                                                                    -----------    --------       -----------     --------

                                                                          9,951       16.03             8,889        13.02
                                                                    -----------    --------       -----------     --------

    Passbooks and statement deposits, 3.00% for each year                 8,688       13.99             7,481        10.95
                                                                    -----------    --------       -----------     --------

    Certificates of deposit and other term deposits
       3.00% to 4.00%                                                     1,489        2.40               240          .35
       4.01% to 5.00%                                                    23,367       37.63             3,082         4.51
       5.01% to 6.00%                                                    18,399       29.63            48,393        70.87
       6.01% to 7.00%                                                       200         .32               200          .29
       7.01% to 8.00%                                                     -             .00                 3          .01
                                                                    -----------    --------       -----------     --------

              Total term deposits                                        43,455       69.98            51,918        76.03
                                                                    -----------    --------       -----------     --------

              Total deposits                                     $       62,094  $   100.00%    $      68,288    $  100.00%
                                                                    ===========    ==========     ===========     ==========
</TABLE>

The aggregate amounts of certificates of deposit with a denomination of $100,000
or more were $5.6 million, $5.8 million, and $5.1 million at June 30, 1999, 1998
and 1997, respectively.

Certain deposit accounts were pledged as collateral for $197,000,  $207,000, and
$171,000 of consumer loans at June 30, 1999, 1998 and 1997, respectively.

                                       36
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 7 - Deposits (continued)

Maturities  of  certificates  of deposit  are  scheduled  for each  fiscal  year
indicated as follows in thousands:

<TABLE>
<CAPTION>

                                                        2000          2001           2002          After 2003        Total
                                                  -------------  --------------  -------------  -------------   --------------

<S>    <C>                                       <C>            <C>             <C>            <C>             <C>
        3.00% to 4.00%                            $       1,489  $        -      $       -      $       -       $       1,489
        4.01% to 5.00%                                   19,935           3,094            320             18          23,367
        5.01% to 6.00%                                   17,597             756             10             36          18,399
        6.01% to 7.00%                                      200           -              -              -                 200
                                                    -----------     -----------    -----------    -----------     -----------

                                                  $      39,221  $        3,850  $         330  $          54   $      43,455
                                                    ===========     ===========    ===========    ===========     ===========
</TABLE>

Interest expense on deposits for the years ended June 30, 1999, 1998 and 1997 is
summarized as follows in thousands:

<TABLE>
<CAPTION>

                                                                                      1999          1998             1997
                                                                                 -------------  -------------   -------------

<S>                                                                             <C>            <C>             <C>
        Money market                                                             $          87  $          93   $         110
        Passbook savings                                                                   234            224             219
        NOW                                                                                 87             92             102
        Club accounts                                                                        1              1               1
        Certificates of deposit                                                          2,439          2,558           2,099
                                                                                   -----------    -----------     -----------

                                                                                 $       2,848  $       2,968   $       2,531
                                                                                   ===========    ===========     ===========

</TABLE>

Note 8 - Borrowed funds

The following  table sets forth certain  information  regarding  advances at the
dates or for the periods indicated in thousands:

<TABLE>
<CAPTION>

                                                                                                    1999            1998
                                                                                                -------------   -------------
<S>                                                                                            <C>             <C>
         FHLB-Atlanta advances
            Balance outstanding at end of year                                                  $      12,000   $       7,000
            Average balance outstanding                                                                 9,043           4,400
            Maximum amount outstanding at any month-end during the year                                12,000           7,000

            Weighted-average interest rate during the year                                              5.42%           5.87%
            Weighted-average interest rate at end of year                                               5.37%           5.63%
</TABLE>

                                       37
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 8 - Borrowed funds (continued)

The following  table sets forth the repayment  schedule at June 30, 1999,  which
includes interest rates and amounts due by year, in thousands:

                Year Due               Interest Rate              Amount
                --------               -------------              ------

                  2000                      6.00%               $     1,000
                  2002                      5.68%                     2,000
                  2003                      5.52%                     2,000
                  2008                      5.02%                     5,000
                  2009                      5.47%                     2,000
                                                                -----------

                                                                $    12,000
                                                                ===========

As of June 30, 1999,  the line of credit  approved by the Federal Home Loan Bank
was $16 million, of which $4 million remained unused.

Residential loans aggregating $12 million and $7 million were pledged as of June
30,  1999  and  1998,   respectively,   as  collateral  for  the  advances  from
FHLB-Atlanta under a blanket floating lien agreement.


Note 9 - SAIF premium assessment

Pursuant to the Economic Growth and Paperwork  Reduction Act of 1996 (Act),  the
FDIC imposed a special  assessment on SAIF members to capitalize the SAIF at the
designated  reserve level of 1.25% of insured deposits as of September 30, 1996.
Based on the Company's deposits as of March 31, 1995, the date for measuring the
amount of the special assessment pursuant to the Act, the Company paid a special
assessment of $355,000 on November 27, 1996 to capitalize the SAIF. The FDIC has
lowered the premium for deposit  insurance to a level  necessary to maintain the
SAIF at its required reserve level. The Bank's premium for deposit insurance for
1999 is currently .0610% of assessable deposits and was .0625% in 1998.


Note 10 - Income taxes

The  Bank's  portion  of  the  consolidated   taxable  income  was  computed  by
application  of  Section  593(b)(2)  of the U.S.  Internal  Revenue  Code  which
provides a special deduction for bad debts. The bad debt deduction may be a "tax
preference item" to which a minimum tax may apply.

The 1996 federal tax legislation  repealed the benefits of Section  593(b)(2) of
the U.S.  Internal Revenue Code. For ensuing fiscal years, the Bank will compute
its tax bad debt deduction by use of the "experience method" which is based on a
moving  five-year  average  of actual  loss  experience.  The  legislation  also
provides that "applicable  excess reserves" must be recaptured as taxable income
over five years  beginning in fiscal 1997.  The amount to be  recaptured  is the
excess of the accumulated  reserves since 1987 over the amount allowed by use of
the experience method for those years.

                                       38
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 10 - Income taxes (continued)

The  consolidated  provision for income taxes for the years ended June 30, 1999,
1998 and 1997, consisted of the following elements in thousands:

<TABLE>
<CAPTION>

                                                                                      1999          1998             1997
                                                                                 -------------  -------------   -------------
<S>                                                                              <C>            <C>             <C>
         Tax paid or payable currently
            Federal                                                              $         159  $         304   $         250
            State                                                                           15             33              41
         Income tax deferred, net                                                            3    (        19)    (        85)
                                                                                   -----------    -----------     -----------

                   Total provision for income taxes                              $         177  $         318   $         206
                                                                                   ===========    ===========     ===========
</TABLE>

The  provision  for income taxes  differed  from that  computed at the statutory
corporate rate for the years ended June 30, 1999, 1998 and 1997 as follows:

<TABLE>
<CAPTION>
                                                                                           1999          1998         1997
                                                                                       -----------   -----------  -----------

<S>                                                                                   <C>           <C>          <C>
        Tax at statutory rate                                                              34.0%         34.0%        34.0%
        Increases in taxes resulting from
           State income tax, net of federal tax benefit                                     2.0           2.8          2.0
           Other                                                                       (    6.9)          1.5     (    4.2)
           Permanent non-deductible expenses                                                4.3           2.5          2.2
                                                                                       --------      --------     --------

                  Total provision for income taxes                                         33.4%         40.8%        34.0%
                                                                                       ========      ========     ========
</TABLE>

The significant  components of the net deferred tax asset (liability) at June 30
of each year were as follows in thousands:

<TABLE>
<CAPTION>

                                                                                                      Liability Method
                                                                                                -----------------------------
                                                                                                     1999             1998
                                                                                                -------------   -------------
<S>                                                                                            <C>             <C>
        Components of the deferred tax asset
           Loan fees                                                                            $           3   $           9
           Pension expense                                                                                 76              76
           Stock bonus plan                                                                                24              21
           Accelerated depreciation                                                                     -                  12
           Bad debts                                                                                       13           -
           Unrealized losses on securities, available for sale                                            265           -
                                                                                                  -----------     -----------

                                                                                                          381             118
        Valuation allowance                                                                             -               -
                                                                                                  -----------     -----------

                  Total deferred tax asset                                                                381             118
                                                                                                  -----------     -----------
        Components of the deferred tax liability
           Bad debts                                                                                    -                   8
           Accelerated depreciation                                                                        10           -
           Unrealized gains on securities, available for sale                                           -                  35
                                                                                                  -----------     -----------

                  Total deferred tax liability                                                             10              43
                                                                                                  -----------     -----------

                  Net deferred tax asset                                                        $         371   $          75
                                                                                                  ===========     ===========
</TABLE>

                                       39
<PAGE>



                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 10 - Income taxes (continued)

The  Company's  consolidated  income  tax  returns  for years not  barred by the
statute of limitations are subject to review by tax authorities.


Note 11 - Comprehensive income

Effective  July 1, 1998,  the Company  adopted the  provisions  of  Statement of
Financial  Accounting Standards No. 130, Reporting  Comprehensive  Income, (SFAS
130). This statement requires the reporting of comprehensive  income in addition
to  net  income  from  operations.  Comprehensive  income  is a  more  inclusive
financial  reporting  methodology  that includes  certain  disclosure of certain
financial   information  that  has  historically  not  been  recognized  in  the
calculation of net income.

The before tax and after tax amount,  as well as the tax (expense) is summarized
below:

<TABLE>
<CAPTION>
                                                                             Tax
                                                                Before     (Expense)     After
                                                                Tax         Benefit       Tax
                                                             ----------   ----------   ----------
<S>                                                         <C>         <C>          <C>
       Year ended June 30, 1999
          Unrealized gains (losses) on securities            $ (   868)  $      295   $ (     573)
                                                               =======     ========     =========

       Year ended June 30, 1998
          Unrealized gains (losses) on securities            $      44   $ (    15)   $        29
                                                               =======     =======      =========

       Year ended June 30, 1997
          Unrealized gains (losses) on securities            $      62   $ (    21)   $        41
                                                               =======     =======      =========

</TABLE>

Note 12 - Retirement plans and employee benefit programs

The Company has a multi-employer defined benefit pension plan with The Financial
Institution's  Retirement  Fund.  Pension  expense is the amount of the required
contribution,  and a liability is recognized  for such  contributions  which are
unpaid at the end of the fiscal year.

Pension  expense  for the three  years  ended  June 30,  1999 was as  follows in
thousands:

<TABLE>
<CAPTION>
                                                                  1999            1998            1997
                                                             -------------    -----------     -----------

<S>                                                          <C>            <C>             <C>
        Pension expense                                      $       -      $       -       $          49
                                                               ===========    ===========     ===========
</TABLE>

The multi-employer  defined benefit plan covers  substantially all employees who
have reached age 21 and who have completed one year of service. The benefits are
based on length of service and high five-year average earnings.  However,  in no
event will the benefits be less than those vested  through June 30, 1992 under a
previous plan.

                                       40
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 12 - Retirement plans and employee benefit programs (continued)

Supplemental executive retirement plan

The Company has deferred  compensation  agreements  with two principal  officers
which  provide for  retirement  benefits  supplementary  to those of the pension
plan.  As of June 30, 1999 and 1998,  cumulative  accruals  under the  contracts
totaled $230,000 and $201,000, respectively, and constituted general obligations
of the Company.

Employee stock ownership plan

At the time of the stock  conversion,  the Bank  established  an Employee  Stock
Ownership  Plan  covering all  full-time  employees  over the age of 21, with at
least 1,000 hours of service  within a plan year.  The ESOP borrowed  funds from
the Company to purchase a total of 45,647 shares of the Company's  common stock,
the loan being  collateralized  by the common stock.  Contributions by the Bank,
along with dividends received on unallocated  shares, are used to repay the loan
with shares being  released from the  Company's  lien  proportional  to the loan
repayments.  Annually  on June 30,  the  released  shares are  allocated  to the
participants  in the  same  proportion  that  their  wages  bear  to  the  total
compensation of all of the participants.  The Company has released 22,828 shares
of the common  stock as of June 30,  1999.  The  Company  recognized  $8,000 and
$12,000 as accrued compensation costs in 1999 and 1998,  respectively.  The fair
value of unearned ESOP shares totaled $296,647 and $558,000 at June 30, 1999 and
1998, respectively. There were no commitments to repurchase ESOP shares.

The Company accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly,  the shares  pledged as  collateral  are reported as a reduction of
stockholders' equity in the consolidated  statements of financial condition.  As
shares are released from collateral,  the Company reports  compensation  expense
equal  to the  current  market  price  of the  shares,  and  the  shares  become
outstanding  for earnings per share  computations.  Dividends on allocated  ESOP
shares  are  recorded  as  a  reduction  of  retained  earnings;   dividends  on
unallocated ESOP shares are recorded as a reduction of debt.

                                       41
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 12 - Retirement plans and employee benefit programs (continued)

Recognition and retention plan

The stockholders approved the establishment of a Management Stock Bonus Plan and
Trust  (MSBP) on October  25,  1995.  The plan  states  that the Trust shall not
purchase  more than 4% of the  aggregate  shares of common  stock  issued by the
Company in the  mutual-to-stock  conversion of the Bank (22,823 shares).  During
1996,  the Bank  purchased  22,812  shares of the  Company's  common stock at an
average  price of $17.02  per share to be  awarded to  directors,  officers  and
employees in  accordance  with the  provision of the  Recognition  and Retention
Plan.  The costs of the shares  awarded  under the plan are recorded as unearned
compensation,  a contra  equity  account,  and are  recognized  as an expense in
accordance  with the vesting  requirements  under the plan.  For the years ended
June 30,  1999 and 1998,  the  amounts  included in  compensation  expense  were
$42,000 and $63,000, respectively. The status of the shares in this plan at June
30, 1999 is shown as follows:

                                                    Unawarded        Awarded
                                                    Shares           Shares
                                                    ------           ------

        Balance at June 30, 1997                         4,328          15,844
           Granted                                       -              -
           Vested                                        -         (     2,635)
           Forfeiture                                    -              -
                                                   -----------     ----------

        Balance at June 30, 1998                         4,328          13,209
           Granted                                       -              -
           Vested                                        -         (     2,642)
           Forfeiture                                    -              -
                                                   -----------     ----------

        Balance at June 30, 1999                         4,328          10,567
                                                   ===========     ===========

Stock option plans

The  stockholders  also  approved  the  establishment  of a stock option plan on
October 5, 1995 for directors,  officers and employees. The exercise price under
both plans is $17 per share, the fair market price on the date of the grant. One
is a non-incentive stock option plan, and the other is an incentive stock option
plan.  Rights  to  exercise  options  granted  vest at the rate of 20% per year,
beginning on the first anniversary of the grant. On March 18, 1998, the Board of
Directors  approved the establishment of a stock option plan for directors.  The
exercise  price is $21 per share,  the fair  market  price on the date of grant.
Rights to exercise options are 100% vested as of June 30, 1999.

On April 21, 1999, the Board of Directors  approved the establishment of a stock
option plan for the former  President.  The exercise price is $13 per share, the
fair market price on the date of the grant.  Rights to exercise options are 100%
vested as of June 30, 1999.

                                       42
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 12 - Retirement plans and employee benefit programs (continued)

The weighted-average  option price and weighted-average  remaining term of stock
options awarded and not exercised were as follows as of June 30:

<TABLE>
<CAPTION>
                                                                                                1999            1998
                                                                                             -------------   -------------

<S>                                                                                         <C>             <C>
        Weighted-average price                                                               $       17.01   $       17.01
        Weighted-average term                                                                $        6.45   $        6.45
</TABLE>

A summary of the stock option activity is as follows:

<TABLE>
<CAPTION>

                                                                                Available         Options          Vested and
                                                                                for Grant         Outstanding      Exercisable
                                                                                ---------         -----------      -----------

<S>                                                                               <C>              <C>                <C>
        Balance at June 30, 1997                                                    13,132           35,142             8,785
           Granted                                                                   -               10,122            10,122
           Vested                                                                    -        (       8,777)            8,777
           Exercised                                                                 -               -                  -
           Forfeiture                                                                -               -                  -
                                                                            --------------    ------------      -------------

        Balance at June 30, 1998                                                    13,132           36,487            27,684
           Granted                                                                   -               10,000            10,000
           Vested                                                                    -        (       8,792)            8,792
           Exercised                                                                 -               -                  -
           Forfeiture                                                                -               -                  -
                                                                            --------------    ------------      -------------

        Balance at June 30, 1999                                                    13,132           37,695            46,476
                                                                            ==============    =============     =============
</TABLE>

The Company  applies APB Opinion 25 in  accounting  for  employee  stock  option
plans. Accordingly, no compensation cost has been recognized in 1999 and 1998.

Pro forma information regarding net income and earnings per share is required by
SFAS 123,  and has been  determined  as if the  Company  had  accounted  for its
employee stock options under the fair value method of that  Statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:  risk-free
interest rate of 5.65%;  dividend yields of 3.08%;  volatility  factor of 11.5%;
and a weighted-average expected life of the option of 6.45 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

                                       43
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 12 - Retirement plans and employee benefit programs (continued)

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:

                                               1999        1998       1997
                                             ---------   ---------  ---------

        Pro forma net income                 $     339   $     446  $     413
        Pro forma earnings per share
           Basic                             $     .76   $     .93  $     .86
           Diluted                           $     .76   $     .88  $     .86


Note 13 - Financial instruments with off-balance-sheet risk

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments consist primarily of commitments to extend credit.  These
instruments  involve,  to varying degrees,  elements of credit risk in excess of
the amount recognized in the statements of financial  position.  The contract or
notional  amounts of those  instruments  reflect the extent of  involvement  the
Company has in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional  obligations
as it does for on-balance-sheet instruments.

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 fixed  expiration  dates or other  termination  clauses  and may
require payment of a fee. Since many of the commitments are expected to be drawn
upon, the total commitment amounts generally represent future cash requirements.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of  collateral  deemed  necessary  by the Company  upon  extension of
credit  is  based  on  management's  credit  evaluation  of  the  counter-party.
Collateral normally consists of real property.

The Company's  commitments to finance real estate  acquisitions and construction
were $2.5  million at June 30, 1999,  $4.1  million at June 30,  1998,  and $3.0
million at June 30, 1997.  As of June 30, 1999,  the Company had  contracted  to
sell $486,000 of the loans to be financed.  No loss is anticipated.  At June 30,
1999,  outstanding  letters of credit  totaled  $521,000,  and unfunded lines of
credit totaled $2.7 million.  There were no loans sold with recourse in 1999 and
1998.

                                       44
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 14 - Restricted retained earnings

In accordance  with the  regulations  concerning  conversion  from a mutual to a
stock  organization,  the Bank was required to establish a  liquidation  account
equal  to its net  worth  as of the  latest  statement  of  financial  condition
contained in the final prospectus.  Such liquidation account is to be maintained
as of the eligibility  record date (March 31, 1993) or supplemental  eligibility
record  date (June 30,  1994) for the  benefit of  depositors  who  continue  to
maintain  their  deposits  in the Bank  after the  conversion  in the event of a
complete  liquidation of the Bank. If, however, on any annual closing date (June
30) of the Bank,  the amount in any  deposit  account is less than the amount in
such deposit  account on March 30, 1993 or June 30,  1994,  then the interest in
the liquidation account relating to such deposit account would be reduced by the
amount of such reduction,  and such interest will cease to exist if such deposit
account is closed. The Bank may not declare or pay a cash dividend or repurchase
any of its capital stock if the effect  thereof would cause the net worth of the
Bank to be reduced below either the amount required for the liquidation  account
or  the  minimum  regulatory  capital  requirements.   At  June  30,  1999,  the
liquidation account, unadjusted for customer withdrawals,  totaled $4.2 million,
and minimum regulatory capital was $3.0 million. See Note 17 for Bank regulatory
capital requirements.


Note 15 - Earnings per share

The  following  table  sets  forth  the  reconciliation  of the  numerators  and
denominators of the basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
                                                                                          Year Ended June 30
                                                                          ---------------------------------------------------
                                                                                1999             1998              1997
                                                                          ----------------  ---------------  ----------------
<S>                                                                      <C>               <C>              <C>
           Numerator:
      (a)  Net income available to shareholders                           $           345   $          461   $           414
                                                                            =============     ============      ============


           Denominator:
           Weighted-average shares outstanding                                    471,766          509,008           522,884
           Less: ESOP weighted-average shares                               (      27,385)    (     31,951)     (     36,518)
                                                                            -------------     ------------      ------------

      (b)  Basic EPS weighted-average shares outstanding                          444,381          477,057           486,366

           Effect of dilutive securities:
           Incremental shares attributable to the Stock Option                      -                7,500             -
              Plan and Management Stock Bonus Plan                                  -                2,255             -
                                                                            -------------     ------------      ------------

      (c)  Diluted EPS weighted-average shares outstanding                        444,381          486,812           486,366
                                                                            =============     ============      ============


           Basic earnings per share (a/b)                                 $           .78   $          .97   $           .85
                                                                            =============     ============      ============

           Diluted earnings per share (a/c)                               $           .78   $          .95   $           .85
                                                                            =============     ============      ============
</TABLE>

Earnings  per  share  amounts  for 1997 have been  restated  to comply  with the
provisions of SFAS 128.

                                       45
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 16 - Significant group concentrations of credit risk

The Company  grants  residential,  commercial,  and consumer  loans to customers
mainly in the  southwest  region of Virginia.  The Company has a loan  portfolio
consisting  principally of residential  mortgage loans and is not dependent upon
any  particular  economic  sector,  although  the  portfolio  as a whole  may be
affected by general economic factors of the southwest Virginia region.

At June 30, 1999,  the Company had  commercial  bank deposits of $1.0 million in
excess of the Federal Deposit Insurance Corporation insurance limit.


Note 17 - Bank 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
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.

The  Office  of  Thrift   Supervision's   capital   regulations  require  thrift
institutions to maintain capital at least sufficient to meet three requirements:
tangible  capital,   core  capital,  and  risk-based  capital.   Management  has
determined  that  the  Bank's  capital  meets  and  exceeds  all  three  capital
requirements as follows as of June 30, 1999 and 1998, in thousands. Tangible and
core  capital  levels  are  shown as a  percentage  of  adjusted  total  assets.
Risk-based capital levels are shown as a percentage of risk-weighted assets:

<TABLE>
<CAPTION>
                                                                                          1999
                                                         --------------------------------------------------------------------
                                                                Tangible                  Core                  Risk-based
                                                                Capital                  Capital                  Capital
                                                         -------------------   ----------------------  ----------------------
<S>                                                   <C>             <C>      <C>             <C>     <C>            <C>
Capital
        Regulatory capital computed                   $     6,869     8.3%     $     6,869     8.3%    $     7,079    17.7%
        Minimum capital requirement                         1,238     1.5            2,476     3.0           3,205     8.0
                                                         --------   -----        ---------  ------       ---------  ------

                  Regulatory capital excess           $     5,631     6.8%     $     4,393     5.3%    $     3,874     9.7%
                                                         ========   =======      =========  ========     =========  ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                          1998
                                                         --------------------------------------------------------------------
                                                                Tangible                  Core                  Risk-based
                                                                Capital                  Capital                  Capital
                                                         -------------------   ----------------------  ----------------------
<S>                                                   <C>             <C>      <C>             <C>     <C>            <C>

        Regulatory capital computed                   $     7,683     9.1%     $     7,683     9.1%    $     7,890    20.8%
        Minimum capital requirement                         1,271     1.5            2,542     3.0           3,042     8.0
                                                         --------   -----        ---------  ------       ---------  ------

                  Regulatory capital excess           $     6,412     7.6%     $     5,141     6.1%    $     4,848    12.8%
                                                         ========   =======      =========  ========     =========  ========
</TABLE>

                                       46
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 18 - Related-party transactions

The  Company  has made  loans in the  ordinary  course of  business  to  various
officers  and  directors.  These  loans  are  generally  collateralized  by  the
individuals'  personal  residences  or by savings  accounts in the Company.  The
aggregate  balances of such loans which exceed $60,000 in aggregate  outstanding
amount to any officer or director  for the years ended June 30,  1999,  1998 and
1997 are summarized as follows in thousands:

<TABLE>
<CAPTION>

                                               1999           1998            1997
                                          -------------- -------------   --------------

<S>                                      <C>            <C>             <C>
        Beginning balance                 $         197  $         286   $          49
        Additions                                -              -                  285
        Repayments                          (         3)   (        89)    (        48)
                                            -----------    -----------     -----------

                  Ending balance          $         194  $         197   $         286
                                            ===========    ===========     ===========
</TABLE>

Fees for foreclosures, titles and deeds of trust, paid to a law firm, of which a
director was a principal,  aggregated  $13,860,  $2,575 and $6,625 for the years
ended June 30, 1999, 1998 and 1997, respectively. Insurance commissions received
by a director from business with or for the Company  aggregated  $4,000,  $4,000
and $3,000 for the years ended June 30, 1999, 1998 and 1997, respectively.


Note 19 - Commitments and contingencies

Rental expenses paid under operating leases for a loan office at June 30 of each
year was as follows in thousands:

                                       1999           1998             1997
                                  -------------    -----------     -----------

        Rental expense            $          42    $        25     $        24
                                    ===========    ===========     ===========

The Company  entered into a three-year  lease  agreement for office  space.  The
lease terminates April 30, 2001.

The current minimum annual rental commitments under the noncancelable  operating
lease in effect at June 30, 1999 are as follows in thousands:

                Year Ending                                    Amount
                -----------                                    ------

                    2000                                   $            42
                    2001                                                36
                                                             -------------

                                                           $            78
                                                             =============

                                       47
<PAGE>


                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 20 - Disclosures about fair value of financial instruments

The estimated fair values of the Company's  financial  instruments as of June 30
of each year are as follows in thousands:

<TABLE>
<CAPTION>
                                                                            1999                          1998
                                                               -----------------------------   ------------------------------
                                                                    Carrying       Fair          Carrying         Fair
                                                                    Amount         Value         Amount           Value
                                                                    ------         -----         ------           -----
<S>                                                           <C>             <C>              <C>             <C>
        Financial assets
           Cash and cash equivalents                           $       2,454   $       2,454    $       3,193   $       3,193
           Interest-bearing deposits                                   6,278           6,278            5,897           5,897
           Investment securities                                      14,442          13,822           11,641          11,709
           Mortgage-backed securities                                  9,555           9,405           11,151          11,186
           Loans receivable, net                                      45,576          45,729           48,211          59,620

        Financial liabilities
           Deposits                                                   62,094          62,094           68,288          68,391
           Advances from Federal Home Loan Bank                       12,000          11,956            7,000           6,913

        Unrecognized financial instruments
           Commitments to purchase securities                          -               -                -               -
           Standby letters of credit issued                              521             521              391             391

</TABLE>

Note 21 - Other noninterest expense

Other  noninterest  expense for the years ended June 30, 1999,  1998 and 1997 is
shown as follows in thousands:

<TABLE>
<CAPTION>
                                                                                      1999          1998            1997
                                                                                 -------------  -------------   -------------
<S>                                                                             <C>            <C>             <C>
        Other noninterest expense
           Contributions                                                         $           5  $           7   $           5
           Dues and subscriptions                                                           18             14              12
           Insurance                                                                        30             31              32
           Office supplies, telephone and postage                                          136            113             101
           Other expenses                                                                   38             41              46
           Professional fees                                                               101            100              91
           Supervisory fees and assessments                                                 33             30              31
                                                                                   -----------    -----------     -----------

                                                                                 $         361  $         336   $         318
                                                                                   ===========    ===========     ===========
</TABLE>

                                       48
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1999, 1998 and 1997


Note 22 - Selected quarterly financial data (unaudited)

Condensed consolidated financial data for the years ended June 30, 1999 and 1998
is shown as follows in thousands, except per-share data:

<TABLE>
<CAPTION>
                                                                             1999
                                               -------------------------------------------------------------
                                                    First          Second         Third           Fourth
                                                    Quarter        Quarter        Quarter         Quarter
                                                    -------        -------        -------         -------

<S>                                           <C>             <C>            <C>             <C>
Total interest income                          $        1,493  $       1,477  $       1,408   $       1,413
Total interest expense                                    889            864            795             790
                                                  -----------    -----------    -----------     -----------

          Net interest income                             604            613            613             623
Provision for credit losses                                 3              3              3               4
                                                  -----------    -----------    -----------     -----------

          Net interest income after
             provision for credit losses                  601            610            610             619
Other noninterest income                                  149            193            125             108
Noninterest expense                                       613            622            631             627
                                                  -----------    -----------    -----------     -----------

          Income before income tax expense                137            181            104             100
Income tax expense                                         52             70             40              15
                                                  -----------    -----------    -----------     -----------

           Net income                          $           85  $         111  $          64   $          85
                                                  ===========    ===========    ===========     ===========

Basic earnings per share                       $          .18  $         .24  $         .14   $         .21
Diluted earnings per share                                .18            .24            .14             .21
Cash dividends per share                                  .20           -               .20            -
</TABLE>

<TABLE>
<CAPTION>
                                                                          1998
                                               ------------------------------------------------------------
                                                    First          Second         Third           Fourth
                                                    Quarter        Quarter        Quarter         Quarter
                                                    -------        -------        -------         -------

<S>                                           <C>             <C>            <C>             <C>
Total interest income                          $       1,393   $      1,424   $      1,520    $      1,471
Total interest expense                                   718            789            850             869
                                                  ----------     ----------     ----------      ----------

          Net interest income                            675            635            670             602
Provision for credit losses                               24              3              3               3
                                                  ----------     ----------     ----------      ----------

          Net interest income after
            provision for credit losses                  651            632            667             599
Other noninterest income                                  86             84            121             137
Noninterest expense                               (      550)    (      531)    (      547)     (      570)
                                                  ----------     ----------     ----------      ----------

          Income before income tax expense               187            185            241             166
Income tax expense                                        71             70             88              89
                                                  ----------     ----------     ----------      ----------

           Net income                          $         116   $        115   $        153    $         77
                                                  ==========     ==========     ==========      ==========

Basic earnings per share                       $         .24   $        .24   $        .32    $        .17
Diluted earnings per share                               .24            .24            .31             .16
Cash dividends per share                                1.15           -               .15            -
</TABLE>

                                       49
<PAGE>

                                OFFICE LOCATIONS

                                Corporate Office
         SWVA Bancshares, Inc. and Southwest Virginia Savings Bank, FSB
                             302 Second Street, S.W.
                             Roanoke, VA 24011-1597
                                 (540) 343-0135

              Branch Offices - Southwest Virginia Savings Bank, FSB

              1006 Hardy Road                        1611 Hershberger Road
              Vinton, VA                                   Roanoke, VA

              2133 Electric Road                           40 W. Main Street
              Roanoke, VA                                  Salem, VA

                             Loan Production Office
                              Building D, Suite 101
                             2847 Penn Forest Blvd.
                                   Roanoke, VA
<TABLE>
<CAPTION>
                     Board of Directors of SWVA Bancshares, Inc.

                                    B. L. Rakes
                                    Chairman of the Board
                                    Consultant

<S>                                <C>                            <C>
 F. Courtney Hoge                   James H. Brock                 Michael M. Kessler
 Vice Chairman of the Board         President, Rusco Window Co.    President, Kessler Associates, LTD,
 Insurance Sales Representative                                    a photo processor
 New York Life Insurance Co.

 D. W. Shilling                     Barbara C. Weddle              Glen C. Combs
 Executive Officer                  Executive Officer              Vice President, Acosta Sales,
                                                                   a food brokerage company

                          Executive Officers of SWVA Bancshares, Inc.

 D. W. Shilling                    Barbara C. Weddle               Mary G. Staples
 President and Chief               Senior Vice President           Controller and Treasurer
 Executive Officer                 and Secretary

</TABLE>

 Special Counsel:                             Independent Auditors:
 Malizia, Spidi, & Fisch, PC                  Cherry Bekaert & Holland LLP
 One Franklin Square                          828 Main Street, 1700 CFB Building
 1301 K Street, NW, Suite 700 East            Lynchburg, VA  24505
 Washington, D.C.  20005

 Special Counsel for                          Transfer Agent and Registrar:
 Southwest Virginia Savings Bank, FSB:        Registrar & Transfer Company
 Carter Brown & Osborne, P.C.                 10 Commerce Drive
 1401 Franklin Road SW                        Cranford, NJ  07106
 Roanoke, VA   24016                          (908) 272-8511


SWVA  Bancshares,  Inc.'s  Annual  Report for the year ended June 30, 1999 filed
with the Securities and Exchange  Commission on Form 10-KSB is available without
charge upon written request. For a copy of the Form 10-KSB or any other investor
information,  please write or call Barbara C. Weddle,  Senior Vice President and
Secretary at the Company's  Corporate  Office in Roanoke,  Virginia.  The Annual
Meeting of  Stockholders  will be held on October  13, 1999 at 10:30 a.m. at the
Holiday Inn-Tanglewood, 4468 Starkey Road, Roanoke, Virginia.

                                       50