EXHIBIT 13


                 Annual Report to Stockholders for Fiscal Year
                              Ended June 30, 1997







<PAGE>

                                  [** LOGO **]

                              SWVA BANCSHARES, INC.



                                                                       1997
                                                                   ANNUAL REPORT
                                                                  
                                                                  

                                       
<PAGE>

                              SWVA BANCSHARES, INC.
                               1997 ANNUAL REPORT


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

TABLE OF CONTENTS
--------------------------------------------------------------------------------

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


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


President's Message..........................................................  3


Selected Financial and Other Data............................................  5


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


Report of Independent Auditors............................................... 14


Consolidated Financial Statements............................................ 15


Notes to Consolidated Financial Statements................................... 20


Office Locations............................................................. 48


Directors and Executive Officers............................................. 48


Other Corporate Information.................................................. 48


<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 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
stock price as furnished by Wheat First Butcher Singer, Roanoke,  Virginia. This
information reflects inter-dealer prices,  without retail mark-up,  mark-down or
commission, and may not represent actual trades.

                                                    HIGH              LOW
                                                    ----              ---

       October 1 - December 31, 1995               17.750            15.500
       January 1 - March 31, 1996                  17.500            16.400
       April 1 - June 30, 1996                     17.400            14.600
       July 1 - September 30, 1996                 15.600            14.600


                                        1

<PAGE>



Stock Market Information, cont.


     October 1 - December 31, 1996                   15.300          14.250
     January 1 - March 31, 1997                      17.250          14.500
     April 1 - June 30, 1997                         17.000          15.000
     July 1 - August 31, 1997                        19.000          16.000
     


         The number of shareholders of record of common stock as of September 1,
1997 was  approximately  237.  This does not  reflect  the  number of persons or
entities who held stock in "street" name through  various  brokerage  firms.  At
September 1, 1997, there were 510,984 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.

<TABLE>
<CAPTION>

                           Dividends Declared and Paid


                                        Amount Per
Date Declared                          Common Share            Record Date                   Date Payable
-------------                          ------------            -----------                   ------------

<S>                                         <C>               <C>                           <C>     
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

</TABLE>


                                        2


<PAGE>
                               President's Message


Dear Shareholder:

         I am  pleased  to report  that this  year's  net  income  exceeded  the
previous  year's net income by  $108,000 or 34.64%.  Net income was  $414,000 or
$0.86 per share. The Company (the Savings Bank is its only subsidiary)  recorded
a $355,000 pre-tax expense which was as assessment for the  recapitalization  of
the Savings  Association  Insurance  Fund (SAIF).  Without this  assessment  the
Company's net income would have been $632,000 or $1.31 per share,  the best year
ever.  Future income is expected to be enhanced due to lower SAIF premiums.  The
increase in earnings has been a slow process;  however,  we are beginning to see
the results of our efforts.

         Several  actions  contributed  to this  year's  increased  net  income.
Management's  continuing  efforts to reduce  non-interest  expense  resulted  in
personnel  expenses  decreasing 8.19% and office occupancy and equipment expense
decreased  7.01%.  In the 1996 annual  report,  I reported that the Savings Bank
expected to put a larger portion of its originated  fixed-rate mortgage loans in
its loan portfolio rather than selling them if the market and interest rates met
our  expectations.  This  happened  and we  increased  our  fixed-rate  mortgage
portfolio  by 49.00%  or $4.8  million  dollars.  Our  adjustable-rate  mortgage
portfolio  decreased  by 2.94% or  $970,000.  The Savings  Bank expects that its
asset growth  policy of  retaining a greater  portion of  fixed-rate  loans will
increase interest rate risk.  However,  the Savings Bank has adequate capital to
manage the increased risk. The fixed-rate  mortgage  portfolio enhanced interest
income  resulting  in higher net income as the loans were  originated  at a rate
approximately  two and one-half per cent higher than  adjustable  rate  mortgage
(ARM) loans. In a rising interest rate  environment,  the ARM would have taken a
minimum of two years  before  attaining  the rate on the  originated  fixed-rate
mortgage loans.

         Management's  strategy  for the  Savings  Bank is to  continue  to be a
traditional  lender for one-to four-family  residential loans. In addition,  the
Savings Bank will  continue to serve  residents  in its primary  market area and
surrounding  areas by offering a wide variety of financial  services,  including
deposit  products,  residential  mortgage  loans,  home  equity  lines and other
services. The Savings Bank will continue to operate and grow in a safe and sound
manner and remain a  well-capitalized  institution  which is in compliance  with
applicable  regulations.  The  Savings  Bank  plans to  emphasize  profitability
through the  efficient  use of existing  operations  and high asset  quality and
generate competitive return for stockholders inclusive of cash dividends.

         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 have increased
$15.9 million,  or 29.00%,  from $54.9 million at June 30, 1994 to $70.8 million
at June 30,  1997.  The  increase  was due  primarily  to an  increase  in loans
receivable  of $10.6  million,  from  $40.4  million  at June 30,  1994 to $51.0
million at June 30, 1997 and the net proceeds from the conversion.

         It is  management's  expectation  that the Savings Bank can continue to
grow within our market area. As larger  institutions are sold or consolidated in
our market area,  we believe that market share will become more  available to us
as an independent  community bank. We expect this to continue and provide us the
opportunity to increase our franchise value,  therefore,  enhancing  shareholder
value.
                                        3
<PAGE>



         In order  to meet  the  needs  of our  customers,  we are in the  final
planning  stage to offer ATM cards and debit cards.  We feel that the debit card
will be accepted and become a major factor in customer  financial  transactions.
Other  electronic  delivery  services  may be added as  needed  to  enhance  the
services to our customers.

         In  addition  to our  efforts  to obtain  market  share,  the board has
continued to take other steps toward enhancing  shareholder value. The board has
declared and the Company has paid five semi-annual  dividends since we converted
to a public  company in  October,  1994.  The board has  declared a  semi-annual
dividend of $0.15 per share to be paid  September 30, 1997.  Also, the board has
declared a special  dividend of $1.00 per share to be paid  September  30, 1997.
Both dividends will be paid to  shareholders  of record at the close of business
on September  15,  1997.  In addition,  the Company has  repurchased  a total of
59,606 shares of its stock.

         The  Company  has been  under  restrictions  of the  Office  of  Thrift
Supervision (OTS) in regard to repurchasing  stock.  These  restrictions will no
longer apply after October 6, 1997.  After that date,  the board will be limited
only by their business  judgement as to the use of stock  repurchases to enhance
stockholder value.

         The results of this year and  continuing  strategy for the Savings Bank
are  expected  to  reap  rewards  for  our  employees,  our  community  and  our
stockholders.

         Southwest  Virginia  Savings Bank, FSB is a "community  bank" poised to
serve the banking  needs of the  community  in a friendly,  courteous  manner in
person or by mail.

         The  directors,  officers  and  staff  of  SWVA  Bancshares,  Inc.  and
Southwest  Virginia Savings Bank, FSB appreciate your support.  We will continue
to do our best to see that your investment and confidence are rewarded.

                                            Sincerely yours,



                                            B.L. Rakes
                                            President




                                        4
<PAGE>



                        SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Financial Condition (Dollars in Thousands)
At June 30,                                         1997               1996                1995               1994            1993

------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                <C>                 <C>            <C>     
Total assets                                     $ 70,753            $66,987            $ 66,265            $ 54,878       $ 54,995
Loans receivable, net                              50,982             46,757              51,064              40,401         39,533
Mortgage-backed & investment securities            10,074              7,939               7,048               7,108          7,423
Interest-bearing deposits                           5,304              3,841               3,061               2,757          2,268
Cash and cash equivalents                           1,276              5,262                 830                 874          2,216
Savings deposits                                   57,933             57,643              54,642              50,029         50,397
Borrowed funds                                      3,500                 --               1,800                  --             --
Equity capital/stockholders' equity                 8,602              8,675               9,313               4,169          3,691
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary of Operations (Dollars in Thousands)
Year Ended June 30,                                 1997               1996                1995               1994            1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                <C>                 <C>            <C>     
Interest income                                  $  5,310            $ 4,906            $  4,539            $  3,848       $  4,186
Interest expense                                    2,673              2,622               2,314               1,753          2,073
   Net interest income                              2,637              2,284               2,225               2,095          2,113
Provision for credit losses                            23                 --                   1                   2             91
                                                  -------            -------             -------             -------        -------
  Net interest income after provision for
 credit losses                                      2,614              2,284               2,224               2,093          2,022
Noninterest income                                    398                455                 315                 545            554
                                                  -------            -------             -------             -------        -------
Noninterest expense                                 2,392              2,242               2,045               1,881          1,825
                                                  -------            -------             -------             -------        -------
Income before income taxes and
cumulative effect of change in
accounting principle                                  620                497                 494                 757            751
Provision for income taxes                            206                191                 190                 276            269
                                                  -------            -------             -------             -------        -------
  Net income before cumulative effect of
 change in accounting principle                       414                306                 304                 481            482
Cumulative effect of change in
accounting principles                                  --                 --                  --                  87             --
                                                  -------            -------             -------             -------        -------
     Net income                                  $    414           $    306            $    304            $    568       $    482
                                                  =======            =======             =======             =======        =======
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Other Selected Data
Year Ended June 30,                                 1997               1996                1995               1994            1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>                 <C>                 <C>            <C>  
Return on average assets                            0.60%              0.46%               0.47%               0.87%          0.85%
Return on average equity                             4.87               3.50                3.77               11.85          13.98
Interest rate spread                                 3.55               3.17                3.37                4.28           4.00
Non-performing loans to total loans                  0.10               0.00                0.12                0.73           0.02
Non-performing loans to total assets                 0.08               0.00                0.09                0.53           0.02
Allowance for credit losses to total loans           0.43               0.40                0.37                0.48           0.47
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Per share data
Year Ended June 30,                                 1997               1995                1995               1994            1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                <C>                <C>                                         
Net income                                       $    .86           $    .60           $     .57                 N/A            N/A
Stockholders' equity                                16.83              15.97               16.32                 N/A            N/A
Dividends                                             .30                .30                 .15                 N/A            N/A
Dividend payout ratio                                  35%                50%                 26%                 N/A            N/A
</TABLE>


                                        5

<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  primarily 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 Salem,  the City of Roanoke,  and  portions  of  Botetourt,
Bedford, and Franklin Counties,  Virginia. The Savings Bank regards this area as
its "basic" lending area, but loans are also made in other adjoining counties.

         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.  Financing homes for its community
continues to be the Savings Bank's primary goal.  These loans either are held in
the Savings  Bank's  portfolio or sold in the secondary  market.  These types of
loans make up 74.86% of the Savings Bank's total loan portfolio.

         The Savings Bank  historically  has maintained good asset quality.  Its
emphasis on one- to four-family  mortgages and its related underwriting policies
and  practices  are intended to maintain  this  quality.  At June 30, 1997,  the
Savings Bank had $60,000 in non-performing  assets.  The Savings Bank's ratio of
non-performing loans to total assets at June 30, 1997 was .08%.

         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

                                        6
<PAGE>

Bank's existing branch network,  facilities, and personnel resources. The assets
of the Company  increased $15.9 million,  or 28.96%,  from $54.9 million at June
30, 1994, to $70.8  million at June 30, 1997.  The increase was due primarily to
the conversion and an increase in loans receivable of $10.6 million,  from $40.4
million at June 30, 1994,  to $51.0  million at June 30,  1997.  For fiscal year
1996-97, the Bank's asset growth was 5.62%.

         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 1997-98 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, mutual funds holding adjustable rate  mortgage-backed  securities
("ARM Mutual Funds") and  government-related  securities with maturities of five
years or less. 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
limited its borrowings and relied primarily upon the cash flows from its savings
deposits and mortgage  repayments  as its primary  source of funds.  The Savings
Bank expects to continue  using  borrowings as a means to leverage its growth in
the future.

         The ability to maximize net interest  income is largely  dependent upon
the achievement of a positive interest rate spread which can be sustained during
fluctuations  in  prevailing  interest  rates.  Interest rate  sensitivity  is a
measure  of the  difference  between  amounts  of  interest-earning  assets  and
interest-bearing  liabilities  which  either  reprice  or mature  within a given
period of time. The difference,  or the interest rate repricing  "gap," provides
an indication of the extent to which an institution's  interest rate spread will
be  affected  by  changes  in  interest  rates  over a period of time.  A gap is
considered  positive when the amount of interest-rate  sensitive assets maturing
or repricing over a specific period of time exceeds the amount of  interest-rate
sensitive liabilities maturing or repricing within that period and is considered
negative  when the amount of  interest-rate  sensitive  liabilities  maturing or
repricing  over a specified  period of time exceeds the amount of  interest-rate
sensitive assets maturing or repricing within that period.  Generally,  during a
period of rising  interest  rates,  a negative gap within a given period of time
would adversely affect net interest income,  while a positive gap within a given
period of time would  result in an increase  in net  interest  income.  During a
period of falling  interest  rates, a negative gap within a given period of time
would result in an increase in net interest income,  while a positive gap within
a given period of time would have the opposite effect.

                                        7

<PAGE>
The  following  table  sets  forth the  amount of  interest-earning  assets  and
interest-bearing liabilities outstanding at June 30, 1997, which are expected to
reprice or mature in each of the time periods shown. Except as stated below, the
amount of  assets  and  liabilities  shown  which  reprice  or  mature  during a
particular  period were  determined  in  accordance  with the earlier of term to
repricing or the  contractual  terms of the asset or liability.  Adjustable-rate
loans and mortgage-backed  securities are adjusted for scheduled  repayments and
prepayments  based on  assumptions  provided  by a major wall  street  brokerage
house. The Savings Bank's passbook  accounts and money market accounts have been
aged in accordance with the  assumptions  provided by the OTS. The interest rate
sensitivity  of the Savings  Bank's assets and  liabilities  illustrated  in the
table could vary substantially if different assumptions were used.
<TABLE>
<CAPTION>
                                                                            At June 30, 1997
                                         -------------------------------------------------------------------------------------------
                                         3 Months        4-6         7-12        13-36        37-60        Over 60
                                          or Less       Months      Months       Months       Months       Months       TOTAL
                                          -------       ------      ------       ------       ------       ------       -----
                                                                        (Dollars in Thousands)
Interest-earning assets:
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>         <C>     
  Mortgage loans (1)                     $  3,405     $  5,667     $ 26,337     $  3,726     $  5,299     $  7,964    $ 52,398
  Other loans                                 144          135          406          529            0            0       1,214
  Mortgage-backed securities:
    Held to maturity, at cost                   0            0            0            0            0          365         365
    Available for sale, FMV (2)             1,006            0            0        1,239            0        6,503       8,748
  Other Investments (3)                     3,279        1,381        2,043          296            0            0       6,999
                                         --------     --------     --------     --------     --------     --------    --------
    Total interest-earning assets        $  7,834     $  7,183     $ 28,786     $  5,790     $  5,299     $ 14,832    $ 69,724
                                         ========     ========     ========     ========     ========     ========    ========

Interest-bearing liabilities:
 Interest-bearing demand accounts        $    457     $    407     $    686     $  1,418     $    379     $    839    $  4,186
 Non-interest-bearing demand accounts          81           72          121          182           67          148         671
 Regular savings & club accounts              304          322          600        1,912        1,246        2,987       7,371
 Money market deposit accounts              1,123          760          863          383          182          166       3,477
 Certificates of deposit                   10,824        6,158       22,423        2,713          110            0      42,228
 Borrowed funds                                 0          500        3,000            0            0            0       3,500
                                         --------     --------     --------     --------     --------     --------    --------
   Total Interest-bearing liabilities    $ 12,789     $  8,219     $ 27,693     $  6,608     $  1,984     $  4,140    $ 61,433
                                         ========     ========     ========     ========     ========     ========    ========

Interest sensitivity gap per period      $ (4,955)    $ (1,036)    $  1,093     $   (818)    $  3,315     $ 10,692    $  8,291
                                         --------     --------     --------     --------     --------     --------    --------

Cumulative interest sensitivity gap      $ (4,955)    $ (5,991)    $ (4,898)    $ (5,716)    $ (2,401)    $  8,291
                                                      --------     --------     --------     --------     --------    --------

Cumulative net interest-earning assets
 as a percentage of net interest
 bearing liabilities                        61.26%       71.48%       89.94%       89.67%       95.81%     113.50%
                                         --------     --------     --------     --------     --------    --------

Cumulative interest sensitivity gap
 as a percentage of total assets            -7.00%       -8.47%       -6.92        -8.08%       -3.39%      11.72%
                                         --------     --------     --------     --------     --------    --------
</TABLE>
(1)      Includes loans held for sale, home equity loans and non-accrual loans.
(2)      Fair Market Value ("FMV").
(3)      Includes FHLB Overnight Account.
                                        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
                                                ------------------------------------------------------------------------------------
                                                              1997                                       1996
                                                -----------------------------------         ----------------------------------------
                                                 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)                     $50,601     $ 4,318         8.53%          $49,879     $4,071          8.16%
   Investments and mortgage-backed
securities:
      Held to maturity, at cost                      414          32         7.80               495         40          8.08
      Available for sale, FMV (2)                  8,510         567         6.66             5,527        332          6.01
   Other investments (3)                           6,577         393         5.97             7,502        463          6.16
                                                 -------       -----                        -------     ------
      Total interest-earning assets               66,102       5,310         8.03            63,403      4,906          7.74
                                                               -----                                    ------
Non-interest earning assets                        3,120                                      3,415
                                                 -------                                    -------
      Total assets                               $69,222                                    $66,818
                                                 =======                                    =======

Interest-bearing liabilities:
   Interest-bearing demand accounts              $ 5,222         102         1.95           $ 4,872        110          2.25
   Regular savings & club accounts                 7,363         222         3.02             7,274        216          2.97
   Money market deposit accounts                   3,735         110         2.95             3,761        111          2.96
   Certificates of deposit                        40,784       2,097         5.14            40,167      2,133          5.31
   Borrowed funds                                  2,448         142         5.79               750         52          6.92
                                                  ------       -----                         ------     ------
      Total interest-bearing liabilities          59,552       2,673         4.49            56,824      2,622          4.57
                                                               -----
Non-interest-bearing demand accounts                 201                                        573
Non-interest bearing liabilities                     984                                        684
Equity                                             8,485                                      8,737
                                                  ------                                     ------
      Total liabilities and equity               $69,222                                    $66,818
                                                 =======                                     ======
Net-interest income                                           $2,637                                   $ 2,284
                                                               =====                                    ======
Interest rate spread (4)                                                     3.55                                       3.17
Net yield on interest-earning assets (5)                                     3.99                                       3.60
Ratio of average interest-earning assets to
average interest-bearing liabilities                                       110.99                                     110.47
Average equity to average total assets                                      12.26                                      13.08

</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,
                                      --------------------------------------------------------------------
                                             1997 vs. 1996                    1996 vs. 1995
                                                               (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             $  59    $ 185    $   3    $ 247    $  30    $ 200    $   1    $ 231
  Mortgage backed securities
   and investments:
    Held to maturity, at cost          (7)      (1)       0       (8)     (81)      43      (32)     (70)
    Available for sale, FMV           180       36       19      235        8       17        1       26
  Other investments                   (57)     (15)       2      (70)     228      (27)     (21)     180
                                    -----    -----    -----    -----    -----    -----    -----    -----
    Total interest-earning assets     175      205       24      404      185      233      (51)     367
                                    -----    -----    -----    -----    -----    -----    -----    -----

Interest expense:
  Deposits:
    Interest-bearing demand             8      (15)      (1)      (8)      14       (8)      (1)       5
     accounts
    Regular savings & club              3        3        0        6      (35)      31       (5)      (9)
     accounts
    Money market deposit               (1)       0        0       (1)      (6)       1       (0)      (5)
     accounts
    Certificates of deposit            33      (68)      (1)     (36)     166      177       17      360
  Borrowed funds                      117       (8)     (19)      90      (58)      39      (24)     (43)
                                    -----    -----    -----    -----    -----    -----    -----    -----
                                      160      (88)     (21)      51       81      240      (13)     308
                                    -----    -----    -----    -----    -----    -----    -----    -----

Net change in interest income       $  15    $ 293    $  45    $ 353    $ 104    $  (7)   $ (38)   $  59
                                    =====    =====    =====    =====    =====    =====    =====    =====
</TABLE>
                                       10

<PAGE>
                      Comparison of Financial Condition for
               Fiscal Years Ended June 30, 1997 and June 30, 1996


         Total  assets at June 30, 1997 were $70.8  million as compared to $67.0
million at June 30, 1996, an increase of $3.8  million.  The increase was due to
an increase in loans  receivable,  investments  and interest  bearing  deposits,
offset by a decrease  in cash and cash  equivalents.  Cash and cash  equivalents
decreased from $5.3 million at June 30, 1996 to $1.3 million at June 30, 1997, a
decrease of $4.0 million.  Interest bearing  deposits and investments  increased
from  $11.8  million at June 30,  1996 to $15.4  million  at June 30,  1997,  an
increase  of $3.6  million.  The  increases  were due mainly to an  increase  in
investments  in  jumbo  certificates  which  are  matched  off  with  investment
certificates  and  additional   investments   securities  purchased  using  cash
available and borrowed funds. Net loans  receivable  increased $4.2 million from
$46.8  million  at June 30,  1996 to $51.0  million  at June  30,  1997,  due to
increased  origination  of fixed rate mortgage  loans.  On the  liability  side,
deposits increased $300,000 to $57.9 million at June 30, 1997 from $57.6 million
at June 30,  1996.  At June 30,  1997,  there  were  $3.5  million  in  advances
outstanding  from the  Federal  Home Loan Bank of  Atlanta,  an increase of $3.5
million  from  June  30,  1996.   Advances  were  used  to  fund  mortgage  loan
originations and to leverage investment purchases.

         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 is done to manage  interest rate risk.  This trend is
likely to  continue  and could  have an  adverse  effect on the  Savings  Bank's
earnings and interest  rate spread  during  periods of rapidly  rising  interest
rates.  Management,  however,  may 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, 1997 was $414,000 as
compared to $306,000 for the year ended June 30, 1996,  an increase of $108,000.
Per share earnings for the year ended June 30, 1997 was $0.86.

         Interest Income.  Interest income increased  $400,000 from $4.9 million
at June 30, 1996 to $5.3  million at June 30,  1997.  The  increase was mainly a
result in the additional mortgage loans in the Bank's portfolio and the increase
in earnings on a larger investment base.

         Interest Expense. Interest expense for the year ended June 30, 1997 was
$2.7 million as compared to $2.6  million for the year ended June 30,  1996,  an
increase of  $100,000.  The  increase  was due mainly to an increase in borrowed
funds.

         Net Interest Income.  Net interest income  increased  $300,000 from 2.3
million at June 30, 1996 to $2.6  million at June 30,  1997.  The  increase  was
mainly  due to  increased  interest  income on  mortgage  loans  and  investment
securities offset by increased interest paid on borrowed funds.

         Provision  for Credit  Losses.  The Bank made an addition of $23,000 to
the provision  for credit losses for the year ended June 30, 1997.  The addition
was made due to an expected loss on a delinquent real estate loan. The allowance
for credit  losses is $217,000.  No  additions  were made to the  provision  for
credit losses during the year ended June 30, 1996.


                                       11

<PAGE>



         Noninterest Income.  Noninterest income decreased $57,000 from $455,000
for the year ended June 30, 1996 to $398,000  for the year ended June 30,  1997.
This was due  primarily  to a decrease  on gain on loans  sold in the  secondary
market  of  $90,000,  offset  by a one  time  gain  on  the  sale  of  Financial
Institution  Insurance  stock in the amount of $51,000 and a loss on the sale of
ARM fund investments of $9,000..

         Noninterest  Expense.  Noninterest  expense increased from $2.2 million
for the year ended  June 30,  1996 to $2.4  million  for the year ended June 30,
1997,  an  increase  of  $200,000.  This  was  mainly  due to the  FDIC  Special
Assessment  of $355,000  offset by a decrease in personnel  expenses  associated
with increased earnings on the pension fund.

         Provision for Income Taxes. The provision for income taxes for the year
ended June 30, 1997 was $206,000 as compared to $191,000 for the year ended June
30, 1996. The increase was due to increased net income for the year.

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 has and 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,
1997, cash and cash equivalents totaled $1.3 million.

         At June 30, 1997, the Savings Bank had $37.9 million in certificates of
deposits  due  within  one  year  and $4.2  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, 1997,  the Savings Bank had $3.0 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,  1996,  the minimum  level of  liquidity
required by regulations  was 5.00%.  The Savings Bank's  liquidity ratio at June
30, 1997 was 6.74%.

         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, 1997,  the Savings  Bank's  tangible and core
capital  totaled  $7.9  million.  This  amount  exceeded  the  tangible  capital
requirement of $1.1 million by $6.8 million and the core capital  requirement of
$2.1

                                       12

<PAGE>



million by $5.8  million on that date.  At June 30,  1997,  the  Savings  Bank's
risk-based  capital totaled $8.1 million,  which exceeded its risk-based capital
requirement of $3.0 million by $5.1 million.

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.

                                       13

<PAGE>
-----------------
CHERRY
BAKAERT &
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, 1997
and  1996,  and the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended June 30, 1997. 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, 1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended June 30, 1997 in conformity with generally accepted accounting principles.



                                            /s/Cherry, Bekaert & Holland, L.L.P.


Lynchburg, Virginia
July 25, 1997

                                       14
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                             June 30, 1997 and 1996
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                                     1997            1996
                                                                                                -------------   -------------
<S>                                                                                             <C>             <C>          
Assets
   Cash and cash equivalents                                                                    $       1,276   $       5,262
   Interest-bearing deposits                                                                            5,304           3,841
   Investment and mortgage-backed securities
      Held to maturity, at amortized cost                                                                 365             443
      Available for sale, at fair value                                                                 8,748           6,535
      Restricted at cost                                                                                  961             961
   Loans held for sale                                                                                    727             985
   Loans receivable, net                                                                               50,982          46,757
   Property and equipment, net                                                                          1,666           1,662
   Accrued interest receivable                                                                            437             343
   Prepaid expenses and other assets                                                                      287             198
                                                                                                  -----------     -----------

          Total assets                                                                          $      70,753   $      66,987
                                                                                                  ===========     ===========



Liabilities and stockholders' equity
Liabilities
   Deposits                                                                                     $     57,933    $     57,643
   Advances from Federal Home Loan Bank                                                                3,500           -
   Advances from borrowers for taxes and insurance                                                       205             146
   Other liabilities and deferred income                                                                 513             523
                                                                                                  ----------      ----------

          Total liabilities                                                                           62,151          58,312
                                                                                                  ----------      ----------

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, 510,984 and
      543,190 shares outstanding for 1997 and 1996, respectively                                          51              54
   Additional paid-in capital                                                                          4,286           4,750
   Retained earnings, substantially restricted                                                         4,904           4,636
   Unrealized holding loss on securities, available for sale                                              29     (        12)
   Less unearned ESOP shares, 31,951 for 1997 and 36,517 shares for 1996                          (      319)    (       365)
   Less unearned MSBP shares, 20,145 for 1997 and 22,812 shares for 1996                          (      349)    (       388)
                                                                                                  -----------     -----------

          Total stockholders' equity                                                                   8,602           8,675
                                                                                                  ----------      ----------

          Total liabilities and stockholders' equity                                            $     70,753    $     66,987
                                                                                                  ==========      ==========

</TABLE>

See notes to consolidated financial statements.

                                       15
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
           Consolidated Statements of Changes in Stockholders' Equity
                    Years ended June 30, 1997, 1996 and 1995
                    (In thousands, except shares outstanding)
<TABLE>
<CAPTION>

                                                                                    Unrealized
                                                                                    Holding
                                                                                    Gain (Loss)
                                                                                    on
                                              Common Stock         Additional        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, 1994            -       $    -       $    -       $    4,259   $(   90)  $   -      $   -      $     4,169

   Net income                       -            -            -              304       -          -          -              304

   Change in unrealized gain on
      marketable equity securities  -            -            -            -            88       -          -               88

   Sale of stock                  570,590         57        5,180          -           -       (  456)       -            4,781

   Allocated/earned ESOP shares     -            -              5          -           -           45        -               50

   Dividends declared and paid
      ($.15 per share)              -            -            -         (     79)      -          -          -        (      79)
                                ---------     ------     --------      ---------    ------      -----      -----      ---------

Balance at June 30, 1995          570,590         57        5,185          4,484    (    2)    (  411)       -            9,313

   Net income                       -            -            -              306       -          -          -              306

   Change in unrealized loss on
      marketable equity securities  -            -            -            -        (   10)        -          -        (      10)

   Purchase of unearned MSBP
      shares                        -            -            -            -           -          -      (  388)      (     388)

   Repurchase of common stock   (  27,400)   (     3)   (     463)         -           -          -          -        (     466)

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

   Dividends declared and paid
     ($.30 per share)               -            -            -         (    154)      -          -          -        (     154)
                                ---------     ------     --------      ---------    ------      -----      -----      ---------

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
      marketable equity 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
                                =========     ======     ========      =========    ======    ======      =====       =========
</TABLE>

See notes to consolidated financial statements.

                                       16
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                    Years ended June 30, 1997, 1996 and 1995
                      (In thousands, except per-share data)
<TABLE>
<CAPTION>

                                                                                      1997           1996            1995
                                                                                 -------------  -------------   -------------
<S>                                                                              <C>            <C>             <C>          
Interest income
   Loans                                                                         $       4,318  $       4,071   $       3,840
   Mortgage-backed and related securities                                                  407            360             348
   U.S. government obligations including agencies                                          122             71              71
   Other investments, including overnight deposits                                         463            404             280
                                                                                   -----------    -----------     -----------

          Total interest income                                                          5,310          4,906           4,539
                                                                                   -----------    -----------     -----------
Interest expense
   Deposits                                                                              2,531          2,570           2,219
   Borrowed funds                                                                          142             52              95
                                                                                   -----------    -----------     -----------

          Total interest expense                                                         2,673          2,622           2,314
                                                                                   -----------    -----------     -----------

          Net interest income                                                            2,637          2,284           2,225

Provision for credit losses                                                                 23          -                   1
                                                                                   -----------    -----------     -----------

          Net interest income after provision for credit losses                          2,614          2,284           2,224
                                                                                   -----------    -----------     -----------
Noninterest income
   Loan and other customer service fees                                                    142            154             161
   Gain on sale of mortgage loans                                                          118            208              50
   Gross rental income                                                                      98             93              92
   Other                                                                                    40          -                  12
                                                                                   -----------    -----------     -----------

          Total noninterest income                                                         398            455             315
                                                                                   -----------    -----------     -----------
Noninterest expenses
   Personnel                                                                             1,155          1,258           1,124
   Office occupancy and equipment                                                          292            314             310
   Data processing                                                                         132            127             133
   Federal insurance of accounts                                                           431            126             121
   Advertising                                                                              64             74              89
   Other                                                                                   318            343             268
                                                                                   -----------    -----------     -----------

          Total noninterest expenses                                                     2,392          2,242           2,045
                                                                                   -----------    -----------     -----------

Income before income taxes                                                                 620            497             494

Provision for income taxes                                                                 206            191             190
                                                                                   -----------    -----------     -----------

          Net income                                                             $         414  $         306   $         304
                                                                                   ===========    ===========     ===========

Primary earnings per share                                                       $         .86  $         .60   $         .57
Fully diluted earnings per share                                                 $         .86  $         .60   $         .57

</TABLE>

See notes to consolidated financial statements.

                                       17
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 1997, 1996 and 1995
                                 (In thousands)
                                                                          Page 1
<TABLE>
<CAPTION>

                                                                                    1997           1996            1995
                                                                                 -------------  -------------   ------------
<S>                                                                              <C>            <C>             <C>         
Operating activities
   Net income                                                                    $        414   $        306    $        304
   Adjustments to reconcile net income to net cash provided by
     (used in) operating activities
         ESOP shares allocated                                                             74             74           -
         MSBP shares allocated                                                             39          -               -
         Provision for credit losses                                                       23          -                   1
         Provision for depreciation and amortization                                       87            101             100
         Provision for deferred income tax                                         (       85)    (        6)             39
         Loans originated for sale                                                 (    9,695)    (   19,516)     (    5,747)
         Proceeds from sales of loans originated for sale                              10,071         19,601           5,039
         Gain on sale of loans                                                     (      118)    (      208)     (       50)
         Loss on disposal of fixed assets                                                   3          -               -
         Net (increase) decrease in other assets                                   (       77)           110      (       49)
         Net increase (decrease) in other liabilities                                      49            159      (      131)
         Gain on sale of investments, available for sale                           (       43)         -                   3
                                                                                   ----------     ----------      ----------

          Net cash provided by (used in) operating activities                             742            621      (      491)
                                                                                   ----------     ----------      ----------
Investing activities
   Proceeds from maturity of investments and interest-bearing deposits                  3,839          3,950           3,837
   Proceeds from sale of investments, available for sale                                4,300          -                 207
   Purchase of investments and interest-bearing deposits                           (    5,302)    (    4,730)     (    4,141)
   Purchase of investments, available for sale                                     (    6,488)         -          (       45)
   Purchase of property and equipment                                              (       94)    (       49)     (       50)
   Net (increase) decrease in loans                                                (    4,226)         4,304      (   10,664)
   Purchase of loans                                                               (       22)         -               -
   Principal repayments on mortgage-backed securities                                     116            143             188
                                                                                   ----------     ----------      ----------

          Net cash provided by (used in) investing activities                      (    7,877)         3,618      (   10,668)
                                                                                   ----------     ----------      ----------
Financing activities
   Proceeds from advances                                                               7,000            200           4,950
   Curtailment of advances and other borrowings                                    (    3,500)    (    2,000)     (    3,150)
   Net increase in savings deposits                                                       290          3,001           4,613
   Proceeds from sale of stock                                                          -              -               5,237
   Loan to ESOP for purchase of stock                                                   -              -          (      456)
   Repurchase of stock                                                             (      495)    (      466)          -
   Purchase of stock for MSBP                                                           -         (      388)          -
   Dividends paid                                                                  (      146)    (      154)     (       79)
                                                                                   ----------     ----------      ----------

          Net cash provided by financing activities                                     3,149            193          11,115
                                                                                   ----------     ----------      ----------

          (Increase) decrease in cash and cash equivalents                         (    3,986)         4,432      (       44)

Cash and cash equivalents at beginning of year                                          5,262            830             874
                                                                                   ----------     ----------      ----------

Cash and cash equivalents at end of year                                         $      1,276   $      5,262    $        830
                                                                                   ==========     ==========      ==========
</TABLE>

                                   (continued)

                                       18
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 1997, 1996 and 1995
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                                       Page 2

                                                                                    1997           1996            1995
                                                                                 -------------  -------------   ------------
<S>                                                                              <C>            <C>             <C>         
Supplemental disclosures:
   Cash paid for
      Interest on deposits and borrowed funds                                    $      2,680   $      2,620    $      2,300
                                                                                   ==========     ==========      ==========

      Income taxes                                                               $        172   $        159    $        191
                                                                                   ==========     ==========      ==========


   Other non-cash activities
      Gross unrealized gain (loss) on securities, available for sale             $         62   $ (       16)   $         89
      Deferred income taxes                                                        (       21)             6      (        1)
                                                                                   ----------     ----------      ----------

             Net unrealized gain (loss)                                          $         41   $ (       10)   $         88
                                                                                   ==========     ==========      ==========


   Reclassification of investments from held to maturity to available
      for sale                                                                   $      -       $      1,245    $      -
                                                                                   ==========     ==========      ======

</TABLE>


See notes to consolidated financial statements.

                                       19
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


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.

                                       20
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


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.

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.

Mortgage-backed securities, available for sale, consisted of a mutual fund - AMF
adjustable rate mortgage  portfolio and U.S.  Government and agency  securities.
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.

                                       21
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


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.

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.  Uncollectible interest 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.

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.

                                       22
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 1 - Summary of significant accounting policies (continued)

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
$1,947,000 as of June 30, 1997.

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.

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.

                                       23
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 1 - Summary of significant accounting policies (continued)

Advertising

The Company expenses most advertising costs as incurred. Such expenses are shown
in the  consolidated  statements  of income.  As of June 30, 1997 and 1996,  the
Company's   statements  of  financial   condition  included  $2,000  of  prepaid
advertising.

Earnings per share

Earnings  per share of common  stock for the year ended June 30,  1997 have been
computed by dividing the net income by the weighted-average  number of shares of
common stock and common stock  equivalents  outstanding  during the year.  Stock
options are regarded as common stock equivalents and are, therefore,  considered
in both primary and fully diluted earnings per share calculations.  Common stock
equivalents are computed using the treasury stock method.

Shares  acquired  by the  employee  stock  benefit  plan  are  accounted  for in
accordance  with AICPA  Statement of Position 93-6 and are not considered in the
weighted-average  shares  outstanding  until the shares  have been earned by the
employees and/or committed to be released.

Earnings  per share of common  stock for the year ended June 30,  1995 have been
determined by dividing the net income for the 12-month  period by the calculated
weighted  average number of shares of common stock and common stock  equivalents
which would have been  outstanding  if the  conversion had occurred on the first
day of the fiscal year rather than on October 7, 1994.

The  weighted-average  number of  common  and  common  stock  equivalent  shares
outstanding for the periods indicated are as follows:

                                                   Primary        Fully Diluted
                                                   Shares            Shares
                                                   ------            ------

        October 7, 1994 - June 30, 1995            570,590           570,590
        July 1, 1995 - June 30, 1996               506,673           506,673
        July 1, 1996 - June 30, 1997               482,345           482,345

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.

-    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.

                                       24
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 1 - Summary of significant accounting policies (continued)

-   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.

-   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.

-   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.

-   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.

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

-   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  $5,242,000  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.

                                       25
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 1 - Summary of significant accounting policies (continued)

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,  1997,  a total  of  13,696  shares  had been
released.

Impact of new accounting standards

In  April  1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed Of (SFAS 121). This statement  establishes standards for recognizing
and  measuring  the  impairment  of  long-lived  assets,   certain  identifiable
intangibles,  and  goodwill,  when an entity is unable to recover  the  carrying
amount of those assets.  This statement is effective for the year beginning July
1, 1996.  SFAS 121 did not have a  material  effect on the  Company's  financial
statements in the year of adoption.

In May 1995, FASB issued  Accounting for Mortgage  Servicing  Rights (SFAS 122),
which amends  Accounting for Certain Mortgage  Banking  Activities (SFAS 65), to
require that a mortgage banking  enterprise  recognize as separate assets rights
to  service  mortgage  loans for  others,  however  those  servicing  rights are
acquired.  SFAS 122  requires  that a  mortgage  banking  enterprise  assess its
capitalized  mortgage servicing rights for impairment based on the fair value of
those rights and is effective for the year beginning July 1, 1996.  SFAS 122 was
applied  prospectively  and did not  have a  material  effect  on the  Company's
financial statements in the year of adoption.

In October 1995, FASB issued Accounting for Stock-Based Compensation (SFAS 123),
which became  effective for the Company  beginning July 1, 1996.  This statement
requires  increased  disclosure of compensation  expense arising from both fixed
and performance stock  compensation  plans. Such expense is measured as the fair
value of the award at the date it is granted using an option-pricing  model that
takes  into  account  the  exercise  price  and  expected  volatility,  expected
dividends on the stock and the expected risk-free rate of return during the term
of the option.  The  compensation  cost is recognized  over the service  period,
usually the period from the grant date to the vesting date. SFAS 123 encourages,
rather than  requires,  companies to adopt a new method that  accounts for stock
compensation  awards  based on their  estimated  fair value at the date they are
granted.  Companies  are  permitted,   however,  to  continue  accounting  under
Accounting  Principles  Board ("APB") Opinion No. 25. The Company has elected to
continue to apply APB Opinion No. 25 in their  financial  statements.  Pro forma
net  income  and  earnings  per  share  are  presented  in  accordance  with the
requirements of SFAS 123 (see Note 10).

                                       26
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 1 - Summary of significant accounting policies (continued)

In June 1996, the Financial  Accounting  Standards Board issued its Statement of
Financial Accounting Standards No. 125 (SFAS 125),  Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This Statement
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial  assets  and  extinguishments  of  liabilities.  After a  transfer  of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished. In
addition,  a transfer of  financial  assets in which the  transferor  surrenders
control  over  those  assets  is  accounted  for as a sale  to the  extent  that
consideration  other  than  beneficial  interest  in the  transferred  assets is
received in  exchange.  SFAS 125 is effective  for  transfers  and  servicing of
financial  assets and  extinguishments  of liabilities  occurring after June 30,
1997,  and is to be  applied  prospectively.  Management  does  not  expect  the
application  of this  pronouncement  to have a material  effect on the financial
statements of the Company.

Reclassifications

Certain items in the 1996 financial  statements have been reclassified to afford
comparability with the 1997 financial statements.


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>
                                                                                             1997
                                                                 ------------------------------------------------------------
                                                                                       Gross Unrealized
                                                                   Amortized       -------------------------
                                                                     Cost          Gain            Loss           Fair Value
                                                                   ------------   ------------   -----------      -----------
<S>                                                              <C>             <C>            <C>             <C>          
Securities, held to maturity
   FHLMC participation certificates                              $          365  $           9  $     -         $         374
                                                                    -----------    -----------    ----------      -----------

Securities, available for sale
   Mutual fund - AMF Adjustable Rate Securities Portfolio                 1,007          -        (         1)          1,006
   U.S. Government and agency bonds                                       5,750             18    (        17)          5,751
   FNMA mortgage-backed securities                                        1,946             45         -                1,991
                                                                    -----------    -----------    -----------     -----------

                                                                          8,703             63    (        18)          8,748
                                                                    -----------    -----------    -----------     -----------

          Total securities                                       $        9,068  $          72  $ (        18)  $       9,122
                                                                    ===========    ===========    ===========     ===========
</TABLE>

                                       27
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 2 - Investment securities (continued)
<TABLE>
<CAPTION>
                                                                                           1996
                                                                 ------------------------------------------------------------
                                                                                       Gross Unrealized
                                                                   Amortized       --------------------------
                                                                     Cost          Gain            Loss           Fair Value
                                                                   ------------   ------------   ------------     -----------
<S>                                                              <C>             <C>            <C>             <C>          

Securities, held to maturity
   FHLMC participation certificates                              $          443  $           2  $      -        $         445
                                                                    -----------    -----------    -----------     -----------

Securities, available for sale
   Mutual fund - AMF Adjustable Rate Securities Portfolio                 5,256          -        (        41)          5,215
   U.S. Government and agency bonds                                       1,245          -        (        23)          1,222
   Financial Institution Insurance Group, Ltd.                               50             48         -                   98
                                                                    -----------    -----------    -----------     -----------

                                                                          6,551             48    (        64)          6,535
                                                                    -----------    -----------    -----------     -----------

          Total securities                                       $        6,994  $          50  $ (        64)  $       6,980
                                                                    ===========    ===========    ===========     ===========
</TABLE>

The amortized cost and estimated fair value of debt securities at June 30, 1997,
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                             -              -              2,250           2,235
        Due after five years through ten years                            -              -              1,500           1,508
        Due after ten years                                               -              -              2,000           2,008
        Mortgage-backed and related securities                              365            374          2,953           2,997
                                                                    -----------    -----------    -----------     -----------

                                                                 $          365  $         374  $       8,703   $       8,748
                                                                   ============    ===========    ===========     ===========
</TABLE>

Proceeds  from  maturities of  interest-bearing  deposits and  investments  were
$3,839,000 in 1997,  $3,950,000 in 1996, and $3,837,000 in 1995.  Gross realized
gains and losses on  redemption  of mutual fund shares are  summarized  below in
thousands:
<TABLE>
<CAPTION>
                                                                                     1997          1996             1995
                                                                                 -------------  -------------   --------

<S>                                                                              <C>            <C>             <C>     
        Gross realized gains                                                     $         52   $       -       $      -
        Gross realized losses                                                      (        9)          -         (         3)
                                                                                   ----------     -----------     -----------

                  Net realized gains (losses)                                    $         43   $       -       $ (         3)
                                                                                   ==========     ===========     ===========
</TABLE>

Cost was determined by the specific identification method.

                                       28
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 3 - Loans receivable

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

<TABLE>
<CAPTION>
                                                                                                   1997            1996
                                                                                                -------------   -------
<S>                                                                                             <C>             <C>          
        Mortgage loans
           Residential, one to four family                                                      $      39,587   $      37,191
           Residential, multifamily                                                                     4,976           3,114
           Nonresidential and land                                                                      2,523           2,759
           Construction                                                                                 3,536           3,663
                                                                                                  -----------     -----------

                                                                                                       50,622          46,727
                                                                                                  -----------     -----------

        Non-mortgage loans
           Consumer loans
              Secured personal                                                                            862             783
              Unsecured personal                                                                           10              20
              Auto                                                                                         53             116
              Home improvement                                                                             37              73
              Equity line                                                                               1,050             911
              Other                                                                                        87             169
           Commercial
              Unsecured                                                                                    35              35
              Secured                                                                                     128              98
                                                                                                  -----------     -----------

                                                                                                        2,262           2,205
                                                                                                  -----------     -----------

                  Total loans                                                                          52,884          48,932
                                                                                                  -----------     -----------

        Less
           Deferred loan fees                                                                              93             100
           Undisbursed loans in process                                                                 1,592           1,881
           Allowance for credit losses                                                                    217             194
                                                                                                  -----------     -----------

                                                                                                        1,902           2,175
                                                                                                  -----------     -----------

                  Loans receivable, net                                                         $      50,982   $      46,757
                                                                                                  ===========     ===========
</TABLE>

No  loans  were  pledged  as of June 30,  1996.  At June  30,  1997,  a total of
$4,700,000  of real estate  loans had been pledged to the Federal Home Loan Bank
of Atlanta as collateral for advances from that bank (see Note 7).

                                       29
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


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>

                                                                                      1997           1996            1995
                                                                                 -------------  -------------   -------------

<S>                                                                              <C>            <C>             <C>          
        Federal Home Loan Mortgage Corporation (FHLMC)                           $         379  $         459   $         600
        Virginia Housing Development Authority (VHDA)                                      583            729             713
                                                                                   -----------    -----------     -----------

                                                                                 $         962  $       1,188   $       1,313
                                                                                   ===========    ===========     ===========
</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>

                                                                                                   1997            1996
                                                                                                -------------   -------------

<S>                                                                                             <C>             <C>          
        FHLMC                                                                                   $           5   $           5
        VHDA                                                                                                4               4
                                                                                                  -----------     -----------

                                                                                                $           9   $           9
                                                                                                  ===========     ===========
</TABLE>

Activity in the  allowance  for credit losses for the years ended June 30, 1997,
1996 and 1995 is summarized as follows in thousands:

<TABLE>
<CAPTION>

                                                                                     1997           1996           1995
                                                                                 -------------  -------------   -------------

<S>                                                                              <C>            <C>             <C>          
        Balance at beginning of year                                             $         194  $         194   $         194
        Provision charged to operations                                                     23          -                   1
        Charge-offs                                                                      -              -                   1
                                                                                   -----------    -----------     -----------

                  Balance at end of year                                         $         217  $         194   $         194
                                                                                   ===========    ===========     ===========

</TABLE>
                                       30
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 3 - Loans receivable (continued)

The  following  table sets forth the maturity of the loan  portfolio at June 30,
1997 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               $           5  $     -      $             2   $         1,829  $         698   $       2,534
   3 months to 1 year                       23        -                  443             1,519             39           2,024
                                   -----------    ---------    -------------     -------------    -----------     -----------

          Total due within 1 year           28        -                  445             3,348            737           4,558
                                   -----------    ---------    -------------     -------------    -----------     -----------

   After 1 year
      1 to 3 years                         102        -                   32               188            119             441
      3 to 5 years                         405        -                   81             -                174             660
      5 to 10 years                      2,353          340              370             -                142           3,205
      10 to 20 years                    10,319        4,093            1,595             -              1,090          17,097
      Over 20 years                     26,380          543            -                 -              -              26,923
                                   -----------    ---------    -------------     -------------    -----------     -----------

          Total due after 1 year        39,559        4,976            2,078               188          1,525          48,326
                                   -----------    ---------    -------------     -------------    -----------     -----------

          Total due              $      39,587  $     4,976  $         2,523   $         3,536  $       2,262          52,884
                                   ===========    =========    =============     =============    ===========     -----------

Less
   Allowance for loan loss                                                                                                217
   Loans in process                                                                                                     1,592
   Deferred loan fees                                                                                                      93
                                                                                                                  -----------

                                                                                                                        1,902

          Loans receivable, net                                                                                 $      50,982
                                                                                                                  ===========
</TABLE>

The following table sets forth the dollar amount (in thousands) of all loans due
after June 30,  1998,  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                                                         $      10,875  $      28,684   $      39,559
      Multifamily                                                                        2,651          2,325           4,976
      Nonresidential and land                                                            1,124            954           2,078
      Construction                                                                         188          -                 188
      Consumer and other                                                                   475          1,050           1,525
                                                                                   -----------    -----------     -----------

                                                                                 $      15,313  $      33,013   $      48,326
                                                                                   ===========    ===========     ===========
</TABLE>

                                       31
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 4 - Property, equipment and depreciation

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

<TABLE>
<CAPTION>
                                                                                                    1997            1996
                                                                                                -------------   -------------

<S>                                                                                             <C>             <C>          
        Land                                                                                    $         575   $         575
        Office buildings and improvements                                                               1,783           1,783
        Furniture, fixtures and equipment                                                                 935             866
                                                                                                  -----------     -----------

                                                                                                        3,293           3,224

        Less accumulated depreciation                                                                   1,627           1,562
                                                                                                  -----------     -----------

                     Property and equipment, net                                                $       1,666   $       1,662
                                                                                                  ===========     ===========
</TABLE>

Accumulated depreciation at June 30 of each year was as follows in thousands:
<TABLE>
<CAPTION>

                                                                                                    1997            1996
                                                                                                -------------   -------------

<S>                                                                                             <C>             <C>          
        Office buildings and improvements                                                       $         862   $         826
        Furniture, fixtures and equipment                                                                 765             736
                                                                                                  -----------     -----------

                                                                                                $       1,627   $       1,562
                                                                                                  ===========     ===========
</TABLE>

Depreciation  expense  for the years ended June 30,  1997,  1996 and 1995 was as
follows in thousands:
<TABLE>
<CAPTION>

                                                                                     1997           1996           1995
                                                                                 -------------  -------------   -------------

<S>                                                                              <C>            <C>             <C>          
         Office buildings and improvements                                       $          37  $          37   $          35
         Furniture, fixtures and equipment                                                  50             64              65
                                                                                   -----------    -----------     -----------

                                                                                 $          87  $         101   $         100
                                                                                   ===========    ===========     ===========
</TABLE>
Note 5 - Accrued interest receivable

Accrued interest receivable at June 30 of each year was as follows in thousands:
<TABLE>
<CAPTION>

                                                                                                    1997           1996
                                                                                                -------------   -------------

<S>                                                                                             <C>             <C>          
         Accrued interest on loans                                                              $         316   $         294
         Accrued interest on investments                                                                  121              49
                                                                                                  -----------     -----------

                                                                                                $         437   $         343
                                                                                                  ===========     ===========
</TABLE>
                                       32
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 6 - Deposits

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

<TABLE>
<CAPTION>
                                                                                   1997                           1996
                                                                 ----------------------------   ---------------------------------
                                                                      Amount       Percent          Amount        Percent
    Negotiable order of withdrawal deposits
<S>                                                              <C>             <C>            <C>                 <C>  
       Non-interest bearing                                      $          739  $    1.37%     $         791         1.37%
       2.15%                                                              4,118       9.48              5,467         9.48
       2.96%                                                              3,477       6.26              3,607         6.26
                                                                    -----------    -------        -----------     --------

                                                                          8,334      17.11              9,865        17.11
                                                                    -----------    -------        -----------     --------

    Passbooks and statement deposits, 3.00% for each year                 7,371      12.81              7,384        12.81
                                                                    -----------    -------        -----------     --------

    Certificates of deposit and other term deposits
       3.00% to 4.00%                                                       109        .71                407          .71
       4.01% to 5.00%                                                    14,116      22.81             13,147        22.81
       5.01% to 6.00%                                                    21,430      46.32             26,702        46.32
       6.01% to 7.00%                                                     6,570        .23                135          .23
       7.01% to 8.00%                                                         3        .01                  3          .01
                                                                    -----------    -------        -----------     --------

              Total term deposits                                        42,228      70.08             40,394        70.08
                                                                    -----------    -------        -----------     --------

              Total deposits                                     $       57,933  $  100.00%     $      57,643       100.00%
                                                                    ===========    ==========     ===========     ==========
</TABLE>

The aggregate amounts of certificates of deposit with a denomination of $100,000
or more were $5,121,009,  $3,970,000,  and $4,253,000 at June 30, 1997, 1996 and
1995, respectively.

Certain deposit accounts were pledged as collateral for $171,000,  $152,000, and
$178,000 of consumer loans at June 30, 1997, 1996 and 1995, respectively.

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

<TABLE>
<CAPTION>
                                                     1998            1999           2000          After 2001      Total
                                                  -------------  --------------  -------------  -------------   -------------

<S>                                               <C>            <C>             <C>            <C>             <C>          
        3.00% to 4.00%                            $         109  $        -      $       -      $       -       $         109
        4.01% to 5.00%                                   13,880             236          -              -              14,116
        5.01% to 6.00%                                   19,141           1,884            295            110          21,430
        6.01% to 7.00%                                    4,810           1,560            200          -               6,570
        7.01% to 8.00%                                    -                   3          -              -                   3
                                                    -----------     -----------    -----------    -----------     -----------

                                                  $      37,940  $        3,683  $         495  $         110   $      42,228
                                                    ===========     ===========    ===========    ===========     ===========

</TABLE>
                                       33
<PAGE>

                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 6 - Deposits (continued)

Interest expense on deposits for the years ended June 30, 1997, 1996 and 1995 is
summarized as follows in thousands:

<TABLE>
<CAPTION>

                                                                                     1997           1996            1995
                                                                                 -------------  -------------   -------------

<S>                                                                              <C>            <C>             <C>          
        Money market                                                             $         110  $         111   $         116
        Passbook savings                                                                   219            213             224
        NOW                                                                                102            110             105
        Club accounts                                                                        1              1               1
        Certificates of deposit                                                          2,099          2,135           1,773
                                                                                   -----------    -----------     -----------

                                                                                 $       2,531  $       2,570   $       2,219
                                                                                   ===========    ===========     ===========

</TABLE>

Note 7 - Borrowed funds

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

<TABLE>
<CAPTION>
                                                                                                   1997            1996
                                                                                                -------------   -------------
<S>                                                                                             <C>             <C>      
         FHLB-Atlanta advances
            Balance outstanding at end of year                                                  $       3,500   $       -
            Average balance outstanding                                                                 3,000             800
            Maximum amount outstanding at any month-end during the year                                 3,500           1,800

            Weighted-average interest rate during the year                                              5.67%           3.82%
            Weighted-average interest rate at end of year                                               6.12%              0%
</TABLE>

No  loans  were  pledged  as of June 30,  1996.  Residential  loans  aggregating
$3,500,000  were pledged as of June 30, 1997 as collateral for the advances from
FHLB-Atlanta under a blanket floating lien agreement.


Note 8 - 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
1997 is currently .0657% of assessable deposits.

                                       34
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 9 - 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.

The  consolidated  provision for income taxes for the years ended June 30, 1997,
1996 and 1995, consisted of the following elements in thousands:

<TABLE>
<CAPTION>
                                                                                     1997           1996           1995
                                                                                 -------------  -------------   -------------
<S>                                                                              <C>            <C>             <C>          
         Tax paid or payable currently
            Federal                                                              $        250   $        183    $         136
            State                                                                          41             14               13
         Income tax deferred, net                                                  (       85)   (         6)              41
                                                                                   -----------    -----------     -----------

                   Total provision for income taxes                              $        206   $        191    $         190
                                                                                   ==========     ==========      ===========
</TABLE>

The  provision  for income taxes  differed  from that  computed at the statutory
corporate rate for the years ended June 30, 1997, 1996 and 1995 as follows:

<TABLE>
<CAPTION>
                                                                                         1997          1996         1995
                                                                                       -----------   -----------  ----------

<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           1.9          1.6
           Other                                                                       (    2.0)          2.6          2.9
                                                                                       --------      --------     --------

                  Total provision for income taxes                                         34.0%         38.5%        38.5%
                                                                                       ========      ========     ========

</TABLE>
                                       35
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 9 - Income taxes (continued)

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
                                                                                                ------------------------------
                                                                                                   1997            1996
                                                                                                -------------   --------------
<S>                                                                                             <C>             <C>          
        Components of the deferred tax asset
           Loan fees                                                                            $          16   $          38
           Pension expense                                                                                 66              57
           Unrealized loss on securities, available for sale                                            -                   6
           Stock bonus plan                                                                                20              14
           Accelerated depreciation                                                                         4           -
                                                                                                  -----------     -----------

                                                                                                          106             115
        Valuation allowance                                                                             -               -
                                                                                                  -----------     -----------

                  Total deferred tax asset                                                                106             115
                                                                                                  -----------     -----------

        Components of the deferred tax liability
           Accelerated depreciation                                                                     -                  60
           Bad debts                                                                                       27              55
           Unrealized gains on securities, available for sale                                              15           -
                                                                                                  -----------     -----------

                  Total deferred tax liability                                                             42             115
                                                                                                  -----------     -----------

                  Net deferred tax asset (liability)                                            $          64   $       -
                                                                                                  ===========     ===========
</TABLE>

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


Note 10 - 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, 1997 was as follows.

<TABLE>
<CAPTION>

                                                                                     1997          1996            1995
                                                                                 -------------  -------------   -------------

<S>                                                                              <C>            <C>             <C>          
        Pension expense                                                          $      49,000  $      92,000   $     101,000
                                                                                   ===========    ===========     ===========
</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.

                                       36
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 10 - 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, 1997 and 1996,  cumulative  accruals  under the  contracts
totaled $175,000 and $150,000, 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 13,696 shares
of the common  stock as of June 30,  1997.  The  Company  recognized  $7,800 and
$5,000 as accrued  compensation costs in 1997 and 1996,  respectively.  The fair
value of unearned ESOP shares totaled $511,000 and $570,000 at June 30, 1997 and
1996, 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.

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, 1997 and 1996, the amounts included in compensation expense was $54,000
and  $36,000,  respectively.  The  status of the shares in this plan at June 30,
1997 is shown as follows.

                                       37
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 10 - Retirement plans and employee benefit programs (continued)
<TABLE>
<CAPTION>
                                                                                                   Unawarded       Awarded
                                                                                                    Shares         Shares
                                                                                                    ------         ------

<S>                                                                                                <C>           <C>
        Total established by plan                                                                     22,812           -
        Granted                                                                                    (  18,484)         18,484
        Vested                                                                                         -               -
                                                                                                  -----------       --------

                 Balance at June 30, 1996                                                              4,328          18,484

        Granted                                                                                        -               -
        Vested                                                                                         -               2,640)
        Forfeiture                                                                                     -               -
                                                                                                  ----------      ----------

                  Balance at June 30, 1997                                                             4,328          15,844
                                                                                                  ==========      ==========
</TABLE>

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. A summary of the stock option
activity is as follows:

<TABLE>
<CAPTION>
                                                                             Available        Options           Vested and
                                                                             for Grant        Outstanding       Exercisable
                                                                             ---------        -----------       -----------

<S>                                                                         <C>                <C>               <C>
        At inception                                                               57,059            -                  -
        Granted                                                             (      43,927)          43,927              -
        Vested                                                                      -                -                  -
                                                                            -------------     ------------      ------------

                  Balance at June 30, 1996                                         13,132           43,927              -

        Granted                                                                     -                -                  -
        Vested                                                                      -          (     8,785)            8,785
        Exercised                                                                   -                -                  -
        Forfeiture                                                                  -                -                  -
                                                                            -------------     ------------      ------------

                  Balance at June 30, 1997                                         13,132           35,142             8,785
                                                                            =============     ============      ============
</TABLE>

The Company  applies APB Opinion 25 in  accounting  for  employee  stock  option
plans. Accordingly, no compensation cost has been recognized in 1997 and 1996.

                                       38
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 10 - Retirement plans and employee benefit programs (continued)

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 6.89%; dividend yields of 3.20%;  volatility factor of 27%; and
a weighted-average expected life of the option of 6.76 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.

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:

<TABLE>
<CAPTION>
                                                                                                        1997         1996
                                                                                                        ----         ----

<S>                                                                                                  <C>          <C>        
        Pro forma net income                                                                         $       413  $       303
        Pro forma earnings per share
           Primary                                                                                   $       .86  $       .59
           Fully diluted                                                                             $       .86  $       .59

</TABLE>

Note 11 - 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.

                                       39
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 11 - Financial instruments with off-balance-sheet risk (continued)

The Company's  commitments to finance real estate  acquisitions and construction
were $2,994,000 at June 30, 1997, $3,929,000 at June 30, 1996, and $2,561,000 at
June  30,  1995.  As of June  30,  1997,  the  Company  had  contracted  to sell
$2,994,000  of the loans to be  financed.  No loss is  anticipated.  At June 30,
1997,  outstanding  letters of credit  totaled  $245,000,  and unfunded lines of
credit  totaled  $1,086,000.  There were no loans sold with recourse in 1997 and
1996.


Note 12 - Restricted retained earnings

The Bank is  required  by federal  insurance  regulations  to  maintain  certain
reserves for the sole purpose of absorbing  losses. A federal  insurance reserve
was established for this purpose by an  appropriation of retained  earnings.  In
1980, the  requirement  for a separate  federal  insurance  reserve  account was
eliminated.  However,  amounts  previously  credited  to this  separate  reserve
account are designated "restricted retained earnings" and shall be used only for
absorption of losses.  The amount so designated  totaled  $1,767,000 at June 30,
1997 and $1,790,000 at both June 30, 1996 and 1995.

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,  1997,  the
liquidation account,  unadjusted for customer  withdrawals,  totaled $4,166,000,
and minimum regulatory capital was $3,003,000.

See Note 14 for Bank regulatory capital requirements.


Note 13 - 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, 1997, the Company had commercial  bank deposits of $84,000 in excess
of the Federal Deposit Insurance Corporation insurance limit.

                                       40
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 14 - 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, 1997 and 1996, 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>
                                                                                            1997
                                                      ---------------------------------------------------------------------
                                                              Tangible                 Core                    Risk-based
                                                              Capital                  Capital                 Capital
                                                      --------------------     -------------------    ---------------------

<S>                                                   <C>            <C>       <C>            <C>      <C>            <C>  
        Regulatory capital computed                   $     7,905    11.1%     $     7,905    11.1%    $ 8,123        21.6%
        Minimum capital requirement                         1,068     1.5            2,137     3.0       3,003         8.0
                                                         --------   -----      -----------    ----     -------        ----

                  Regulatory capital excess           $     6,837     9.6%     $     5,768     8.1%    $ 5,120        13.6%
                                                         ========   =====      ===========    =====  =========        ====
</TABLE>

<TABLE>
<CAPTION>
                                                                                            1996
                                                      ------------------------------------------------------------------
                                                               Tangible               Core                Risk-based
                                                               Capital                Capital               Capital
                                                      --------------------   -------------------   ---------------------

<S>                                                   <C>            <C>       <C>          <C>    <C>            <C>  
        Regulatory capital computed                   $     7,475    11.1%   $     7,475    11.1%  $    7,681      22.1%
        Minimum capital requirement                         1,011     1.5          2,023     3.0        2,775       8.0
                                                         --------   -----       --------  ------    ---------    ------

                  Regulatory capital excess           $     6,464     9.6%   $     5,452     8.1%  $    4,906      14.1%
                                                         ========   =====      =========  ======    =========    ======
</TABLE>


Note 15 - 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,  1997,  1996 and
1995 are summarized as follows in thousands:

                                       41
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 15 - Related-party transactions (continued)
<TABLE>
<CAPTION>

                                                                                    1997            1996           1995
                                                                                 -------------  -------------   ------------

<S>                                                                              <C>            <C>             <C>         
        Beginning balance                                                        $         49   $         56    $         62
        Additions                                                                         285          -               -
        Repayments                                                                (        48)   (         7)    (         6)
                                                                                   ----------    -----------     -----------

                  Ending balance                                                 $        286   $         49    $         56
                                                                                   ==========     ==========      ==========
</TABLE>

Fees for foreclosures, titles and deeds of trust, paid to a law firm, of which a
director is a principal,  aggregated $6,625,  $18,000, and $19,000 for the years
ended June 30, 1997, 1996 and 1995, respectively. Insurance commissions received
by a director from business with or for the Company  aggregated  $3,000 for each
of the years ended June 30, 1997, 1996 and 1995.


Note 16 - Interest lost on restructured debt

The Company  did not  acquire  any real estate due to loan  defaults in 1997 and
1996.


Note 17 - Commitments and contingencies

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

<TABLE>
<CAPTION>
                                                                                      1997           1996             1995
                                                                                 -------------  -------------   --------------

<S>                                                                              <C>            <C>             <C>          
        Rental expense                                                           $      24,000  $      24,000   $      23,000
                                                                                   ===========    ===========     ===========
</TABLE>

The Company entered into a two-year lease agreement for office space.  The lease
terminates November 30, 1999, with an option to renew for one year.

The current minimum annual rental commitments under the non-cancelable operating
lease in effect at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
               Year Ended                                                                         Amount
               ----------                                                                         ------

<S>                <C>                                                                        <C>            
                   1998                                                                       $        25,000
                   1999                                                                                10,000
                                                                                                -------------

                                                                                              $        35,000
                                                                                              ===============
</TABLE>
                                       42
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 18 - 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>
                                                                          1997                             1996
                                                               -----------------------------    ------------------------------
                                                                   Carrying         Fair            Carrying         Fair
                                                                    Amount          Value            Amount          Value
                                                                    ------          -----            ------          -----
<S>                                                            <C>             <C>              <C>             <C>          
        Financial assets
           Cash and cash equivalents                           $       1,276   $       1,276    $       5,262   $       5,262
           Interest-bearing deposits                                   5,304           5,304            3,841           3,841
           Investment securities                                       6,711           6,712            7,512           7,496
           Mortgage-backed securities                                  3,318           3,371              443             445
           Loans receivable, net                                      50,982          54,579           46,757          47,688

        Financial liabilities
           Deposits                                                   57,933          57,929           57,643          56,422
           Advances from Federal Home Loan Bank                        3,500           3,500            -               -

        Unrecognized financial instruments
           Commitments to purchase securities                          -               -                1,000           1,000
           Standby letters of credit issued                              245             245              435             435

</TABLE>

Note 19 - Other noninterest expense

Other  noninterest  expense for the years ended June 30, 1997,  1996 and 1995 is
shown as follows in thousands:

<TABLE>
<CAPTION>
                                                                                     1997           1996           1995
                                                                                 -------------  -------------   -------
<S>                                                                              <C>            <C>             <C>          
        Other noninterest expense
           Contributions                                                         $           5  $           5   $           5
           Dues and subscriptions                                                           12             14              11
           Insurance                                                                        32             38              41
           Office supplies, telephone and postage                                          101            101              87
           Other expenses                                                                   46             24              18
           Professional fees                                                                91            128              74
           Supervisory fees and assessments                                                 31             33              32
                                                                                   -----------    -----------     -----------

                                                                                 $         318  $         343   $         268
                                                                                   ===========    ===========     ===========
</TABLE>

                                       43
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 20 - Condensed parent company information

The following shows the Parent  Company's  condensed  financial  information (in
thousands) as of and for years of operation ended June 30, 1997 and 1996:

<TABLE>
<CAPTION>

                                                       Balance Sheets


                                                                                                    1997             1996
                                                                                                -------------   -------------
<S>                                                                                             <C>             <C>          
        Assets
           Cash and cash equivalents                                                            $          76   $          76
           Accrued interest receivable                                                                  -                  19
           Investment in Bank subsidiary                                                                7,268           6,722
           Loan to Bank ESOP                                                                              319             365
           Loan to Bank subsidiary                                                                        850           1,470
           Other assets                                                                                    96              54
                                                                                                  -----------     -----------

                  Total assets                                                                  $       8,609   $       8,706
                                                                                                  ===========     ===========


        Liabilities and stockholders' equity
           Liabilities                                                                          $           7   $          31
           Stockholders' equity                                                                         8,602           8,675
                                                                                                  -----------     -----------

                  Total liabilities and stockholders' equity                                    $       8,609   $       8,706
                                                                                                  ===========     ===========

</TABLE>

                                       44
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 20 - Condensed parent company information (continued)

<TABLE>
<CAPTION>
                                                  Statements of Operations


                                                                                                    1997            1996
                                                                                                -------------   -------------
<S>                                                                                             <C>             <C>          
        Income
           Interest from
              Bank's ESOP loan                                                                  $          30   $          36
              Loan to Bank subsidiary                                                                      55              84
                                                                                                  -----------     -----------

                  Total income                                                                             85             120
                                                                                                  -----------     -----------

        Expense
           Directors' compensation                                                                         25              25
           Professional fees                                                                               49              90
           Stationery and supplies                                                                          3               2
           Other                                                                                           18              25
                                                                                                  -----------     -----------

                  Total expense                                                                            95             142
                                                                                                  -----------     -----------

                  Net loss before income taxes and equity in
                     undistributed net income of Bank subsidiary                                  (        10)    (        22)

        Income tax expense (credit)                                                               (         5)    (         8)
                                                                                                  -----------     -----------

                                                                                                  (         5)    (        14)

        Equity in undistributed net income of Bank subsidiary                                             419             320
                                                                                                  -----------      ----------

                  Net income                                                                     $        414    $        306
                                                                                                  ===========      ==========

</TABLE>

                                       45
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 20 - Condensed parent company information (continued)

<TABLE>
<CAPTION>

                            Statements of Cash Flows


                                                                                                   1997             1996
                                                                                                -------------   --------
        Cash flows from operating activities
<S>                                                                                             <C>             <C>         
           Net income                                                                           $        414    $        306
           Adjustments
              Equity in undistributed net income of Bank subsidiary                              (       419)    (       320)
              (Increase) decrease in other assets                                                          4     (         4)
              Increase (decrease) in other liabilities                                           (        24)             19
                                                                                                  ----------      ----------

                  Net cash provided by (used in) operations                                      (        25)              1
                                                                                                  ----------      ----------

        Cash flows from investing activities
           Principal repayments from Bank subsidiary                                                     666             626
                                                                                                  ----------      ----------

        Cash flows from financing activities
           Dividends paid                                                                         (      146)    (       154)
           Purchase of stock                                                                      (      495)    (       466)
                                                                                                  ----------      ----------

                   Net cash used in financing activities                                          (      641)    (       620)
                                                                                                  ----------      -----------

                  Increase in cash and cash equivalents                                                -                   7

        Cash and cash equivalents at beginning of year                                                    76              69
                                                                                                  ----------      ----------

        Cash and cash equivalents at end of year                                                $         76    $         76
                                                                                                  ==========      ==========

</TABLE>
                                       46
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                          June 30, 1997, 1996 and 1995


Note 21 - Selected quarterly financial data (unaudited)

Condensed consolidated financial data for the years ended June 30, 1997 and 1996
is shown as follows in thousands except per-share data:

<TABLE>
<CAPTION>
                                                                                            1997
                                                                -------------------------------------------------------------
                                                                    First          Second         Third           Fourth
                                                                    Quarter        Quarter        Quarter         Quarter
                                                                    -------        -------        -------         -------

<S>                                                              <C>             <C>            <C>             <C>         
Total interest income                                            $       1,255   $      1,346   $      1,341    $      1,368
Total interest expense                                                     644            684            664             681
                                                                    ----------     ----------     ----------      ----------

          Net interest income                                              611            662            677             687
Provision for credit losses                                              -              -              -                  23
                                                                    ----------     ----------     ----------      ----------

          Net interest income after provision for credit losses            611            662            677             664
Other noninterest income                                                    87            130             76             105
Noninterest expense                                                 (      892)    (      538)    (      529)     (      433)
                                                                    ----------     ----------     ----------      ----------

          Income before income tax expense                          (      194)           254            224             336
Income tax expense                                                       -                 30             82              94
                                                                    ----------     ----------     ----------      ----------

           Net income                                            $  (      194)  $        224   $        142    $        242
                                                                    ==========     ==========     ==========      ==========

Net income per share                                             $  (      .39)  $         .47  $         .30   $        .51
Cash dividends per share                                                   .15           -                .15           -
</TABLE>

<TABLE>
<CAPTION>
                                                                                            1996
                                                                -------------------------------------------------------------
                                                                    First          Second         Third           Fourth
                                                                    Quarter        Quarter        Quarter         Quarter
                                                                    -------        -------        -------         -------

<S>                                                              <C>             <C>            <C>             <C>         
Total interest income                                            $       1,228   $      1,234   $      1,226    $      1,218
Total interest expense                                                     667            665            655             635
                                                                    ----------     ----------     ----------      ----------

          Net interest income                                              561            569            571             583
Provision for credit losses                                              -              -              -               -
                                                                    ----------     ----------     ----------      ----------

          Net interest income after provision for credit losses            561            569            571             583
Other noninterest income                                                   114            105            132             104
Noninterest expense                                                 (      559)    (      580)    (      543)     (      560)
                                                                    ----------     ----------     ----------      ----------

          Income before income tax expense                                 116             94            160             127
Income tax expense                                                          50             32             62              47
                                                                    ----------     ----------     ----------      ----------

           Net income                                            $          66   $         62   $         98    $         80
                                                                    ==========     ==========     ==========      ==========

Net income per share                                             $         .13   $        .12   $        .19    $        .16
Cash dividends per share                                                   .15          -                .15           -

</TABLE>

                                       47
<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

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

                   Board of Directors of SWVA Bancshares, Inc.

                                  John L. Hart
                              Chairman of the Board
                                 Attorney-at-Law

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

B.L. Rakes                       Barbara C. Weddle           Glen C. Combs
Executive Officer                Executive Officer     President, M&M Brokerage,
                                                             a food brokerage

                   Executive Officers of SWVA Bancshares, Inc.

B.L. Rakes                       Barbara C. Weddle      Mary G. Staples
President and Chief              Senior Vice President  Controller and Treasurer
Executive Officer                and Secretary

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


Special Counsel:                             Independent Auditors:
Malizia, Spidi, Sloane & Fisch, P.C.         Cherry Bekaert & Holland
One Franklin Square                          1700 Central Fidelity Bank Building
1301 K Street, N.W., Suite 700 East          Lynchburg, VA  24505
Washington, D.C.  20005

                          Transfer Agent and Registrar:
                          Registrar & Transfer Company
                                10 Commerce Drive
                               Cranford, NJ 07106
                                 (908) 272-8511

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

SWVA  Bancshares,  Inc.'s  Annual  Report for the year ended June 30, 1997 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  7,  1997 at 10:30 a.m. at 302
Second Street, S.W., Roanoke, Virginia.