U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X]  Annual report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934

For the fiscal year ended June 30, 2000
                          -------------

[ ]  Transition  report under Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

For the transition period from                 to
                               ---------------    ---------------

Commission File Number:  0-24674
                         -------

                                  SWVA BANCSHARES, INC.
--------------------------------------------------------------------------------
                    (Name of Small Business Issuer in Its Charter)

           Virginia                                             54-1721629
--------------------------------                            --------------------
 (State or Other Jurisdiction of                             (I.R.S. Employer
  Incorporation or Organization)                            Identification No.)

      302 Second Street, S.W., Roanoke, Virginia                  24011-1597
------------------------------------------------------      --------------------
      (Address of Principal Executive Offices)                    (Zip Code)

                                 (540) 343-0135
               ---------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been  subject to such  filing  requirements  for the past 90 days.
 Yes    X    No
      -----     -----

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

         State issuer's revenues for its most recent fiscal year.  $6.4 million

         The aggregate  market value of the voting stock held by  non-affiliates
computed by  reference  to the average bid and asked  prices of such stock as of
August 31, 2000, was $7.0 million.

         As of September 25, 2000,  the  registrant had 423,612 shares of Common
Stock outstanding.

         Transitional Small Business Disclosure Format (check one)
Yes        No   X
    -----     -----
                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Part II -- Portions of the  registrant's  Annual Report to Stockholders for
     the fiscal year ended June 30, 2000.
<PAGE>


                                     PART I

         SWVA  Bancshares,  Inc.  (the  "Company")  may from  time to time  make
written or oral "forward-looking statements",  including statements contained in
the Company's  filings with the  Securities and Exchange  Commission  (including
this annual report on Form 10-KSB and the exhibits to the Form  10-KSB),  in its
reports to stockholders and in other  communications  by the Company,  which are
made in good faith by the Company  pursuant to the "safe  harbor"  provisions of
the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and  the  strength  of  the  local  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, monetary and fiscal policies
and laws,  including  interest  rate  policies of the Board of  Governors of the
Federal  Reserve  System  (the  "FRB"),  inflation,  interest  rate,  market and
monetary fluctuations;  the timely development of and acceptance of new products
and services of the Company and the perceived  overall  value of these  products
and services by users,  including the features,  pricing and quality compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and saving habits; and the success of the Company at managing these risks.

         The  Company  cautions  that  this  list of  important  factors  is not
exclusive.  The  Company  does  not  undertake  to  update  any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

Item 1.  Description of Business.

Business of the Company

         SWVA   Bancshares,   Inc.  (the  "Company")  is  a   Virginia-chartered
corporation  organized in June of 1994 at the  direction  of Southwest  Virginia
Savings Bank, FSB (the "Bank") to acquire all of the capital stock that the Bank
issued  in its  conversion  from the  mutual  to stock  form of  ownership  (the
"Conversion").  On October 7, 1994, the Bank completed the Conversion and became
a wholly owned subsidiary of the Company. In connection with the Conversion, the
Company issued 570,590 shares of its Common Stock, par value $.10 per share (the
"Common  Stock").  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 Bank  retains a specified
amount of its  assets in  housing-related  investments.  At June 30,  2000,  the
Company  had total  assets of $84.0  million  and  stockholders'  equity of $6.7
million.

         During the year ended June 30,  1996,  the Company  repurchased  27,400
shares of its  Common  Stock at an  aggregate  purchase  price of  approximately
$466,000. The amount repurchased represented approximately 4.5% of the Company's
total shares outstanding prior to the repurchase.

         During the year ended June 30,  1997,  the Company  repurchased  32,206
shares of its  Common  Stock at an  aggregate  purchase  price of  approximately
$495,000. The amount repurchased represented approximately 5.9% of the Company's
total shares outstanding prior to the repurchase.
<PAGE>

         During the year ended June 30,  1998,  the Company  repurchased  14,097
shares of its  Common  Stock at an  aggregate  purchase  price of  approximately
$293,000. The amount repurchased represented approximately 2.8% of the Company's
total shares outstanding prior to the repurchase.

         During the year ended June 30,  1999,  the Company  repurchased  73,275
shares of its Common Stock at an aggregate  purchase price of approximately $1.2
million.  The  amount  repurchased  represented   approximately  14.75%  of  the
Company's total shares outstanding prior to the repurchase.

         During the year ended June 30, 2000, the Company did not repurchase any
shares of stock.

Business of the Bank

         General.  The Bank is primarily engaged in attracting deposits from the
general  public and  reinvesting  those funds to originate  real estate loans on
one- to four-family  residences,  multi-family and  non-residential  real estate
loans, construction,  commercial loans and consumer loans. In addition, the Bank
invests in investment securities and mortgage-backed securities. The Bank offers
its customers  both ARMs and  fixed-rate  mortgage  loans.  The Bank  originates
mortgages for retention in the Bank's portfolio as well as originations for sale
in the secondary  market.  Depending on the level of prevailing  interest rates,
management of the Bank determines whether to retain fixed rate mortgage loans in
its  portfolio  on the basis of whether the interest  rate  received on the loan
would be beneficial to the  profitability  of the Bank's loan portfolio over the
average life of the loan.  All commercial and consumer loans are retained in the
Bank's  portfolio  and the  focus on these  types  of  loans is  generating  new
business  that is  enabling  the  Bank to  reduce  its  dependence  on  mortgage
activity.

         The principal  sources of funds for the Bank's  lending  activities are
deposits and the amortization,  repayment and maturity of loans, investments and
mortgage-backed  securities.  The Bank's primary  sources of income are interest
and fees on loans,  interest on investments and  mortgage-backed  securities and
customer service fees. The Bank's primary expense is interest paid on deposits.

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

         The Bank's main office is located at 302 Second  Street,  S.W.,  in the
City of Roanoke, Virginia. The Bank has one branch office located in the City of
Roanoke.  The Bank has another  branch and a loan  production  office located in
Roanoke County, as well as branch offices in Vinton and Salem, Virginia.

         The Roanoke Valley is equidistant from New York and Atlanta,  230 miles
south of  Washington,  D.C.  and 250 miles  west of the Port of  Hampton  Roads,
Virginia.  The  population  in the Roanoke  Valley area has remained  relatively
stable over the past thirty  years and was  269,100  according  to the 1990 U.S.
Census.  The Roanoke  Valley  area enjoys a  diversified  economy  comprised  of
services, retail,  manufacturing,  government offices, finance,  insurance, real
estate, wholesale trade,  transportation,  public utilities,  construction,  and
agriculture.

         The  outlying  region of the Bank's  market area is rural in nature and
may represent  limited  opportunities  for lending and  investment  growth which
could adversely  affect the Bank's ability to achieve asset growth.  The Bank is
the only savings bank  headquartered  in the Roanoke  Valley area.  This area is
also served by branch offices of regional commercial banks and various community
banks and credit unions.

                                       2
<PAGE>

Lending Activities

         General.   The  traditional   lending  activity  of  the  Bank  is  the
origination of  adjustable-rate  mortgage  loans,  fixed rate mortgage loans and
short-term loans secured by one- to four-family residences. These fixed-rate and
adjustable rate loans are generally  underwritten to conform to secondary market
standards and a portion of these loans are sold in the  secondary  market at the
time of origination.  The Bank also originates some nonconforming first mortgage
loans to serve  community  needs which are  retained  in the Banks's  portfolio.
Adjustable-rate   mortgage  ("ARMs")  loans  comprised  50.34%  of  total  loans
outstanding  on June  30,  2000.  For the  fiscal  year  ended  June  30,  2000,
adjustable-rate  loans represented  30.00% of total mortgage loan  originations.
The Bank also originates  nonresidential  and multi-family  real estate loans as
well as construction  loans,  commercial  loans,  home equity loans and consumer
loans.  The Bank  continues its focus on increasing  its commercial and consumer
lending in fiscal 2000.  These loans offer  income  enhancement  through  higher
yields  and  shorter  terms and tend to reprice  on a more  frequent  basis than
long-term  mortgage  loans.  The  Bank is  making  these  types of loans on what
management believes is a conservatively  underwritten basis.  Management intends
to continue  emphasizing  these types of lending to meet the area's credit needs
as well as provide the Bank with better returns in its loan portfolio.

         The  following  table sets  forth the  composition  of the Bank's  loan
portfolio in dollar amounts and in percent of the  respective  portfolios at the
dates indicated.
<TABLE>
<CAPTION>
                                                                             At June 30,
                                              --------------------------------------------------------------------
                                                                  2000                             1999
                                              ---------------------------------  ---------------------------------
                                                       Amount           Percent           Amount           Percent
                                              ---------------------------------  ---------------------------------
                                                                       (Dollars in Thousands)
<S>                                                <C>                 <C>            <C>                 <C>
Mortgage loans
  Residential, one to four family                     $33,872             61.25%         $32,342             68.94%
  Residential, multifamily                              4,014              7.26            4,187              8.92
  Nonresidential and land                               5,459              9.87            2,071              4.41
  Construction                                          4,781              8.64            4,024              8.58
Non-mortgage loans
  Consumer loans
    Secured personal                                    1,774              3.21            1,483              3.16
    Unsecured personal                                    165               .30               92               .20
    Auto                                                  568              1.03              177               .38
    Home Improvement                                       19               .03               38               .08
    Equity line                                         3,262              5.90            2,316              4.94
    Other                                                 120               .21               80               .17
  Commercial
    Secured                                               202               .37              105               .22
    Unsecured                                           1,068              1.93                -                 -
                                                       ------           -------           -------           ------
      Total loans receivable                           55,304            100.00%          46,915            100.00%
                                                                        =======                             ======
Less
  Deferred loan fees                                       27                                 42
  Undisbursed loans in process                          1,449                              1,087
  Allowance for credit losses                             218                                210
                                                       ------                             ------
  Loans receivable, net                               $53,610                            $45,576
                                                       ======                             ======
</TABLE>

                                       3

<PAGE>

         The  following  table  sets  forth  the  maturity  of the  Bank's  loan
portfolio at June 30, 2000. The table does not include  prepayments or scheduled
principal  repayments.  Prepayments and scheduled principal  repayments on loans
totaled  $23.3  million and $25.1  million,  for the fiscal years ended June 30,
2000 and 1999,  respectively.  ARMs are shown as maturing  based on  contractual
maturities.
<TABLE>
<CAPTION>
                                           Residential
                                              1-4        Multi-      Non-residential                 Consumer and
                                             Real       Family         and Land        Construction      Other             Total
                                           Estate(1)
                                           ---------    -------      ---------------   ------------  ------------        --------
                                                                        (In Thousands)
<S>                                     <C>           <C>              <C>             <C>            <C>             <C>
Amounts Due:
Within 3 months                            $     -      $     -          $     -         $ 1,295         $   672         $  1,967
3 months to 1 Year                               4            -                -           2,331             478            2,813
                                            ------       ------           ------          ------          ------          -------
   Total due in one year or less                 4            -                -           3,626           1,150            4,780
                                            ------       ------           ------          ------          ------          -------

After 1 year:
  1 to 3 years                                 151            -              104             905             963            2,123
  3 to 5 years                                 322            -            2,135             250             539            3,246
  5 to 10 years                              3,024          749            1,735               -           1,034            6,542
  10 to 20 years                             7,432        2,643            1,390               -           3,492           14,957
  Over 20 years                             22,939          622               95               -               -           23,656
                                            ------       ------           ------          ------          ------          -------
   Total due after one year                 33,868        4,014            5,459           1,155           6,028           50,524
                                            ------       ------           ------          ------          ------          -------
   Total amount due                        $33,872      $ 4,014          $ 5,459         $ 4,781         $ 7,178         $ 55,304
                                            ======       ======           ======          ======          ======          =======
Less:
Allowance for loan loss                                                                                                       218
Loans in process                                                                                                            1,449
Deferred loan fees                                                                                                             27
                                                                                                                           ------
  Loans receivable, net                                                                                                  $ 53,610
                                                                                                                          =======
</TABLE>

         The  following  table sets forth the dollar  amount at June 30, 2000 of
all loans due after June 30, 2001, which have pre-determined  interest rates and
which have adjustable interest rates.
<TABLE>
<CAPTION>
                                                                Adjustable
                                             Fixed Rates           Rates           Total
                                             -----------       ------------      --------
                                                              (In Thousands)
<S>                                          <C>              <C>               <C>
Residential one- to four-family                $ 8,165          $25,703           $33,868
Multi-family                                     3,031              983             4,014
Nonresidential and land                          5,235              224             5,459
Construction                                       255              900             1,155
Consumer and other                               2,384            3,644             6,028
                                                ------           ------            ------
  Total(1)                                     $19,070          $31,454           $50,524
                                                ======           ======            ======
</TABLE>
----------------------------
(1)  Before  deductions  for unearned  discounts,  deferred loan costs,  net and
     allowances for loan losses.

         One- to  Four-Family  Residential  Loans.  The Bank's  primary  lending
activity  consists of the  origination of one- to  four-family,  owner-occupied,
residential  mortgage  loans secured by property  located in the Bank's  primary
market area. At June 30, 2000,  the Bank had $33.9  million,  or 61.25%,  of its
loan portfolio  invested in these loans.  The Bank also offers home equity lines
of  credit  secured  by one- to  four-family  residential  properties  which are
discussed  below under "-- Consumer and Other Loans."  Management  believes that
this production of one- to four-family  loans has been effective in contributing
to net interest income while reducing credit risk by keeping loan  delinquencies
and losses to a minimum.

                                       4

<PAGE>

         The Bank offers ARMs that adjust  every year and have terms of up to 30
years.  Generally,  the interest rate  adjustments  on ARMs are based on the one
year  Treasury  bill index.  These ARMs have interest rate floors of 6%, so that
the interest rate on such loans cannot adjust below such floors. However, during
the fiscal year ended June 30, 2000, the Bank  originated  some ARMs at interest
rates up to .50% below such floors, although the initial rates are not below the
Bank's costs of funds and do not lead to negative amortization of the balance on
such loans.  The ARMs  originated for the Bank's  portfolio  carry interest rate
ceilings  up to 4.00%  above the initial  interest  rate on the loans.  The Bank
considers the market factors and  competitive  rates on loans as well as its own
cost of funds when determining the rates on the loans that it offers.

         The retention of ARMs in the Bank's  portfolio  greatly helps to reduce
the  Bank's  exposure  to  changes  in  interest  rates.   However,   there  are
unquantifiable  credit  risks which could  result from  potential  loan  payment
increases to the borrower as a result of the  repricing of ARMs.  It is possible
that during periods of rapidly  rising  interest  rates,  the risk of default on
ARMs may increase due to the upward adjustment of interest cost to the borrower.
Currently, the ARMs originated by the Bank provide for initial rates of interest
less than the fully  indexed  rates that would  prevail  were the index used for
repricing  applied  initially.  These  loans are  subject to  increased  risk of
delinquency  or  default  when  the  higher,   fully-indexed  rate  of  interest
subsequently comes into effect and replaces the lower initial rate.

         Generally, during periods of rising interest rates, the risk of default
on ARMs is  considered  to be greater  than the risk of default on a  fixed-rate
loan due to the upward  adjustment of interest  costs to the  borrower.  To help
reduce  such risk,  the Bank  qualifies  loans  above 80%  loan-to-value  at the
maximum second year rate, as opposed to the original  interest rate. ARMs may be
made at up to 95% of the loan to value ratio.  The Bank does not originate  ARMs
with negative amortization.

         The Bank also offers conventional  fixed-rate mortgage loans with terms
from 15 to 30 years.  A majority of the 15 to 30 year  fixed-rate  mortgages are
sold in the secondary mortgage market.

         Regulations  limit the amount which a savings  association  may lend in
relationship  to the  appraised  value of the real estate  securing the loan, as
determined  by an appraisal at the time of loan  origination.  Such  regulations
permit a maximum  loan-to-value  ratio of 100% for residential  property and 90%
for all other real estate loans. The Bank's lending policies, however, generally
limit  the  maximum  loan-to-value  ratio to 80% of the  appraised  value of the
property, based on an independent appraisal. When the Bank makes a mortgage loan
in excess of 80% of the  appraised  value or purchase  price,  private  mortgage
insurance  is  required  for at least the amount of the loan in excess of 80% of
the appraised value.

         The  loan-to-value   ratio,   maturity  and  other  provisions  of  the
residential  real  estate  loans made by the Bank  reflect  the policy of making
loans generally below the maximum limits permitted under applicable regulations.
The Bank requires an  independent  appraisal,  title  insurance or an attorney's
opinion, flood hazard insurance (if applicable), and fire and casualty insurance
on all properties securing real estate loans made by the Bank. The Bank reserves
the right to approve the selection of which title insurance  companies' policies
are acceptable to insure the real estate title in the loan transactions.

         While one- to  four-family  residential  real estate loans are normally
originated with 15-30 year terms,  such loans typically  remain  outstanding for
substantially  shorter  periods.  This is because  borrowers  often prepay their
loans in full upon sale of the property  pledged as security or upon refinancing
the original loan. In addition,  substantially  all of the mortgage loans in the
Bank's loan portfolio  contain  due-on-sale  clauses providing that the Bank may
declare the unpaid amount due and payable upon the sale of the property securing
the loan. The Bank enforces these due-on-sale clauses to the extent permitted by
law.

                                       5
<PAGE>

Thus, average loan maturity is a function of, among other factors,  the level of
purchase and sale activity in the real estate market,  prevailing interest rates
and the interest rates payable on outstanding loans.

         Multi-Family  and  Non-residential  Real Estate Loans.  The Bank in the
past has originated  non-residential  real estate and multi-family  loans.  This
type of lending  represents  a small  portion of the Bank's  lending  activities
although  management  anticipates  growth  in  the  respective  portfolio  as we
actively seek quality projects.  There were $3.5 million in non-residential real
estate loans originated  during the fiscal year ended June 30, 2000.  During the
same period, the bank originated $163,000 in multi-family loans.

         Non-residential real estate loans consist of permanent loans secured by
small office buildings,  churches,  shopping centers, and other  non-residential
buildings.  Non-residential  real  estate  and  multi-family  secured  loans are
generally  originated  in  amounts  up to  75%  of the  appraised  value  of the
property.  Such appraised value is determined by an independent  appraiser which
has been  previously  approved  by the Bank.  Multi-family  loans are  generally
secured by apartment buildings of 36 or fewer units.

         Non-residential  real  estate  and  multi-family  loans  are  generally
originated  on  an  adjustable-rate  basis  with  the  interest  rate  adjusting
annually.  Some of these  loans have an  interest  rate that is fixed for two to
three  years and then  adjusts  annually.  The Bank also  makes  some fixed rate
non-residential real estate and multi-family mortgages.

         Loans secured by multi-family and non-residential real estate generally
involve a greater  degree of risk than one- to  four-family  mortgage  loans and
carry larger loan balances.  This  increased  credit risk is a result of several
factors,  including the  concentration of principal in a limited number of loans
and borrowers,  the effects of general  economic  conditions on income producing
properties and the increased difficulty of evaluating and monitoring these types
of loans.  Furthermore,  the repayment of loans secured by  non-residential  and
multi-family real estate is typically dependent upon the successful operation or
management of the related real estate project. If the cash flow from the project
is reduced,  the borrower's ability to repay the loan may be impaired.  The Bank
seeks to minimize these risks in a variety of ways,  including limiting the size
of such loans and strictly scrutinizing the financial condition of the borrower,
the quality of the collateral  and the  management of the property  securing the
loan. The Bank may also obtain  personal  guarantees.  Substantially  all of the
properties  securing the Bank's  non-residential  and  multi-family  real estate
loans are inspected by the Bank's lending personnel before the loan is made. The
Bank generally obtains appraisals on each property in accordance with applicable
regulations.  At June 30, 2000, the largest non-residential or multi-family real
estate loan had a balance of $1.0 million and was secured by  multi-family  real
estate and was performing. See "-- Loans to One Borrower."

         Construction   Lending.   The  Bank  engages  in  construction  lending
involving loans to qualified  borrowers for  construction of one- to four-family
residential  properties and, on a limited basis,  involving  non-residential and
multi-family properties. These properties are located in the Bank's market area.

         Construction  loans are made to builders on a speculative  basis and to
owners  for  construction  of their  primary  residence.  Loans for  speculative
housing construction are made to area builders after a background check has been
made.  The  Bank  usually  will  have  no  more  than  four  construction  loans
outstanding  at any time to any single  builder.  Construction  loans on one- to
four-family properties are generally limited to a maximum loan-to-value ratio of
80%  and  have  a  maximum  maturity  of  12  months.   Construction   loans  on
non-residential  and multi-family  properties are generally limited to a maximum
loan-to-value  ratio of 75% and  have a  maximum  maturity  of 18  months.  Loan
proceeds are disbursed in increments as construction progresses and only after a
physical  inspection  of the  project is made by a  representative  of the Bank.
Accrued interest on loan disbursements is paid monthly. At June 30, 2000,

                                       6
<PAGE>

the Bank had $2.2 million in  construction  loans  outstanding  to builders on a
speculative  basis,  with  $735,000  in loans in process  (funds  being held for
construction progress) outstanding and attributed to these loans.

         Construction  loans to owners have either fixed or adjustable rates and
are  underwritten  in  accordance  with the same terms and  requirements  as the
Bank's permanent  mortgages on existing  properties except that the builder must
qualify as an approved  contractor by the Bank, and the loans generally  provide
for disbursement of loan proceeds in stages during the construction  period.  An
approved  contractor is one who has been approved by a title  insurance  company
that will insure the Bank against  mechanics'  liens or whose credit,  financial
statements and experience have been approved by the Bank. Borrowers are required
to  pay  accrued  interest  on  the  outstanding   balance  monthly  during  the
construction  phase.  At June  30,  2000,  there  was  $426,000  outstanding  in
construction  loans to owners  with  $322,000  outstanding  in loans in  process
allocated  to these  projects.  There were $1.8  million in  construction  loans
originated on nonresidential and multi-family  properties during the fiscal year
ended June 30, 2000.

         Construction  financing  is  generally  considered  to involve a higher
degree of risk of loss than  long-term  financing  on  improved,  occupied  real
estate.  Risk of loss on a  construction  loan is  dependent  largely  upon  the
accuracy  of the initial  estimate  of the  property's  value at  completion  of
construction  or  development  and the estimated  cost  (including  interest) of
construction. During the construction phase, a number of factors could result in
delays and cost  overruns.  If the  estimate of  construction  cost proves to be
inaccurate,  it may be necessary for the Bank to advance funds beyond the amount
originally  committed to permit completion of the construction.  If the estimate
of value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan,  with  collateral  having a value which is insufficient to
assure full repayment. As a result of the foregoing,  construction lending often
involves the  disbursement  of substantial  funds with repayment  dependent,  in
part,  on the success of the  project.  If the Bank is forced to  foreclose on a
property prior to or at completion  due to a default,  there can be no assurance
that the Bank will be able to recover all of the unpaid  balance of, and accrued
interest on, the loan as well as related foreclosure and holding costs. The Bank
has sought to minimize this risk by limiting  construction  lending to qualified
borrowers in the Bank's  market area and by limiting the number of  construction
loans outstanding at any time.

         Consumer  and  Other  Loans.  The Bank  views  consumer  lending  as an
important  component of its lending  operations because consumer loans generally
have  shorter  terms and higher  yields,  thus  reducing  exposure to changes in
interest  rates.  In addition,  the Bank believes that offering  consumer  loans
helps to expand and create stronger ties to its customer base. Consequently, the
Bank has increased its consumer  lending by marketing  home equity loans and all
other types of consumer loans to existing and potential  customers.  Regulations
permit  federally-chartered  savings  associations to make secured and unsecured
consumer loans up to 35% of the Bank's assets. In addition, the Bank has lending
authority  above  the  35%  limit  for  certain  consumer  loans,  such  as home
improvement loans and loans secured by savings accounts.

         Consumer  loans  consist  of  personal  secured  and  unsecured  loans,
automobile,  boat and recreational  vehicle loans, home improvement  loans, home
equity loans and lot loans.

         The Bank also offers a home equity line of credit, which is a revolving
line of  credit  secured  by a first or  second  mortgage.  Available  credit is
accessible to the customer by either writing a check or requesting an advance at
a branch office of the Bank. The rate on such loans is adjustable monthly.

         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing  obligations and payments on the proposed
loan. In addition,  the stability of the applicant's monthly income from primary


                                       7
<PAGE>

employment is considered during the underwriting  process.  Creditworthiness  of
the applicant is of primary  consideration;  however,  the underwriting  process
also includes a comparison of the value of the security,  if any, in relation to
the proposed loan amount.

         The  Bank  is  allowed  to  make  secured  and   unsecured   loans  for
nonresidential,  business and agricultural  purposes  (including the issuance of
letters of credit) in amounts not  exceeding  10% of the Bank's  assets.  On the
secured  loans,   collateral  may  include  real  estate,   business  equipment,
inventories, accounts receivable, cash equivalents and other types of acceptable
security.  Non-real  estate  commercial  lending  by the Bank has been  limited,
however it has significant  focus in our game plan as we expand our loan product
offerings. Letters of credit have mostly been provided to contractors for use in
land  development.  The letters of credit have  generally  been  secured by real
estate and  generally  contain  personal  guarantees  of the  principals  of the
borrowing entity.

         The aggregate amount of commercial  business loans  outstanding may not
exceed  20% of the  Bank's  assets,  and  amounts in excess of 10% of such total
assets may be used only for small  business  loans.  As of June 30,  2000,  $1.3
million or 2.30% of the Bank's loan  portfolio  was  categorized  as  commercial
business loans.

         Consumer  and  commercial  loans  entail  greater  credit  risk than do
residential mortgage loans,  particularly in the case of consumer and commercial
loans which are unsecured or secured by assets that depreciate rapidly, which in
the  case of  consumer  loans  include  automobiles,  mobile  homes,  boats  and
recreational  vehicles  and in the case of  commercial  loans  include  business
equipment,  inventories  and  accounts  receivable.  In such cases,  repossessed
collateral  for a  defaulted  consumer  or  commercial  loan may not  provide an
adequate  source  of  repayment  for the  outstanding  loan  and  the  remaining
deficiency often does not warrant further substantial collection efforts against
the borrower.  In  particular,  amounts  realizable  on the sale of  repossessed
automobiles or business  equipment may be  significantly  reduced based upon the
condition  of the  collateral  and the lack of demand  for used  automobiles  or
business equipment.

         Loan Solicitation,  Approval and Processing. The Bank's sources of loan
applications are referrals from existing or past customers, real estate brokers,
call-in and walk-in customers, builders and the result of advertising.  Mortgage
originators,  branch managers,  consumer and commercial lenders are proactive in
solicitation of new business.

         Specified  officers have  individual loan authority for approval of all
types of credit.  A combination  of the  President  and two other  officers have
authority up to and  including  $250,000.  The  Management  Loan  Committee  has
authority up to and including  $500,000.  All contruction  loans, all letters of
credit, and lines of credit over $25,000 must be approved by the Management Loan
Committee.  The Board Loan Committee has authority up to and including $750,000.
All credits over $750,000  must be approved by the Board of Directors.  The Bank
uses  Office of Thrift  Supervision  (the  "OTS")  guidelines  as to legal  loan
limits.

         All loan  authorities  represent total direct and indirect  obligations
owing to Bank to include  unfunded  commitments  and to exclude  debt on primary
residence  secured by First Deed of Trust to the Bank. Debt on primary residence
secured by First Deed of Trust to the Bank is included in total  liability recap
for determination of limit to loans to one borrower.

         The Bank uses  independent  fee  appraisers on all real estate  related
transactions.  Each fee appraiser  used must be state  licensed or certified and
approved by the Bank's  Board of  Directors.  It is the Bank's  policy to obtain
title insurance or an attorney's opinion and certification of title and fire and
casualty  insurance  for all  mortgage  loans.  Flood  insurance is required for
properties located in flood zones.

                                       8
<PAGE>

         Loan Originations,  Purchase, Sales and Repayments. The following table
sets forth the Bank's loan originations, sales, and principal repayments for the
periods indicated.

<TABLE>
<CAPTION>
                                                                         Year Ended June 30,
                                                                 --------------------------------
                                                                     2000                  1999
                                                                 --------------------------------
                                                                          (In Thousands)

<S>                                                             <C>                   <C>
Total gross loans receivable at
  beginning of period                                               $46,915               $50,106

Loans originated:
  One- to four-family residential                                    18,512                38,319
  Multi-family residential                                              163                   781
  Non-residential and land                                            3,547                   300
  Construction loans                                                  4,178                 4,713
  Consumer loans                                                      4,379                 1,796
                                                                     ------                ------
    Total loans originated                                           30,779                45,909
                                                                     ------                ------

Loans purchased:
  One- to four-family residential                                         -                     -
  Multi-family residential                                            1,300                     -
  Non-residential and land                                              600                 1,313
                                                                     ------                ------
  Total loans purchased                                               1,900                 1,313
                                                                     ------                ------

Loans sold                                                           (9,931)              (30,742)
                                                                      -----                ------

Other loan activity:
  Loan principal repayments                                         (23,285)              (25,125)
  Other (net)                                                         8,926                 5,454
                                                                     ------                ------
  Net other loan activity                                           (14,359)              (19,671)
                                                                     ------                ------

  Total gross loans receivable at
    end of period                                                   $55,304               $46,915
                                                                     ======                ======

</TABLE>

         Loan  Purchases  and Sales.  Prior to 1990 the  Bank's  loan sales were
insignificant.  Any loans  sold  were  individual  loans  with  other  financial
institutions.  The Bank began  originating loans to sell in the secondary market
in 1990. In March 1992, the Bank opened a loan  production  office separate from
its  banking  facilities  to  concentrate  more  activity  for loan sales in the
secondary  market.  The Bank originates  mostly fixed-rate loans for sale in the
secondary  market.  These  loans  include  15  to  30  year,  80%  loan-to-value
conventional  loans (the portion of the loans above 80% are insured with private
mortgage  insurance),  Federal  Housing  Administration  ("FHA")  and  Veteran's
Administration  ("VA") loans.  The Bank uses standard Federal Home Loan Mortgage
Corporation("FHLMC")/Federal     National    Mortgage    Association    ("FNMA")
documentation for its conventional loans.

         Currently,  the Bank sells loans to other  lenders who sell directly to
FHLMC, FNMA and Government  National  Mortgage  Association  ("GNMA").  The Bank
sells the majority of its loans with  servicing  released.  These loans are sold
without recourse.

         Loan Commitments. The Bank issues loan commitments for 60 days or less.
No points are normally  charged for these  commitments.  The Bank will  consider
extended  commitment periods and may charge fees based on the length and type of
commitment.  At June 30,  2000,  the Bank had $2.0  million  of

                                       9

<PAGE>

commitments  to  finance  real  estate  acquisitions  and  construction  and had
contracted to sell $540,000 of such loans.

         Loan  Processing and Servicing  Fees. In addition to interest earned on
loans,  the Bank recognizes fees and service charges which consist  primarily of
fees  charged  for loan  originations  and loans  serviced  for  others and late
charges.  The Bank  recognized loan servicing fees of $1,000 for the fiscal year
ended June 30,  2000.  As of June 30, 2000,  the Bank had no loan fees  deferred
under  GAAP.  During  the  year  ended  June  30,  2000,  the  Virginia  Housing
Development  Authority ("VHDA") repurchased the servicing rights on their loans.
Loans serviced for FHLMC totaled $244,000.

         Loans to One  Borrower.  Savings  associations  are subject to the same
limits as those  applicable to national banks,  which under current  regulations
limit loans-to-one  borrower in an amount equal to 15% of unimpaired capital and
retained income on an unsecured  basis and an additional  amount equal to 10% of
unimpaired  capital  and  retained  income  if the loan is  secured  by  readily
marketable collateral  (generally,  financial  instruments,  not real estate) or
$500,000, whichever is higher. The amount is calculated according to the capital
at the time of the loan and may differ  from  current  calculations.  The Bank's
maximum  loan-to-one  borrower limit was  approximately  $993,000 as of June 30,
2000.

         The Bank's  largest group of loans to one borrower at June 30, 2000 was
$1.3 million which consisted of loans to finance an apartment  complex including
rehabilitation.  The  second  largest  group of loans to one  borrower  was $1.0
million  which  consisted  of loans  secured by an apartment  complex.  The next
largest  group of loans to one borrower was  $981,000  which  consisted of loans
secured by a group of duplexes.

         Loan  Delinquencies.  Loans past due more than 90 days are individually
examined  for  potential  losses and the ultimate  collectibility  of funds due.
Loans are deemed to have no loss exposure if the value of the property  securing
the loan exceeds the  receivable  balance on the loan or collection is probable.
Such loans are kept on an accruing status pending monthly review. Loans that are
deemed  to  contain  a  potential  loss  exposure  to the  Bank  are  placed  on
non-accrual  status  by the Bank  and all  interest  past  due on such  loans is
reserved.  Specific reserves are established to recognize losses on non-accruing
loans on a case-by-case basis.

         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure  is classified as foreclosed  real estate until such time
as it is sold. When  foreclosed  real estate is acquired,  it is recorded at the
lower of fair value or cost. Valuations are periodically performed by management
and  subsequent  charges  to income  are taken  when it is  determined  that the
carrying value of the property  exceeds the fair value less  estimated  costs to
sell.

                                       10
<PAGE>

         Non-Performing  Assets.  The  following  table sets  forth  information
regarding  loans which are 90 days or more  delinquent  but on which the Bank is
accruing  interest  at the  dates  indicated.  At June  30,  2000,  the Bank had
$186,000 in foreclosed loans accounted for on a non-accrual basis. There were no
restructured loans within the meaning of SFAS 15.
<TABLE>
<CAPTION>

                                                                               At June 30,
                                                                       ------------------------
                                                                            2000         1999
                                                                       ------------  ----------

                                                                           (In Thousands)

<S>                                                                    <C>          <C>
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
  Permanent loans secured by one-to four- family dwelling units           $    -       $   61
  All other mortgage loans                                                     -            -
                                                                           -----        -----
Total                                                                     $    -       $   61
                                                                           =====        =====
Total non-accruing loans past due 90 days or more                         $    -       $    -
                                                                           -----        -----
Foreclosed real estate                                                    $  186       $    -
                                                                           -----        -----
Total non-performing assets                                               $  186       $    -
                                                                           =====        =====
Total non-performing loans past due 90 days or more to total loans           .00%         .00%
Total non-performing loans past due 90 days or more to total assets          .00%         .00%
                                                                           =====        =====
Total non-performing assets to total assets                                  .22%         .00%
                                                                           =====        =====

</TABLE>

         Classified Assets. The Office of Thrift Supervision ("OTS") regulations
provide for a classification  system for problem assets of insured  institutions
which  covers all problem  assets.  Under this  classification  system,  problem
assets of insured  institutions are classified as "substandard,"  "doubtful," or
"loss." An asset is considered  "substandard" if it is inadequately protected by
the current net worth and paying  capacity of the obligator or of the collateral
pledged,  if  any.  "Substandard"  assets  include  those  characterized  by the
"distinct  possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected.  Assets classified as "doubtful" have all of
the  weaknesses  inherent  in those  classified  "substandard,"  with the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts,  conditions and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
designated  "special  mention" by management  are assets  included on the Bank's
internal  watch list  because of potential  weakness but which do not  currently
warrant classification in one of the aforementioned categories.

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish general  allowances for credit losses
in an amount deemed prudent by  management.  General  allowances  represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem  assets as  "loss,"  it is  required  either  to  establish  a  specific
provision for losses equal to 100% of that portion of the asset so classified or
to  charge  off  such  amount.   An   institution's   determination  as  to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject  to  review  by the  OTS,  which  may  recommend  the  establishment  of
additional  general or  specific  loss  allowances.  A portion  of general  loss
allowances  established to cover possible losses related to assets classified as
substandard  or  doubtful  may  be  included  in  determining  an  institution's
regulatory  capital,  while  specific  valuation  allowances  for credit  losses
generally do not qualify as regulatory capital.

                                       11
<PAGE>

         The following table provides further  information  regarding the Bank's
classified assets and allowances for credit losses at June 30, 2000.

                                                  (In Thousands)
        Special Mention                              $     -
        Substandard                                      332
        Doubtful assets                                  186
        Loss assets                                        -
        General loss allowance                           218
        Specific loss allowance                            -
        Charge-offs                                        4


         All loans  classified as  substandard  were on single  family  mortgage
loans. The doubtful loans are secured by real estate.

         Foreclosed Real Estate. Real estate acquired by the Bank as a result of
foreclosure,  judgment  or by  deed  in lieu of  foreclosure  is  classified  as
foreclosed  real  estate  until it is sold.  When  property  is  acquired  it is
recorded  at the  lower of the cost or fair  value.  The  Bank had  $186,000  in
foreclosed real estate at June 30, 2000.

         Allowances for Credit Losses.  The Bank provides  valuation  allowances
for estimated losses from uncollectible loans.  Management's periodic evaluation
of the adequacy of the allowance for credit losses is based on loss  experience,
known and inherent risk in the  portfolio,  prevailing  market  conditions,  and
management's  judgment as to collectibility.  The new emphasis on commercial and
consumer  loans  may add  credit  risk to the  loan  portfolio  due to the  risk
inherent  nature of the loans.  Policies  are in place and  practices  are being
monitored  in order to minimize  potential  loss which  includes an  appropriate
increase in the loan loss  provision in the next fiscal year.  The allowance for
credit losses is increased by charges to earnings and  decreased by  charge-offs
(net of recoveries).

         The following  table sets forth the Bank's  allowance for credit losses
and related ratios.


                                                                At June 30,
                                                         -----------------------
                                                             2000       1999
                                                         -----------------------

                                                          (Dollars in Thousands)

Total loans                                                 $55,304    $46,915
                                                             ======     ======

Allowance balances (at beginning of period)                 $   210    $   207
Provision                                                        12         13
Net Charge-offs                                                  (4)       (10)
                                                             ------     ------
Allowance balance (at end of period)                        $   218    $   210
                                                             ======     ======

Allowance for credit losses as a percentage of total loans      .39%       .45%
                                                             ======     ======

                                       12
<PAGE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's  allowance for loan losses by loan category and the
percent of loans in each category to total loans  receivable,  net, at the dates
indicated.  The  portion  of the loan  loss  allowance  allocated  to each  loan
category  does not  represent  the total  available  for future losses which may
occur  within  the loan  category  since the  total  loan  loss  allowance  is a
valuation reserve applicable to the entire loan portfolio.
<TABLE>
<CAPTION>

                                                            At June 30,
                                          -----------------------------------------------------
                                                 2000                         1999
                                          -----------------------------------------------------
                                                    Percent of                      Percent of
                                                   Loans in Each                   Loans in Each
                                                    Category to                     Category to
                                          Amount    Total Loans        Amount       Total Loans
                                          ------    -----------        ------     --------------

                                                       (Dollars in Thousands)

<S>                                    <C>            <C>            <C>              <C>
Residential, one-four family              $134           61.25%         $145             68.94%
Residential, multifamily                    16            7.26            19              8.92
Nonresidential and land                     21            9.87             9              4.41
Construction                                19            8.64            18              8.58
Consumer                                    23           10.68            18              8.93
Commercial                                   5            2.30             1              0.22
                                           ---         -------          ----            ------
                                          $218          100.00%        $ 210            100.00%
                                           ===         =======          ====            ======

</TABLE>

Investment and Mortgage-backed Securities Activities

         Investment  Securities.  The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term  securities  and certain  other  investments.  The Bank has generally
maintained  a liquidity  portfolio  well in excess of  regulatory  requirements.
Liquidity  levels may be  increased or  decreased  depending  upon the yields on
investment  alternatives and upon management's judgment as to the attractiveness
of the  yields  then  available  in  relation  to  other  opportunities  and its
expectation of future yield levels,  as well as  management's  projections as to
the short-term  demand for funds to be used in the Bank's loan  origination  and
other  activities.  At June 30,  2000,  the Bank  had an  investment  securities
portfolio  of  approximately  $26.5  million,   consisting   primarily  of  U.S.
government and agency  obligations,  interest bearing deposits,  FHLB stock, and
marketable  equity  securities.  The Bank will  continue  to seek  high  quality
investment  securities  for  liquidity  purposes.  The Bank seeks  high  quality
investment securities up to 30 years in maturity.

         Effective July 1, 1994, the Bank adopted Financial Accounting Standards
Board Statement 115 ("FASB 115"),  "Accounting  for Certain  Investments in Debt
and Equity  Securities,"  which resulted in the  reclassification  of investment
securities  and  mortgage-backed  securities  into those which are available for
sale and those which are intended to be held to maturity. The unrealized gain or
loss on the securities classified as available for sale, along with those of the
marketable  equity  securities,  are recognized,  net of the expected income tax
effect, as a separate component of retained earnings.

                                       13
<PAGE>

         Mortgage-backed   Securities.  The  Bank  has  in  the  past  purchased
mortgage-backed  securities  guaranteed by participation  certificates issued by
the FHLMC and secured by interests in pools of conventional mortgages originated
by the  Bank.  These  mortgage  backed  securities  are  classified  as "held to
maturity".

         Mortgage-backed   securities  are  secured  by  interest  in  pools  of
conventional  mortgages or government  backed mortgage loans originated by other
mortgage lenders.  The Bank may purchase  mortgage-backed  securities from FNMA,
GNMA and FHLMC and generally classifies them as "available for sale". During the
year  ended  June  30,  2000,  the  Bank did not  purchase  any  mortgage-backed
securities.

         Mortgage-backed  securities  provide for monthly  payments of principal
and interest and  generally  have  contractual  maturities  ranging from five to
thirty years.  However, due to expected repayment terms being significantly less
than the underlying  mortgage loan pool  contractual  maturities,  the estimated
lives of these securities could be significantly shorter.

         As of  June  30,  2000,  mortgage-backed  securities  amounted  to $8.7
million or 10.34% of total assets.

Investment and Mortgage-Backed Securities Portfolio

         The  following  table  sets  forth  the  carrying  value of the  Bank's
investment  securities  portfolio,   short-term  investments,  FHLB  stock,  and
mortgage backed and related securities at the dates indicated. At June 30, 2000,
the fair value of the Bank's investment portfolio was $25.2 million.
<TABLE>
<CAPTION>


                                                                               2000                      1999
                                                                   ------------------------   --------------------------
                                                                      Amortized       Fair       Amortized       Fair
                                                                        Cost          Value         Cost         Value
                                                                   -------------   ---------  --------------------------
                                                                                   (Dollars in Thousands)
<S>                                                                 <C>         <C>            <C>          <C>
Available for sale securities:
  US Government & Agency Bonds                                          $12,000     $11,126        $12,000      $11,476
  Federal Home Loan Bank
            of Atlanta Stock                                                585         585            600          600
  FNMA mortgage-backed securities                                           524         525            681          700
  GNMA mortgage-backed securities                                         7,904       7,608          8,591        8,412
  Municipal Bonds                                                         2,446       2,258          2,442        2,346
                                                                         ------      ------         ------       ------
                                                                         23,459      22,102         24,314       23,534
                                                                         ------      ------         ------       ------
Held to maturity securities:
  Interest-bearing deposits (1)                                           2,818       2,818          7,878        7,878
  FHLMC participation certificates                                          254         254            283          292
                                                                         ------      ------         ------       ------
                                                                          3,072       3,072          8,161        8,170
                                                                         ------      ------         ------       ------
                                      Total investment securities       $26,531     $25,174        $32,475      $31,704
                                                                         ======      ======         ======       ======

</TABLE>

---------------------
(1)      Includes time and overnight deposits which are also cash equivalents.

                                       14
<PAGE>



         The  following  table  sets forth  certain  information  regarding  the
carrying values, weighted average yields and maturities of the Bank's investment
portfolio at June 30, 2000.
<TABLE>
<CAPTION>

                                One Year or Less         One to Five Years      More than Five Years   Total Investment Portfolio
                             ---------------------    ---------------------    ---------------------   ---------------------------
                              Amortized    Average   Amortized    Average    Amortized     Average    Amortized   Average    Fair
                                Cost        Yield      Cost        Yield       Cost         Yield        Cost      Yield    Value
                             -----------   --------  ----------   --------   ----------    --------  -----------  --------  ------

                                                                  (Dollars in Thousands)

<S>                           <C>          <C>      <C>          <C>        <C>         <C>        <C>         <C>      <C>
Interest-bearing deposits        $2,619       6.44%   $ 199        6.23%      $     -           -%    $ 2,818     6.21%    $2,818
US Government &
 agency bonds                         -          -        -           -        12,000        6.88      12,000     6.88     11,126
Mortgage-backed
  securities                          -          -        -           -         8,682        7.14       8,682     7.14      8,387
FHLB Stock                          585       7.75        -           -             -           -         585     7.75        585
Municipal Bonds                       -          -      199           -         2,446        4.66       2,446     4.66      2,258
                                  -----     ------     ----       -----        ------       -----      ------    -----     ------
  Total                          $3,204       6.68%   $ 199        6.23%      $23,128        6.74%    $26,531     6.71%   $25,174
                                  =====     ======     ====       =====        ======       =====      ======    =====     ======
</TABLE>


Sources of Funds

    General.  The  major  source  of the  Bank's  funds  for  lending  and other
investment  purposes are  deposits,  amortization  and  prepayment  of loans and
mortgage-backed securities,  maturities of investment securities and operations.
Scheduled  loan principal  repayments  are a relatively  stable source of funds,
while  deposit  inflows and  outflows  and loan  prepayments  are  significantly
influenced by general  interest rates and market  conditions.  The Bank has also
utilized advances from the FHLB of Atlanta.

    Deposits. Customer deposits are attracted principally from within the Bank's
primary  market  area  through  the  offering  of a broad  selection  of deposit
instruments including  noninterest-bearing  demand deposit accounts,  negotiable
order of withdrawal  ("NOW")  accounts,  regular  savings,  money market deposit
accounts,  term certificate  accounts,  individual  retirement accounts ("IRAs")
with fixed and variable  rates of interest and club  accounts.  Deposit  account
terms vary according to the minimum balance required,  the time period the funds
must remain on deposit and the interest rate.

    The interest  rates paid by the Bank on deposits are set at the direction of
the asset/liability committee which consists of senior management.  The interest
rates on deposit  account  products are  determined by evaluating  the following
factors: (i) the Bank's anticipated need for cash and the timing of that desired
cash  flow;   (ii)  the  interest   rates  offered  by  other  local   financial
institutions,  and the degree of competition the Bank wishes to maintain;  (iii)
the cost of borrowing  from other  sources  versus the cost of  acquiring  funds
through customer deposits;  and (iv) the Bank's  anticipation of future economic
conditions and related interest rates.

    The Bank relies primarily on its service and longstanding  relationship with
customers to obtain  deposits and does not accept brokered  deposits.  It is the
intent of the Bank's  management to increase  deposits  through  advertising and
marketing.  Products  emphasized  are  checking  accounts  and  certificates  of
deposit.

    Noninterest-bearing  demand  deposit  accounts,  NOW accounts,  money market
accounts, regular savings and club accounts constituted $19.2 million, or 29.64%
of the Bank's deposit portfolio at June 30, 2000. At that date,  certificates of
deposit constituted $45.6 million or 70.36% of the deposit portfolio,  including
certificates  of deposit  with  principal  amounts of  $100,000  or more,  which
constituted $6.9

                                       15
<PAGE>

million or 10.66% of the deposit portfolio. The Bank generally negotiates retail
rates for certificates of deposit of $95,000 or more.

    The  following  table sets  forth the  distribution  of the  Bank's  deposit
accounts for the periods  indicated and the weighted  average  interest rates on
each category presented.
<TABLE>
<CAPTION>

                                                                        At June 30,
                                            ---------------------------------------------------------------------
                                                       2000                                 1999
                                            -------------------------------   -----------------------------------
                                                                     Weighted                             Weighted
                                                          Percent    Average                 Percent      Average
                                                          of Total    Nominal                of Total      Nominal
                                             Amount        Deposits    Rate     Amount       Deposits      Rate
                                           ---------     ----------  --------  --------     ----------    -------
                                                                 (Dollars in Thousands)
<S>                                     <C>             <C>         <C>      <C>            <C>          <C>
Demand accounts:
  Noninterest-bearing demand deposit        $ 1,840         2.84%       .00%     $1,284         2.07%        .00%
  NOW                                         6,576        10.16       1.68       5,434         8.75        1.49
  Money market                                2,668         4.12       2.52       3,233         5.21        2.52
  Regular savings                             8,042        12.42       3.00       8,626        13.89        3.00
  Club                                           62          .10       2.00          62         0.10        2.00
                                             ------        -----                 ------        -----
     Total                                   19,188        29.64                 18,639        30.02
                                             ------        -----                 ------        -----
  Certificate accounts:
  Fixed rates of interest:
     7 to 91 days                               707         1.09       4.32          87          .14        3.00
     Over 91 to 180 days                      2,498         3.86       5.01       2,505         4.03        3.99
     Over 181 to 365 days                    22,506        34.76       5.67      15,121        24.35        4.63
     Over 1 year to 3 years                   7,616        11.76       4.99      11,506        18.53        5.09
     Over 3 years and up                        177          .27       5.00         254          .41        5.15
     Other                                    5,664         8.75       5.77       7,475        12.04        5.24
Variable rates of interest
     Over 1 year                              5,745         8.87       6.59       6,229        10.03        4.79
Negotiable rate                                 647         1.00       6.00         278          .45        5.05
                                             ------       ------                 ------       ------
         Total                               45,560        70.36                 43,455        69.98
                                             ------       ------                 ------       ------
         Total deposits                     $64,748       100.00%      4.61%    $62,094       100.00%       4.07%
                                             ======       ======                 ======       ======

</TABLE>

         The  following  table  sets forth the  amount  and  maturities  of time
deposits at June 30, 2001.
<TABLE>
<CAPTION>

                                              Amount Due
           ------------------------------------------------------------------------------------
                                                                      After
                 June 30,          June 30,          June 30,         June 30,
                  2001              2002              2003             2004             Total
           ---------------    --------------    ---------------    -------------    -----------

                                                 (In Thousands)

<S>           <C>             <C>                 <C>             <C>             <C>
3.00-4.00%      $     80           $     -          $      -         $      -          $     80
4.01-5.00%         7,569             1,232               151               26             8,978
5.01-6.00%        15,897               301                36                -            16,234
6.01-7.00%        18,581             1,687                 -                -            20,268
                 -------            ------           -------          -------           -------
  Total         $ 42,127           $ 3,220          $    187         $     26          $ 45,560
                 =======            ======           =======          =======           =======
</TABLE>

                                       16

<PAGE>



         The  following table indicates the amount of the Bank's certificates of
deposit  and  other  time  deposits  $100,000  or more by time  remaining  until
maturity as of June 30, 2000.


                                           Certificates
                                               of
                                             Deposits
                                         ----------------
                                          (In Thousands)

Within three months                          $2,601
Three through six months                        826
Six through twelve months                     3,014
Over twelve months                              439
                                              -----
                                             $6,880
                                              =====


         Borrowings.  Deposits  are the  primary  source of funds of the  Bank's
lending and investment  activities and for its general  business  purposes.  The
Bank may also obtain  advances from the FHLB of Atlanta to supplement its supply
of lendable funds and to use for investment  activities.  Advances from the FHLB
of Atlanta  would  typically  be secured by a pledge of the Bank's  stock in the
FHLB of Atlanta  and a portion of the Bank's  first  mortgage  loans and certain
other  assets.  The Bank,  if the need arises,  may also access the FRB discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.  At June 30,  2000,  the Bank had  $11.7  million  in  outstanding
advances  from  FHLB.  The Bank had a  $250,000  outstanding  balance  on a note
payable to the Company as of June 30, 2000.

Competition

         The  Bank  encounters  strong  competition  both in the  attraction  of
deposits  and  origination  of real  estate  and other  loans.  Competition  for
deposits comes  primarily  from numerous  credit  unions,  commercial  banks and
savings  institutions  with offices in the Bank's market area.  Competition  for
loans comes primarily from branches of commercial  banks and mortgage  companies
that operate in the areas which  comprise the Bank's primary market area. Due to
their  size,  many of the  Bank's  competitors  possess  greater  financial  and
marketing  resources.  The  Bank  competes  for  savings  accounts  by  offering
depositors  competitive interest rates and a high level of personal service. The
Bank competes for loans  primarily  through the interest  rates and loan fees it
charges and the efficiency and quality of services it provides  borrowers,  real
estate brokers and contractors.

         Thrift  institutions  can offer a wide range of services to the public,
such as demand  deposits,  trust services and consumer and  commercial  lending.
These  factors,  combined  with  increasingly  sophisticated  depositors,   have
dramatically increased competition for savings dollars among thrift institutions
and other types of  investment  entities,  as well as with  commercial  banks in
regard to loans,  checking  accounts and other types of financial  services.  In
addition, large conglomerates and investment banking firms compete in the market
for financial services.

Subsidiary Activity

         The Bank is  permitted  to invest up to 2% of its assets in the capital
stock of, or secured or unsecured  loans to,  subsidiary  corporations,  with an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community development  purposes.  Under such limitations,


                                       17
<PAGE>

as of June 30, 2000, the Bank was authorized to invest up to approximately  $1.7
million in the stock of, or loans to,  service  corporations  (based upon the 2%
limitation). As of June 30, 2000, the net book value of the Bank's investment in
its service corporation was approximately $29,000.

         The Bank has one subsidiary,  Southwest  Virginia Service  Corporation,
Inc.  which was  incorporated  in 1975 in the  Commonwealth  of Virginia  and is
engaged in the sale of annuities,  credit life and  disability  insurance to the
borrowers of the Bank. The income from this subsidiary was $8,000 for the fiscal
year ended June 30, 2000.

Employees

         As of June 30, 2000, the Bank had 38 full-time  employees.  None of the
Bank's  employees are  represented by a collective  bargaining  group.  The Bank
believes that its relationship with its employees is good.

Regulation

         Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Bank. The description  does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

Recent Regulation

         The Gramm-Leach-Bliley Act (the "Act") became effective March 11, 2000,
which permits  qualifying  bank holding  companies to become  financial  holding
companies and thereby  affiliate with securities  firms and insurance  companies
and engage in other  activities  that are  financial in nature.  The Act defines
"financial  in nature" to include  securities  underwriting,  dealing and market
making; sponsoring mutual funds and investment companies; insurance underwriting
and agency;  merchant  banking  activities;  and  activities  that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage,  subject to limitations on investment,  in activities that are financial
in nature,  other  than  insurance  underwriting,  insurance  company  portfolio
investment,  real  estate  development,  and real estate  investment,  through a
financial subsidiary of the bank.

         The Act also  prohibits  new  unitary  thrift  holding  companies  from
engaging in  nonfinancial  activities or from  affiliating  with an nonfinancial
entity.  As a  grandfathered  unitary thrift holding  company,  the Company will
retain its authority to engage in nonfinancial activities. However, the Act will
have  few  direct  effects  on the  operations  or  powers  of  federal  savings
associations or of savings and loan holding companies.

         The Act imposes  significant  new  financial  privacy  obligations  and
reporting requirements on all financial institutions,  including federal savings
associations.  Specifically,  the  statute,  among other  things,  will  require
financial  institutions  (a) to establish  privacy policies and disclose them to
customers both at the  commencement of a customer  relationship and on an annual
basis  and  (b) to  permit  customers  to opt out of a  financial  institution's
disclosure of financial  information to  nonaffiliated  third  parties.  The Act
requires the federal financial regulators to promulgate regulations implementing
these  provisions  within six months of  enactment,  and the  statute's  privacy
requirements  will take  effect  one year  after  enactment.


                                       18
<PAGE>

 Regulation  of the Company

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Company and its non-savings association  subsidiaries,  should such subsidiaries
be formed,  which also permits the OTS to restrict or prohibit  activities  that
are determined to be a serious risk to the subsidiary savings association.  This
regulation  and  oversight  is  intended  primarily  for the  protection  of the
depositors of the Bank and not for the benefit of stockholders of the Company.

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions,  provided the Bank satisfies the Qualified
Thrift Lender  ("QTL") test.  The Act  terminated  the "unitary  thrift  holding
company   exemption"  for  all  companies   that  applied  to  acquire   savings
associations  after May 4, 1999. Since the Company is  grandfathered  under this
provision of the Act, its unitary holding  company powers and  authorities  were
not affected.  However,  if the Company were to acquire control of an additional
savings  association,  its business  activities  would be subject to restriction
under the Home Owners' Loan Act. Furthermore,  if the Company were in the future
to sell control of the Bank to any other company, such company would not succeed
to the Company's  grandfathered status under the Act and would be subject to the
same business activity  restrictions.  See "- Regulation of the Bank - Qualified
Thrift Lender Test."

Regulation of the Bank

         General.  Set forth below is a brief  description  of certain laws that
relate to the  regulation of the Bank.  The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.  As a federally chartered,  SAIF-insured  savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Federal Reserve Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
are insured by the SAIF to a maximum of  $100,000  for each  insured  member (as
defined by law and  regulation).  Insurance of

                                       19
<PAGE>

deposits may be terminated by the FDIC upon a finding that the  institution  has
engaged in unsafe or unsound practices,  is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation,  rule, order
or condition imposed by the FDIC or the institution's primary regulator.

         The Bank is required to pay insurance premiums based on a percentage of
its insured  deposits to the FDIC for insurance of its deposits by the SAIF. The
FDIC also  maintains  another  insurance  fund, the Bank Insurance Fund ("BIF"),
which primarily insures  commercial bank deposits.  The FDIC has set the deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2000 at 0% to .027% of insured  deposits  on an  annualized  basis,  with the
assessment rate for most savings institutions set at 0%.

         In  addition,  all  FDIC-insured   institutions  are  required  to  pay
assessments  to the FDIC at an annual  rate of  approximately  .0212% of insured
deposits to fund interest payments on bonds issued by the Financing  Corporation
("FICO"),  an agency of the Federal  government  established to recapitalize the
predecessor to the SAIF.  These  assessments  will continue until the FICO bonds
mature in 2017.

         Loans to One  Borrower.  A savings  association  may not make a loan or
extend  credit to a single or related group of borrowers in excess of 15% of the
associations's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of the unimpaired capital and surplus, under certain circumstances.
At June 30, 2000, the  Registrant's  lending limit for loans to one borrower was
approximately  $993,000 and had no  outstanding  commitments  that  exceeded the
loans to one borrower limit at the time originated or committed.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based  capital  requirement
equal to 8.0% of total risk-weighted assets.

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends.

         A  savings  association  that is a  subsidiary  of a  savings  and loan
holding company,  such as the Bank must file an application or a notice with the
OTS at least 30 days before making a capital distribution.  Savings associations
are not  required  to file  an  application  for  permission  to make a  capital
distribution  and need only file a notice if the following  conditions  are met:
(1) they are eligible for expedited  treatment under OTS  regulations,  (2) they
would  remain  adequately  capitalized  after the  distribution,  (3) the annual
amount of capital  distribution does not exceed net income for that year to date
added to retained net income for the two  preceding  years,  and (4) the capital
distribution  would not violate any  agreements  between the OTS and the savings
association  or any OTS  regulations.  Any  other  situation  would  require  an
application to the OTS.

         The OTS may disapprove an application or notice if the proposed capital
distribution   would:  (i)  make  the  savings   association   undercapitalized,
significantly  undercapitalized,  or  critically  undercapitalized;  (ii)  raise
safety  or  soundness  concerns;  or (iii)  violate  a  statue,  regulation,  or
agreement  with  the OTS (or  with  the  FDIC),  or a  condition  imposed  in an
OTS-approved application or notice. Further, a federal

                                       20
<PAGE>

savings association, like the Bank, cannot distribute regulatory capital that is
needed for its liquidation account.

         Qualified Thrift Lender Test.  Federal savings  institutions  must meet
one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal  Revenue Code by maintaining at least 60% of its total assets
in specified types of assets,  including cash,  certain  government  securities,
loans  secured  by and  other  assets  related  to  residential  real  property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by  maintaining at
least 65% of its "portfolio  assets" in  certain"Qualified  Thrift  Investments"
(defined  to include  residential  mortgages  and  related  equity  investments,
certain  mortgage-related  securities,  small business loans,  student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the  statutory QTL test,  portfolio  assets are defined as total assets minus
intangible assets,  property used by the institution in conducting its business,
and liquid  assets  equal to 10% of total  assets.  A savings  institution  must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months.  A  failure  to  qualify  as a QTL  results  in a number  of  sanctions,
including the imposition of certain operating  restrictions and a restriction on
obtaining  additional  advances from its FHLB. At June 30, 2000, the Bank was in
compliance with its QTL requirement.

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Atlanta,  which is one of 12 regional FHLBs that  administers the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Atlanta  in an  amount  equal to at least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits.  The balances  maintained
to meet the reserve  requirements  imposed by the Federal  Reserve  Board may be
used to satisfy the liquidity  requirements that are imposed by the OTS. At June
30,  2000,  the  Bank  was  in  compliance  with  these  Federal  Reserve  Board
requirements.

                                       21
<PAGE>

Item 2. Description of Property.

(a) Properties.

         The Bank  conducts  its  business  through a main  office,  four branch
offices and one mortgage  loan  origination  office.  The Bank believes that the
current facilities are adequate to meet the present and immediately  foreseeable
needs of the Bank.

         The Bank obtains rental income through the leasing of space in its main
office building.  During the fiscal year ended June 30, 2000, such rental income
was $102,000.

         In the opinion of the management of the Bank, all properties listed are
adequately covered by insurance.

         (b) Investment  Policies.  See "Item 1.  Description of Business" above
for a general  description of the Bank's investment  policies and any regulatory
or Board of  Directors'  percentage  of  assets  limitations  regarding  certain
investments.  All of the Bank's investment policies are reviewed and approved by
the Board of Directors of the Bank,  and such  policies,  subject to  regulatory
restrictions (if any), can be changed without a vote of stockholders. The Bank's
investments are primarily acquired to produce income.

               (1)  Investments in Real Estate or Interests in Real Estate.  See
                    "Item 1.  Description  of Business  -- Lending  Activities,"
                    "Item 1.  Description  of  Business  --  Regulation  -- Bank
                    Regulation"  and "Item 2.  Description  of  Property  -- (a)
                    Properties" above.

               (2)  Investments   in  Real  Estate   Mortgages.   See  "Item  1.
                    Description of Business -- Lending  Activities" and "Item 1.
                    Description of Business -- Regulation -- Bank Regulation."

               (3)  Investments   in  Securities  of  or  Interests  in  Persons
                    Primarily  Engaged in Real Estate  Activities.  See "Item 1.
                    Description  of  Business -- Lending  Activities,"  "Item 1.
                    Description  of Business -- Regulation  -- Bank  Regulation"
                    and  "Item  1.   Description   of  Business  --   Subsidiary
                    Activity."

         (c)  Description of Real Estate and Operating Data.

         Not Applicable.

Item 3. Legal Proceedings.

         The Bank, from time to time, is a party to ordinary routine litigation,
which arises in the normal course of business,  such as claims to enforce liens,
condemnation  proceedings  on  properties  in  which  the  Bank  holds  security
interests,  claims involving the making and servicing of real property loans and
other issues incident to the business of the Bank. In the opinion of management,
the resolution of these lawsuits would not have a material adverse effect on the
financial condition or results of operations of the Bank or the Company.

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

No matter was submitted to a vote of security  holders during the fourth quarter
of the fiscal year ended June 30, 2000.


                                       22
<PAGE>

                                     PART II

Item  5.  Market for Common Equity and Related Stockholder Matters.

         The  information  contained  under the section  captioned  "Stock Price
Information" on page 1 of the Company's  Annual Report to  Stockholders  for the
fiscal year ended June 30, 2000 (the "Annual Report"), is incorporated herein by
reference.

Item  6.  Management's Discussion and Analysis or Plan of Operation.

         The  information  contained  in  the  section  captioned  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  on
pages 6 and 7 of the Annual Report is incorporated herein by reference.

Item  7.  Financial Statements.

         The  following  report and  financial  statements  of the  Company  are
incorporated by reference from the Annual Report.

Report of Independent Auditors

Statement of Financial Condition as of the Fiscal Years Ended
  June 30, 2000 and 1999

Statement of Operations for the Fiscal Years Ended
  June 30, 2000, 1999 and 1998

Statement of Changes in Stockholders' Equity for the Fiscal Years Ended June 30,
  2000, 1999 and 1998

Statement of Cash Flows for the Fiscal Years
  Ended June 30, 2000, 1999 and 1998

Notes to Financial Statements

         The remaining  information appearing in the Annual Report is not deemed
to be filed as part of this report, except as expressly provided herein.

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

         There  were  no  changes  in  or  disagreements   with  accountants  on
accounting and financial disclosure during the last fiscal year.

                                       23
<PAGE>
                                    PART III

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

         The  following  table  sets  forth  information  with  respect  to  the
Company's directors and executive officers.
<TABLE>
<CAPTION>
                                                                       Year First         Current
                                                                       Elected or         Term to
    Name              Age (1)      Position                           Appointed (2)       Expire
    ----              -------      --------                           -------------       ------

<S>                   <C>     <C>                                     <C>            <C>
B. L. Rakes              67     Chairman                                    1977           2000

D.W. Shilling            54     President and CEO, Director                 1999           2000

F. Courtney Hoge         59     Director                                    1979           2001

Barbara C. Weddle        63     Senior Vice President and Secretary,        1987           2001
                                Director

James H. Brock           58     Director                                    1985           2002

Glen C. Combs            53     Director                                    1987           2002

Michael M. Kessler       48     Director                                    1987           2002

Wayne F. Munden          56     Senior Vice President/                       N/A            N/A
                                Director of Lending(3)
Mary G. Staples          46     Treasurer/Controller(4)                      N/A            N/A

</TABLE>

------------------
(1)  At June 30, 2000.
(2)  Refers to the year the individual first became a director of the Company or
     the Bank.  All  directors of the Bank during June 1994 became  directors of
     the Company when it was incorporated in June 1994.
(3)  Mr. Munden serves as an executive officer of the Bank.
(4)  In addition to serving as  Treasurer/Controller of the Company, Ms. Staples
     serves as Vice President of Operations and as  Treasurer/Controller  of the
     Bank.

         Biographical  Information.  Set forth below is certain information with
respect to the  executive  officers and  directors of the Company and  executive
officers of the Bank. All directors  have held their present  positions for five
years unless otherwise stated.

         James H. Brock is currently President of Rusco Window Company, Roanoke,
Virginia,  a manufacturer and distributor of home improvement products which has
employed Mr. Brock since 1970.  He is a member and past  President of the Rotary
Club of Roanoke,  past  President of the Better  Business  Bureau,  and a former
member  of the  board  of  directors  of the  Credit  Marketing  and  Management
Association.

                                       24
<PAGE>

         Glen C.  Combs is Vice  President  of Acosta  Sales,  a food  brokerage
company.  Mr.  Combs is a former  member of the Rotary  Club of Roanoke  and the
Roanoke Food Brokers  Association and a past Board member of Inter-City Athletic
Association.

         F. Courtney  Hoge has been an insurance  sales  representative  for New
York Life Insurance Company, Roanoke, Virginia since 1965. He is President and a
member of the board of the Life  Line  Foundation  of the  Rescue  Mission,  and
serves on the Personnel  Committee of the Presbyterian  Community  Center. He is
past President of the E. Price Ripley Memorial Foundation, past President of the
Roanoke  Association of Life Underwriters,  past President of the Roanoke Valley
Estate  Planning  Council,  and past  President  of the Rotary Club of Roanoke -
Downtown.

         Michael M.  Kessler  has been the  President  and sole  shareholder  of
Kessler Associates,  Ltd., a photo processing company,  since 1983. He is also a
member and past  President of the Rotary Club of Roanoke,  past President of the
Virginia Professional  Photographers  Association, a past member of the Board of
Governors  of the  Southeastern  Professional  Photographers  Association,  past
chairman of the Specialist  Group of the  Professional  Photographers of America
and a past Board Member of the Better Business Bureau.

         B. L. Rakes  became  Chairman of the Boards of the Company and the Bank
in March 1999. At that time he resigned as President and Chief Financial Officer
of the Company and  resigned as  President,  Chief  Executive  Officer and Chief
Financial  Officer of the Bank.  He resigned as Chief  Executive  Officer of the
Company and retired  from the Bank at the end of June 1999.  Mr.  Rakes had been
President, Chief Executive Officer and Chief Financial Officer of the Bank since
1977 and of the Company since 1994 and has been employed by the Bank since 1959.
He served as Vice  President and Treasurer  from 1973 to 1977,  and as Secretary
from 1974 to 1977.  He is a member  and past  President  of the  Rotary  Club of
Roanoke. Mr. Rakes serves as a consultant to the Bank.

         D. W. Shilling  joined the Bank in April 1998,  filling the position of
Executive Vice President and Chief Operations Officer.  Between January 1995 and
April 1998,  Mr.  Shilling was a Senior Vice  President and Area Manager for the
Roanoke,  Virginia area of a Virginia-based commercial bank. Prior to that time,
Mr.  Shilling was a Senior Vice  President and Area Manager for the same bank in
the  southwestern  part of Virginia.  Mr.  Shilling  became  President and Chief
Executive  Officer of the Bank and  President  of the Company in March 1999.  In
June 1999, Mr. Shilling became Chief Executive Officer of the Company.  On March
1, 1999, Mr. Shilling became a director of the Company and the Bank.

         Barbara C.  Weddle has been  Senior  Vice  President  of the Bank since
1985,  in which  capacity she oversees the  savings,  accounting  and  personnel
departments.  She has served as Secretary  of the Bank since 1977.  She has been
employed  by the Bank  since  1965 in  various  capacities  and served as a Vice
President from 1977 until 1985.

         Wayne F.  Munden has been a Senior Vice  President  since 1985 in which
capacity he is Director of Lending.  He has been employed by the Bank since 1968
and  served as Vice  President  from 1977 to 1985.  He is a member of the Rotary
Club of Roanoke.

         Mary G.  Staples has been Vice  President  of  Operations  for the Bank
since 1997.  She has served as  Controller/Treasurer  since  1990.  She has been
employed by the Bank since 1972 in various capacities.

                                       25
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the 1934 Act  requires  the  Company's  officers  and
directors,  and persons  who own more than ten percent of the Common  Stock (10%
beneficial owners), to file reports of ownership and changes in ownership of the
Common Stock,  on Forms 3, 4 and 5, with the Securities and Exchange  Commission
("SEC") and to provide copies of those Forms 3, 4 and 5 to the Company. Based on
the Company's  review of such  ownership  reports,  to the best of the Company's
knowledge,  no officer,  director, or 10% beneficial owner of the Company failed
to file such ownership  reports on a timely basis for the fiscal year ended June
30, 2000.

Item 10.  Executive Compensation
--------------------------------

Director Compensation

         The Company pays an annual fee of $3,600 to each member of its Board of
Directors.  The Company  paid a total of $25,200 in  directors'  fees during the
fiscal year ended June 30, 2000.

         The Bank also pays Board of Director  fees.  Each director is paid $450
per meeting  attended.  Directors  Shilling  and Weddle did not receive fees for
attendance  of  meetings  of the  Board of  Directors  of the Bank or any of its
committees during the 2000 fiscal year. Each non-employee  director  attending a
meeting of the  Executive  Committee,  Retirement  Committee,  the  Compensation
Committee,  or Loan  Committee  of the Bank  receives a fee of $100 per  meeting
attended.  The Bank  paid a total of  $37,950  in board  and  committee  fees to
members of the Board of Directors during the fiscal year ended June 30, 2000.

         Stock  Awards.  On October 25, 1995,  the  shareholders  of the Company
approved the SWVA  Bancshares,  Inc.  1994 Stock Option Plan ("1994 Stock Option
Plan") and the Southwest  Virginia Savings Bank, FSB Management Stock Bonus Plan
("Management Stock Bonus Plan").  Directors Hoge, Brock, Combs, and Kessler each
received  (as of the date of  shareholder  approval)  options to purchase  2,852
shares of Common  Stock  under the 1994 Stock  Option  Plan and 1,141  shares of
restricted  stock under the Management  Stock Bonus Plan. The options granted to
these  directors are  exercisable  at a rate of 20% annually.  Restricted  stock
granted to the above named directors vest at a rate of 14.28% annually. In March
1998,  each Director of the Company was awarded  immediately  exercisable  stock
options to purchase 1,446 shares of Common Stock.

                                       26

<PAGE>

Executive Compensation

         Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Chief Executive Officer of the
Company during the year ended June 30, 2000. No other executive  officers of the
Company  had a salary and bonus  during the fiscal year ended June 30, 2000 that
exceeded $100,000 for services rendered in all capacities to the Company.
<TABLE>
<CAPTION>

                                                                                      Long Term
                                            Annual Compensation                  Compensation Awards
                                            -------------------                  -------------------
                                                                                             Securities
   Name and                                                                   Restricted     Underlying
   Principal            Fiscal                              Other Annual         Stock         Options/        All Other
   Position             Year        Salary     Bonus      Compensation(1)      Awards($)       SARs(#)        Compensation
   --------             ----        ------     -----      ---------------      ---------       -------        ------------

<S>                  <C>        <C>         <C>             <C>                 <C>           <C>            <C>
D.W. Shilling           2000       $105,000    $--             $3,700              $--           $--           $ 5,824(2)
Chief Executive         1999        $95,000    $--             $1,300              $--           $--           $10,000(3)
Officer
</TABLE>


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

(1)  Consists of board of director fees from the Company and Southwest  Virginia
     Service Corp. Does not include the value of certain other benefits, such as
     automobile  allowances,  which do not  exceed  10% of the total  salary and
     bonus of the individual.
(2)  Includes  613 shares of Common  Stock  allocated,  in the 2000 fiscal year,
     under the ESOP  with a market  value of as of June 30,  2000,  of $9.50 per
     share, for a total value of $5,824.
(3)  Consists of funds provided with the specific  requirement that they be used
     by the officer to obtain an equity  interest  in the Company by  purchasing
     shares of Common Stock.

         Employment  Agreement.  The Bank maintains an employment agreement with
D.  W.  Shilling,  President  and  Chief  Executive  Officer  of the  Bank.  The
employment  agreement  is for a term of three years at his then  current  salary
level.  The  employment  agreement is terminable by the Bank for "just cause" as
defined in the employment agreement. If the Bank terminates Mr. Shilling without
just cause, he will be entitled to a continuation of his salary from the date of
termination  through the remaining term of the employment  agreement,  but in no
event for a period of less than 12 months.  The employment  agreement contains a
provision stating that in the event of his involuntary termination of employment
in  connection  with,  or within two years  after,  any change in control of the
Bank, Mr. Shilling will be paid in a lump sum an amount equal to 2.999 times his
average  annual  compensation  for the prior five  years.  Following a change in
control,  a termination of employment as of June 30, 2000 would have resulted in
a lump sum payment of  approximately  $315,000 to Mr.  Shilling.  The employment
agreement may be renewed annually by the Board of Directors upon a determination
of satisfactory performance.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         (a)      Security Ownership of Certain Beneficial Owners

         The following table sets forth  information,  as of September 14, 2000,
regarding  share  ownership of (1) persons or groups who own more than 5% of the
outstanding  shares of the  Common  Stock and (2) all

                                       27
<PAGE>

directors and executive  officers of the Company as a group. Other than as noted
below,  the  Company  knows of no person or group  that owns more than 5% of the
outstanding   shares  of  the   Common   Stock  as  of   September   14,   2000.
<TABLE>
<CAPTION>

                                                                     Perecnt of Shares
                                            Amount and Nature of     of Common Stock
Name and Address of Beneficial Owner        Beneficial Ownership       Outstanding
------------------------------------        --------------------       -----------
<S>                                             <C>                     <C>
Southwest Virginia Savings Bank,  FSB              43,361                   10.2%
Employee Stock Ownership Plan
302 Second Street, SW
Roanoke, Virginia 24011-1597

B. L. Rakes                                        42,118 (1)                9.4%
302 Second Street, S.W.
Roanoke, Virginia  24011-1597

</TABLE>

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

(1)  Includes  25,710 shares of Common Stock that the  individual has a right to
     acquire  pursuant  to  exercisable  options,  and 815 shares of  restricted
     Common Stock that will vest within 60 days of September 14, 2000.

     (b)  Security Ownership of Management
<TABLE>
<CAPTION>

                                                                    Shares of
                                                                  Common Stock           Percent
                  Name                                        Beneficially Owned(1)      of Class
                  ----                                        -------------------------  --------

<S>                                                               <C>                <C>
              B. L. Rakes                                             42,118 (2)          9.4%

              D.W. Shilling                                            5,128              1.2%

              F. Courtney Hoge                                         8,612 (3)(4)       2.0%

              Barbara C. Weddle                                       15,776 (5)          3.7%

              James H. Brock                                           9,144 (3)(4)(6)    2.1%

              Glen C. Combs                                           15,112 (3)(4)(6)    3.5%

              Michael M. Kessler                                       9,966 (3)(4)(6)    2.3%

              All Directors and Executive Officers                   120,771 (4)(6)(7)   25.1%
              as a Group (9 persons)

</TABLE>
-------------------------
(1)  As of September 14, 2000
(2)  Includes  25,712 shares of Common Stock that the  individual has a right to
     acquire  pursuant  to  exercisable  options,  and 815 shares of  restricted
     Common  Stock that will vest  within 60 days of  September  14,  2000.
(3)  Includes  4,298 shares of Common Stock that the  individual  has a right to
     acquire  pursuant  to  exercisable  options,  and 163 shares of  restricted
     Common  Stock that will vest  within 60 days of  September  14,  2000.

                                       28
<PAGE>

(4)  Excludes  11,767  shares of Common  Stock  held by the  Southwest  Virginia
     Savings Bank,  FSB  Management  Stock Bonus Plan  ("Management  Stock Bonus
     Plan") as of the close of business on September 14, 2000.  Directors  Hoge,
     Brock, Combs, and Kessler  collectively serve as trustees to the Management
     Stock Bonus Plan trust, and such individuals  disclaim beneficial ownership
     with  respect to such  shares held in a fiduciary  capacity.
(5)  Includes  8,863 shares of Common Stock that the  individual  has a right to
     acquire pursuant to exercisable options and 424 shares of restricted Common
     Stock that will vest within 60 days of  September  14,  2000.
(6)  Excludes  18,258  unallocated  shares of Common Stock held under the Bank's
     Employee Stock Ownership Plan ("ESOP") for which certain directors serve as
     members  of  the  ESOP  Committee  or as  ESOP  Trustees.  Such  individual
     disclaims  beneficial  ownership  with  respect  to such  shares  held in a
     fiduciary capacity.  The ESOP purchased shares for the exclusive benefit of
     ESOP  participants  with funds borrowed from the Company.  These shares are
     held in a  suspense  account  and are  allocated  among  ESOP  participants
     annually on the basis of compensation  as the ESOP debt is repaid.  Messrs.
     B. L.  Rakes,  Michael M.  Kessler and F.  Courtney  Hoge serve on the ESOP
     Committee and Michael M. Kessler,  James H. Brock,  and Glen C. Combs serve
     as the ESOP Trustees.  The ESOP  Committee or the Board  instructs the ESOP
     Trustees  regarding  investment of ESOP plan assets. The ESOP Trustees must
     vote  all  shares  allocated  to  participant  accounts  under  the ESOP as
     directed by ESOP  participants.  Unallocated shares and shares for which no
     timely  voting  direction is received will be voted by the ESOP Trustees as
     directed by the ESOP  Committee.
(7)  Includes  shares of Common  Stock  held  directly  as well as by spouses or
     minor children,  in trust and other indirect  ownership,  over which shares
     the  individuals  effectively  exercise sole voting and  investment  power,
     unless  otherwise  indicated.  Includes  57,469 shares of Common Stock that
     executive  officers and directors  have a right to acquire  pursuant to the
     exercise of options within 60 days of September 14, 2000.  Includes  10,680
     shares of Common Stock  allocated  under the ESOP to executive  officers or
     directors,   over  which  such  individuals   exercise  shared  voting  and
     investment power.

     (c) Management of the Registrant  knows of no  arrangements,  including any
     pledge by any person of  securities  of the  Registrant,  the  operation of
     which  may at a  subsequent  date  result  in a change  in  control  of the
     Registrant.

Item 12.  Certain Relationships and Related Transactions

         Except as noted below, no directors,  executive officers,  or immediate
family members of such individuals were engaged in transactions with the Bank or
any subsidiary involving more than $60,000 during the fiscal year ended June 30,
2000. Furthermore,  the Bank had no "interlocking"  relationships existing on or
after June 30, 2000 in which (i) any executive  officer is a member of the Board
of  Directors/Trustees  of another entity,  one of whose executive officers is a
member of the Bank's Board of Directors,  or where (ii) any executive officer is
a member of the compensation committee of another entity, one of whose executive
officers is a member of the Bank's Board of Directors.

         Setforth below is certain  information as of June 30, 2000, relating to
mortgage and other loans given to executive  officers  and  directors  and their
immediate  family who had aggregate  outstanding  loan balances with the Bank of
$60,000 or greater.

         The Bank,  like many financial  institutions,  has followed a policy of
granting  various types of loans to officers,  directors,  and  employees.  Such
loans have been made in the ordinary course of business and on substantially the
same terms,  including  interest rates and collateral as those prevailing at the
time for comparable  transactions  with the Bank's other  customers,  and do not
involve  more  than  the  normal  risk  of  collectability,  nor  present  other
unfavorable  features.  However, as part of the Bank's compensation program, the
Bank  makes   adjustable-rate  first  mortgage  loans  to  full-time  employees,
officers,  directors  and  related

                                       29


<PAGE>

parties  at 1% above  the  Bank's  cost of funds  while  adjustable-rate  second
mortgages  and cash out  refinances  are made at 1.5% above the  Bank's  cost of
funds. Such rates are only effective while such persons are employees, officers,
directors  (including loans to related parties of such  individuals) of the Bank
and  continue  to occupy the real  estate  securing  the loans as their  primary
residence.
<TABLE>
<CAPTION>
                                                                                                Highest Unpaid
                                                                                                    Balance
                                                                                                  Outstanding
                                                                                                  During Last        Unpaid
                                                    Original      Interest    Prevailing Rate     Two Fiscal         Balance
Name of Officer                         Date          Loan          Rate       at Time Loan       Years Ended         As Of
  or Director        Type of Loan    Originated      Amount        Charged       was Made        June 30, 2000    June 30, 2000
-------------------------------------------------------------------------------------------------------------------------------

<S>                <C>             <C>             <C>          <C>              <C>            <C>              <C>
Wayne F. Munden      Home Mortgage    05/30/97       $200,000     5.75%(1)          5.50%          $193,557         $189,142

</TABLE>

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

(1)  The interest rate of 5.75% on the home mortgage loan is an adjustable  rate
     mortgage  plan.  The loan was  modified at the time the loan was made to 1%
     above the cost of Bank's funds rounded to the next one-quarter percent. The
     rate on this loan adjusts  annually.  The loan was  originated  with a 5.5%
     interest rate

   Item 13. Exhibits, List and Reports on Form 8-K.
<TABLE>
<CAPTION>

<S>       <C>       <C>
    (a)    Exhibits

               3.1        Articles of Incorporation of SWVA Bancshares, Inc.*
               3.2        Bylaws of SWVA Bancshares, Inc.**
              10.1        Consultant Agreement with B. L. Rakes***
              10.2        Employment Agreement with D. W. Shilling***
              10.3        Employment Agreement with Barbara C. Weddle***
              10.4        Supplemental Executive Retirement Plan for B.L. Rakes****
              10.5        Supplemental Executive Retirement Plan for Barbara C. Weddle****
              10.6        1994 Stock Option Plan*****
              10.7        Management Stock Bonus Plan*****
              10.8        1998 Directors Stock Compensation Plan******
              10.9        Payment and Release Agreement with B. L. Rakes***
              10.10       Stock Option Agreement with B. L. Rakes***
              10.11       Agreement and Plan of Merger between SWVA Bancshares, Inc. and
                            FNB Corporation, dated August 7, 2000*******
              13          Annual Report to Stockholders for the fiscal year ended June 30, 2000
              21          Subsidiaries of the Registrant (See "Item I - Description of Business")
              23          Consent of Cherry Bekaert & Holland, L.L.P.
              27          Financial Data Schedule (electronic filing only)


</TABLE>
--------------------------------
*    Incorporated by reference to Exhibit 3.1 of the  Registration  Statement on
     Form S-1 (SEC File No. 33-80434) filed with the SEC on June 17, 1994.
**   Incorporated  by reference to Exhibit 3.2 of the  Registrant's  Form 10-QSB
     (SEC File No.  0-24674)  filed  with the SEC for the fiscal  quarter  ended
     December 31, 1997.
***  Incorporated  by  reference  to the  identically  numbered  exhibit  to the
     Registrant's  Form 10-KSB (SEC File No. 0-24674) filed with the SEC for the
     fiscal year ended June 30, 1999.
**** Incorporated  by  reference  to the  identically  numbered  exhibit  to the
     Registrant's  Form 10-KSB (SEC File No.  0-24674) for the fiscal year ended
     June 30, 1995.

                                       30
<PAGE>

*****    Incorporated by reference to the identically  numbered  exhibit to  the
         Registrant's  Form 10-KSB (SEC File No.  0-24674)  for the fiscal  year
         ended June 30, 1997.

******   Incorporated  by reference to Exhibit 10.1  of  the  Registrant's  Form
         10-QSB  (SEC  File  No.  0-24674)  filed  with  the  SEC for the fiscal
         quarter ended March 31, 1998.

*******  Incorporated  by  reference  to Exhibit  99.1 of the  Registrant's
         Current  Report on Form 8-K (SEC File No.  0-24674) filed with the SEC
         on August 8, 2000.


     (b)  In the last quarter of the fiscal year ended June 30, 2000, no reports
          on Form 8-K were filed by the Registrant  with the SEC.  Subsequent to
          the quarter ended June 30, 2000, the Registrant filed a report on Form
          8-K dated August 7, 2000 to report the execution of a merger agreement
          providing  for  the  merger  of  the  Registrant  with  and  into  FNB
          Corporation of Christiansburg, Virginia.



                                    31
<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                SWVA BANCSHARES, INC.



                       By:      /s/ D. W. Shilling
                                --------------------------------------------
                                D. W. Shilling
                                President, Chief Executive Officer,
                                Chief Financial Officer, and Director
                                (Duly Authorized Representative)

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of September 26, 2000.

<TABLE>
<CAPTION>


<S>                                             <C>
/s/ Barbara C. Weddle                                /s/ D. W. Shilling
--------------------------------------------         --------------------------------------------
Barbara C. Weddle                                    D. W. Shilling
Senior Vice President and Secretary                  President, Chief Executive Officer,
                                                     Chief Financial Officer, and Director
                                                     (Principal Executive and Financial Officer)


/s/ Mary G. Staples                                  /s/ B. L. Rakes
--------------------------------------------         -----------------------------------
Mary G. Staples                                      B. L. Rakes
Principal Accounting Officer                         Chairman of the Board



/s/ F. Courtney Hoge                                 /s/ James H. Brock
--------------------------------------------         --------------------------------------------
F. Courtney Hoge                                     James H. Brock
Director                                             Director



/s/ Glen C. Combs                                    /s/ Michael M. Kessler
--------------------------------------------         -----------------------------------
Glen C. Combs                                        Michael M. Kessler
Director                                             Director

</TABLE>


                                       32