FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


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



                For the quarterly period ended December 31, 1998
                                               -----------------

                                       OR


(  ) TRANSITION  REPORT  PURSUANT  TO 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
                              --------------------

    VIRGINIA                                                      54-1721629    
    --------                                                      ----------    
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

302 Second Street, SW, Roanoke Virginia                           24011-1597  
---------------------------------------                           ----------  
(Address of Principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code  (540) 343-0135
                                                    --------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by  Section  13 and 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 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       
      ---          ---

The  number of shares  outstanding  of each of the  issuer's  classes  of common
stock, as of February 12, 1999: $0.10 par value - 493,112 common shares.

Transitional Small Business Disclosure Format (check one):

Yes           No    X  
      ---          ---
     

<PAGE>



                      SWVA BANCSHARES, INC. & SUBSIDIARIES


                                      INDEX

        ================================================================



PART I.  FINANCIAL INFORMATION                                              PAGE
         =====================                                              ====


Item 1.  Financial Statements

                  Consolidated Statements of Financial Condition
                  at December 31, 1998 and June 30, 1998
                  (unaudited)                                                  1

                  Consolidated Statements of Income for the Three
                  and Six Months Ended December 31, 1998 and
                  December 31, 1997 (unaudited)                                2

                  Consolidated Statements of Comprehensive Income
                  for the Three and  Six Months Ended December 31, 1998
                  and December 31, 1997 (unaudited)                            3

                  Consolidated Statements of Cash Flows for the
                  Six Months Ended December 31, 1998 and
                  December 31, 1997 (unaudited)                                4

                  Notes to Unaudited Interim Consolidated
                  Financial Statements                                         5



Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                          7


PART II. OTHER INFORMATION                                                    12
         =================

<PAGE>



                        SWVA BANCSHARES, INC & SUBSIDIARY
                 Consolidated Statements of Financial Condition
                                 (In thousands)

                    Assets
                                                      Dec 31     June 30
                                                      ------     -------
                                                       1998       1998  
                                                       ----       ----  
                                                   (Unaudited)
Cash and cash equivalents                           $  7,069    $  3,193
Interest-bearing deposits                              5,899       5,897
Investment & Mortgage Backed Securities:
  Held to Maturity, at amortized cost                    297         318
  Available for Sale, at fair value                   19,781      21,607
  Restricted at cost                                     961         961
Loans held for sale                                    1,751       1,608
Loans receivable, net                                 46,593      48,211
Property and equipment, net                            1,637       1,662
Accrued interest receivable                              495         565
Prepaid expenses and other assets                        323         365
                                                    --------    --------

    Total assets                                    $ 84,806    $ 84,387
                                                    ========    ========

         Liabilities and Stockholders' Equity
Deposits                                            $ 66,699    $ 68,288
Advances from Federal Home Loan Bank                   9,000       7,000
Advances from borrowers
  for taxes and insurance                                205         243
Other liabilities and deferred income                    507         529
                                                    --------    --------

    Total liabilities                                 76,411      76,060
                                                    --------    --------

Stockholders' Equity
Preferred Stock, 275,000 shares
   authorized, no shares issued or
   outstanding
Common stock, $.10 par value,  2,225,000 
   shares authorized,  493,112 outstanding
   as of December 31, 1998 and 496,887
   outstanding as of June 30, 1998                        49          50
Additional paid-in capital                             3,982       4,050
Dividends declared and paid                              (89)       (623)
Less unearned ESOP shares (27,385 shares)               (274)       (274)
Less unearned MSBP shares (14,895 shares)               (254)       (299)
Retained earnings
 (substantially restricted)                            4,938       5,365
Valuation allowance
  marketable equity securities                            43          58
                                                    --------    --------

  Total Stockholders' Equity                           8,395       8,327
                                                    --------    --------
  Total Liabilities
        and Stockholders' Equity                    $ 84,806    $ 84,387
                                                    ========    ========





                                        1

<PAGE>



                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                                 (In thousands)
<TABLE>
<CAPTION>
                                                      Three Months           Six Months
                                                                    Ended
                                                                 December 31              
                                                    --------------------------------------
                                                      1998      1997      1998      1997
                                                      ----      ----      ----      ----
                                                                 (Unaudited)
<S>                                                <C>       <C>       <C>       <C>    
Interest Income
  Loans                                             $ 1,000   $ 1,041   $ 2,001   $ 2,136
  Mortgage-backed and related securities                158        43       311        89
  U.S. Government obligations including agencies        149       182       314       289
  Municipal Bonds                                        12         1        24         1
  Other investments, including overnight deposits       158       157       320       302
                                                    -------   -------   -------   -------
         Total interest income                        1,477     1,424     2,970     2,817
                                                    -------   -------   -------   -------

Interest expense
  Deposits                                              740       719     1,530     1,390
  Borrowed funds                                        124        70       223       117
                                                    -------   -------   -------   -------
         Total interest expense                         864       789     1,753     1,507
                                                    -------   -------   -------   -------

Net interest income                                     613       635     1,217     1,310
Provision for credit losses                               3         3         6        27
                                                    -------   -------   -------   ------- 

Net interest income after
  provision for credit losses                           610       632     1,211     1,283
                                                    -------   -------   -------   -------

Noninterest income
  Loan and other customer service fees                   38        31        75        63
  Gain on sale of mortgage loans                        128        28       207        74
  Gross rental income                                    25        25        51        50
  Gain (loss) on Available for Sale Investments           0         0         0       (17)
  Other                                                   2         0         9         0
                                                    -------   -------   -------   -------
         Total noninterest income                       193        84       342       170
                                                    -------   -------   -------   -------

Noninterest expenses
  Personnel                                             348       299       700       617
  Office occupancy and equipment                         82        74       167       148
  Data processing                                        56        42       111        73
  Federal insurance of accounts                          10        13        20        18
  Other                                                 126       103       237       225
                                                    -------   -------   -------   -------
         Total noninterest expenses                     622       531     1,235      1,081
                                                    -------   -------   -------   -------

         Income before income taxes                     181       185       318       372
         Provision for income taxes                      70        70       122       141
                                                    -------   -------   -------   -------

         Net Income                                 $   111   $   115   $   196   $   231
                                                    =======   =======   =======   =======

Basic earnings per share                                .24       .24       .42       .48
Diluted earnings per share                              .24       .24       .42       .48
Cash dividends per share                                .00       .00       .20      1.15
</TABLE>

                                        2

<PAGE>



                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
                                 (In thousands)
<TABLE>
<CAPTION>

                                                    Three Months      Six Months
                                                                Ended
                                                             December 31              
                                                  --------------------------------    
                                                    1998     1997    1998     1997
                                                    ----     ----    ----     ----
                                                              (Unaudited)

<S>                                               <C>      <C>     <C>      <C>  
Net Income                                         $ 111    $ 115   $ 196    $ 231

Other comprehensive income, net of tax
         Unrealized gains (losses) on securities     (47)      10     (15)      50
                                                   -----    -----   -----    -----

Comprehensive Income                               $  64    $ 125   $ 105    $ 281
                                                   =====    =====   =====    =====
</TABLE>


                                        3

<PAGE>



                      SWVA BANCSHARES, INC. & SUBSIDIARIES
                      Consolidated Statements of Cash Flow
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                Six Months Ended
                                                                       Dec 31         
                                                              ---------------------
                                                                  1998        1997
                                                                  ----        ----
                                                                   (Unaudited)
<S>                                                          <C>         <C>     
Operating Activities
    Net Income                                                $    196    $    231
Adjustments to Reconcile Net Income to Net Cash
        Provided by (used in) operating activities
        MSBP Shares Allocated                                       45          44
        Provision for credit losses                                  6          27

        Provision for depreciation and amortization                 52          49
        Provision for Deferred Income Tax                            0           0
        Loans Originated for Sale                              (16,780)     (6,527)
        Proceeds from sales of loans originated for sale        16,843       6,602
        Gain on Sale of Loans, from fees                          (207)        (74)
        Gain on Sale of Real Estate                                  0           0
        Gain on Disposal of Property and Equipment                   0           1
        Net gain on sale of investments, available for sale          0         (17)
        Net (increase) decrease in Other Assets                    135         (34)
        Net increase (decrease) in Other Liabilities               (59)       (164)
                                                              --------    --------
      Net cash provided by (used in) operating activities          231         138
                                                              --------    --------

Investing activities
    Proceeds from sale of property and equipment                     0           0
    Proceeds from maturity of investments
        and interest-bearing deposits                            3,160       3,271
    Proceeds from sale of available for sale investments         7,250       3,257
    Purchase of investments and interest-bearing deposits       (3,162)     (3,652)
    Purchase of available for sale investments                  (6,996)     (9,271)
    Proceeds from sale of foreclosed real estate                     0           0
    Purchase of foreclosed real estate                               0           0
    Purchase of property and equipment                             (28)        (23)
    Net (increase) decrease in loans                             2,025       2,335
    Purchase of loans                                             (413)          0
    Principal repayments on Mortgage Backed Securities           1,556         160
                                                              --------    --------
        Net cash provided by (used in) investing activities      3,392      (3,923)
                                                              --------    --------

Financing activities
    Curtailment of advances and other borrowings                (1,000)     (1,500)
    Proceeds from advances and other borrowings                  3,000       2,500
    Net increase (decrease) in savings deposits                 (1,589)      6,879
    Repurchase of stock                                            (68)          0
    Dividends paid                                                 (90)       (535)
                                                              --------    --------
    Net cash used in financing activities                          253       7,344
                                                              --------    --------

Increase (decrease) in cash and cash equivalents                 3,876       3,559

Cash and cash equivalents at beginning of period                 3,193       1,276
                                                              --------    --------

Cash and cash equivalents at end of period                    $  7,069    $  4,835
                                                              ========    ========
</TABLE>

                                        4

<PAGE>
                      SWVA BANCSHARES, INC. & SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying  unaudited interim consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all of the information  and footnotes  required by generally
accepted accounting principles for complete financial statements.

The accompanying  consolidated financial statements include the accounts of SWVA
Bancshares, Inc. ("Company") and its wholly-owned subsidiary, Southwest Virginia
Savings Bank, FSB ("Bank") and its wholly-owned  subsidiary,  Southwest Virginia
Service Corporation. All significant intercompany balances and transactions have
been eliminated in consolidation.

In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for  fair  presentation  have  been  included.
Operating  results  for  the  six  months  ended  December  31,  1998,  are  not
necessarily  indicative  of the results that may be expected for the year ending
June 30, 1999.

NOTE 2 -- STOCK REPURCHASE

The  Company  has  adopted  a  stock  repurchase  program  that  allows  for the
repurchase,  from time to time,  of up to 30,000  (5.9%) shares of common stock.
The stock repurchase program that the Company had previously adopted had expired
during 1997.  The current plan to  repurchase up to 30,000 shares does not state
an expiration  date.  Any shares  repurchased  may be used for general and other
corporate purposes,  including the issuance of shares upon the exercise of stock
options.

During the quarter  ended  September  30, 1998,  the Company  repurchased  3,775
shares of common  stock in the open  market at an  aggregate  purchase  price of
approximately $68,000. The amount repurchased represented approximately 0.76% of
the Company's total shares  outstanding prior to the repurchase.  No shares were
repurchased during the quarter ended December 31, 1998.

NOTE 3 -- EARNINGS PER SHARE

The  following  table  sets  forth  the  reconciliation  of the  numerators  and
denominators of the basic and diluted earnings per share (EPS) computations:

<TABLE>
<CAPTION>
                                                                    Three Months             Six Months
                                                                                   Ended
                                                                                December 31,             
                                                                ---------------------------------------------
                                                                   1998        1997       1998          1997
                                                                   ----        ----       ----          ----
                                                                                 (Unaudited)
<S>                                                            <C>         <C>          <C>        <C>      
         Numerator:
(a) Net income available to shareholders                        $     111   $     115    $     196  $     231
                                                                 ========    ========     ========   ========

         Denominator:
         Weighed-average shares outstanding                       493,112     510,984     494,511     510,984
         Less: ESOP weighed-average shares outstanding            (27,385)    (31,951)    (27,385)    (31,951)
                                                                 --------    --------    --------    --------

(b) Basic EPS weighed-average shares outstanding                  465,727     479,033     467,126     479,033

         Effect of dilutive securities:
           Incremental shares attributable to the Stock Option          0       6,527           0       5,013
           Plan and Management Stock Bonus Plan                         0       1,950           0       1,494
                                                                 --------    --------    --------    --------

(c) Diluted EPS weighed-average shares outstanding                465,727     487,510     467,126     485,540
                                                                 ========    ========    ========    ========

         Basic earnings per share (a/b)                          $    .24    $    .24    $    .42    $    .48
                                                                 ========    ========    ========    ========

         Diluted earnings per share (a/c)                        $    .24    $    .24    $    .42    $    .48
                                                                 ========    ========    ========    ========
</TABLE>


                                        5

<PAGE>




NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENTS

FASB Statement on Reporting Comprehensive Income
Effective July 1, 1998, the Company  adopted FASB Statement No. 130,  "Reporting
Comprehensive Income." Statement No. 130 requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive  financial  reporting  methodology that includes certain disclosure of
certain  financial  information that has historically not been recognized in the
calculation of net income.

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


                                                              Tax
                                                  Before   (Expense)   After  
                                                   Tax      Benefit     Tax
                                                   ---      -------     ---
                                                                      
                                                                      
Three months ended December 31, 1998:                                 
         Unrealized gains (losses) on securities   ($64)     $ 17      ($47)
                                                                      
Three months ended December 31, 1997:                                 
         Unrealized gains (losses) on securities   $ 17      ($ 7)     $ 10
                                                                      
                                                                      
                                                                      
Six months ended December 31, 1998:                                   
         Unrealized gains (losses) on securities   ($24)     $  9      ($15)
                                                                      
Six months ended December 31, 1997:                                   
         Unrealized gains (losses) on securities   $ 76      ($26)     $ 50
                                                                      
                                                                    
                                        6

<PAGE>



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

Comparison of Financial Condition at December 31, 1998 and June 30, 1998
------------------------------------------------------------------------

Total assets  increased  $419,000 or .49% from $84.4 million at June 30, 1998 to
$84.8 million at December 31, 1998. Net loans receivable  decreased $1.6 million
or 3.35% to $46.6  million at December  31, 1998 from $48.2  million at June 30,
1998 due  primarily  to the  existing low  interest  rate  environment  in which
management  elected  to  retain  fewer  new  mortgage  originations  in the loan
portfolio.
                                                         
Cash and cash equivalents increased $3.9 million or 121.39% from $3.2 million at
June 30, 1998 to $7.1  million at  December  31, 1998 due to cash flow from loan
payments and payoffs, as well as matured or "called" investments, and management
has elected to utilize  overnight  investments  until the  direction of interest
rates can be better determined.  Held to Maturity Investments  decreased $21,000
from  $318,000 at June 30, 1998 to $297,000 at December 31, 1998.  Available for
Sale  Investments  decreased $1.8 million from $21.6 million at June 30, 1998 to
$19.8 million at December 31, 1998 due to principal  paybacks on Mortgage Backed
Securities and the exercise of a call feature on several investments.

There were no  non-performing  assets at December  31,  1998 and June 30,  1998.
Classified assets totaled $328,000.  All were classified as substandard and were
on single family mortgage loans.

Deposits decreased $1.6 million, or 2.33% from $68.3 million at June 30, 1998 to
$66.7  million  at  December  31,  1998 due  mainly  to a  decrease  in funds in
certificates  of deposits.  This  decrease was the result of lower  repricing to
reflect  downward  movements in interest  rates  nationally  and  locally.  Core
deposits were $18.7 million or 28.02% of total savings.

At December 31, 1998,  there were $9.0 million  outstanding in advances from the
Federal Home Loan Bank of Atlanta.  The increase in advances of $2.0 million was
due to  management  taking  opportunity  to obtain  some  long-term  funding  at
reasonable costs.

Advances from borrowers for taxes and insurance  decreased $38,000 or 15.63% due
to the payment of real estate taxes paid from escrow  during the quarter  ending
December 31, 1998. Other  liabilities and deferred income  decreased  $22,000 or
4.15%.

Results of Operations for the three months ended December 31, 1998
------------------------------------------------------------------
and December 31, 1997
---------------------

         Net Income Net income decreased $4,000 or 3.48%,  from $115,000 for the
three  months  ended  December  31, 1997 to $111,000  for the three months ended
December 31, 1998. The decrease was mainly due to higher  expenses for personnel
including  a chief  operations  officer,  data  processing  and an  increase  in
interest  expense for deposits and  borrowings  offset by an increase in gain on
sale of mortgage loans.

         Interest Income Interest income increased $53,000,  or 3.72%, from $1.4
million for the three  months  ended  December  31, 1997 to $1.5 million for the
three  months ended  December 31, 1998.  The increase was mainly a result in the
increase  in  earnings on a larger  investment  base  offset by a  reduction  in
mortgage loans in the Bank's portfolio.

         Interest  Expense  Interest  expense  increased  $75,000  or 9.51% from
$789,000 for the three months ended  December 31, 1997 to $864,000 for the three
months ended  December  31, 1998.  The increase was due mainly to an increase in
deposits and an increase in borrowed funds.

         Net Interest Income Net interest  income  decreased by $22,000 or 3.46%
from  $635,000 for the three months ended  December 31, 1997 to $613,000 for the
three months ended  December 31, 1998.  The decrease was mainly due to increased
interest paid on a larger deposit base and borrowed  funds and decreased  income
on mortgage loans offset by increased income on investment securities.

         Provision  for Credit Losses The Bank made an addition of $3,000 to the
provision  for  credit  losses  for the  quarter  ended  December  31,1998.  The
allowance for credit losses was $213,000 at December 31, 1998.  The Bank made an
addition of $3,000 to the  provision  for credit  losses for the  quarter  ended
December 31, 1997.  The allowance for credit losses was $200,000 at December 31,
1997.


                                        7

<PAGE>
Results of Operations for the three months ended December 31, 1998
------------------------------------------------------------------
and December 31, 1997, cont.
----------------------------

         Non-interest  Income  Non-interest  income  increased by  $109,000,  or
129.76% from  $84,000 for the three  months ended  December 31, 1997 to $193,000
for the three months ended  December 31, 1998. The increase was mainly due to an
increase  in  gains on the sale of  mortgage  loans  during  the  quarter  ended
December 31, 1998.

         Non-interest  Expense  Non-interest  expense  increased by $91,000,  or
17.14% from  $531,000 for the three  months ended  December 31, 1997 to $622,000
for the three  months  ended  December  31,  1998,  mainly due to an increase in
personnel expense, data processing,  advertising, audit and office equipment and
supply expenses.

         Provision  for income  taxes The  provision  for income taxes  for  the
three months ended December 31,1998 and December 31, 1997 was $70,000.

Results of Operations for the six months ended December 31, 1998
----------------------------------------------------------------
and December 31, 1997
---------------------

         Net Income Net income  decreased  $35,000 or 15.15%,  from $231,000 for
the six months  ended  December  31, 1997 to $196,000  for the six months  ended
December 31, 1998. The decrease was mainly due to higher  expenses for personnel
including  a chief  operations  officer,  data  processing  and an  increase  in
interest  expense for deposits and borrowings.  These expenses were offset by an
increase in gain on sale of mortgage loans.

         Interest Income Interest income increased $153,000, or 5.43%, from $2.8
million for the six months  ended  December 31, 1997 to $3.0 million for the six
months ended December 31, 1998. The increase was mainly a result in the increase
in earnings on a larger  investment base offset by a reduction in mortgage loans
in the Bank's portfolio.

         Interest Expense Interest expense increased $246,000 or16.32% from $1.5
million for the six months  ended  December 31, 1997 to $1.8 million for the six
months ended  December  31, 1998.  The increase was due mainly to an increase in
deposits and an increase in borrowed  funds  during the 3 months ended  December
31, 1998.

         Net Interest Income Net interest  income  decreased by $93,000 or 7.10%
from $1.3 million for the six months ended December 31, 1997 to $1.2 million for
the six months ended December 31, 1998. The decrease was mainly due to increased
interest paid on a larger deposit base and borrowed  funds and decreased  income
on mortgage loans offset by increased income on investment securities.

         Provision  for Credit Losses The Bank made an addition of $6,000 to the
provision  for credit  losses for the six months  ended  December  31,1998.  The
allowance for credit losses was $213,000 at December 31, 1998.  The Bank made an
addition of $27,000 to the  provision  for credit  losses for the quarter  ended
December  31,  1997.  The  addition  was  made  due to a loss  of  $44,000  on a
delinquent real estate loan.  After the deduction of the loss, the allowance for
credit losses was $200,000.

         Non-interest  Income  Non-interest  income  increased by  $172,000,  or
101.18% from $170,000 for the six months ended December 31, 1997 to $342,000 for
the six months  ended  December  31,  1998.  The  increase  was mainly due to an
increase  in  gains on the sale of  mortgage  loans  during  the  quarter  ended
December 31, 1998 offset by a loss on investment  securities  during the quarter
ended December 31, 1997.

         Non-interest  Expense  Non-interest  expense increased by $154,000,  or
14.25% from $1.1  million  for the six months  ended  December  31, 1997 to $1.2
million for the six months ended December 31, 1998, mainly due to an increase in
personnel expense and data processing expense.

         The  goal of  management  is to  increase  the  profits  of the Bank by
expanding its services,  forming a Commercial  Loan Department and improving its
delivery system for other loans and products.  In doing so,  management  expects
non-interest  expense  will  increase  by a  material  amount  over the next few
quarters.  These expenses,  including  expenses for new equipment and personnel,
will likely reduce net income compared to prior periods.  Management feels these
expenses are necessary in order to provide the level of financial  services that
is required to nurture  growth and  increase  profitability,  thereby  enhancing
shareholder value. This statement

                                        8
<PAGE>
Results of Operations for the six months ended December 31, 1998
----------------------------------------------------------------
and December 31, 1997, cont.
----------------------------

concerning these changes is a forward looking statement.  The Private Securities
Litigation Reform Act of 1995 (the "Act") provides  protection to the Company in
making certain  forward  looking  statements that are accompanied by the factors
that could cause actual results to differ  materially  from the forward  looking
statement.

         Provision  for income taxes The  provision for income taxes for the six
months ended  December  31, 1998 was  $122,000  compared to $141,000 for the six
months ended December 31, 1997. The decrease was due to decreased income for the
six months ended December 31, 1998.



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 3.0% of total adjusted  assets
and (3) a risk-based  capital  requirement equal to 8.0% of total  risk-weighted
assets.

As shown below, the Bank's tangible,  core and risk-based capital  significantly
exceed all applicable regulatory capital requirements of the OTS at December 31,
1998:


                                                                    Percent of
                                                                    ----------
                                                          Amount      Assets
                                                          ------      ------

                  GAAP Capital....................        $7,902       9.28%
                                                           =====      =====

                  Tangible Capital................        $7,902       9.28%
                  Tangible Capital Requirement....         1,277       1.50%
                                                           -----      -----
                  Excess..........................        $6,624       7.78%
                                                           =====      =====

                  Core Capital....................        $7,902       9.28%
                  Core Capital Requirement........         2,555       3.00%
                                                           -----      -----
                  Excess..........................        $5,347       6.28%
                                                           =====      =====

                  Total Risk-Based Capital........        $8,115      20.28%
                  Risk-Based Capital Requirement..         3,202       8.00%
                                                           -----      -----
                  Excess..........................        $4,913      12.28%
                                                           =====      =====

Management  believes that under current  regulations,  the Bank will continue to
meet its minimum capital  requirements in the foreseeable future.  Events beyond
the control of the Bank,  such as  increased  interest  rates or downturn in the
economy  in areas in which  the Bank  operates  could  adversely  affect  future
earnings  and as a result,  the  ability of the Bank to meet its future  minimum
capital requirements.


                                        9

<PAGE>
Liquidity

The Bank's  liquidity is a measure of its ability to fund loans,  withdrawals of
deposits and other cash outflows in a cost effective manner.  The Bank's primary
sources of funds are deposits and proceeds from principal and interest  payments
on loan and mortgage backed  securities.  The Bank also obtains funds from sales
and maturities of investment securities,  short-term investments and borrowings,
namely advances from the FHLB of Atlanta.  The Bank uses such funds primarily to
meet commitments on existing and continuing loan  commitments,  to fund maturing
time  deposits and savings  withdrawals  and to maintain  liquidity.  While loan
payments,  maturing investments and mortgage-backed  securities are a relatively
predictable  source of funds,  deposit  flows and loan  prepayments  are greatly
influenced by general interest rates,  economic conditions and competition.  The
Bank's  liquidity  is also  influenced  by the level of demand for funding  loan
originations.

The Bank is required  under federal  regulations to maintain  certain  specified
levels of "liquid  investments,"  which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 4% of its net  withdrawable  accounts
plus short term borrowings. Those levels may be changed from time to time by the
regulators  to  reflect  current  economic  conditions.  The  Bank's  regulatory
liquidity was 28.26% at December 31, 1998 and 22.94% as of June 30, 1998.

Impact of Inflation and Changing Prices

The  consolidated  financial  statements  of  the  Company  and  notes  thereto,
presented  elsewhere  herein,  have been prepared in accordance with GAAP, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering  the change in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the  increased  cost of the  Company's  operations.  Unlike  most  industrial
companies,  nearly all the assets and  liabilities of the Company are financial.
As a result,  interest rates have a greater impact on the Company's  performance
than do the  effects  of  general  levels of  inflation.  Interest  rates do not
necessarily  move in the same  direction  or to the same extent as the prices of
goods and services.

The Year 2000 Issue

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

Equipment
---------
A process to identify all equipment  that may  potentially  be impacted has been
completed.  All outside servicers and major vendors have been contacted in order
to ascertain their  individual  degree of readiness for Year 2000. This includes
items such as the vault, heating,  ventilation and air conditioning controls and
telephones.  All of the  vendors  have  responded  to  these  inquires.  We have
received  certifications of year 2000 compliance for systems controlled by third
party  providers or  determined  that the systems  should not be impacted by the
year 2000. The only upgrade needed will be to our telephone system, at a cost of
approximately $1,000. This upgrade has been completed.

Internal Computers
------------------
All internal computers have been tested for the year 2000. At this time, we have
found no problems with the computers and software used on the computers.  We are
currently  testing with Bisys (our data services  provider  which  processes the
Bank's  major loan and deposit  applications)  and will  evaluate if any further
expenditures are necessary upon completion of the testing.

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



                                       10

<PAGE>



Year 2000 Issue, cont.

Cost
----
The  committee  has  presented  to the  Board of  Directors,  and the  Board has
approved a Year 2000 budget totaling approximately  $30,000.  Notification of an
additional   meeting  by  Bisys  in  February  will  increase  the  expenses  by
approximately  $1,000, and the Board was notified of this at their January, 1999
meeting. At December 31, 1998, total expenses paid were $19,000.  The major cost
is an upgrade and testing  surcharge  paid to Bisys.  (Bisys is a data  services
provider which processes the Bank's major loan and deposit applications.)

Contingency Plan
----------------
Our data  services  provider has sponsored  four meetings on their  progress and
test plans for the Year 2000.  Starting in November,  1998 and continuing  until
April,  1999,  a test  facility  has been set up to provide  for formal  testing
between the Bank and Bisys. Another meetings is scheduled for February, 1999, to
discuss the first series of testing.  At this time, we find no reason to believe
that Bisys will not be able to operate on January 3, 2000.

A Contingency  Plan has been prepared by the committee to facilitate the ability
of the Bank to continue  providing an acceptable  level of service to the Bank's
customers in the event that Bisys  encounters  problems on January 3, 2000 or we
are  unable to  communicate  with  Bisys.  Procedures  were  already in place to
accommodate interruptions of online service for periods of short duration. These
procedures have been  re-evaluated  for  effectiveness  over a longer  duration.
Appropriate  adjustments have been made and additional  procedures  required for
longer  duration  "down-time"  have been put into place. At the end of December,
1999, we will generate paper backup of all customer  accounts and general ledger
accounts.  Customer payments will be processed manually,  and due to the size of
the  Bank,  we  believe  that  we  would  be  able to  operate  in  this  manner
indefinitely,  until our existing data servicer,  or a  replacement,  is able to
again provide data processing services. This procedure could require changing of
schedules  and the hiring of  temporary  staff  during  this time,  which  would
increase  our cost.  Should it be  necessary  to change data  service  providers
during the beginning of the Year 2000, the cost could be material.


                                       11

<PAGE>



                      SWVA BANCSHARES, INC. & SUBSIDIARIES


                                     PART II

Item 1.  Legal Proceedings

                  Not applicable.

Item 2.  Changes in Securities and Use of Proceeds

                  Not applicable.

Item 3.  Defaults upon Senior Securities

                  Not applicable.

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

     The annual  meeting of  stockholders  was held on October 14, 1998. At that
     meeting, stockholders elected two directors and ratified the appointment of
     the independent  auditors.  The  stockholders did not approve a stockholder
     proposal to  recommend  that the  Company's  Board of  Directors  appoint a
     special committee concerning offers to acquire the Company.

     1.   The following directors were elected:

          Nominee                Votes For           Votes Withheld
          -------                ---------           --------------

          F. Courtney Hoge       380,691             81,884

          Barbara C. Weddle      380,391             82,184

     2.   Ratification  of appointment of Cherry  Bekaert & Holland,  L.L.P.  as
          independent auditors for 1998 fiscal year:

          Votes For              Votes Against       Abstain
          ---------              -------------       -------

          44,731                 11,100              6,744

     3.   Proposal of a  stockholder  to  recommend  that the Board of Directors
          appoint a special committee concerning offers to acquire the Company.

          Votes For              Votes Against       Abstain        Non-Vote
          ---------              -------------       -------        --------

          129,808                208,940             8,390          118,437

Item 5.  Other Information

     On February 10, 1999 the  registrant  entered  into a standstill  agreement
     with Mr. Richard Nelson and LaSalle Capital Management, Inc. (the "Group").
     Under the agreement,  the Group has agreed to sell all of the 28,000 shares
     of common stock of the registrant that it owns in return for $477,750.  The
     Group has agreed that,  for a 12 year  period,  it will not (1) purchase or
     vote any shares of the registrant's  common stock, (2) attempt to influence
     any person  concerning any proxy  solicitation  or activity  concerning the
     registrant and (3) attempt to influence any person concerning an investment
     in the common stock of the registrant.

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

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

                  10.2     Amended Supplemental Executive Retirement Plan for B. L. Rakes

                  10.3     Amended Supplemental Executive Retirement Plan for Barbara C. Weddle

                  99.1     Standstill Agreement dated February 10, 1999
</TABLE>
                                       12

<PAGE>

                      SWVA BANCSHARES, INC. & SUBSIDIARIES

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.

                                  SWVA Bancshares, Inc.                         
                                 
                                 
Date:    February 12, 1999        By:  /s/  B. L. Rakes                  
                                       -----------------------------------------
                                       B. L. Rakes
                                       President, Chief Executive Officer,
                                       Chief Financial Officer, and Director
                                 
                                 
Date:    February 12, 1999        By:  /s/  Mary G. Staples              
                                       -----------------------------------------
                                       Mary G. Staples
                                       Controller/Treasurer
                                       Principal Financial Officer
                                 

                                       13