FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


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



                  For the quarterly period ended March 31, 1999
                                                 -------------- 

                                       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 May 10, 1999: $0.10 par value - 423,612 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 March 31, 1999 and June 30, 1998
                  (unaudited)                                             1

                  Consolidated Statements of Income for the Three
                  and Nine Months Ended March 31, 1999 and
                  March 31, 1998 (unaudited)                              2

                  Consolidated Statements of Comprehensive Income
                  for the Three and  Nine Months Ended March 31, 1999
                  and March 31, 1998 (unaudited)                          3

                  Consolidated Statements of Cash Flows for the
                  Nine Months Ended March 31, 1999 and
                  March 31, 1998 (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)
<TABLE>
<CAPTION>
                      Assets
                                                             Mar 31         June 30
                                                            ---------      ---------
                                                              1999            1998  
                                                            ---------      ---------
                                                          (Unaudited)
<S>                                                       <C>            <C>        
Cash and cash equivalents                                 $     4,059    $     3,193
Interest-bearing deposits                                       5,775          5,897
Investment & Mortgage Backed Securities:
  Held to Maturity, at amortized cost                             290            318
  Available for Sale, at fair value                            21,099         21,607
  Restricted at cost                                              961            961
Loans held for sale                                               732          1,608
Loans receivable, net                                          45,322         48,211
Property and equipment, net                                     1,634          1,662
Accrued interest receivable                                       512            565
Prepaid expenses and other assets                                 353            365
                                                          -----------    -----------

    Total assets                                          $    80,737    $    84,387
                                                          ===========    ===========

                   Liabilities and Stockholders' Equity
Deposits                                                  $    63,832    $    68,288
Advances from Federal Home Loan Bank                            9,000          7,000
Advances from borrowers
  for taxes and insurance                                         393            243
Other liabilities and deferred income                             414            529
                                                          -----------    -----------

    Total liabilities                                          73,639         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,  423,612 outstanding
   as of March 31, 1999 and 496,887
   outstanding as of June 30, 1998                                 42             50
Additional paid-in capital                                      2,854          4,050
Less unearned ESOP shares (27,385 shares)                        (274)          (274)
Less unearned MSBP shares (14,895 shares)                        (254)          (299)
Dividends declared and paid                                      (172)          (623)
Retained earnings
 (substantially restricted)                                     5,002          5,365
Valuation allowance
  marketable equity securities                                   (100)            58
                                                          -----------    -----------

  Total Stockholders' Equity                                    7,098          8,327
                                                          -----------    -----------

  Total Liabilities
        and Stockholders' Equity                          $    80,737    $    84,387
                                                          ===========    ===========
</TABLE>

                                        1
<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                          Three Months Nine Months        
                                                                                                    Ended
                                                                                                   March 31              
                                                                                 -------------------------------------------
                                                                                   1999        1998        1999       1998
                                                                                   ----        ----        ----       ----
                                                                                                  (Unaudited)

<S>                                                                             <C>        <C>        <C>         <C>   
Interest Income
  Loans                                                                          $   934      $1,035      $2,936     $3,171  
  Mortgage-backed and related securities                                             137          97         448        186
  U.S. Government obligations including agencies                                     158         224         472        513
  Municipal Bonds                                                                     17          10          40         11
  Other investments, including overnight deposits                                    162         154         482        456
                                                                                 -------     -------     -------    -------
         Total interest income                                                     1,408       1,520       4,378      4,337
                                                                                 -------     -------     -------    -------
                                                                                                                    
Interest expense                                                                                                    
  Deposits                                                                           676         785       2,206      2,175
  Borrowed funds                                                                     119          65         342        182
                                                                                 -------     -------     -------    -------
         Total interest expense                                                      795         850       2,548      2,357
                                                                                 -------     -------     -------    -------
                                                                                                                    
Net interest income                                                                  613         670       1,830      1,980
Provision for credit losses                                                            3           3           9         30
                                                                                 -------     -------     -------    -------
                                                                                                                    
Net interest income after                                                                                           
  provision for credit losses                                                        610         667       1,821      1,950
                                                                                 -------     -------     -------    -------
                                                                                                                    
Noninterest income                                                                                                  
  Loan and other customer service fees                                                40          34         114         97
  Gain on sale of mortgage loans                                                      60          63         267        137
  Gross rental income                                                                 25          24          76         74
  Gain (loss) on Available for Sale Investments                                        0           0           0        (17)
  Other                                                                                0           0           9          0 
                                                                                 -------     -------     -------    -------
         Total noninterest income                                                    125         121         466        291 
                                                                                 -------     -------     -------    -------
                                                                                                                    
Noninterest expenses                                                                                                
  Personnel                                                                          372         325       1,072        942
  Office occupancy and equipment                                                      84          72         251        220
  Data processing                                                                     57          47         167        120
  Federal insurance of accounts                                                       10           9          30         27
  Other                                                                              108          94         345        319 
                                                                                 -------     -------     -------    -------
         Total noninterest expenses                                                  631         547       1,865      1,628 
                                                                                 -------     -------     -------    -------
                                                                                                                    
         Income before income taxes                                                  104         241         422        613
         Provision for income taxes                                                   40          88         162        229 
                                                                                 -------     -------     -------    -------
                                                                                                                    
         Net Income                                                               $   64      $  153      $  260     $  384
                                                                                  ======      ======      ======     ======
                                                                                                                    
Basic earnings per share                                                          $  .14      $  .32      $  .56     $  .80
                                                                                  ======      ======      ======     ======
Diluted earnings per share                                                        $  .14      $  .31      $  .56     $  .79
                                                                                  ======      ======      ======     ======
Cash dividends per share                                                          $  .20      $  .15      $  .40     $ 1.30
                                                                                  ======      ======      ======     ======
</TABLE>      

                                        2
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                   Three Months      Nine Months
                                                                                                 Ended
                                                                                                March 31                
                                                                                -------------------------------------
                                                                                    1999     1998     1999     1998
                                                                                    ----     ----     ----     ----
                                                                                             (Unaudited)


<S>                                                                             <C>        <C>     <C>       <C>  
Net Income                                                                       $   64     $ 153   $ 260     $ 384

Other comprehensive income, net of tax
         Unrealized gains (losses) on securities                                   (143)     (20)    (158)       29
                                                                                   -----    -----    -----      ---

Comprehensive Income                                                              $( 79)     $133    $102      $413
                                                                                  ======     ====    =====     ====
</TABLE>


                                        3

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

<TABLE>
<CAPTION>
                                                               Nine Months Ended
                                                                     Mar 31         
                                                             ---------------------
                                                                 1999         1998
                                                                 ----         ----
                                                                 (Unaudited)
<S>                                                          <C>         <C>     

Operating Activities
    Net Income                                                $    260    $    384
Adjustments to Reconcile Net Income to Net Cash
        Provided by (used in) operating activities
        MSBP Shares Allocated                                       45          44
        Provision for credit losses                                  9          30
        Provision for depreciation and amortization                 79          72
        Loans Originated for Sale                              (24,795)    (14,464)
        Proceeds from sales of loans originated for sale        25,937      13,548
        Gain on Sale of Loans, from fees                          (267)       (136)
        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                    126        (280)
        Net increase (decrease) in Other Liabilities                41         206
                                                              --------    --------
      Net cash provided by (used in) operating activities        1,435        (612)
                                                              --------    --------

Investing activities
    Proceeds from maturity of investments
        and interest-bearing deposits                            5,136       5,344
    Proceeds from sale of available for sale investments         7,250       3,257
    Purchase of investments and interest-bearing deposits       (5,014)     (5,832)
    Purchase of available for sale investments                  (9,571)    (15,617)
    Purchase of property and equipment                             (51)        (30)
    Net (increase) decrease in loans                             4,193       3,375
    Purchase of loans                                           (1,313)       (315)
    Principal repayments on Mortgage Backed Securities           2,639         566
                                                              --------    --------
        Net cash provided by (used in) investing activities      3,269      (9,252)
                                                              --------    --------

Financing activities
    Curtailment of advances and other borrowings                (1,000)     (3,000)
    Proceeds from advances and other borrowings                  3,000       3,000
    Net increase (decrease) in savings deposits                 (4,456)     10,733
    Repurchase of stock                                         (1,209)        (97)
    Dividends paid                                                (173)       (612)
                                                              --------    --------
    Net cash used in financing activities                       (3,838)     10,024
                                                              --------    --------

Increase (decrease) in cash and cash equivalents                   866         160

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

Cash and cash equivalents at end of period                    $  4,059    $  1,436
                                                              ========    ========
</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 nine months ended March 31, 1999, are not necessarily
indicative  of the  results  that may be  expected  for the year ending June 30,
1999.





NOTE 2 - STOCK REPURCHASE

The  Company  adopted a stock  repurchase  program in 1998 that  allowed for the
repurchase,  from time to time,  of up to 30,000  (5.9%) shares of common stock.
During the program, the Company repurchased 24,372 shares of common stock in the
open market at an aggregate purchase price of approximately $460,000. During the
quarter  ended March 31, 1999,  the Company  repurchased  6,500 shares of common
stock in the open market under the 1998 program, at an  aggregate purchase price
of approximately $98,000.

On February 10, 1999, the Company signed a Standstill Agreement with Mr. Richard
Nelson and LaSalle  Capital  Management,  Inc.  Pursuant to the  agreement,  Mr.
Nelson sold all 28,000 shares of the Company's common stock that he owned to the
Company for approximately $480,000.

On March 12, 1999, the Company  terminated the 1998 stock repurchase program and
authorized a repurchase  agreement to  repurchase up to 35,000 shares or 7.5% of
its outstanding shares of common stock. During the quarter ended March 31, 1999,
the  Company  repurchased  the full  35,000  shares of common  stock in the open
market at an aggregate purchase price of approximately $560,000.

All  repurchased  shares become  authorized but unissued shares and are utilized
for general  corporate and other  purposes,  including the issuance of shares in
connection with the exercise of stock options.



                                        5

<PAGE>



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          Nine Months
                                                                                                        Ended
                                                                                                      March 31,             
                                                                                   -----------------------------------------
                                                                                         1999      1998       1999      1998
                                                                                         ----      ----       ----      ----
                                                                                                        (Unaudited)
<S>                                                                                <C>       <C>        <C>       <C>      
         Numerator:
(a) Net income available to shareholders                                             $     64  $    153   $    260  $    384
                                                                                      =======   =======    =======   =======

         Denominator:
         Weighed-average shares outstanding                                           473,968   509,617    487,759   510,528
         Less: ESOP weighed-average shares outstanding                                (27,385)  (31,951)   (27,385)  (31,951)
                                                                                      -------   -------    -------   -------

(b) Basic EPS weighed-average shares outstanding                                      446,583   477,666    460,374   478,577

         Effect of dilutive securities:
           Incremental shares attributable to the Stock Option                              0     7,032          0     7,032
           Plan and Management Stock Bonus Plan                                             0     2,101          0     2,101
                                                                                      -------   -------    -------   -------

(c) Diluted EPS weighed-average shares outstanding                                    446,583   486,800    460,374   486,800
                                                                                      =======   =======    =======   =======

         Basic earnings per share (a/b)                                              $    .14  $    .32   $    .56  $    .80
                                                                                      =======   =======    =======   =======

         Diluted earnings per share (a/c)                                            $    .14  $    .31   $    .56  $    .79
                                                                                      =======   =======    =======   =======

</TABLE>

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 March 31, 1999:                   
         Unrealized gains (losses) on securities      ($144)   $   1    ($143)
                                                     
Three months ended March 31, 1998:                   
         Unrealized gains (losses) on securities      ($ 31)   $  11    ($ 20)
                                                     
                                                     
                                                     
Nine months ended March 31, 1999:                    
         Unrealized gains (losses) on securities      ($168)   $  10    ($158)
                                                     
Nine months ended March 31, 1998:                    
         Unrealized gains (losses) on securities      $  44    ($ 15)   $  29
                                                     
                                        6
                                                     
<PAGE>                                               
                                                  


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

Comparison of Financial Condition at March 31, 1999 and June 30, 1998
---------------------------------------------------------------------

Total assets decreased $3.7 million or 4.33% from $84.4 million at June 30, 1998
to $80.7 million at March 31, 1999. Net loans receivable  decreased $2.9 million
or 5.99% to $45.3  million at March 31, 1999 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 $866,000 or 27.13% from $3.2 million at June
30, 1998 to $4.1 million at March 31, 1999 due to increased  cash flow from loan
payments and payoffs on mortgage  loans and  mortgage  backed  securities  and a
decrease  in  funds in  certificates  of  deposits.  Interest  bearing  deposits
decreased  $122,000  or 2.07% from $5.9  million at June 30, 1998 as compared to
$5.8 million at March 31, 1999, due to a decrease in jumbo  certificates  in the
Bank's  portfolio  which are matched with  interest  bearing  deposits.  Held to
Maturity  Investments  decreased  $28,000  from  $318,000  at June  30,  1998 to
$290,000 at March 31, 1999. Available for Sale Investments decreased $508,000 or
2.35% from $21.6 million at June 30, 1998 to $21.1 million at March 31, 1999 due
mainly to principal paybacks on Mortgage Backed Securities.  Loans held for sale
decreased  $876,000  from $1.6 million at June 30, 1998 to $732,000 at March 31,
1999 due to a reduction in the demand for mortgage loans.

There  were no  non-performing  assets  at March  31,  1999  and June 30,  1998.
Classified  assets totaled $266,000.  An unsecured  consumer loan for $4,000 was
classified  as doubtful.  The  remaining  classified  loans were  classified  as
substandard and were on single family mortgage loans.

Deposits decreased $4.5 million, or 6.53% from $68.3 million at June 30, 1998 to
$63.8  million  at  March  31,  1999  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 $18.9 million or 29.62% of total savings.

At March 31, 1999,  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 increased $150,000 or 61.73% due
to the  accumulation  of funds to pay real  estate  taxes due during the quarter
ending June 30, 1999. Other  liabilities and deferred income decreased  $115,000
or 21.74%  mainly due to  decreased  accrual for income  taxes due to  decreased
income.

Results of Operations for the three months ended March 31, 1999
---------------------------------------------------------------
and March 31, 1998
------------------

         Net Income Net income  decreased  $89,000 or 58.17%,  from $153,000 for
the three  months  ended March 31, 1998 to $64,000  for the three  months  ended
March 31, 1999.  The decrease was mainly due to higher  expenses for  personnel,
data  processing,  increased  interest on borrowings  and a decrease in interest
income on mortgage loans offset by decreased interest paid on deposits.

         Interest Income Interest income decreased $112,000, or 7.37%, from $1.5
million for the three  months ended March 31, 1998 to $1.4 million for the three
months ended March 31, 1999. The decrease was mainly a result in the decrease in
earnings on a smaller mortgage loan portfolio.

         Interest  Expense  Interest  expense  decreased  $55,000  or 6.47% from
$850,000  for the three  months  ended March 31, 1998 to $795,000  for the three
months  ended  March 31,  1999.  The  decrease  was due mainly to a decrease  in
deposits offset by an increase in borrowed funds.

         Net Interest Income Net interest  income  decreased by $57,000 or 8.51%
from  $670,000  for the three  months  ended March 31, 1998 to $613,000  for the
three months ended March 31, 1999. The decrease was due mainly to a reduction in
mortgage  loans and an  increase  in borrowed  funds  offset by a  reduction  in
deposits.

         Provision  for Credit Losses The Bank made an addition of $3,000 to the
provision  for credit  losses for the quarter  ended March 31, 1999. A charge to
the provision  for credit losses was made for a $9,000 loss on a consumer  loan.
The allowance for credit losses was $207,000 at March 31, 1999. The Bank made an
addition of $3,000 to the  provision  for credit  losses for the  quarter  ended
March 31, 1998. The allowance for credit losses was $203,000 at March 31, 1998.


                                        7

<PAGE>



Results of Operations for the three months ended March 31, 1999
---------------------------------------------------------------
and March 31, 1998, cont.
-------------------------

         Non-interest  Income  Non-interest income increased by $4,000, or 3.31%
from  $121,000  for the three  months  ended March 31, 1998 to $125,000  for the
three months ended March 31, 1999. The increase was mainly due to an increase in
loan and other service fees partially offset by a reduction in gains on the sale
of mortgage loans during the quarter ended March 31, 1999.

         Non-interest  Expense  Non-interest  expense  increased by $84,000,  or
15.36% from  $547,000  for the three months ended March 31, 1998 to $631,000 for
the three months  ended March 31,  1999,  mainly due to an increase in personnel
expense, data processing, advertising, office equipment and supply expenses.

         Provision for income taxes The provision for income taxes for the three
months  ended  March 31,  1998 was  $88,000 as compared to $40,000 for the three
months ended March 31, 1999 due to decreased pre-tax income.

Results of Operations for the nine months ended March 31, 1999
--------------------------------------------------------------
and March 31, 1998
------------------

         Net Income Net income decreased  $124,000 or 32.29%,  from $384,000 for
the nine months ended March 31, 1998 to $260,000 for the nine months ended March
31, 1999.  The decrease was mainly due to higher  expenses for  personnel,  data
processing,  increased interest expense on borrowings and a decrease in interest
income on mortgage  loans offset by decreased  interest  paid on deposits and an
increase in gain on sale of mortgage loans.

         Interest Income Interest income increased $41,000,  or 0.95%, from $4.3
million  for the nine months  ended March 31, 1998 to $4.4  million for the nine
months ended March 31, 1999. 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 $191,000 or 8.10% from $2.4
million  for the nine months  ended March 31, 1998 to $2.5  million for the nine
months  ended  March 31,  1999.  The  increase  was due mainly to an increase in
borrowed funds offset by a decrease in certificates of deposit.  The decrease in
deposits  was the result of lower  repricing  to reflect  downward  movements in
interest rates nationally and locally.

         Net Interest Income Net interest income  decreased by $150,000 or 7.58%
from $2.0  million for the nine months  ended March 31, 1998 to $1.8 million for
the nine months ended March 31, 1999. The decrease was mainly due to an increase
in borrowed funds and a decrease in mortgage loans offset by increased income on
investment securities and a decrease in deposits.

         Provision  for Credit Losses The Bank made an addition of $9,000 to the
provision  for credit  losses for the nine months ended March 31, 1999. A charge
to the  provision  for credit  losses  was made for a $9,000  loss on a consumer
loan.  The allowance for credit losses was $207,000 at March 31, 1999.  The Bank
made an addition of $30,000 to the  provision  for credit losses for the quarter
ended  March 31,  1998.  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 $203,000 at March 31, 1998..

         Non-interest  Income  Non-interest  income  increased by  $175,000,  or
60.14% from  $291,000  for the nine months  ended March 31, 1998 to $466,000 for
the nine months ended March 31, 1999. The increase was mainly due to an increase
in gains on the sale of mortgage loans and an increase in fee income offset by a
loss on investment securities during the quarter ended December 31, 1998.

         Non-interest  Expense  Non-interest  expense increased by $237,000,  or
14.56%  from $1.6  million  for the nine  months  ended  March 31,  1998 to $1.9
million for the nine months ended March 31,  1999,  mainly due to an increase in
personnel expense,  data processing expense,  advertising,  office equipment and
supply expenses.

         Management  continues  their efforts to expand the Bank's  products and
services  as well as improve its  delivery  system to enhance  quality  service.
This year's focus on increasing  retail loan production has resulted in doubling
the  volume  of home  equity  lines  outstanding  and the  new  Commercial  Loan
Department has shown progress in terms of generation of new business. Management
fully expects  non-interest expense to continue to 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 nine months ended March 31, 1999
--------------------------------------------------------------
and March 31, 1998, 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 nine
months  ended March 31,  1999 was  $162,000  compared  to $229,000  for the nine
months  ended March 31, 1998.  The decrease was due to decreased  income for the
nine months ended March 31, 1999.



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 March 31,
1999:
                                                                      Percent of
                                                           Amount       Assets
                                                           ------       ------

                  GAAP Capital....................         $6,775         8.34%
                                                            =====        =====

                  Tangible Capital................         $6,775         8.34%
                  Tangible Capital Requirement....          1,219         1.50%
                                                            -----        -----
                  Excess..........................         $5,556         6.84%
                                                            =====        =====

                  Core Capital....................         $6,775         8.34%
                  Core Capital Requirement........          2,438         3.00%
                                                            -----        -----
                  Excess..........................         $4,337         5.34%
                                                            =====        =====

                  Total Risk-Based Capital........         $6,981        17.86%
                  Risk-Based Capital Requirement..          3,128         8.00%
                                                            -----        -----
                  Excess..........................         $3,853         9.86%
                                                            =====       ======

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 26.25% at March 31, 1999 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 to  Management  and the Board of
Directors.

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

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

Computers used by our customers
-------------------------------
Large loan customers have been contacted in order to both instill  awareness and
to determine  their state of readiness for Year 2000.  All  customers  contacted
have  responded.  At this point,  the Bank has no reason to doubt the ability of
any of these  customers  to  continue  to  operate  effectively  in a Year  2000
environment. We believe that most of our residential borrowers 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. The budget is approximately  $35,000.  At March 31,
1999, total expenses paid were $25,000. The major cost is an upgrade and testing
surcharge paid to Bisys.  (Bisys is a data services provider which processes the
Bank's major loan and deposit applications.)

Contingency & Cash Plan
-----------------------

Our data  services  provider has sponsored  five meetings on their  progress and
test plans for the Year 2000.  Starting in November,  1998 and continuing  until
April,  1999, a test facility was set up to provide for formal  testing  between
the Bank and Bisys.  At this time,  we find no reason to believe that Bisys will
not be able to operate on January 3, 2000.

The  committee  is working  with  senior  management  to develop,  validate  and
implement a Year 2000 liquidity or "Cash" plan.  This plan should be complete by
June 30, 1999 and will be presented to the Board for approval.

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.

                  None.

Item 5.  Other Information

                  None.

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

                  None.

                                       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:    May 12, 1999           By:   /s/ D. W. Shilling                 
                                ------------------------------------------------
                                D. W. Shilling
                                President, Chief Financial Officer, and Director


Date:    May 12, 1999           By:   /s/  Mary G. Staples              
                                ------------------------------------------------
                                Mary G. Staples
                                Controller/Treasurer
                                Principal Financial Officer

                                       13