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 March 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 May 11, 1998: $0.10 par value - 506,284 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, 1998 and June 30, 1997 (unaudited)              1

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

                  Consolidated Statements of Cash Flows for the
                  Nine Months Ended March 31, 1998 and
                  March 31, 1997 (unaudited)                                   3

                  Notes to Unaudited Interim Consolidated
                  Financial Statements                                         4


Item 2.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                          5


PART II.          OTHER INFORMATION                                           10
                  =================



<PAGE>

                        SWVA BANCSHARES, INC & SUBSIDIARY
                 Consolidated Statements of Financial Condition
                                 (In thousands)
<TABLE>
<CAPTION>
                                     Assets                                        Mar 31      June 30
                                                                                     1998        1997
                                                                                   ---------------------
                                                                                       (Unaudited)

<S>                                                                                <C>         <C>     
Cash and cash equivalents                                                          $  1,436    $  1,276
Interest-bearing deposits                                                             6,291       5,304
Investment & Mortgage Backed Securities:
  Held to Maturity, at amortized cost                                                   325         365
  Available for Sale, at fair value                                                  20,185       8,748
  Restricted at cost                                                                    961         961
Loans held for sale                                                                   1,780         727
Loans receivable, net                                                                47,891      50,982
Property and equipment, net                                                           1,626       1,666
Accrued interest receivable                                                             672         437
Prepaid expenses and other assets                                                       297         287
                                                                                   --------    --------

    Total assets                                                                   $ 81,464    $ 70,753
                                                                                   ========    ========

Liabilities and  Stockholders'  Equity 
Deposits                                                                           $ 68,666    $ 57,933 
Advances Federal Home Loan Bank                                                       3,500       3,500  
Advances from  borrowers for taxes and insurance                                        431         205 
Other liabilities and deferred income                                                   480         513 

    Total liabilities                                                                73,077      62,151
                                                                                   --------    --------

Stockholders' Equity
Preferred Stock, 275,000 shares
   authorized, no shares issued or
   outstanding
Common stock, $.10 par value,  2,225,000 shares authorized,  506,284 outstanding
   as of March 31, 1998 and 510,984
   outstanding as of June 30, 1997                                                       51          51
Additional paid-in capital                                                            4,226       4,286
Dividends declared and paid                                                            (612)       (143)
Less unearned ESOP shares (31,951 shares)                                              (319)       (319)
Less unearned MSBP shares (17,537 shares)                                              (305)       (349)
Retained earnings
 (substantially restricted)                                                           5,288       5,047
Valuation allowance
  Investments Available for Sale                                                         58          29
                                                                                   --------    --------

  Total Stockholders' Equity                                                          8,387       8,602
                                                                                   --------    --------

  Total Liabilities
        and Stockholders' Equity                                                   $ 81,464    $ 70,753
                                                                                   ========    ========
</TABLE>


                                        1

<PAGE>
                     SWVA BANCSHARES, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                                 (In thousands)
<TABLE>
<CAPTION>
                                             Three Months         Nine Months
                                                          Ended
                                                         March 31
                                           -------------------------------------
                                             1998      1997     1998       1997
                                             ----      ----     ----       ----
                                                         (Unaudited)
<S>                                        <C>       <C>       <C>       <C>    
Interest income
  Loans                                    $ 1,035   $ 1,101   $ 3,171   $ 3,210
  Mortgage-backed and related securities        97        89       186       332
  U. S. Government obligations
          including agencies                   224        18       513        54
  Municipal bonds                               10                  11
  Other investments, including
          overnight deposits                   154       133       456       346
                                           -------   -------   -------   -------

Total interest income                        1,520     1,341     4,337     3,942
                                           -------   -------   -------   -------

Interest expense
  Deposits                                     785       622     2,175     1,891
  Borrowed funds                                65        42       182       101
                                           -------   -------   -------   -------

         Total interest expense                850       664     2,357     1,992
                                           -------   -------   -------   -------

         Net interest income                   670       677     1,980     1,950

Provision for credit losses                      3         0        30         0
                                           -------   -------   -------   -------

         Net interest income after
           provision for credit losses         667       677     1,950     1,950
                                           -------   -------   -------   -------

Noninterest income
  Loan and other customer service fees          34        35        97       108
  Gain on sale of mortgage loans                63        16       137        73
  Gross rental income                           24        25        74        73
  Net gain on sale of investments,
          available for sale                     0         0       (17)        39
                                           -------   -------   -------   -------

         Total noninterest income              121        76       291       293
                                           -------   -------   -------   -------

Noninterest expenses
  Personnel                                    325       319       942       932
  Office occupancy and equipment                72        74       220       214
  Data processing                               47        37       120       103
  Federal insurance of accounts                  9         9        27       421
  Other                                         94        90       319       289
                                           -------   -------   -------   -------

         Total noninterest expenses            547       529     1,628     1,959
                                           -------   -------   -------   -------

         Income before income taxes            241       224       613       284
         Provision for income taxes             88        82       229       112
                                           -------   -------   -------   -------

         Net income                        $   153   $   142   $   384   $   172
                                           =======   =======   =======   =======

Per common share:
Basic earnings per share                       .32       .29       .80       .37
Diluted earnings per share                     .31       .29       .79       .37
</TABLE>

                                        2

<PAGE>

                      SWVA BANCSHARES, INC. & SUBSIDIARIES
                      Consolidated Statements of Cash Flow
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                               Nine Months Ended
                                                                    March 31
                                                                1998        1997
                                                              ---------------------
<S>                                                           <C>         <C>     
Operating Activities                                               (Unaudited)
    Net Income                                                $    384    $    172
    Adjustments to Reconcile Net Income to Net Cash
        Provided by (used in) operating activities
        MSBP Shares Allocated                                       44           0
        Provision for credit losses                                 30           0
        Provision for depreciation and amortization                 72          65
        Provision for Deferred Income Tax                            0         (27)
        Loans Originated for Sale                              (14,464)     (6,007)
        Proceeds from sales of loans originated for sale        13,548       6,273
        Gain on Sale of Loans, from fees                          (136)        (74)
        Gain on Sale of Real Estate                                  0           0
        Loss (Gain) on Disposal of Property and Equipment            1           0
        Net gain on sale of investments, available for sale        (17)         39
        Net (increase) decrease in Other Assets                   (280)        (15)
        Net increase (decrease) in Other Liabilities               206         278
                                                              --------    --------
      Net cash provided by (used in) operating activities         (612)        704

Investing activities
    Proceeds from sale of property and equipment                     0           0
    Proceeds from maturity of investments
        and interest-bearing deposits                            5,344       2,458
  Proceeds from sale of available for sale investments           3,257       3,300
    Purchase of investments and interest-bearing deposits       (5,832)     (3,838)
  Purchase of available for sale investments                   (15,617)     (1,992)
    Purchase of property and equipment                             (30)        (44)
    Net (increase) decrease in loans                             3,375      (4,167)
    Purchase of loans                                             (315)        (22)
    Principal repayments on Mortgage Backed Securities             566          81
                                                              --------    --------
        Net cash provided by (used in) investing activities     (9,252)     (4,224)
                                                              --------    --------

Financing activities
    Curtailment of advances and other borrowings                (3,000)     (2,500)
    Proceeds from advances and other borrowings                  3,000       3,500
    Net increase (decrease) in savings deposits                 10,733         868
  Repurchase of stock                                              (97)       (341)
    Dividends paid                                                (612)       (143)
                                                              --------    --------
    Net cash used in financing activities                       10,024       1,384
                                                              --------    --------

Increase (decrease) in cash and cash equivalents                   160      (2,136)

Cash and cash equivalents at beginning of period                 1,276       5,262
                                                              --------    --------

Cash and cash equivalents at end of period                    $  1,436    $  3,126
                                                              ========    ========
</TABLE>

                                        3

<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 three and nine months ended March 31,  1998,  are not
necessarily  indicative  of the results that may be expected for the year ending
June 30, 1998.



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 March 31, 1998, the Company repurchased 4,700 shares of
common stock in the open market at an aggregate  purchase price of approximately
$98,000. The amount repurchased represented approximately 0.92% of the Company's
total shares outstanding prior to the repurchase.



NOTE 3 - DIRECTORS STOCK COMPENSATION PLAN

On March 18, 1998,  the Company  granted  10,122  options to purchase  shares of
common stock to its Directors.  The purchase price of common stock,  under these
options,  is $21.00 per share  (market  price at the date of grant).  All of the
above  options  are  exercisable  at the date of grant and expire ten (10) years
from the date of grant.


                                        4

<PAGE>




NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENTS

FASB Statement on Earnings Per Share.
In March,  1997,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 128. The  Statement
establishes  standards  for  computing  and  presenting  earnings  per share and
applies to entities with  publicly held common stock or potential  common stock.
This  statement  simplifies  the  standards  for  computing  earnings  per share
previously found in Accounting Principles Board ("APS") Opinion No. 15, Earnings
per Share ("EPS"), and makes them comparable to international EPS standards.  It
replaces the  presentation  of primary EPS with a presentation  of basic EPS. It
also  requires  dual  presentation  of basic and  diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and the denominator of the basic EPS computation
to the  numerator  and  denominator  of the diluted EPS  computation.  Basic EPS
excludes  dilution  and is  computed  by  dividing  income  available  to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted  EPS  reflects  the  potential  dilution  that  could  occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shares
in the  earnings of the  entity.  Diluted  EPS is  computed  similarly  to fully
diluted EPS pursuant to APB Opinion No. 15. This statement supersedes Opinion 15
and AICPA  Accounting  Interpretation  1-102 of Opinion  15. This  statement  is
effective for financial  statements issued for periods ending after December 15,
1997,  including interim periods.  We do not believe the impact of adopting SFAS
No. 28 will be material to our financial statements.

                                        5

<PAGE>

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

Comparison of Financial Condition at March 31, 1998 and June 30, 1997
---------------------------------------------------------------------

Total assets  increased  $10.7  million or 15.13% from $70.8 million at June 30,
1997 to $81.5  million at March 31, 1998 due to an  increase in deposits  and an
increase in  Available  for Sale  Investments  purchased.  Net loans  receivable
decreased  $3.1  million or 6.06% from $51.0  million at June 30,  1997 to $47.9
million at March 31,  1998 due  primarily  to loan  payoffs of  adjustable  rate
(ARM's) and fixed rate  mortgage  loans and a reduction  in  construction  loans
outstanding.

Interest-bearing  deposits increased $1.0 million or 18.61% from $5.3 million at
June 30,  1997 to $6.3  million at March 31,  1998 due mainly to an  increase in
cash available to invest in interest-bearing deposits. Cash and cash equivalents
increased  $160,000 or 12.54% from $1.3 million at June 30, 1997 to $1.4 million
at March 31, 1998 due mainly to increased  cash  received  from loan payoffs and
funds  received on savings  deposits net of funds  invested in  investments  and
mortgage  backed  securities.  Available for Sale  Investments  increased  $12.4
million from $8.7  million at June 30, 1997 to $21.1  million at March 31, 1998.
The  increase  in  Available  for Sale  Investments  were  funded from growth in
deposits and  borrowings  from the FHLB.  Deposits  increased  $10.8  million or
18.53%.  This deposit growth came when loan demand for adjustable  rate mortgage
loans  (ARM's) had slowed.  Therefore,  the funds were invested in available for
sale investments  such as FHLB notes,  FHLMC notes,  FNMA notes,  GNMA II & FNMA
mortgage  backed  investments  and  municipal  bonds.  In addition,  some of the
securities were purchased with funds borrowed from the FHLB in order to leverage
capital with the expectation of increasing return on equity. This approach could
increase interest rate risk.

Accrued interest  receivable  increased $235,000 or 53.55% from $437,000 at June
30,  1997 to  $672,000  at March 31,  1998 due to an  increase  in  accruals  on
available for sale investments.

There were no non-performing  assets at March 31, 1998 as compared to $60,000 in
non-performing  assets at June 30, 1997.  Classified  assets totaled $302,000 at
March 31, 1998.  Such assets were  classified as substandard  and were on single
family mortgage loans.

Deposits increased $10.8 million,  or 18.53% from $57.9 million at June 30, 1997
to $68.7  million  at March  31,  1998 due  mainly  to an  increase  in funds in
certificates  of deposits.  Core  deposits were $16.9 million or 24.63% of total
deposits. This strong deposit growth was enhanced with new customers.  There are
currently  several mergers of other banks taking place in our market with out of
state banks which we feel has  contributed  directly to this growth.  We believe
that this is an indication  that local  customers want to be served by home town
banks.

At June 30,  1997 and March 31,  1998 there  were $3.5  million  outstanding  in
advances  from the Federal Home Loan Bank of Atlanta.  Funds from  advances have
been used to leverage investment purchases.

                                        6

<PAGE>

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.

A process is already  underway to identify  all  equipment  and systems that may
potentially  be  impacted.  All outside  servicers  and major  vendors have been
contacted in order to ascertain their  individual  degrees of readiness for Year
2000.  This will be an  on-going  effort to  include  documented  equipment  and
systems  testing.  Currently,  because  the  larger  part  of  the  Bank's  data
processing  is  out-sourced,  the remaining  in-house  systems can be made ready
without the need for external project management assistance.

Large loan customers have been contacted in order to both instill  awareness and
to determine their state of readiness for Year 2000.

Although  the Bank is  already  paying  some  additional  surcharges  to various
vendors for equipment and systems up-grading, it is currently estimated that the
amount of financial  expenditure required to become Year 2000 compliant will NOT
be significant.  However, expenses will be closely monitored in conjunction with
periodic servicer and vendor status reports.

                                        7

<PAGE>



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

         Net Income Net income increased $11,000 or 7.75%, from $142,000 for the
three  months  ended March 31, 1997 to $153,000 for the three months ended March
31,  1998.  The  increase in net income was mainly due to an increase in gain on
sale of mortgage loans offset by increased non interest expenses.

         Interest Income Interest income  increased  $179,000,  or 13.35%,  from
$1.3  million for the three  months ended March 31, 1997 to $1.5 million for the
three months ended March 31, 1998.  The increase was mainly a result of interest
earned on funds invested offset by a decrease in the interest received on loans.

         Interest  Expense Interest  expense  increased  $186,000 or 28.01% from
$664,000  for the three  months  ended March 31, 1997 to $850,000  for the three
months  ended  March 31,  1998.  The  increase  was due mainly to an increase in
interest paid on deposits and an increase in interest paid on borrowed funds.

         Net Interest  Income Net interest  income  decreased by $7,000 or 1.03%
from  $677,000  for the three  months  ended March 31, 1997 to $670,000  for the
three months ended March 31, 1998.

         Provision  for Credit Losses The Bank made an addition of $3,000 to the
provision  for credit  losses for the three  months  ended March 31,  1998.  The
allowance for credit losses is $203,000. No provision for credit losses was made
during the quarter ending March 31, 1997.

         Non-interest Income Non-interest income increased by $45,000, or 59.21%
from $76,000 for the three months ended March 31, 1997 to $121,000 for the three
months ended March 31, 1998. This was mainly the result of an increase in income
on loans sold in the secondary market for the three months ended March 31, 1998.

         Non-interest  Expense  Non-interest  expense  increased by $18,000,  or
3.40% from  $529,000  for the three  months ended March 31, 1997 to $547,000 for
the three  months  ended  March 31,  1998,  mainly due to a an  increase in data
processing expenses and personnel expenses.

         Provision for income taxes The provision for income taxes for the three
months  ended  March 31,  1998 was  $88,000 as compared to $82,000 for the three
months ended March 31, 1997. The increase was due to increased pre-tax income.

                                        8

<PAGE>

Results of  Operations  for the nine  months  ended March 31, 1998 and March 31,
--------------------------------------------------------------------------------
1997
----

         Net Income Net income increased $212,000 or 123.26%,  from $172,000 for
the nine months ended March 31, 1997 to $384,000 for the nine months ended March
31, 1998.  The  increase was mainly due to the one time SAIF Special  Assessment
offset  by the net  gains  on sale of  available  for  sale of  investments  and
additional  provisions  for income  taxes during the nine months ended March 31,
1997.

         Interest Income Interest income  increased  $395,000,  or 10.02%,  from
$3.9  million for the nine months  ended March 31, 1997 to $4.3  million for the
nine months ended March 31, 1998. The increase was mainly a result of additional
cash received on savings  deposits which were invested and mortgage loans put in
the Bank's portfolio during the first quarter.

         Interest Expense Interest expense  increased  $365,000 or 18.32%,  from
$2.0  million for the nine months ended March 31, 1997 to $2.4 million for the 9
months ended March 31, 1998. The increase was mainly the result of a increase in
the cost of deposits and an increase in the cost of funds borrowed.

         Net Interest Income Net interest income  increased by $30,000 or 1.54%.
This resulted  mainly from an increase in the interest earned on Mortgage Backed
and  related  securities  and  other  investments  offset by  increased  cost of
deposits and borrowed money.

         Provision for Credit Losses The Bank added $30,000 to the provision for
credit  losses for the nine months ended March 31,  1998.  The addition was made
due to a loss of $44,000 on a delinquent  real estate loan.  The  allowance  for
credit  losses was $203,000 at March 31, 1998.  No provision  for credit  losses
were made during the nine months ending March 31, 1997.

         Non-interest  Income  Non-interest  income decreased by $2,000 or 0.68%
from  $293,000 for the nine months ended March 31, 1997 to $291,000 for the nine
months ended March 31,  1998.  This  resulted  from a net gain of $39,000 on the
sale of  investments  during the nine months ended March 31, 1997, a net loss of
$17,000 on the sale of  investments  during the nine months ended March 31, 1998
and an increase in gain on sale of  mortgage  loans and a reduction  in loan and
other customer service fees.

         Non-interest  Expense  Non-interest  expense decreased by $331,000,  or
16.90%  from $2.0  million  for the nine  months  ended  March 31,  1997 to $1.6
million for the nine months  ended  March 31,  1998,  due mainly to the one time
SAIF  Special  Assessment  offset  by  an  increase  in  data  processing  costs
associated  with the  start-up  cost of the new ATM and Debit Card  program,  an
increase in expenses  associated with the annual meeting and increased personnel
expenses.

         Provision  for income taxes The provision for income taxes for the nine
months  ended March 31, 1998 was  $229,000 as compared to $112,000  for the nine
months ended March 31, 1997.  Tax  calculations  for the nine months ended March
31, 1997 were affected by the loss recorded during the first quarter for the one
time SAIF Special Assessment.

                                        9

<PAGE>

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,
1998:


                                                                  Percent of
                                                   Amount           Assets

            GAAP Capital....................       $7,602            9.29%
                                                   ======            ==== 

            Tangible Capital................       $7,602            9.29%
            Tangible Capital Requirement....        1,228            1.50%
                                                   ------           ----- 
            Excess..........................       $6,374            7.79%
                                                   ======           ===== 

            Core Capital....................       $7,602            9.29%
            Core Capital Requirement........        2,456            3.00%
                                                   ------           ----- 
            Excess..........................       $5,146            6.29%
                                                   ======           ===== 
         
            Total Risk-Based Capital........       $7,805           20.36%
            Risk-Based Capital Requirement..        3,067            8.00%
                                                   ------           ----- 
            Excess..........................       $4,738           12.36%
                                                   ------           ----- 


During the quarter  ending  December 31, 1997,  the Bank paid a cash dividend to
SWVA Bancshares, Inc. in the amount of $725,000.

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.


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,

                                       10

<PAGE>



Liquidity, cont.
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.  During the quarter ending December
31,  1997,  a change in  regulations  changed  the  liquidity  requirements  for
thrifts.  Some of these changes included  reducing the liquid asset  requirement
from  5% to 4% of the  liquidity  base  and  elimination  of the 5 year  maximum
maturity limitation.

The  Bank's  regulatory  liquidity  was  24.08%  at March  31,  1998.  Using the
requirements  set forth on June 30, 1997,  the Bank's  regulatory  liquidity was
6.74%.

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.


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<PAGE>



                      SWVA BANCSHARES, INC. & SUBSIDIARIES


                                     PART II

Item 1.           Legal Proceedings

                  Not applicable.

Item 2.           Changes in Securities

                  Not applicable.

Item 3.           Defaults upon Senior Securities

                  Not applicable.

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

                  Not applicable.

Item 5.           Other Information

                  Not applicable.

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

                  (a) Exhibit 10.1  SWVA Bancshares, Inc. 1998
                      Directors Stock Compensation Plan

                      Exhibit 99.1  Press releases issued by the registrant.

                                       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 14, 1998                        By:   /s/  B. L. Rakes
                                               -----------------
                                          B. L. Rakes
                                          President, Chief Executive Officer,
                                          Chief Financial Officer, and Director


Date: May 14, 1998                        By:   /s/  Mary G. Staples
                                               ---------------------
                                          Mary G. Staples
                                          Vice President/Treasurer
                                          Principal Financial Officer



                                       11