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, 1997
                               -----------------


                                       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 10, 1998: $0.10 par value - 510,984 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, 1997 and June 30, 1997
            (unaudited)                                                   1

            Consolidated Statements of Income for the
            Three and Six Months Ended December 31, 1997
            and June 30, 1997 (unaudited)                                 2

            Consolidated Statements of Cash Flows for the
            Six Months Ended December 31, 1997 and June
            30, 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                                                    6

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



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

<TABLE>
<CAPTION>

                                            Assets                                  Dec 31     June 30
                                                                                     1997        1997
                                                                                   --------------------
                                                                                        (Unaudited)

<S>                                                                                <C>         <C>     
Cash and cash equivalents                                                          $  4,835    $  1,276
Interest-bearing deposits                                                             5,685       5,304
Investment & Mortgage Backed Securities:
  Held to Maturity, at amortized cost                                                   332         365
  Available for Sale, at fair value                                                  14,713       8,748
  Restricted at cost                                                                    961         961
Loans held for sale                                                                     726         727
Loans receivable, net                                                                48,620      50,982
Property and equipment, net                                                           1,641       1,666
Accrued interest receivable                                                             487         437
Prepaid expenses and other assets                                                       282         287
                                                                                   --------    --------

    Total assets                                                                   $ 78,282    $ 70,753
                                                                                   ========    ========

                             Liabilities and Stockholders' Equity
Deposits                                                                           $ 64,813    $ 57,933
Advances Federal Home Loan Bank                                                       4,500       3,500
Advances from borrowers
  for taxes and insurance                                                               216         205
Other liabilities and deferred income                                                   338         513
                                                                                   --------    --------

    Total liabilities                                                                69,867      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,  
   510,984 outstanding as of December 31, 1997 and 510,984
   outstanding as of June 30, 1997                                                       51          51
Additional paid-in capital                                                            4,310       4,286
Dividends declared and paid                                                            (536)       (143)
Less unearned ESOP shares (31,951 shares)                                              (319)       (319)
Less unearned MSBP shares (17,537 shares)                                              (305)       (349)
Retained earnings
 (substantially restricted)                                                           5,135       5,047
Valuation allowance
  Investments Available for Sale                                                         79          29
                                                                                   --------    --------

  Total Stockholders' Equity                                                          8,415       8,602
                                                                                   --------    --------

  Total Liabilities
        and Stockholders' Equity                                                   $ 78,282    $ 70,753
                                                                                   ========    ========

</TABLE>


                                        1

<PAGE>



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

<TABLE>
<CAPTION>


                                                        Three Months       Six Months
                                                                     Ended
                                                                   December 31
                                                     -------------------------------------
                                                       1997      1996     1997      1996
                                                       ----      ----     ----      ----
                                                                      (Unaudited)
<S>                                                   <C>       <C>      <C>       <C>   
Interest income
  Loans                                               $1,041    $1,101   $2,136    $2,109
  Mortgage-backed and related securities                  43       123       89       243
  U. S. Government obligations
       including agencies                                182        18      289        36
  Municipal bonds                                          1         0        1         0
  Other investments, including
       overnight deposits                                157       104      302       213
                                                      ------    ------   ------    ------

Total interest income                                  1,424     1,346    2,817     2,601
                                                      ------    ------   ------    ------

Interest expense
  Deposits                                               719       634    1,390     1,269
  Borrowed funds                                          70        50      117        59
                                                      ------    ------   ------    ------

      Total interest expense                             789       684    1,507     1,328
                                                      ------    ------   ------    ------

      Net interest income                                635       662    1,310     1,273

Provision for credit losses                                3         0       27         0
                                                      ------    ------   ------    ------

      Net interest income after
        provision for credit losses                      632       662    1,283     1,273
                                                      ------    ------   ------    ------

Noninterest income
  Loan and other customer service fees                    31        36       63        73
  Gain on sale of mortgage loans                          28        31       74        57
  Gross rental income                                     25        24       50        48
  Net gain on sale of investments,
       available for    sale                               0        39      (17)       39
                                                      ------    ------   -------   ------

      Total noninterest income                            84       130      170       217
                                                      ------    ------   ------    ------

Noninterest expenses
  Personnel                                              299       308      617       613
  Office occupancy and equipment                          74        72      148       140
  Data processing                                         42        34       73        66
  Federal insurance of accounts                           13        23       18       412
  Other                                                  103       101      225       199
                                                      ------    ------   ------    ------

      Total noninterest expenses                         531       538    1,081     1,430
                                                      ------    ------   ------    ------

      Income before income taxes                         185       254      372        60
      Provision for income taxes                          70        30      141        30
                                                      ------    ------   ------    ------

      Net income                                      $  115    $  224   $  231   $    30
                                                      ======    ======   ======   =======

Per common share:
Basic earnings per share                                 .24       .46      .48       .07
Diluted earnings per share                               .24       .46      .48       .07

</TABLE>


                                        2

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

                                                                          Six Months Ended
                                                                                Dec 31
                                                                        ------------------
                                                                          1997       1996
<S>                                                                     <C>       <C>    
Operating Activities                                                        (Unaudited)
   Net Income                                                           $   231   $    30
   Adjustments to Reconcile Net Income to Net Cash
     Provided by (used in) operating activities
     MSBP Shares Allocated                                                   44         0
     Provision for credit losses                                             27         0
     Provision for depreciation and amortization                             49        42
     Provision for Deferred Income Tax                                        0         2
     Loans Originated for Sale                                           (6,527)   (3,516)
     Proceeds from sales of loans originated for sale                     6,602     4,329
     Gain on Sale of Loans, from fees                                       (74)      (57)
     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                                (34)      (44)
     Net increase (decrease) in Other Liabilities                          (164)     (130)
                                                                        -------   -------
      Net cash provided by (used in) operating activities                   138       695

Investing activities
   Proceeds from sale of property and equipment                               0         0
   Proceeds from maturity of investments
     and interest-bearing deposits                                        3,271     1,572
  Proceeds from sale of available for sale investments                    3,257     2,062
   Purchase of investments and interest-bearing deposits                 (3,652)   (2,558)
  Purchase of available for sale investments                             (9,271)   (1,992)
   Purchase of property and equipment                                       (23)      (28)
   Net (increase) decrease in loans                                       2,335    (4,468)
   Purchase of loans                                                          0       (22)
   Principal repayments on Mortgage Backed Securities                       160        46
                                                                        -------   -------
     Net cash provided by (used in) investing activities                 (3,923)   (5,388)
                                                                        -------   -------

Financing activities
   Curtailment of advances and other borrowings                          (1,500)        0
   Proceeds from advances and other borrowings                            2,500     3,500
   Net increase (decrease) in savings deposits                            6,879      (399)
  Proceeds from sale of stock                                                 0         0
  Repurchase of stock                                                         0      (341)
   Dividends paid                                                          (535)      (70)
                                                                        -------   -------
   Net cash used in financing activities                                  7,344     2,690
                                                                        -------   -------

Increase (decrease) in cash and cash equivalents                          3,559    (2,003)

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

Cash and cash equivalents at end of period                             $  4,835   $ 3,259
                                                                       ========   =======

</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 six months ended December 31, 1997, 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 doe 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.

NOTE 3 -- 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 State simplifies the standards for computing  earnings per share previously
found in Accounting  Principles Board ("APB") 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

                                        4

<PAGE>



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 December 31, 1997 and June 30, 1997
------------------------------------------------------------------------


Total assets  increased  $7.5  million or 10.64% from $70.8  million at June 30,
1997 to $78.3 million at December 31, 1997. Net loans receivable  decreased $2.4
million  or 4.63%  from  $51.0  million  at June 30,  1997 to $48.6  million  at
December  31, 1997 due  primarily to loan payoffs of  adjustable  rate  mortgage
loans (ARM's) and a reduction in construction loans outstanding.


Interest-bearing  deposits  increased  $400,000  or  7.18%  to $5.7  million  at
December  31, 1997 from $5.3  million at June 30, 1997 due mainly to an increase
in cash  available  to  invest  in  interest-bearing  deposits.  Cash  and  cash
equivalents increased $3.5 million or 278.92% from $1.3 million at June 30, 1997
to $4.8 million at December 31, 1997 due mainly to increased  cash received from
loan  payoffs  and  funds  received  on  savings  deposits.  Available  for Sale
Investments  increased  $6.0 million from $8.7 million at June 30, 1997 to $14.7
million at December  31,  1997.  The  increase in  investments  were funded from
growth in deposits and borrowings from the FHLB. Deposits increased $6.9 million
or 11.88%.  This growth came when loan demand had slowed.  Therefore,  the funds
were invested in available for sale investments such as FHLB notes, FHLMC notes,
FNMA notes, GNMA II mortgage backed investments and municipal bonds. In addition
some of the securities  were  purchased with funds borrowed from the FHLB.  This
action was taken to leverage  capital with the expectation of increasing  return
on equity. This approach could increase interest rate risk.



Accrued interest  receivable  increased  $50,000 or 11.44% from $437,000 at June
30,  1997 to  $487,000  at  December  31, 1997 due to an increase in accruals on
available for sale investments.


Non-performing  assets at December  31, 1997 were $23,000 as compared to $60,000
in  non-performing  assets at June 30, 1997. The  non-performing  asset was on a
single family  mortgage  loan.  Classified  assets  totaled  $333,000.  All were
classified  as  substandard.  $6,000 was on a letter of credit and the remaining
were on single family mortgage loans.


Deposits  increased $6.9 million,  or 11.88% from $57.9 million at June 30, 1997
to $64.8  million at  December  31,  1997 due mainly to an  increase in funds in
certificates  of deposits.  Core  deposits were $15.9 million or 24.49% of total
savings.  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.

                                        6

<PAGE>





At December 31, 1997,  there were $4.5 million  outstanding in advances from the
Federal  Home Loan Bank of Atlanta as compared to $3.5  million  outstanding  on
June 30, 1997, an increase of $1.0 million or 28.57%.  The advances were used to
leverage investment purchases.


Other accrued expenses  decreased  $175,000 or 34.11% due to the accumulation of
accruals for calendar  year  expenses and tax deposits that were paid during the
quarter ended December 31, 1997.


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 also
been appointed by the Board to manage this effort. At this time, because so much
of the Bank's data processing is  out-sourced,  it is felt that this project can
be  managed  internally.   However,   should  major  concerns  emerge,  external
assistance could be sought.

A process is already  underway to identify  all  equipment  and systems that may
potentially be impacted.  Servicers,  major vendors and large loan customers are
all being 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.

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,  this will be closely  monitored in conjunction  with
periodic servicer and vendor status reports.

                                        7

<PAGE>



Results of Operations  for the three months ended December 31, 1997 and December
--------------------------------------------------------------------------------
31, 1996
--------


      Net Income Net income decreased $109,000 or 48.66%,  from $224,000 for the
three  months  ended  December  31, 1996 to $115,000  for the three months ended
December 31, 1997.  The decrease in net income was due to decreased net interest
income and noninterest income and an increase in the provision for income taxes.


      Interest Income Interest income  increased  $78,000,  or 5.79%,  from $1.3
million for the three  months  ended  December  31, 1996 to $1.4 million for the
three  months  ended  December  31,  1997.  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  $105,000  or 15.35%  from
$684,000 for the three months ended  December 31, 1996 to $789,000 for the three
months ended  December  31, 1997.  The increase was due mainly to an increase in
interest paid on borrowed funds and an increase in interest paid on deposits.


      Net Interest Income Net interest income decreased by $27,000 or 4.08% from
$662,000 for the three months ended  December 31, 1996 to $635,000 for the three
months  ended  December  31,  1997 due  mainly to  additional  interest  paid on
deposits,  reduced interest income on loans offset by increased  interest earned
on investments.


      Provision  for Credit  Losses The Bank made an  addition  of $3,000 to the
provision  for credit losses for the three months ended  December 31, 1997.  The
allowance for credit losses is $200,000. No provision for credit losses was made
during the quarter ending December 31, 1996.


      Non-interest  Income  Non-interest  income decreased by $46,000, or 35.38%
from  $130,000 for the three  months ended  December 31, 1996 to $84,000 for the
three months ended  December 31, 1997.  This was mainly the result of a decrease
in net gains on the sale of available for sale investments during 1996.


      Non-interest  Expense  Non-interest  expense decreased by $7,000, or 1.30%
from  $538,000 for the three months ended  December 31, 1996 to $531,000 for the
three  months  ended  December  31,  1997,  mainly due to a reduction in Federal
Deposit Insurance Premiums.


      Provision  for income taxes The  provision  for income taxes for the three
months ended  December 31, 1997 was $70,000 as compared to $30,000 for the three
months ended December 31, 1996. Tax calculations for the 3 months ended December
31, 1996 were affected by the loss recorded during the first quarter for the one
time SAIF Special Assessment.

                                        8

<PAGE>



Results of  Operations  for the six months ended  December 31, 1997 and December
--------------------------------------------------------------------------------
31, 1996
--------


      Net Income Net income increased $201,000 or 670.00%,  from $30,000 for the
six months ended December 31, 1996 to $231,000 for the six months ended December
31, 1997.  The  increase was mainly due to the one time SAIF Special  Assessment
offset by the net gains on sale of available for sale investments and additional
provisions for income taxes during the six months ended December 31, 1997.

      Interest Income Interest income increased  $216,000,  or 8.30%,  from $2.6
million for the six months  ended  December 31, 1996 to $2.8 million for the six
months ended  December 31, 1997.  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  $179,000 or 13.48% from $1.3
million for the six months  ended  December 31, 1996 to $1.5 million for the six
months ended  December  31, 1997.  The increase was due mainly to an increase in
interest paid on deposits and on borrowed funds.

      Net  Interest  Income Net interest  income  increased by $37,000 or 2.91%.
This  resulted  mainly from an increase in the  interest  earned on  investments
offset by the interest paid on savings deposits.

      Provision  for Credit  Losses The Bank made an  addition of $27,000 to the
provision  for credit  losses for the six months 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.
No provision for credit  losses were made during the six months ending  December
31, 1996.

      Non-interest  Income  Non-interest  income  decreased by $47,000 or 21.66%
from $217,000 for the six months ended December 31, 1996 to $170,000 for the six
months ended December 31, 1997.  This resulted from a net gain of $39,000 on the
sale of investments during the six months ended December 31, 1996, a net loss of
$17,000 on the sale of investments during the six months ended December 31, 1997
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 $349,000, or 24.41%
from $1.4 million for the six months ended December 31, 1996 to $1.1 million for
the six months ended  December 31, 1997, 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 and an increase in expenses
associated with the annual meeting.

      Provision  for income  taxes The  provision  for income  taxes for the six
months  ended  December 31, 1997 was $141,000 as compared to $30,000 for the six
months ended December 31, 1996. Tax calculations for the 6 months ended December
31, 1996 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 December 31,
1997:


                                                                      Percent of
                                                      Amount            Assets

            GAAP Capital....................          $7,447             9.47%
                                                      ======            ===== 

            Tangible Capital................          $7,447             9.47%
            Tangible Capital Requirement....           1,180             1.50%
                                                      ------            ----- 
            Excess..........................          $6,267             7.97%
                                                      ======            ===== 

            Core Capital....................          $7,447             9.47%
            Core Capital Requirement........           2,360             3.00%
                                                      ------            ----- 
            Excess..........................          $5,087             6.47%
                                                      ======            ===== 

            Total Risk-Based Capital........          $7,648            20.33%
            Risk-Based Capital Requirement..           3,010             8.00%
                                                      ------            ----- 
            Excess..........................          $4,638            12.33%
                                                      ======            ===== 

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,  withdrawal  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

                                       10

<PAGE>



Liquidity, cont.
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,  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 27.42% at December  31,  1997.  Had these
changes not been made, the regulatory  liquidity  would have been 12.00%.  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.

            The annual meeting of  stockholders  was held on October 7, 1997. At
            that  meeting,  stockholders  elected two directors and ratified the
            appointment  of the  independent  auditors.  There  were  no  broker
            non-votes.

            1. The following directors were elected:

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

            John L. Hart      381,563           59,134

            B. L. Rakes       377,563           63,134

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

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

            436,197             2,500            2,000


Item 5.     Other Information

            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

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<PAGE>



            expiration date. Any shares  repurchased may be used for general and
            other corporate purchase,  including the issuance of shares upon the
            exercise of stock options.


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

            (a)   Exhibits

                  3.2 Bylaws of SWVA Bancshares, Inc.

            (b)   A form 8-K  (items  5 & 7) was  filed on  August  27,  1997 to
                  announce semi-annual dividends and 4th quarter earnings.



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