##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

COMMISSION FILE NUMBER: 0-22955



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BAY BANKS OF VIRGINIA, INC.

(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|VIRGINIA                                                       |  | 54-1838100                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)

100 SOUTH MAIN STREET, KILMARNOCK, VA 22482

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(804) 435-1171

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)



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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 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.    x  yes ̈no

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ̈yes    x  no

Indicate the number of shares outstanding of each of
the issuers classes of common stock, as of the latest practicable date:

2,367,817 shares of common stock on July 31, 2007



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##### Table of Contents

FORM 10-Q

For the interim period ending June 30, 2007.

INDEX



|                                                                                                                       |  |                                                                                       |  |   
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I - FINANCIAL INFORMATION                                                                                         |  |                                                                                      
|                                                                                                                       |  |                                                                                      
|ITEM 1.                                                                                                                |  | FINANCIAL STATEMENTS                                                                  |  |   
|                                                                                                                       | 
|CONSOLIDATED BALANCE SHEETS JUNE 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006                                            |  | 3                                                                                    
|                                                                                                                       | 
|CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED)                |  | 4                                                                                    
|                                                                                                                       | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED) |  | 5                                                                                    
|                                                                                                                       | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED)                      |  | 6                                                                                    
|                                                                                                                       | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                             |  | 7                                                                                    
|                                                                                                                       |  |                                                                                      
|ITEM 2.                                                                                                                |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 11
|                                                                                                                       |  |                                                                                      
|ITEM 3.                                                                                                                |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 17
|                                                                                                                       |  |                                                                                      
|ITEM 4.                                                                                                                |  | CONTROLS AND PROCEDURES                                                               |  | 17
|                                                                                                                       | 
|PART II - OTHER INFORMATION                                                                                            |  |                                                                                      
|                                                                                                                       |  |                                                                                      
|ITEM 1.                                                                                                                |  | LEGAL PROCEEDINGS                                                                     |  | 17
|                                                                                                                       |  |                                                                                      
|ITEM 1A.                                                                                                               |  | RISK FACTORS                                                                          |  | 17
|                                                                                                                       |  |                                                                                      
|ITEM 2.                                                                                                                |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 17
|                                                                                                                       |  |                                                                                      
|ITEM 3.                                                                                                                |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 18
|                                                                                                                       |  |                                                                                      
|ITEM 4.                                                                                                                |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 18
|                                                                                                                       |  |                                                                                      
|ITEM 5.                                                                                                                |  | OTHER INFORMATION                                                                     |  | 18
|                                                                                                                       |  |                                                                                      
|ITEM 6.                                                                                                                |  | EXHIBITS                                                                              |  | 18



2



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

CONSOLIDATED BALANCE SHEETS



|                                                                                                                       |  |               |             |   |                   |   |             |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                       |  | June 30, 2007 |             |   | December 31, 2006 |  
|                                                                                                                       |  | (Unaudited)   |             |   |                   |  
|ASSETS                                                                                                                 |  |               |             |   |                   |   |             |  
|Cash and due from banks                                                                                                |  | $             | 5,726,521   |   |                   | $ | 6,320,951   |  
|Interest-bearing deposits in other banks                                                                               |  |               | 116,629     |   |                   |   | 148,436     |  
|Federal funds sold                                                                                                     |  |               | 11,523,451  |   |                   |   | 4,636,278   |  
|Securities available for sale, at fair value                                                                           |  |               | 36,745,412  |   |                   |   | 38,393,648  |  
|Securities held to maturity at amortized cost (fair value, $437,871 and $430,594)                                      |  |               | 464,176     |   |                   |   | 457,091     |  
|Loans, net of allowance for loan losses of $2,361,890 and $2,235,544                                                   |  |               | 249,769,459 |   |                   |   | 243,372,412 |  
|Premises and equipment, net                                                                                            |  |               | 10,473,279  |   |                   |   | 10,317,498  |  
|Accrued interest receivable                                                                                            |  |               | 1,532,104   |   |                   |   | 1,418,214   |  
|Other real estate owned                                                                                                |  |               | 812,612     |   |                   |   | 561,745     |  
|Core deposit intangible                                                                                                |  |               | 2,807,842   |   |                   |   | 2,807,842   |  
|Other assets                                                                                                           |  |               | 1,369,733   |   |                   |   | 1,258,970   |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|Total assets                                                                                                           |  | $             | 321,341,218 |   |                   | $ | 309,693,085 |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|                                                                                                                       |  |              
|LIABILITIES                                                                                                            |  |               |             |   |                   |   |             |  
|Noninterest-bearing deposits                                                                                           |  | $             | 42,544,950  |   |                   | $ | 44,246,563  |  
|Savings and interest-bearing demand deposits                                                                           |  |               | 107,027,121 |   |                   |   | 107,915,874 |  
|Time deposits                                                                                                          |  |               | 107,335,608 |   |                   |   | 99,485,144  |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|Total deposits                                                                                                         |  | $             | 256,907,679 |   |                   | $ | 251,647,581 |  
|                                                                                                                       |  |              
|Federal Funds purchased                                                                                                |  |               |            |   |                   |   | 6,000       |  
|Securities sold under repurchase agreements                                                                            |  |               | 7,054,330   |   |                   |   | 5,242,876   |  
|Federal Home Loan Bank advances                                                                                        |  |               | 30,000,000  |   |                   |   | 25,000,000  |  
|Other liabilities                                                                                                      |  |               | 1,256,087   |   |                   |   | 1,428,744   |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|Total liabilities                                                                                                      |  | $             | 295,218,096 |   |                   | $ | 283,325,201 |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|                                                                                                                       |  |              
|SHAREHOLDERS EQUITY                                                                                                   |  |               |             |   |                   |   |             |  
|Common stock ($5 par value; authorized - 5,000,000 shares; outstanding - 2,369,017 and 2,374,727 shares, respectively) |  | $             | 11,845,083  |   |                   | $ | 11,873,633  |  
|Additional paid-in capital                                                                                             |  |               | 4,675,499   |   |                   |   | 4,722,592   |  
|Retained Earnings                                                                                                      |  |               | 10,764,993  |   |                   |   | 10,726,121  |  
|Accumulated other comprehensive (loss), net                                                                            |  |               | (1,162,453  | ) |                   |   | (954,462    | )
|                                                                                                                       |  |               |             |   |                   |   |             |  
|Total shareholders equity                                                                                             |  | $             | 26,123,122  |   |                   | $ | 26,367,884  |  
|                                                                                                                       |  |               |             |   |                   |   |             |  
|Total liabilities and shareholders equity                                                                             |  | $             | 321,341,218 |   |                   | $ | 309,693,085 |  
|                                                                                                                       |  |               |             |   |                   |   |             |  

See Notes to Consolidated Financial Statements.



3



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##### Table of Contents

Consolidated Statements of Income



|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|--------------------------------------------------------------- |  | ------------------------- | --------- | ------------------------- | - | ----------------------------------- |  | ----------------------------------- | --------- |  | - | ---------
|(Unaudited)                                                     |  | QuarterendedJune 30, 2007 |           | QuarterendedJune 30, 2006 |   | For the sixmonthsendedJune 30, 2007 |  | For the sixmonthsendedJune 30, 2006
|INTEREST INCOME                                                 |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Loans, including fees                                           |  | $                         | 4,456,941 |                           | $ | 4,002,733                           |  | $                                   | 8,733,421 |  | $ | 7,879,125
|Securities:                                                     |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Taxable                                                         |  |                           | 226,631   |                           |   | 257,000                             |  |                                     | 456,107   |  |   | 537,889  
|Tax-exempt                                                      |  |                           | 185,611   |                           |   | 189,353                             |  |                                     | 372,288   |  |   | 380,603  
|Federal funds sold                                              |  |                           | 41,659    |                           |   | 47,094                              |  |                                     | 66,915    |  |   | 74,893   
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Total interest income                                           |  |                           | 4,910,842 |                           |   | 4,496,180                           |  |                                     | 9,628,731 |  |   | 8,872,510
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|                                                                |  |                           |           |                          
|INTEREST EXPENSE                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Deposits                                                        |  |                           | 1,779,176 |                           |   | 1,541,840                           |  |                                     | 3,509,753 |  |   | 3,009,214
|Securities sold under repurchase agreements                     |  |                           | 61,485    |                           |   | 64,370                              |  |                                     | 104,911   |  |   | 102,588  
|Federal funds purchased                                         |  |                           | 26,607    |                           |   | 20,207                              |  |                                     | 35,451    |  |   | 26,808   
|Federal Home Loan Bank advances and other short term borrowings |  |                           | 316,713   |                           |   | 186,924                             |  |                                     | 602,838   |  |   | 287,286  
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Total interest expense                                          |  |                           | 2,183,981 |                           |   | 1,813,341                           |  |                                     | 4,252,953 |  |   | 3,425,896
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|                                                                |  |                           |           |                          
|Net interest income                                             |  |                           | 2,726,861 |                           |   | 2,682,839                           |  |                                     | 5,375,778 |  |   | 5,446,614
|Provision for loan losses                                       |  |                           | 75,000    |                           |   | 75,000                              |  |                                     | 150,000   |  |   | 150,000  
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Net interest income after provision for loan losses             |  |                           | 2,651,861 |                           |   | 2,607,839                           |  |                                     | 5,225,778 |  |   | 5,296,614
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|                                                                |  |                           |           |                          
|NON-INTEREST INCOME                                             |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Income from fiduciary activities                                |  |                           | 158,818   |                           |   | 180,651                             |  |                                     | 333,265   |  |   | 353,984  
|Service charges and fees on deposit accounts                    |  |                           | 193,525   |                           |   | 187,683                             |  |                                     | 368,086   |  |   | 345,674  
|Other service charges and fees                                  |  |                           | 333,720   |                           |   | 298,557                             |  |                                     | 647,176   |  |   | 564,135  
|Secondary market lending fees                                   |  |                           | 59,746    |                           |   | 41,159                              |  |                                     | 107,544   |  |   | 82,283   
|Other income                                                    |  |                           | 4,965     |                           |   | 31,202                              |  |                                     | 2,538     |  |   | 54,261   
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Total non-interest income                                       |  |                           | 750,774   |                           |   | 739,252                             |  |                                     | 1,458,609 |  |   | 1,400,337
|                                                                |  |                           |           |                          
|NON-INTEREST EXPENSES                                           |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Salaries and employee benefits                                  |  |                           | 1,486,200 |                           |   | 1,375,469                           |  |                                     | 2,990,271 |  |   | 2,754,187
|Occupancy expense                                               |  |                           | 443,901   |                           |   | 433,968                             |  |                                     | 902,135   |  |   | 864,262  
|Bank franchise tax                                              |  |                           | 46,361    |                           |   | 46,685                              |  |                                     | 92,722    |  |   | 93,369   
|Visa expense                                                    |  |                           | 148,831   |                           |   | 132,676                             |  |                                     | 272,223   |  |   | 237,576  
|Telephone expense                                               |  |                           | 44,896    |                           |   | 45,543                              |  |                                     | 94,836    |  |   | 93,086   
|Other expenses                                                  |  |                           | 643,000   |                           |   | 582,689                             |  |                                     | 1,245,977 |  |   | 1,096,275
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Total non-interest expenses                                     |  |                           | 2,813,189 |                           |   | 2,617,030                           |  |                                     | 5,598,164 |  |   | 5,138,755
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Net income before income taxes                                  |  |                           | 589,446   |                           |   | 730,061                             |  |                                     | 1,086,223 |  |   | 1,558,196
|                                                                |  |                           |           |                          
|Income tax expense                                              |  |                           | 147,516   |                           |   | 202,601                             |  |                                     | 265,367   |  |   | 420,172  
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Net income                                                      |  | $                         | 441,930   |                           | $ | 527,460                             |  | $                                   | 820,856   |  | $ | 1,138,024
|                                                                |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|                                                                |  |                           |           |                          
|Basic Earnings Per Share                                        |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Average basic shares outstanding                                |  |                           | 2,370,986 |                           |   | 2,370,441                           |  |                                     | 2,370,954 |  |   | 2,372,398
|Earnings per share, basic                                       |  | $                         | 0.19      |                           | $ | 0.22                                |  | $                                   | 0.35      |  | $ | 0.48     
|                                                                |  |                           |           |                          
|Diluted Earnings Per Share                                      |  |                           |           |                           |   |                                     |  |                                     |           |  |   |          
|Average diluted shares outstanding                              |  |                           | 2,372,246 |                           |   | 2,376,237                           |  |                                     | 2,373,254 |  |   | 2,384,935
|Earnings per share, diluted                                     |  | $                         | 0.19      |                           | $ | 0.22                                |  | $                                   | 0.35      |  | $ | 0.48     

See Notes to Consolidated Financial Statements.



4



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS EQUITY



|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ------------------------ | - | --------- | ---------------- |  | - | ------------------------------------------ | - |  | ------------------------ | ---------- | - |  | - | ---------- | -
|                                                                                                                 |  | CommonStock |            |   | AdditionalPaid-inCapital |   |           | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TotalShareholdersEquity |           
|Balance on January 1, 2006                                                                                       |  | $           | 11,929,830 |   |                          | $ | 4,849,436 |                  |  | $ | 9,926,321                                  |   |  | $                        | (92,614    | ) |  | $ | 26,612,973 |  
|                                                                                                                 |  |             |            |   |                         
|Comprehensive Income:                                                                                            |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Net Income                                                                                                       |  |             |            |   |                          |   |           |                  |  |   | 1,138,024                                  |   |  |                          |            |   |  |   | 1,138,024  |  
|Changes in unrealized holding gains (losses) on securities arising during the period, net of taxes of ($193,078) |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          | (374,799   | ) |  |   | (374,799   | )
|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Total Comprehensive Income                                                                                       |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   | 763,225    |  
|Cash dividends paid  $0.32/share                                                                                |  |             |            |   |                          |   |           |                  |  |   | (758,441                                   | ) |  |                          |            |   |  |   | (758,441   | )
|Stock repurchases                                                                                                |  |             | (150,000   | ) |                          |   | (284,407  | )                |  |   |                                           |   |  |                          |           |   |  |   | (434,407   | )
|Stock-based compensation                                                                                         |  |             |            |   |                          |   | 26,965    |                  |  |   |                                            |   |  |                          |            |   |  |   | 26,965     |  
|Sale of common stock:                                                                                            |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Dividends reinvested                                                                                             |  |             | 61,071     |   |                          |   | 110,479   |                  |  |   |                                           |   |  |                          |           |   |  |   | 171,550    |  
|Stock options exercised                                                                                          |  |             | 19,730     |   |                          |   | (19,690   | )                |  |   |                                           |   |  |                          |           |   |  |   | 40         |  
|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Balance on June 30, 2006                                                                                         |  | $           | 11,860,631 |   |                          | $ | 4,682,783 |                  |  | $ | 10,305,904                                 |   |  | $                        | (467,413   | ) |  | $ | 26,381,905 |  
|                                                                                                                 |  |             |            |   |                         
|Balance on January 1, 2007                                                                                       |  |             | 11,873,633 |   |                          |   | 4,722,592 |                  |  |   | 10,726,121                                 |   |  |                          | (954,462   | ) |  |   | 26,367,884 |  
|Comprehensive Income:                                                                                            |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Net Income                                                                                                       |  |             |            |   |                          |   |           |                  |  |   | 820,856                                    |   |  |                          |            |   |  |   | 820,856    |  
|Changes in unrealized holding gains (losses) on securities arising during the period, net of taxes of ($107,147) |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          | (207,991   | ) |  |   | (207,991   | )
|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Total Comprehensive Income                                                                                       |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   | 612,865    |  
|Cash dividends paid  $0.33/share                                                                                |  |             |            |   |                          |   |           |                  |  |   | (781,984                                   | ) |  |                          |            |   |  |   | (781,984   | )
|Stock repurchases                                                                                                |  |             | (38,000    | ) |                          |   | (73,034   | )                |  |   |                                           |   |  |                          |           |   |  |   | (111,034   | )
|Stock-based compensation                                                                                         |  |             |            |   |                          |   | 27,991    |                  |  |   |                                            |   |  |                          |            |   |  |   | 27,991     |  
|Sale of common stock:                                                                                            |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Stock options exercised                                                                                          |  |             | 9,450      |   |                          |   | (2,050    | )                |  |   |                                           |   |  |                          |           |   |  |   | 7,400      |  
|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  
|Balance on June 30, 2007                                                                                         |  | $           | 11,845,083 |   |                          | $ | 4,675,499 |                  |  | $ | 10,764,993                                 |   |  | $                        | (1,162,453 | ) |  | $ | 26,123,122 |  
|                                                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                            |   |  |                          |            |   |  |   |            |  

See Notes to Consolidated Financial Statements.



5



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                        |  |               |             |   |               |   |             |  
|--------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|(unaudited)                                                                             |  | June 30, 2007 |             |   | June 30, 2006 |  
|Cash Flows From Operating Activities                                                    |  |               |             |   |               |   |             |  
|Net Income                                                                              |  | $             | 820,856     |   |               | $ | 1,138,024   |  
|Adjustments to reconcile net income to net cash provided by operating activities:       |  |               |             |   |               |   |             |  
|Depreciation                                                                            |  |               | 502,183     |   |               |   | 464,165     |  
|Net amortization and accretion of securities                                            |  |               | 6,157       |   |               |   | 9,036       |  
|Loss on sale of fixed assets                                                            |  |               | 8,325       |   |               |   |            |  
|Provision for loan losses                                                               |  |               | 150,000     |   |               |   | 150,000     |  
|Stock-based compensation                                                                |  |               | 27,991      |   |               |   | 26,965      |  
|Deferred income taxes                                                                   |  |               | 7,586       |   |               |   |            |  
|Increase in accrued income and other assets                                             |  |               | (224,651    | ) |               |   | (2,868      | )
|Increase/(decrease) in other liabilities                                                |  |               | (73,096     | ) |               |   | 238,514     |  
|                                                                                        |  |               |             |   |               |   |             |  
|Net cash provided by operating activities                                               |  | $             | 1,225,351   |   |               | $ | 2,023,836   |  
|                                                                                        |  |               |             |   |               |   |             |  
|                                                                                        |  |              
|Cash Flows From Investing Activities                                                    |  |               |             |   |               |   |             |  
|Proceeds from maturities of available-for-sale securities                               |  |               | 1,448,346   |   |               |   | 810,745     |  
|Proceeds from sales of available-for-sale securities                                    |  |               | 340,400     |   |               |   | 4,583,900   |  
|Purchases of available-for-sale securities                                              |  |               | (468,890    | ) |               |   | (1,166,807  | )
|(Increase)/decrease in interest bearing deposits in other banks                         |  |               | 31,807      |   |               |   | (10,863     | )
|(Increase)/decrease in federal funds sold                                               |  |               | (6,887,173  | ) |               |   | 3,329,770   |  
|Loan originations and principal collections, net                                        |  |               | (6,797,914  | ) |               |   | (9,966,794  | )
|Purchases of premises and equipment                                                     |  |               | (666,289    | ) |               |   | (506,846    | )
|                                                                                        |  |               |             |   |               |   |             |  
|Net cash used in investing activities                                                   |  | $             | (12,999,715 | ) |               | $ | (2,926,895  | )
|                                                                                        |  |               |             |   |               |   |             |  
|                                                                                        |  |              
|Cash Flows From Financing Activities                                                    |  |               |             |   |               |   |             |  
|Decrease in demand, savings, and other interest-bearing deposits                        |  |               | (2,590,366  | ) |               |   | (15,234,627 | )
|Net increase in time deposits                                                           |  |               | 7,850,464   |   |               |   | 9,926,098   |  
|Net increase in securities sold under repurchase agreements and federal funds purchased |  |               | 1,805,454   |   |               |   | 3,699,929   |  
|Increase in FHLB advances                                                               |  |               | 5,000,000   |   |               |   | 5,000,000   |  
|Proceeds from issuance of common stock                                                  |  |               | 7,400       |   |               |   | 171,590     |  
|Dividends paid                                                                          |  |               | (781,984    | ) |               |   | (758,441    | )
|Repurchase of common stock                                                              |  |               | (111,034    | ) |               |   | (434,407    | )
|                                                                                        |  |               |             |   |               |   |             |  
|Net cash provided by (used in) financing activities                                     |  | $             | 11,179,934  |   |               | $ | 2,370,142   |  
|                                                                                        |  |               |             |   |               |   |             |  
|Net increase / (decrease) in cash and due from banks                                    |  |               | (594,430    | ) |               |   | 1,467,083   |  
|                                                                                        |  |              
|Cash and due from banks at beginning of period                                          |  |               | 6,320,951   |   |               |   | 5,213,462   |  
|                                                                                        |  |               |             |   |               |   |             |  
|Cash and due from banks at end of period                                                |  | $             | 5,726,521   |   |               | $ | 6,680,545   |  
|                                                                                        |  |               |             |   |               |   |             |  
|                                                                                        |  |              
|Supplemental Schedule of Noncash Investing and Financing Activities:                    |  |               |             |   |               |   |             |  
|Interest paid                                                                           |  | $             | 4,223,454   |   |               | $ | 3,318,092   |  
|                                                                                        |  |               |             |   |               |   |             |  
|Income taxes paid                                                                       |  |               | 253,985     |   |               |   | 506,822     |  
|                                                                                        |  |               |             |   |               |   |             |  
|Unrealized loss on investment securities                                                |  |               | (315,138    | ) |               |   | (567,877    | )
|                                                                                        |  |               |             |   |               |   |             |  
|Loans transferred to other real estate owned                                            |  |               | (250,867    | ) |               |   |            |  
|                                                                                        |  |               |             |   |               |   |             |  

See Notes to Consolidated Financial Statements.



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Notes to Consolidated Financial Statements

Note 1: General

Bay Banks of Virginia, Inc. (the Company) owns 100% of the Bank of Lancaster (the Bank) and 100% of Bay Trust Company, Inc. (the
Trust Company). The Consolidated Financial Statements include the accounts of the Bank, the Trust Company, and Bay Banks of Virginia, Inc.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to the general practices within the banking industry. However, in
managements opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the consolidated financial statements, have been included. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.

Certain amounts in the consolidated financial statements have been
reclassified to conform to current year presentations.

These consolidated financial statements should be read in conjunction with the
financial statements and notes to financial statements included in the Companys 2006 Annual Report to Shareholders.

Note 2: Securities

The carrying amounts of debt and other securities and their approximate fair values at June 30, 2007, and December 31, 2006,
follow:



|                                                        |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|------------------------------------------------------- |  | ------------- | ---------- | -------------------- | - | ----------------------- |  | - | ---------- | - |  | - | ----------
|Available-for-sale securities June 30, 2007 (unaudited) |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|U.S. Government agencies                                |  | $             | 9,366,858  |                      | $ | 907                     |  | $ | (185,511   | ) |  | $ | 9,182,254 
|State and municipal obligations                         |  |               | 25,460,251 |                      |   | 46,260                  |  |   | (442,440   | ) |  |   | 25,064,071
|Corporate bonds                                         |  |               | 275,279    |                      |   | 408                     |  |   |           |   |  |   | 275,687   
|Restricted securities                                   |  |               | 2,223,400  |                      |   |                        |  |   |           |   |  |   | 2,223,400 
|                                                        |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                        |  | $             | 37,325,788 |                      | $ | 47,575                  |  | $ | (627,951   | ) |  | $ | 36,745,412
|                                                        |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                        |  |               |            |                     
|Available-for-sale securities December 31, 2006         |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|U.S. Government agencies                                |  | $             | 10,393,363 |                      | $ | 2,231                   |  | $ | (165,614   | ) |  | $ | 10,229,980
|State and municipal obligations                         |  |               | 25,945,581 |                      |   | 133,172                 |  |   | (236,277   | ) |  |   | 25,842,476
|Corporate bonds                                         |  |               | 276,144    |                      |   | 1,248                   |  |   |           |   |  |   | 277,392   
|Restricted securities                                   |  |               | 2,043,800  |                      |   |                        |  |   |           |   |  |   | 2,043,800 
|                                                        |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                        |  | $             | 38,658,888 |                      | $ | 136,651                 |  | $ | (401,891   | ) |  | $ | 38,393,648
|                                                        |  |               |            |                      |   |                         |  |   |            |   |  |   |           



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|                                                      |  |               |         |                      |   |                         |  |   |            |   |  |   |        
|----------------------------------------------------- |  | ------------- | ------- | -------------------- | - | ----------------------- |  | - | ---------- | - |  | - | -------
|Held-to-maturity securities June 30, 2007 (unaudited) |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|State and municipal obligations                       |  | $             | 464,176 |                      | $ |                        |  | $ | (26,305    | ) |  | $ | 437,871
|                                                      |  |               |         |                      |   |                         |  |   |            |   |  |   |        
|                                                      |  |               |         |                     
|Held-to-maturity securities December 31, 2006         |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|State and municipal obligations                       |  | $             | 457,091 |                      | $ |                        |  | $ | (26,497    | ) |  | $ | 430,594
|                                                      |  |               |         |                      |   |                         |  |   |            |   |  |   |        

Securities with a market value of $12.3 million were pledged as collateral for public deposits,
repurchase agreements and for other purposes as required by law as of June 30, 2007. The market value of pledged securities at year-end 2006 was $11.5 million.

Securities in an unrealized loss position at June 30, 2007, and December 31, 2006, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate
movements as there is minimal credit risk exposure in these investments. All securities are investment grade or better and all losses are considered temporary. Management has intent and demonstrated ability to hold securities to scheduled maturity
or call dates. Bonds with unrealized loss positions at June 30, 2007, included 21 federal agencies and 56 municipal bonds, as shown below.



|                                      |  |                     |           |                   |   |            |  |                |            |            |   |                |  |   |            |  |   |        
|------------------------------------- |  | ------------------- | --------- | ----------------- | - | ---------- |  | -------------- | ---------- | ---------- | - | -------------- |  | - | ---------- |  | - | -------
|                                      |  | Less than 12 months |           | 12 months or more |   | Total     
|June 30, 2007                         |  | Fair Value          |           | UnrealizedLoss    |   | Fair Value |  | UnrealizedLoss |            | Fair Value |   | UnrealizedLoss
|U.S. Government agencies              |  | $                   |          |                   | $ |           |  | $              | 9,070,308  |            | $ | 185,511        |  | $ | 9,070,308  |  | $ | 185,511
|                                      |  |                     |           |                   |   |           
|States and municipal obligations      |  |                     | 2,534,540 |                   |   | 33,119     |  |                | 12,654,008 |            |   | 435,627        |  |   | 15,188,548 |  |   | 468,746
|                                      |  |                     |           |                   |   |            |  |                |            |            |   |                |  |   |            |  |   |        
|                                      |  |                     |           |                   |   |           
|Total temporarily impaired securities |  | $                   | 2,534,540 |                   | $ | 33,119     |  | $              | 21,724,316 |            | $ | 621,138        |  | $ | 24,258,856 |  | $ | 654,257
|                                      |  |                     |           |                   |   |            |  |                |            |            |   |                |  |   |            |  |   |        
|                                      |  |                     |          
|                                      |  | Less than 12 months |           | 12 months or more |   | Total     
|December 31, 2006                     |  | Fair Value          |           | UnrealizedLoss    |   | Fair Value |  | UnrealizedLoss |            | Fair Value |   | UnrealizedLoss
|U.S. Government agencies              |  | $                   |          |                   | $ |           |  | $              | 10,095,893 |            | $ | 165,614        |  | $ | 10,095,893 |  | $ | 165,614
|                                      |  |                     |           |                   |   |           
|States and municipal obligations      |  |                     | 1,855,328 |                   |   | 6,840      |  |                | 11,645,440 |            |   | 255,934        |  |   | 13,500,768 |  |   | 262,774
|                                      |  |                     |           |                   |   |            |  |                |            |            |   |                |  |   |            |  |   |        
|                                      |  |                     |           |                   |   |           
|Total temporarily impaired securities |  | $                   | 1,855,328 |                   | $ | 6,840      |  | $              | 21,741,333 |            | $ | 421,548        |  | $ | 23,596,661 |  | $ | 428,388
|                                      |  |                     |           |                   |   |            |  |                |            |            |   |                |  |   |            |  |   |        



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Note 3: Loans

The components of loans were as follows:



|                                                             |  |               |             |   |                   |   |             |  
|------------------------------------------------------------ |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                             |  | June 30, 2007 |             |   | December 31, 2006 |  
|                                                             |  | (unaudited)   |             |   |                   |  
|Mortgage loans on real estate:                               |  |               |             |   |                   |   |             |  
|Construction                                                 |  | $             | 39,264,150  |   |                   | $ | 47,977,209  |  
|Secured by farmland                                          |  |               | 765,418     |   |                   |   | 678,745     |  
|Secured by 1-4 family residential                            |  |               | 146,079,309 |   |                   |   | 135,854,227 |  
|Other real estate loans                                      |  |               | 36,024,430  |   |                   |   | 32,660,442  |  
|Commercial and industrial loans (not secured by real estate) |  |               | 19,681,424  |   |                   |   | 18,077,943  |  
|Consumer installment loans                                   |  |               | 8,814,996   |   |                   |   | 8,517,900   |  
|All other loans                                              |  |               | 687,983     |   |                   |   | 996,258     |  
|Net deferred loan costs and fees                             |  |               | 813,639     |   |                   |   | 845,232     |  
|                                                             |  |               |             |   |                   |   |             |  
|Total loans                                                  |  | $             | 252,131,349 |   |                   | $ | 245,607,956 |  
|Allowance for loan losses                                    |  |               | (2,361,890  | ) |                   |   | (2,235,544  | )
|                                                             |  |               |             |   |                   |   |             |  
|Loans, net                                                   |  | $             | 249,769,459 |   |                   | $ | 243,372,412 |  
|                                                             |  |               |             |   |                   |   |             |  

Loans upon which the accrual of interest has been discontinued totaled $83 thousand as of
June 30, 2007, and $239 thousand as of December 31, 2006.

Note 4: Allowance for Loan Losses



|                           |  |               |           |   |                   |   |           |               |  |   |           |  
|-------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | ------------- |  | - | --------- | -
|                           |  | June 30, 2007 |           |   | December 31, 2006 |   |           | June 30, 2006 | 
|                           |  | (unaudited)   |           |   |                   |   |           | (unaudited)   | 
|Balance, beginning of year |  | $             | 2,235,544 |   |                   | $ | 2,157,716 |               |  | $ | 2,157,716 |  
|Provision for loan losses  |  |               | 150,000   |   |                   |   | 125,000   |               |  |   | 150,000   |  
|Recoveries                 |  |               | 22,261    |   |                   |   | 37,545    |               |  |   | 33,615    |  
|Loans charged off          |  |               | (45,915   | ) |                   |   | (84,717   | )             |  |   | (60,891   | )
|                           |  |               |           |   |                   |   |           |               |  |   |           |  
|                           |  |               |          
|Balance, end of period     |  | $             | 2,361,890 |   |                   | $ | 2,235,544 |               |  | $ | 2,280,440 |  
|                           |  |               |           |   |                   |   |           |               |  |   |           |  

Information about impaired loans is as follows:



|                                                                                 |  |               |           |                   |   |          
|-------------------------------------------------------------------------------- |  | ------------- | --------- | ----------------- | - | ---------
|For the six months and twelve months ended,                                      |  | June 30, 2007 |           | December 31, 2006
|                                                                                 |  | (unaudited)   |           |                  
|Impaired loans for which an allowance has been provided                          |  | $             | 3,265,675 |                   | $ | 2,857,269
|                                                                                 |  |               |           |                   |   |          
|Allowance provided for impaired loans, included in the allowance for loan losses |  | $             | 1,010,088 |                   | $ | 991,769  
|                                                                                 |  |               |           |                   |   |          
|Average balance impaired loans                                                   |  | $             | 3,130,393 |                   | $ | 3,168,724
|                                                                                 |  |               |           |                   |   |          
|Interest income recognized (collected $60,769 and $269,521)                      |  | $             | 137,256   |                   | $ | 275,412  
|                                                                                 |  |               |           |                   |   |          



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Note 5: Earnings per share

The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock.



|                                       |                |                    |                  |                  |                |               |                  |               |                |      |                  |           |                |   |                  |  |           |  |   |     
|-------------------------------------- | -------------- | ------------------ | ---------------- | ---------------- | -------------- | ------------- | ---------------- | ------------- | -------------- | ---- | ---------------- | --------- | -------------- | - | ---------------- |  | --------- |  | - | ----
|                                       |                | Three Months Ended |                  | Six Months Ended
|Three and six months ended (Unaudited) |                | June 30, 2007      |                  | June 30, 2006    |                | June 30, 2007 |                  | June 30, 2006
|                                       | Average Shares |                    | Per share Amount |                  | Average Shares |               | Per share Amount |               | Average Shares |      | Per share Amount |           | Average Shares |   | Per share Amount
|Basic earnings per share               |                | 2,370,986          |                  | $                | 0.19           |               | 2,370,441        |               | $              | 0.22 |                  | 2,370,954 |                | $ | 0.35             |  | 2,372,398 |  | $ | 0.48
|                                       |                |                    |                  |                  |                |               |                  |              
|Effect of dilutive securities:         |                |                    |                  |                  |                |               |                  |               |                |      |                  |           |                |   |                  |  |           |  |   |     
|Stock options                          |                | 1,260              |                  |                  |                |               | 5,796            |               |                |      |                  | 2,300     |                |   |                  |  | 12,537    |  |   |     
|                                       |                |                    |                  |                  |                |               |                  |              
|Diluted earnings per share             |                | 2,372,246          |                  | $                | 0.19           |               | 2,376,237        |               | $              | 0.22 |                  | 2,373,254 |                | $ | 0.35             |  | 2,384,935 |  | $ | 0.48

As of June 30, 2007 and 2006, options on 170,237 shares and 135,028 shares, respectively,
were not included in computing diluted earnings per share, because their effects were anti-dilutive.

Note 6: Stock-Based Compensation

Incremental stock-based compensation expense recognized was $28 thousand during the first six months of 2007. As of June 30, 2007, there was $22
thousand unrecognized compensation expense related to stock options.

Stock option compensation expense is the estimated fair value of
options granted using the Black Scholes Model amortized on a straight-line basis over the vesting period of the award. There were 44,500 options granted and 6,900 options exercised during the six-month period ended June 30, 2007. The total
intrinsic value of options exercised during 2007 was $22,425.

Stock option plan activity for the six months ended June 30, 2007 is
summarized below:



|                               |  |         |   |  |                                |       |                                                       |     |                          |   |       
|------------------------------ |  | ------- | - |  | ------------------------------ | ----- | ----------------------------------------------------- | --- | ------------------------ | - | ------
|                               |  | Shares  |   |  | Weighted AverageExercise Price |       | Weighted Average RemainingContractual Life (in years) |     | AggregateIntrinsic Value
|Options outstanding, January 1 |  | 183,812 |   |  | $                              | 15.15 |                                                       | 5.9 |                          |   |       
|                               |  |         |   | 
|Granted                        |  | 44,500  |   |  | $                              | 14.96 |                                                       |     |                          |   |       
|Forfeited                      |  | (23,872 | ) |  | $                              | 13.83 |                                                       |     |                          |   |       
|Exercised                      |  | (6,900  | ) |  | $                              | 11.96 |                                                       | `   |                          |   |       
|Expired                        |  |        |   |  | $                              |      |                                                       |     |                          |   |       
|Options outstanding, June 30   |  | 197,540 |   |  | $                              | 15.38 |                                                       | 6.2 |                          | $ | 23,757
|                               |  |         |   |  |                                |       |                                                       |     |                          |   |       
|                               |  |         |   | 
|Options exercisable, June 30   |  | 160,540 |   |  | $                              | 15.46 |                                                       | 5.3 |                          | $ | 23,757
|                               |  |         |   |  |                                |       |                                                       |     |                          |   |       

The aggregate intrinsic value of a stock option in the table above represents the total pre-tax
intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2007.
This amount changes based on changes in the market value of the Companys stock.

Note 7: Unidentifiable Intangibles

The Company has unidentifiable intangibles recorded on the consolidated financial statements relating to the purchase of five branches. The balance of the
intangibles at June 30, 2007, as reflected on the consolidated balance sheet, was $2,807,842. Management has determined that these purchases qualified as acquisitions of businesses, and therefore discontinued amortization, effective
January 1, 2002. Based on managements assessment, there is no impairment in value at June 30, 2007.



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##### Table of Contents

Note 8: Employee Benefit Plans

Components of Net Periodic Benefit Cost



|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       
|----------------------------------------------- |  | ---------------- | -------- | - | ------------------------ | - | -------- | ---- |  | ---- | ------ |  | - | ------
|                                                |  | Pension Benefits |          |   | Post Retirement Benefits
|Six months ended June 30,                       |  | 2007             |          |   | 2006                     |   |          | 2007 |  | 2006
|Service cost                                    |  | $                | 155,124  |   |                          | $ | 146,065  |      |  | $    | 9,241  |  | $ | 10,029
|Interest cost                                   |  |                  | 114,081  |   |                          |   | 101,742  |      |  |      | 15,176 |  |   | 15,723
|Expected return on plan assets                  |  |                  | (129,996 | ) |                          |   | (117,281 | )    |  |      |       |  |   |      
|Amortization of unrecognized prior service cost |  |                  | 8,186    |   |                          |   | 8,186    |      |  |      |       |  |   |      
|Amortization of unrecognized net loss           |  |                  | 18,729   |   |                          |   | 25,800   |      |  |      | 2,772  |  |   | 5,371 
|Amortization of transition obligation           |  |                  |         |   |                          |   |         |      |  |      | 1,456  |  |   | 1,457 
|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       
|                                                |  |                  |          |  
|Net periodic benefit cost                       |  | $                | 166,124  |   |                          | $ | 164,512  |      |  | $    | 28,645 |  | $ | 32,580
|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       

Employer Contributions

The Company disclosed in its Annual Report on Form 10-K for the year ended December 31, 2006, that it expected to contribute $500,000 to its pension plan and $22,039 to its post-retirement benefit plan in 2007.
The Company has made $250,000 toward the pension plan contribution and has contributed $8,808 toward the post-retirement plan during the first six months of 2007.

Note 9: FHLB Advance

On June 30, 2007, the Company had Federal Home Loan Bank of Atlanta (FHLB) debt
consisting of three advances, one for $15.0 million, which was acquired on May 18, 2006, one for $10.0 million, which was acquired on September 12, 2006, and one for $5.0 million, which was acquired on May 18, 2007 . The interest rate
on the $15 million advance is fixed at 4.81%, payable quarterly and matures on May 18, 2011. The interest rate on the $10 million advance is fixed at 4.23%, payable quarterly and matures on September 12, 2016. The interest rate on the $5
million advance is fixed at 4.485%, payable quarterly and matures on May 18, 2012. The FHLB holds an option to terminate the $15 million advance on any quarterly payment date. They also hold an option to terminate the $10 million advance on
September 12, 2007, or any subsequent quarterly payment date. Lastly, they hold an option to terminate the $5 million advance on May 19, 2008, or any subsequent quarterly payment date.

Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Remaining available credit is $34
million.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion is intended to assist in understanding the results of operations and the financial condition of the Company. This discussion
should be read in conjunction with the above consolidated financial statements and the notes thereto.

CRITICAL ACCOUNTING POLICIES

GENERAL. The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States
(GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of
factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be
present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions
would be the same, the timing of events that would impact our transactions could change.



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##### Table of Contents

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is an estimate of the losses that may be
sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, which requires that losses be
accrued when they are probable of occurring and estimable and (2) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that are observable in the secondary market and the loan balance. The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the
collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic
conditions. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates.

The
allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, and current economic conditions.

EARNINGS SUMMATION

For the six months ended June 30, 2007, net income was $821 thousand as
compared to $1.1 million for the comparable period in 2006, a decrease of 27.9%. Diluted earnings per average share for the six months ended June 30, 2007 were $0.35 as compared to $0.48 for the six months ended June 30, 2006. Annualized
return on average assets was 0.6% for the six months ended June 30, 2007 compared to 0.8% for the six months ended June 30, 2006. Annualized return on average equity was 6.2% for the six months ended June 30, 2007, down from 9.5% for
the similar period ended June 30, 2006.

The principal source of earnings for the Company is net interest income. Net interest income
is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest-earning assets. Changes in the volume and mix of interest-earning assets and interest-bearing
liabilities, the associated yields and rates, and the volume of non-performing assets have a significant impact on net interest income, the net interest margin, and net income. The annualized net interest margin was 3.83% for the six months ended
June 30, 2007, compared to 3.97% for the same period in 2006.

Net interest income before provision for loan losses for the six months
ended June 30, 2007 was $5.4 million, a decrease of 1.3% from the six months ended June 30, 2006. Although interest income has increased, interest expense has increased by a similar amount, causing zero growth in net interest income.
Competition for deposits continues to drive increases in costs of funds.

For approximately 18 months, short term rates have been the same
or higher than long term rates, creating a flat to inverted yield curve. The length of time this rate environment has persisted is unprecedented, and is causing challenges for nearly all financial institutions which rely on interest rate spreads as
part of their income. A continuation of this rate environment could continue to affect the Companys net interest margin negatively. Management expects positive loan rate adjustments to continue through 2007, in which case interest income
should continue to improve. However, management expects the cost of funds, and hence interest expense, to continue to rise. Therefore, the Company continues to diligently manage both its yield on earning assets and its cost of funds.

Average interest-earning assets totaled $290.8 million for the six months ended June 30, 2007 as compared to $284.3 million for the six months ended
June 30, 2006, an increase of 2.3%. Average interest-earning assets as a percent of total average assets was 94.5% for the six months ended June 30, 2007 as compared to 93.5% for the comparable period of 2006. The annualized yield on
average interest-earning assets for the six months ended June 30, 2007 was 6.75% as compared to 6.38% for the six months ended June 30, 2006.

Average interest-bearing liabilities totaled $241.5 million for the six months ended June 30, 2007, as compared to $233.6 million for the six months ended June 30, 2006, an increase of 3.4%. The annualized
cost of interest-bearing liabilities for the six months ended June 30, 2007, was 3.52% as compared to 2.93% for the six months ended June 30, 2006.

The net interest spread, which is the difference between the annualized yield on earning assets and the annualized cost of interest-bearing liabilities was 3.23% for the six months ended June 30, 2007 and 3.45%
for the same period in 2006.

Average total assets for the six months ended June 30, 2007 were $307.7 million as compared to $304.1
million for the six months ended June 30, 2006.



12



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##### Table of Contents

Net Interest Income Analysis (unaudited)



|                                            |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|------------------------------------------- |  | -------------------------- | ------- | -------------- | -------------------------- | -------------------- |  | ---- | -------------- |  | -------------- | ------- | -------------------- | - | ----- |  | ---- | -
|(Fully taxable equivalent basis)            |  | Six months ended 6/30/2007 |         |                | Six months ended 6/30/2006 |                     
|(Dollars in thousands)                      |  | AverageBalance             |         | Income/Expense |                            | AnnualizedYield/Rate |  |      | AverageBalance |  | Income/Expense |         | AnnualizedYield/Rate |  
|INTEREST EARNING ASSETS:                    |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Taxable investments                         |  | $                          | 18,778  |                | $                          | 450                  |  | 4.79 | %              |  | $              | 22,989  |                      | $ | 534   |  | 4.64 | %
|Tax-exempt investments (1)                  |  |                            | 19,710  |                |                            | 564                  |  | 5.72 | %              |  |                | 19,973  |                      |   | 577   |  | 5.77 | %
|                                            |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Total Investments                           |  |                            | 38,488  |                |                            | 1,014                |  | 5.27 | %              |  |                | 42,962  |                      |   | 1,111 |  | 5.17 | %
|                                            |  |                            |         |                |                            |                     
|Gross loans (2)                             |  |                            | 249,470 |                |                            | 8,733                |  | 7.00 | %              |  |                | 237,646 |                      |   | 7,879 |  | 6.63 | %
|Interest-bearing deposits in other banks    |  |                            | 163     |                |                            | 6                    |  | 5.45 | %              |  |                | 139     |                      |   | 4     |  | 5.92 | %
|Federal funds sold                          |  |                            | 2,631   |                |                            | 67                   |  | 5.09 | %              |  |                | 3,587   |                      |   | 75    |  | 4.75 | %
|                                            |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|TOTAL INTEREST EARNING ASSETS               |  | $                          | 290,752 |                | $                          | 9,820                |  | 6.75 | %              |  | $              | 284,334 |                      | $ | 9,069 |  | 6.38 | %
|                                            |  |                            |         |                |                            |                     
|INTEREST-BEARING LIABILITIES:               |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Savings deposits                            |  | $                          | 55,176  |                | $                          | 855                  |  | 3.10 | %              |  | $              | 60,399  |                      | $ | 828   |  | 2.74 | %
|NOW deposits                                |  |                            | 37,989  |                |                            | 200                  |  | 1.05 | %              |  |                | 42,563  |                      |   | 158   |  | 0.74 | %
|Time deposits >= $100,000                   |  |                            | 37,107  |                |                            | 857                  |  | 4.62 | %              |  |                | 30,906  |                      |   | 623   |  | 4.03 | %
|Time deposits < $100,000                    |  |                            | 62,779  |                |                            | 1,365                |  | 4.35 | %              |  |                | 65,769  |                      |   | 1,244 |  | 3.78 | %
|Money market deposit accounts               |  |                            | 15,785  |                |                            | 232                  |  | 2.94 | %              |  |                | 14,950  |                      |   | 156   |  | 2.09 | %
|                                            |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Total interest bearing deposits             |  | $                          | 208,836 |                | $                          | 3,509                |  | 3.36 | %              |  | $              | 214,587 |                      | $ | 3,009 |  | 2.80 | %
|                                            |  |                            |         |                |                            |                     
|Federal funds purchased                     |  |                            | 1,290   |                |                            | 35                   |  | 5.50 | %              |  |                | 1,004   |                      |   | 27    |  | 4.79 | %
|Securities sold to repurchase               |  |                            | 5,180   |                |                            | 105                  |  | 2.03 | %              |  |                | 5,373   |                      |   | 103   |  | 1.91 | %
|FHLB advances                               |  |                            | 26,215  |                |                            | 603                  |  | 4.60 | %              |  |                | 12,652  |                      |   | 287   |  | 4.54 | %
|                                            |  |                            |         |                |                            |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|TOTAL INTEREST-BEARING LIABILITIES          |  | $                          | 241,521 |                | $                          | 4,252                |  | 3.52 | %              |  | $              | 233,616 |                      | $ | 3,426 |  | 2.93 | %
|                                            |  |                            |         |                |                            |                     
|Net interest income/yield on earning assets |  |                            |         |                | $                          | 5,568                |  | 3.83 | %              |  |                |         |                      | $ | 5,642 |  | 3.97 | %
|Net interest rate spread                    |  |                            |         |                |                            |                      |  | 3.23 | %              |  |                |         |                      |   |       |  | 3.45 | %

---

Notes:

(1)-Yield and income assumes a federal tax rate of 34%

(2)-Includes Visa
Program & nonaccrual loans.

Through the six months ended June 30, 2007, average interest-earning assets were comprised of
the loan portfolio with $249.5 million and the investment portfolio with $38.5 million. For the six month period ended June 30, 2007, compared to the same period in 2006, on a fully tax equivalent basis, tax-exempt investment yields decreased
to 5.72% from 5.77%, and taxable investment yields increased to 4.79% from 4.64%, resulting in an increase in total investment yield to 5.27% from 5.17%. The investment portfolio will provide liquidity as short investments mature during 2007.

In the six months ended June 30, 2007, gross loans on average yielded 7.00% as compared to 6.63% for the same period in 2006. The
Company has been successful in growing the loan portfolio with variable and adjustable rate loans since 2004. By keeping the re-pricing terms of the loan portfolio short, these assets have been positioned well for the recent rate environment.

As short-term rates in the market increased during 2005 and 2006, the Company held its deposit rates unchanged wherever possible in order
to more effectively control its cost of funds. By the fall of 2006, increasing competitive pricing pressure caused the Company to begin to raise its deposit rates. For the six months ended June 30, 2007 compared to June 30, 2006, the cost
of total interest-bearing deposits has increased to 3.36% from 2.80%, with increases in each type of deposit category.



13



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##### Table of Contents

LIQUIDITY

The Company maintains adequate short-term assets to meet its liquidity needs as anticipated by management. Federal funds sold and investments that mature in one year or less provide the major sources of funding for liquidity needs. On
June 30, 2007, federal funds sold totaled $11.5 million and securities maturing in one year or less totaled $7.9 million, for a total pool of $19.4 million. The liquidity ratio as of June 30, 2007 was 13.7% as compared to 11.5% as of
December 31, 2006. The Company determines this ratio by dividing the sum of cash and cash equivalents, investment securities maturing in one year or less, loans maturing in one year or less and federal funds sold, by total assets. In addition,
as noted earlier, the Company has $34 million available on lines of credit with the FHLB, plus federal funds lines with several correspondent banks.

OFF BALANCE SHEET ITEMS

There have been no material changes to the off balance sheet items disclosed in
Managements Discussion and Analysis in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

CONTRACTUAL OBLIGATIONS

There have been no material changes outside the ordinary course of business to the contractual
obligations disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

CAPITAL RESOURCES

From December 31, 2006 to June 30, 2007, total shareholders equity decreased to $26.1 million from $26.4 million or
0.9%. Several factors contributed to this minor decrease, including the Companys commitment to returning earnings to its shareholders through dividends while meeting regulatory capital requirements.

The Companys capital resources are also impacted by net unrealized gains or losses on securities. The securities portfolio is marked to market
monthly and unrealized gains or losses, net of taxes, are recognized as accumulated other comprehensive income or loss on the balance sheet and statement of changes in shareholders equity. Shareholders equity before accumulated other
comprehensive loss was unchanged at $27.3 million on June 30, 2007 compared to December 31, 2006. Accumulated other comprehensive loss increased by $208 between December 31, 2006 and June 30, 2007.

Book value per share, basic, on June 30, 2007, compared to June 30, 2006, decreased to $11.03 from $11.12, or 0.8%. Book value per share,
basic, before accumulated comprehensive loss on June 30, 2007, compared to December 31, 2006, remained unchanged at $11.37. Cash dividends paid for the six months ended June 30, 2007, were $0.33 per share, compared to $0.32 per share,
for the comparable period ended June 30, 2006, an increase of 3.0%. Average basic shares outstanding for the six months ended June 30, 2007, were 2,370,954 compared to 2,372,398 for the comparable period ended June 30, 2006. Average
diluted shares outstanding for the six months ended June 30, 2007, were 2,373,254 compared to 2,384,935 for the comparable period ended June 30, 2006.

The Company began a share repurchase program in August of 1999 and has continued the program into 2007. Repurchases of Company stock reduced equity by $111 thousand during the first six months of 2007 compared to $434
thousand for the comparable period in 2006.

The Bank is subject to minimum regulatory capital ratios as defined by Federal Financial
Institutions Examination Council guidelines. These ratios continue to be well in excess of regulatory minimums. As of June 30, 2007, the Bank maintained Tier 1 capital of $24.5 million, net risk weighted assets of $255.3 million, and Tier 2
capital of $2.4 million. On June 30, 2007, the Tier 1 capital to risk weighted assets ratio was 9.6%, the total capital ratio was 10.5%, and the Tier 1 leverage ratio was 7.9%.



14



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##### Table of Contents

FINANCIAL CONDITION

Total assets increased by 3.8% during the six-month period ended June 30, 2007. Total assets were $321.3 million at June 30, 2007, as compared to $309.7 million at year-end 2006. Cash and cash equivalents,
which produce no income, decreased to $5.7 million on June 30, 2007, compared to $6.3 million at year-end 2006.

During the six months
ended June 30, 2007, gross loans increased by $6.5 million or 2.7%, to $252.1 million from $245.6 million at year-end 2006. The major component of this increase was real estate mortgage loans secured by 1-4 family residential collateral, with
7.5% growth to $146.1 million.

For the six months ended June 30, 2007, the Company charged off loans totaling $46 thousand. For the
comparable period in 2006, total loans charged off were $61 thousand. The Company maintained $813 thousand of other real estate owned (OREO) as of June 30, 2007, compared to $562 thousand at year-end 2006. The Company actively
markets all OREO properties, and expects no loss on any of these properties. All properties maintained as other real estate owned are carried at the lesser of book or market value.

The provision for loan losses amounted to $150 thousand through the six months ended June 30, 2007 and the allowance for loan losses as of
June 30, 2007 was $2.4 million. The allowance for loan losses, as a percentage of total loans, was 0.94% at June 30, 2007. The allowance for loan losses is analyzed for adequacy on a quarterly basis to determine the necessary provision. A
loan by loan review is conducted of all loan classes and inherent losses on these individual loans are determined. This valuation is then compared to historical data in an effort to determine the prevailing trends. A third component of the process
is the analysis of a tabular presentation of loss allocation percentages by loan type. Through this process, the Company assesses the appropriate provision for the coming quarter. As of June 30, 2007, management deemed the loan loss reserve
reasonable for the loss risk identified in the loan portfolio.

As of June 30, 2007, $3.3 million of loans were considered impaired,
of which $83 thousand were on non-accrual status. There were $239 thousand of loans on non-accrual status as of year-end 2006. Impaired loans are those loans, not secured by real estate, classified as substandard, doubtful, or loss, that are
commercial or non-farm/non-residential in nature, where collateral may be insufficient to cover the outstanding principal balance. Loans still accruing interest but delinquent for 90 days or more were $1.1 million on June 30, 2007, as compared
to $851 thousand on June 30, 2006. Management has reviewed these credits and the underlying collateral and expects no additional loss above that which is specifically reserved in the allowance for loan losses.

As of June 30, 2007, securities available for sale at market value totaled $36.7 million as compared to $38.4 million on December 31, 2006.
This represents a net decrease of $1.6 million or 4.3% for the six months. Securities held to maturity were $464 thousand as of June 30, 2007, compared to $457 thousand at December 31, 2006. As of June 30, 2007, the investment
portfolio represented 11.6% of total assets and 12.5% of earning assets. The greater portion of the Companys investment portfolio is classified as available-for-sale and marked to market on a monthly basis. These gains or losses are booked
monthly as an adjustment to book value based upon market conditions, and are not realized as an adjustment to earnings until the securities are actually sold.

As of June 30, 2007, total deposits were $256.9 million compared to $251.6 million at year-end 2006. This represents an increase in balances of $5.3 million or 2.1% during the six months. Components of this
increase include time deposits with a 7.9% increase to $107 million. Savings and interest-bearing demand deposits decreased by 0.8% to $107.0 million and noninterest-bearing deposits with a 3.8% decrease to $42.5 million.

Establishment of a Colonial Beach, Virginia retail office is progressing. Colonial Beach is an incorporated town within Westmoreland County. This
will be the Banks 8th banking office and the 2nd in Westmoreland County, an extension of its market to that Countys western end.

In May of 2007, the Bank received approval on an application to establish a branch office in
Burgess, Northumberland County, Virginia. This will be the Banks 9thretail office and an extension of its market into the eastern region of that
county. The Bank plans to open this office by the end of the first quarter of 2008.

In addition to these new branch offices, the
Bank completed renovation of its Callao office, located in Northumberland County, Virginia in March, 2007. These construction projects will result in some increases to depreciation and related expense. Management believes that improvements
in customer service, efficiency and an expanded market footprint will reap benefits in excess of costs over time, and are essential to the continued growth of the Company.



15



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##### Table of Contents

RESULTS OF OPERATIONS

NON-INTEREST INCOME

Non-interest income for the six months ended
June 30, 2007 and 2006 totaled $1.5 million and $1.4 million, respectively. Non-interest income includes income from fiduciary activities, service charges on deposit accounts, other miscellaneous fees, gains on the sale of securities, and other
income. Of these categories, the major components are fiduciary activities, which contributed $333 thousand compared to $354 thousand through six months of 2007 versus 2006, service charges on deposit accounts, which contributed $368 thousand
through six months of 2007 versus $346 thousand for the comparable period in 2006, and other service charges and fees, which contributed $647 thousand compared to $564 thousand through the six months of 2007 and 2006, respectively. The primary
component of the increase in other service charges and fees is non-deposit product fee income and Visa® income. Non-deposit product fee income was $154 thousand for the first six months of
2007, compared to $144 thousand for the similar period in 2006. Visa® income was $352 thousand for the first six months of 2007, compared to $306 thousand for the same period in 2006.
Secondary market lending fees totaled $108 thousand for the six-month period ended June 30, 2007, compared to $82 thousand for the same period in 2006.

The Companys fiduciary income is derived from the operations of its subsidiary, Bay Trust Company, which offers a broad range of trust and related fiduciary services. Among these are estate settlement and
testamentary trusts, revocable and irrevocable personal trusts, managed agency, custodial accounts, and rollover IRAs both self-directed and managed. Fiduciary income is largely affected by changes in the performance of the stock and bond
market, which directly impacts the market value of the accounts upon which fees are earned.

Management continues to explore methods of
increasing non-interest income. Continued expansion of fiduciary services, diversification of business lines, and expansion of fee-based services provided to bank customers are among the areas under regular review.

NON-INTEREST EXPENSE

For the six months ended
June 30, 2007, non-interest expenses were $5.6 million compared to $5.1 million for the six month period ended June 30, 2006. The largest components of non-interest expense are salaries and benefits, and occupancy expense. Through the six
months ended June 30, 2007, salary and benefit expense was $3.0 million, compared to $2.8 million for the same period of 2006. In preparation for planned growth, the Bank has hired new personnel in key revenue-producing areas of the Bank, which
has resulted in this expected increase in salary and benefit expense. Occupancy expense increased to $902 thousand through the six months ended June 30, 2007 as compared to $864 thousand for the same period of 2006, due mainly to increases in
depreciation expense.

Other expenses include bank franchise taxes which totaled $93
thousand through six months of 2007 and $93 thousand for 2006, expenses related to the Visa® program which were $272 thousand through six months of 2007 and $238 thousand through six months
of 2006, telephone expenses which were $95 thousand for the current period and $93 thousand through six months of 2006, and other operating expenses which totaled $1.2 million for the current period versus $1.1 million for the six months ended
June 30, 2006. Telephone expenses include the cost of the Companys Customer Care Center and data network communications.

RECENT ACCOUNTING
PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157
does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those
years. The Company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.



16



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##### Table of Contents

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value
option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after
November 15, 2007. The Company is in the process of evaluating the impact SFAS 159 may have on its consolidated financial statements.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

There have been no significant changes from the quantitative and qualitative disclosures made in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

The Company, under the
supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Treasurer, has evaluated the effectiveness of the design and operation of the Companys disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Companys Chief Executive Officer and Treasurer concluded that the Companys
disclosure controls and procedures are operating effectively in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic Securities and
Exchange Commission filings. No significant changes in the Companys internal control over financial reporting occurred during the Companys most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.

PART II - OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

None to report.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There were no material changes to the
risk factors previously disclosed in the Companys Annual Report on form 10-K for the fiscal year ended December 31, 2006.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

The Company began a share repurchase program in August of 1999 and has continued the program into 2007. There are a total of 280,000 shares authorized for repurchase under the program.

The status of the Companys stock repurchase program is shown in the table below.



|            |  |                                |  |                             |       |                                                                                |       |                                                                              |       
|----------- |  | ------------------------------ |  | --------------------------- | ----- | ------------------------------------------------------------------------------ | ----- | ---------------------------------------------------------------------------- | ------
|            |  | Total Numberof SharesPurchased |  | Average Price Paidper Share |       | Total Number of Shares Purchasedas Part of Publicly AnnouncedPlans or Programs |       | Maximum Number of Sharesthat May Yet Be
PurchasedUnder the Plans or Programs
|April, 2007 |  |                               |  | $                           |      |                                                                                |      |                                                                              | 92,928
|May, 2007   |  | 1,700                          |  |                             | 14.67 |                                                                                | 1,700 |                                                                              | 91,228
|June, 2007  |  | 1,900                          |  |                             | 14.12 |                                                                                | 1,900 |                                                                              | 89,328
|            |  |                                |  |                             |       |                                                                                |       |                                                                              |       
|Total       |  | 3,600                          |  | $                           | 14.38 |                                                                                | 3,600 |                                                                              |       
|            |  |                                |  |                             |       |                                                                                |       |                                                                              |       



17



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##### Table of Contents

|ITEM 3. | DEFAULT UPON SENIOR SECURITIES
|------- | ------------------------------

None to report.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

The Company
held its Annual Meeting of Stockholders on May 21, 2007. The stockholders were asked to consider two proposals, as follows:



| | 1. | Election of one Class II director to serve a two-year term and three (3) Class III directors to serve a three-year term; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------



| | 2. | Ratification of Yount, Hyde & Barbour, P.C., independent registered public accounting firm, as auditors
| | -- | -------------------------------------------------------------------------------------------------------

of the Company for the year ending December 31, 2007.

The vote tabulation was as follows:



|   |  |                                                                           |  |           |  |                |  |              
|-- |  | ------------------------------------------------------------------------- |  | --------- |  | -------------- |  | -------------
|   |  |                                                                           |  | Votes For |  | Votes Withheld |  | Votes Against
|1. |  | Election of one Class II director to serve for a term of two years:       |  |           |  |                |  |              
|   |  |                                                                           |  |          
|   |  | Director                                                                  |  |           |  |                |  |              
|   |  | Walter C. Ayers                                                           |  | 1,835,255 |  | 41,527         |  |             
|   |  |                                                                           |  |          
|   |  | Election of three Class III directors to serve for a term of three-years: |  |           |  |                |  |              
|   |  |                                                                           |  |          
|   |  | Robert C. Berry, Jr.                                                      |  | 1,839,797 |  | 36,984         |  |             
|   |  | Richard A. Farmar, III                                                    |  | 1,843,971 |  | 32,811         |  |             
|   |  | Robert F. Hurliman                                                        |  | 1,846,055 |  | 30,727         |  |             
|   |  |                                                                           |  |          
|   |  |                                                                           |  | Votes For |  | Votes Abstain  |  | Votes Against
|2. |  | Yount, Hyde & Barbour, P.C.                                               |  | 1,871,848 |  | 4,634          |  | 300          

The following directors terms of office continued after the meeting:

Allen C. Marple

Robert J. Wittman

Austin L. Roberts, III



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None to report.



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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##### Table of Contents

SIGNATURES

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



|               |  |  |  |                             |  |                                      
|-------------- |  |  |  | --------------------------- |  | -------------------------------------
|               |  |  |  | Bay Banks of Virginia, Inc.
|               |  |  |  | (Registrant)               
|               |  |  | 
|August 1, 2007 |  |  |  | By:                         |  | /s/ Austin L. Roberts, III           
|               |  |  |  |                             |  | Austin L. Roberts, III               
|               |  |  |  |                             |  | President and Chief Executive Officer
|               |  |  |  |                             |  | (Principal Executive Officer)        
|               |  |  | 
|               |  |  |  | By:                         |  | /s/ Deborah M. Evans                 
|               |  |  |  |                             |  | Deborah M. Evans                     
|               |  |  |  |                             |  | Treasurer                            
|               |  |  |  |                             |  | (Principal Financial Officer)        



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