UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


               [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                           BAY BANKS OF VIRGINIA, INC.
                      (EXACT NAME OF SMALL BUSINESS ISSUER)



                               VIRGINIA 54-1838100
                   (STATE OF INCORPORATION) (IRS EMP. ID NO.)

                    100 S. MAIN STREET, KILMARNOCK, VA 22482
                          (ADDRESS OF PRINCIPAL OFFICE)

                                  (804)435-1171
                            (ISSUER'S TELEPHONE NO.)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable date:  1,160,909 shares of common stock at
November 14, 1998.

          Transitional Small Business Disclosure Format ____yes __X__no


<PAGE>

                           Bay Banks of Virginia, Inc.

                                   FORM 10-QSB
                For the interim period ending September 30, 1998.

                                      INDEX

                         PART I - FINANCIAL INFORMATION

ITEM 1.     INTERIM FINANCIAL STATEMENTS (UNAUDITED)                      1-3

                CONSOLIDATED BALANCE SHEETS
                SEPTEMBER 1998  AND DECEMBER 1997                           1

               CONSOLIDATED STATEMENT OF EARNINGS
               QUARTER  ENDED SEPTEMBER 1998 AND 1997                       2
               YEAR TO DATE SEPTEMBER 1998 AND 1997

               CONSOLIDATED STATEMENT OF CASH FLOWS
               YEAR TO DATE  SEPTEMBER 1998 AND 1997                        3

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATION                   4-7

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS                                                 8

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                         8

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                   8

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
               SECURITY HOLDERS                                             8

ITEM 5.   OTHER INFORMATION                                                 8

ITEM 6.   EXHIBITS AND REPORTS OF FORM 8-K                                  8

SIGNATURES                                                                  9


<PAGE>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
                                                                  SEPTEMBER                      DECEMBER
BALANCE SHEET CATEGORIES                                            1998                          1997
ASSETS:
<S>                                                                 <C>                           <C>    
CASH DUE FROM BANKS                                                 3704224                       3302389
U. S. TREASURY SECURITIES                                           5583438                       8589407
U. S. GOVERNMENT SECURITIES                                        15400063                      12475984
STATE AND MUNICIPAL SECURITIES                                     26315629                      18459599
OTHER SECURITIES                                                   11367581                       4541452
FED FUNDS SOLD                                                     14428137                      11556000
TOTAL LOANS,NET UNEARNED                                          111875492                     105063637
LESS: LOAN LOSS RESERVE                                             (983630)                      (860709)
NET LOANS                                                         110891862                     104202928
NET PREM., FURN., FIXT.                                             4332671                       2840140
ACCRUED INTEREST RECEIVABLE                                         1348648                       1247958
OTHER REAL ESTATE OWNED                                             1159921                       1378795
OTHER ASSETS                                                        3634303                        130832

TOTAL ASSETS                                                      198166477                     168725484

LIABILITIES
DEMAND DEPOSITS                                                    31259386                      11717193
SAVINGS AND NOW                                                    90664599                      90891939
CERTIFICATES OF DEPOSIT                                            55979668                      46995674
TOTAL DEPOSITS                                                    177903653                     149604806
FED FUNDS PURCHASED                                                       -                             -
OTHER LIABILITIES                                                   1294725                        428560

TOTAL LIABILITIES                                                 179198378                     150033366

SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,160,909 AND 1,144,309                                 5804545                       5754130
PAID IN CAPITAL                                                     3015953                       3164510
RETAINED EARNINGS                                                   9303723                       9502341
MKT.ADJ.-SEC.-UNREALIZED                                             843878                        271137

TOTAL SHAREHOLDERS EQUITY                                          18968099                      18692118

TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY                                               198166477                     168725484
</TABLE>
<PAGE>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
                                                          QUARTER END         QUARTER END                   YTD
                                                          SEPT 1998            SEPT 1997             SEPT 1998          SEPT 1997
INTEREST INCOME

<S>                                                           <C>             <C>                       <C>              <C>    
INTEREST AND FEES ON LOANS                                    2401627         2385386                  7092119           6996804
INTEREST ON US TREASURY SECURITIES                              90531          118810                   308217            419856
INTEREST ON US GOVERNMENT SECURITIES                           221614          209235                   660549            647918
INTEREST ON MUNICIPAL SECURITIES                               326569          202670                   924542            636270
INTEREST ON OTHER SECURITIES                                   168046           30968                   457364             96874
INTEREST ON FED FUNDS SOLD                                     208029          132257                   631519            211285

TOTAL INTEREST INCOME                                         3416416         3079326                 10074310           9009007


INTEREST EXPENSE

INTEREST ON INT. BEARING TRANSACTION                           263303          196779                   750361            590618
INTEREST ON SAVINGS DEPOSITS                                   796642          814621                  2352906           2505831
INTEREST ON CERTIFICATES                                       745552          593430                  2223654           1443375
INTEREST ON FED FUNDS PURCHASED                                     0               0                        0             19885
OTHER SHORT TERM BORROWINGS                                      4578               0                     6325                 0

TOTAL INTEREST EXPENSE                                        1810075         1604830                  5333246           4559709

NET INTEREST INCOME                                           1606341         1474496                  4741064           4449298
PROVISION FOR LOAN LOSSES                                       58367           61000                   148367            201000

NET INTEREST INCOME AFTER PROV.                               1547974         1413496                  4592697           4248298

NON-INTEREST INCOME

VISA INCOME                                                     97168           65783                   204636            166675
DEPOSIT FEES                                                    86728           60993                   234579            175567
TRUST DEPARTMENT FEES                                          122334          109283                   365338            332443
OTHER FEES                                                      99576           36559                   281864            106037
SECURITIES GAINS AND LOSSES                                     35768               0                   101274             15359
                                                                                                                               0
TOTAL NON-INTEREST INCOME                                      441574          272618                  1187690            796081

NON-INTEREST EXPENSE

SALARIES AND BENEFITS                                          690742          568119                  2004780           1672072
OCCUPANCY                                                       67368           26149                   197798            111769
FURNITURE AND EQUIPMENT                                        115108          148049                   455869            418552
OTHER OPERATING                                                460443          356833                  1446185           1061341
                                                                                                                               0
TOTAL NON-INTEREST EXPENSE                                    1333661         1099150                                    3263734
                                                                                                       4104632

INCOME BEFORE TAXES                                            655885          586964                  1675756           1780645
INCOME TAXES                                                   116952           88000                   267808            344857

NET INCOME                                                     538935          498964                  1407948           1435788
EARNINGS PER SHARE                                                .46             .44                     1.21              1.26
</TABLE>
<PAGE>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES                                            SEPT 1998                   SEPT 1997

<S>                                                                               <C>                         <C>    
NET INCOME                                                                        1407948                     1478586

ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
            PROVIDED BY OPERATING ACTIVITIES:
     DEPRECIATION                                                                  455869                      306423
     PROVISION FOR LOAN LOSS                                                       148367                      165000
     NET (GAIN) LOSS ON SALE OF SECURITIES                                        (101274)                      (2806)
     DECREASE IN ACCRUED INTEREST  RECEIVABLE                                     (440942)                    (235006)
     (DECREASE) IN ACCRUED INTEREST PAYABLE                                         38731                       35895
     DECREASE IN OTHER ASSETS                                                    (2193843)                     (33250)
     (DECREASE) IN OTHER LIABILITIES                                              (173942)                     (38255)

NET CASH PROVIDED BY OPERATING ACTIVITIES                                         (859086)                     1676587

CASH FLOWS FROM INVESTING ACTIVITIES
     PURCHASES OF AFS SECURITIES                                                (25605577)                   (2228155)
     PROCEEDS FROM SALES OF AFS SECURITIES                                        5520545                     4449309
     PROCEEDS FROM MATURITIES OF AFS SECURITIES                                   7980475                     1757631
     NET (INCREASE) IN LOANS OUTSTANDING                                         (7642627)                   (4202049)
     NET (INCREASE) DECREASE IN FED FUNDS SOLD                                   (2872137)                   (4634000)
     PURCHASE OF PREMISES AND EQUIPMENT                                          (1742850)                    (386900)
     DECREASE IN OTHER REAL ESTATE OWNED                                           218874                     (718506)

NET CASH USED IN INVESTING ACTIVITIES                                           (24143297)                   (5962670)

CASH FLOWS FROM FINANCING ACTIVITIES
     NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW                          15942267                    (2671394)
     NET INCREASE(DECREASE) IN TIME DEPOSITS                                      8970755                    12094997
     PROCEEDS FROM ISSUANCE OF COMMON STOCK                                         50382                      194860
     DIVIDENDS PAID                                                               (512782)                    (528736)

NET CASH PROVIDED BY FINANCING ACTIVITIES                                        24450622                     9089727

NET INCREASE (DECREASE) IN CASH                                                   (551761)                    4803644
</TABLE>
<PAGE>
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION(UNAUDITED)

                  The   following   discussion   is   intended   to   assist  in
         understanding   and  evaluating  the  results  of  operations  and  the
         financial  condition of Bay Banks of Virginia,  Incorporated,  a single
         bank holding  company.  This  discussion  should be read in conjunction
         with the attached  Balance Sheet,  Statement of Income and Statement of
         Cash Flows.

         EARNINGS SUMMATION

                  For the nine months ended  September 1998 net income was $1.41
         million as compared to $1.44 million for the comparable period in 1997,
         for a decrease of 2.13%.  Earnings per share  through the third quarter
         were $1.21 as compared to $1.26 in 1997, which represents a decrease of
         3.97%.  Return on  Average  Equity  was  10.42% for 1998 and 12.02% for
         1997.  Return  on  Average  Assets  was .97% and  1.23%  consecutively.
         Earnings  have  been  impacted  by  non  interest   expense   increases
         associated  with the  acquisition of branches as well as the continuing
         process of improving and upgrading  the  Companies  technology  that is
         related to Year 2000 compliance.

         NET INTEREST INCOME

                  Net  Interest  Income  through  the third  quarter of 1998 was
         $4.74  million  and for the same  period  in 1997 the  total  was $4.45
         million.  This is an increase 6.52% over 1997. The Net Interest  Margin
         on a fully tax  equivalent  basis for the year to date 1998 was  5.17%,
         down from 5.74% for the  comparable  period in 1997.  Average  interest
         earning assets totaled $177.81 million while average  interest  bearing
         liabilities  totaled  $153.15 million at quarter end 1998. As a result,
         interest-bearing  assets  exceeded  interest-  bearing  liabilities  by
         $24.66 million, or 13.86%.

                  Net interest  income  continues to be impacted by a flat yield
         curve.  Higher  short term rates and lower long term rates  through the
         third quarter have resulted in the investment of excess deposits by the
         Company at lower than desired  yields.  Management  has addressed  this
         situation  and has begun  adjustments  in rate  structures  that  could
         possibly  mitigate  a  portion  of the  yield  reduction.  The  Company
         continues to identify deposit and loan products that offer the greatest
         potential for improving net interest  income while meeting the needs of
         our customers.

         PROVISION/ALLOWANCE FOR LOAN LOSSES

         Increases in the Provision  for Loan Losses were  $148,367  through the
         nine months.  The total  Allowance  for Loan Losses as of September 30,
         1998 was $983,630.  The Loan Loss  Provision as a percentage of Average
         Total Loans through the third quarter of
         1998 is .88%.

         As of September 30, 1998, loans on Non-Accrual  status totaled $96,442.
         Loans on  Non-Accrual  status as of September  30, 1997 were  $126,039.
         Loans still  accruing  interest but delinquent 90 days were $400,192 at
         quarter end 1998 as compared to $593,524 for quarter end 1997.

                  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  on 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 Holding Company assesses the appropriate  provision for the
         coming quarter.  As of September 30, 1998,  management  deemed the loan
         loss  reserve  reasonable  for the  loss  risk  identified  in the loan
         portfolio.



         NON INTEREST INCOME

                  Other Income  through the third  quarter of 1998 totaled $1.19
         million as compared to $796,081 for 1997.  Other Income for the Holding
         Company  is  composed  of  Visa  Merchant  Fees,  Deposit  Fees,  Trust
         Department  Income,  Miscellaneous  Income,  and  Gains  on the Sale of
         Securities. Of these categories, the Visa program, Deposit Fees and the
         Trust Department contribute the majority. Through the nine months ended
         September 30, 1998 Visa Fees were $204,636, Deposit Fees were $234,579,
         and Trust Income was $365,338.  Continually improving marketing efforts
         from the Visa and Trust  Departments are having positive effects on the
         earnings performance of these areas.

         NON INTEREST EXPENSE

                  Non Interest  Expense  totaled $4.10 million through the third
         quarter of 1998 as compared to $3.26 million for  comparable  period in
         1997.  This  represents  an increase  of 25.77%  between  periods.  Non
         Interest  Expenses  include Salaries and Benefits,  Occupancy  Expense,
         Furniture and Equipment Expense and Other Operating  Expense.  Of these
         categories,  Salaries and Benefits are the major  expense.  Through the
         nine months ended  September 30, 1998,  Salary and Benefit  Expense was
         $2.01  million,  Occupancy  was  $197,798,  Furniture and Equipment was
         $455,869 and Other  Operating was $1.45 million.  Bay Banks of Virginia
         acquired two branches from the former Signet Bank of Richmond, Virginia
         in February of 1998.  Associated with the  acquisition  were the normal
         expenses of purchase,  many of which were realized in the first quarter
         as non-recurring.  In addition, non-interest expense is impacted by the
         core deposit intangible associated with the acquisition of deposits and
         an increase in personnel expense.

         FINANCIAL CONDITION

                  Total Assets at third quarter end of 1998 were $198.12 million
         as compared to $168.73 million at December 30, 1997. This represents an
         increase of 17.42% for the nine-month period.

                  Total Loans through the third quarter were $111.86  million as
         compared to $102.2  million for the  comparable  period in 1997.  Total
         Loans at year end 1997 were $105.06  million,  resulting in an increase
         of 6.47% through the nine months ended  September 30, 1998.  Management
         continues  to focus on new  products  and  services  that will  further
         stimulate lending activity in our market area.

         Through  the first  nine  months  of 1998,  charged  off loans  totaled
         $43,731. For the comparable period in 1997 total loans charged off were
         $152,097.

                  As of  September  30,  1998,  the Holding  Company held $58.67
         million in investment  securities.  This compares with  September  1997
         balances  of  $45.04  million  and  year-end  1997  balances  of $44.06
         million.  This  represents an increase of 33.16% of the total portfolio
         during the nine months ended  September  30, 1998.  This increase was a
         direct  result  of the  acquisition  of  deposits  associated  with the
         previously mentioned branch purchase from Signet Bank.

                  As of September 30, 1998,  total deposits were $177.90 million
         as compared to $142.53  million at quarter end 1997 and $149.60 at year
         end 1997.  This  represents a net increase of $28.30  million or 18.92%
         for the nine  months  ended  September  30,  1998.  For the  period  of
         September  30,  1997 to  1998,  Non  Interest-bearing  Demand  Deposits
         increased to $20.95 million, and Interest-bearing  Transaction Accounts
         increased  to $32.53  million.  Savings  and  certificates  of  deposit
         increased  to $124.43  million.  This  increase in deposit  balances is
         mainly  attributable to the acquisition of approximately $22 million in
         deposits with the branch acquisition from Signet Bank.

                  The Bank of Lancaster  maintained  $1.16 million on Other Real
         Estate Owned as of September  30, 1998.  For the  comparable  period in
         1997  the  balance  was  $1.38  million.   The  Bank  of  Lancaster  is
         aggressively marketing all properties on OREO, and further,  management
         expects no loss on any of these properties.

         LIQUIDITY AND CAPITAL RESOURCES

                  Bay Banks of Virginia maintains adequate  short-term assets to
         meet liquidity needs that are anticipated by management.  Federal Funds
         Sold and investments  that mature in one year or less provide the major
         sources of funding for liquidity  needs.  At September 30, 1998 Federal
         Funds Sold totaled $14.43  million and securities  maturing in one year
         or less  totaled  $9.32  million,  for a total pool of $23.75  million.
         Increases in liquidity  are due mainly to the  acquisition  of deposits
         that resulted from the previously mentioned branch purchases.

                  The  liquidity  ratio as of  September  30, 1998 was 40.00% as
         compared  to  44.69%  for the  prior  period.  Bay  Banks  of  Virginia
         determines this ratio by dividing net liabilities  into the sum of cash
         and due from,  un-pledged investment securities and Federal Funds Sold.
         Management,  through  historical  analysis,  has deemed 15% an adequate
         liquidity  ratio.  As excess funds are diverted  from Federal  Funds to
         loans  and  investments,   this  ratio  will  decline  to  levels  more
         consistent with prior periods.

         Total  shareholder  equity at September 30, 1998 was $18.97  million as
         compared to $17.57 million for the same period 1997. This represents an
         increase of 8.99% over September 1997.  Shareholder  equity at year-end
         1997 was $18.69 million.  Shareholder equity was impacted by unrealized
         gains on  securities  in the amount of  $843,878  at quarter  end 1998,
         while these unrealized gains at year-end were $271,137.

                  The Holding Company is required to maintain minimum amounts of
         Capital to Total Risk Weighted Assets,  as defined by FFIEC guidelines.
         As of quarter end 1998, the Company maintained Tier 1 Capital of $15.69
         million,  Tier 2 Capital of  $955,000  and Total Risk Based  Capital of
         $16.65 million. Net Risk Weighted Assets totaled $116.37 million. As of
         September 30, 1998,  the Holding  Company  maintained  13.72% and 8.55%
         Tier 1 and Total Capital Ratios. The respective  minimums are 5.50% and
         6.00%. The Holding  Company's  Leverage Ratio at September 30, 1998 was
         8.19% with a regulatory minimum of 3.00%.

                  Book  Value  per share of  common  stock for the 1998  interim
         period was  $17.78  and for 1997 the book  value per share was  $14.44.
         Cash  dividends paid through  September 30, 1998 were  $295,823.  Total
         number of shares outstanding at September 30, 1998 was 1,158,160.

         Part I Item 1.  Financial Information

         Bank of Lancaster

         Notes to Consolidated Financial Statements

         Bay Banks of Virginia, Inc. owns 100% of the Bank of
         Lancaster.   The consolidated financial statements include the
         accounts of the Bank of Lancaster and Bay Banks of Virginia,
         Incorporated.

         The  accounting  and reporting  policies of the  registrant  conform to
         generally accepted  accounting  principals and to the general practices
         within  the  banking  industry.  This  interim  statement  has not been
         audited,  however,  in  management's  opinion,  it  reflects a fair and
         accurate presentation of the consolidated financial statements.

         These  financial  statements  should  be read in  conjunction  with the
         financial  statements and notes to financial statements included in the
         registrants 1997 Annual Report to Shareholders.
<PAGE>

         PART 2.

         ITEM 1.           LEGAL PROCEEDINGS

         None to report.

         ITEM 2.           CHANGES IN SECURITIES

         See ITEM 4.

         ITEM 3.           DEFAULT UPON SENIOR SECURITIES

         None to report.

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

         None to report.

         ITEM 5.           OTHER INFORMATION

         None to report.

         ITEM 13: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.

         Exhibit Index



         ( 2)     Plan of reorganization.
                  N/A

         ( 3)     (i)(ii)Articles of Incorporation and Bylaws.
                  N/A

         ( 4)     (i)Rights of Holders.
                  N/A



         (10)     (ii)(A)Material Contracts.
                  N/A

         (11)     Statement: Computation of Earnings per Share
                  N/A

         (15)     Letter:   Unaudited financial information
                  N/A

         (18)     Letter:  Change in accounting principals
                  N/A

         (19)     Report furnished to security holders
                  N/A

         Published report regarding matters submitted
         to a vote of security holders                                 N/A

         (23)     Consent of council
                  N/A

         (24)     Power of Attorney
                  N/A

         (27)     Financial Data Schedule
                  Attached

         (99)     Additional Exhibits
                  N/A

         (b)      No filings were made on Form 8-K for the period.




<PAGE>

         SIGNATURES

         BAY BANKS OF VIRGINIA



                  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
                                                                  (Registrant)

         11/14/1998                              s/s  Austin L. Roberts, III
                                                 ---------------------------
                                                 President and CEO



         11/14/1998                              s/s  Paul T. Sciacchitano
                                                 ---------------------------
                                                 Treasurer