##### Table of Contents

---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

|x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 
|-------------------------------------------------------------------------------------
|                                                                                     
|FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003                                        
|                                                                                     
|o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                     
|COMMISSION FILE NUMBER..........0-22955                                              
|                                                                                     
|BAY BANKS OF VIRGINIA, INC.                                                          
|(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)                           
|                                                                                     
|VIRGINIA                                                                             
|(STATE OF INCORPORATION)                                                             
|                                                                                     
|100 SOUTH MAIN STREET, KILMARNOCK, VA 22482                                          
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)                                   
|                                                                                     
|(804)435-1171                                                                        
|(REGISTRANTS TELEPHONE NUMBER INCLUDING AREA CODE)                                   

Indicate by
checkmark 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 | o No
|----- | ----

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the Act).

|o 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:

2,311,189 shares of common stock on April 30, 2003.

---



---

##### Table of Contents

FORM 10-Q

For the interim period ending March 31, 2003.

INDEX

|PART I  | FINANCIAL INFORMATION                                                                                                     | 3 
|------- | ------------------------------------------------------------------------------------------------------------------------- | --
|        |                                                                                                                           |   
|ITEM 1. | FINANCIAL STATEMENTS                                                                                                      | 3 
|        |                                                                                                                           |   
|        | CONSOLIDATED BALANCE SHEETS MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002                                              | 3 
|        |                                                                                                                           |   
|        | CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)                          | 4 
|        |                                                                                                                           |   
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)                      | 5 
|        |                                                                                                                           |   
|        | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) | 6 
|        |                                                                                                                           |   
|        | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                | 7 
|        |                                                                                                                           |   
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                                      | 8 
|        |                                                                                                                           |   
|        | FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO MARCH 31, 2002 (UNAUDITED)                     | 10
|        |                                                                                                                           |   
|        | NET INTEREST INCOME ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO MARCH 31, 2002 (UNAUDITED)             | 11
|        |                                                                                                                           |   
|        | INTEREST RATE SENSITIVITIY GAP ANALYSIS AS OF MARCH 31, 2003 (UNAUDITED)                                                  | 12
|        |                                                                                                                           |   
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                | 15
|        |                                                                                                                           |   
|        | RATE SHOCK ANALYSIS OF NET INTEREST INCOME ON MARCH 31, 2003 (UNAUDITED)                                                  |   
|        |                                                                                                                           |   
|ITEM 4. | CONTROLS AND PROCEDURES                                                                                                   | 15
|        |                                                                                                                           |   
|PART II | OTHER INFORMATION                                                                                                         | 15
|        |                                                                                                                           |   
|ITEM 1. | LEGAL PROCEEDINGS                                                                                                         | 15
|        |                                                                                                                           |   
|ITEM 2. | CHANGES IN SECURITIES                                                                                                     | 15
|        |                                                                                                                           |   
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES                                                                                           | 15
|        |                                                                                                                           |   
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                       | 15
|        |                                                                                                                           |   
|ITEM 5. | OTHER INFORMATION                                                                                                         | 15
|        |                                                                                                                           |   
|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K                                                                                          | 15

2



---

##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

Bay Banks of Virginia, Inc.Consolidated Balance Sheets

|                                                                           |  | Mar 31 2003 |             | Dec 31 2002 |  
|-------------------------------------------------------------------------- |  | ----------- | ----------- | ----------- | -
|                                                                           |  |             |             |             |  
|                                                                           |  | (Unaudited) |             |             |  
|ASSETS                                                                     |  |             |             |             |  
|Cash and due from banks                                                    |  | $           | 13,950,944  |             | $
|Interest-bearing deposits                                                  |  |             | 171,855     |             |  
|Federal funds sold                                                         |  |             | 30,041,522  |             |  
|Securities available for sale, at fair value                               |  |             | 46,679,597  |             |  
|Gross loans, net of allowance for loan losses of $1,735,510 and $1,696,914 |  |             | 167,625,004 |             |  
|Premises and equipment, net                                                |  |             | 8,093,563   |             |  
|Accrued interest receivable                                                |  |             | 1,367,152   |             |  
|Other real estate owned                                                    |  |             | 495,431     |             |  
|Core deposit intangible                                                    |  |             | 2,807,842   |             |  
|Other assets                                                               |  |             | 1,390,926   |             |  
|                                                                           |  |             |             |             |  
|Total assets                                                               |  | $           | 272,623,836 |             | $
|                                                                           |  |             |             |             |  
|LIABILITIES                                                                |  |             |             |             |  
|Demand deposits                                                            |  | $           | 30,024,963  |             | $
|Savings and NOW deposits                                                   |  |             | 117,258,534 |             |  
|Other time deposits                                                        |  |             | 94,201,062  |             |  
|                                                                           |  |             |             |             |  
|Total deposits                                                             |  | $           | 241,484,559 |             | $
|Securities sold under repurchase agreements                                |  |             | 3,874,987   |             |  
|Other liabilities                                                          |  |             | 2,247,249   |             |  
|                                                                           |  |             |             |             |  
|Total liabilities                                                          |  | $           | 247,606,795 |             | $
|                                                                           |  |             |             |             |  
|SHAREHOLDERS EQUITY                                                       |  |             |             |             |  
|Common stock - $5 par value;                                               |  |             |             |             |  
|Authorized - 5,000,000 shares;                                             |  |             |             |             |  
|Outstanding - 2,311,189 and 2,307,360 shares                               |  | $           | 11,555,944  |             | $
|Additional paid-in capital                                                 |  |             | 4,141,469   |             |  
|Retained Earnings                                                          |  |             | 7,599,651   |             |  
|Accumulated other comprehensive income                                     |  |             | 1,719,977   |             |  
|                                                                           |  |             |             |             |  
|Total shareholders equity                                                 |  | $           | 25,017,041  |             | $
|                                                                           |  |             |             |             |  
|Total liabilities and shareholders equity                                 |  | $           | 272,623,836 |             | $

See Notes to Consolidated Financial Statements.

3



---

##### Table of Contents

Bay Banks of Virginia, Inc.Consolidated Statements of Income (Unaudited)

|                                                    |  | Qtr ended Mar 31, 2003 |           | Qtr ended Mar 31, 2002 |  
|--------------------------------------------------- |  | ---------------------- | --------- | ---------------------- | -
|                                                    |  |                        |           |                        |  
|INTEREST INCOME                                     |  |                        |           |                        |  
|Loans receivable (incl fees)                        |  | $                      | 2,732,489 |                        | $
|Securities:                                         |  |                        |           |                        |  
|Taxable                                             |  |                        | 425,409   |                        |  
|Tax-exempt                                          |  |                        | 179,553   |                        |  
|Federal funds sold                                  |  |                        | 72,806    |                        |  
|                                                    |  |                        |           |                        |  
|Total interest income                               |  | $                      | 3,410,257 |                        | $
|                                                    |  |                        |           |                        |  
|INTEREST EXPENSE                                    |  |                        |           |                        |  
|Deposits                                            |  | $                      | 1,258,978 |                        | $
|Securities Sold to Repurchase                       |  |                        | 9,327     |                        |  
|                                                    |  |                        |           |                        |  
|Total interest expense                              |  | $                      | 1,268,305 |                        | $
|                                                    |  |                        |           |                        |  
|Net Interest Income                                 |  | $                      | 2,141,952 |                        | $
|                                                    |  |                        |           |                        |  
|Provision for loan losses                           |  | $                      | 78,000    |                        | $
|                                                    |  |                        |           |                        |  
|Net interest income after provision for loan losses |  | $                      | 2,063,952 |                        | $
|                                                    |  |                        |           |                        |  
|NONINTEREST INCOME                                  |  |                        |           |                        |  
|Income from fiduciary activities                    |  | $                      | 138,468   |                        | $
|Service charges & fees on deposit accounts          |  |                        | 138,294   |                        |  
|Other miscellaneous fees                            |  |                        | 147,996   |                        |  
|Secondary market brokerage income                   |  |                        | 92,288    |                        |  
|Net securities gains                                |  |                        | 20,857    |                        |  
|Other income                                        |  |                        | 71,789    |                        |  
|                                                    |  |                        |           |                        |  
|Total noninterest income                            |  | $                      | 609,692   |                        | $
|                                                    |  |                        |           |                        |  
|NONINTEREST EXPENSES                                |  |                        |           |                        |  
|Salaries and employee benefits                      |  | $                      | 1,044,609 |                        | $
|Occupancy expense                                   |  |                        | 261,496   |                        |  
|Bank franchise tax                                  |  |                        | 52,488    |                        |  
|Deposit Insurance Premium                           |  |                        | 9,288     |                        |  
|Visa Expense                                        |  |                        | 71,366    |                        |  
|Amortization of Intangibles                         |  |                        | 6,196     |                        |  
|Other expense                                       |  |                        | 598,048   |                        |  
|                                                    |  |                        |           |                        |  
|Total noninterest expenses                          |  | $                      | 2,043,491 |                        | $
|                                                    |  |                        |           |                        |  
|Net Income before income taxes                      |  | $                      | 630,153   |                        | $
|                                                    |  |                        |           |                        |  
|Income tax expense                                  |  |                        | 191,232   |                        |  
|                                                    |  |                        |           |                        |  
|Net Income                                          |  | $                      | 438,921   |                        | $
|                                                    |  |                        |           |                        |  
|Average basic shares outstanding                    |  |                        | 2,305,385 |                        |  
|Earnings per share, basic                           |  |                        | 0.19      |                        |  
|Average diluted shares outstanding                  |  |                        | 2,316,288 |                        |  
|Earnings per share, diluted                         |  |                        | 0.19      |                        |  

See Notes to Consolidated Financial Statements.

4



---

##### Table of Contents

Bay Banks of Virginia, Inc.Consolidated Statements of Cash Flows (Unaudited)

|                                                                                  |  | Quarter ended Mar 31, 2002 |             | Quarter ended Mar 31, 2003 |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ----------- | -------------------------- | -
|                                                                                  |  |                            |             |                            |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                            |             |                            |  
|Net Income                                                                        |  | $                          | 438,921     |                            | $
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |             |                            |  
|Depreciation                                                                      |  |                            | 183,724     |                            |  
|Net amortization and accretion of securities                                      |  |                            | 5,587       |                            |  
|Provision for Loan Losses                                                         |  |                            | 78,000      |                            |  
|Net (Gain) / Loss on Sale of Securities                                           |  |                            | (20,857     | )                          |  
|(Gain) / Loss on sale of other real estate owned                                  |  |                            | (34,911     | )                          |  
|Accrued income and other assets                                                   |  |                            | 337,914     |                            |  
|Increase / (Decrease) in Other Liabilities                                        |  |                            | (107,332    | )                          |  
|                                                                                  |  |                            |             |                            |  
|Net Cash Provided by Operating Activities                                         |  | $                          | 881,046     |                            | $
|                                                                                  |  |                            |             |                            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                            |             |                            |  
|Proceeds from maturities of Available-for-Sale Securities                         |  |                            | 3,797,835   |                            |  
|Proceeds from sales of Available-for-Sale Securities                              |  |                            | 2,449,500   |                            |  
|Purchases of Available-for-Sale Securities                                        |  |                            | (2,615,760  | )                          |  
|(Increase) / Decrease in interest bearing deposits                                |  |                            | (12,125     | )                          |  
|(Increase) / Decrease in Loans outstanding                                        |  |                            | 739,152     |                            |  
|(Increase) / Decrease in Federal Funds Sold                                       |  |                            | (10,062,834 | )                          |  
|Purchases of Premises and Equipment                                               |  |                            | (308,818    | )                          |  
|(Increase) / Decrease in other real estate owned                                  |  |                            | 119,647     |                            |  
|                                                                                  |  |                            |             |                            |  
|Net Cash (Used in) Investing Activities                                           |  | $                          | (5,893,403  | )                          | $
|                                                                                  |  |                            |             |                            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                            |             |                            |  
|Increase / (Decrease) in Demand, Savings, & NOW deposits                          |  |                            | 7,130,105   |                            |  
|Increase / (Decrease) in Time Deposits                                            |  |                            | 2,838,273   |                            |  
|Net (Decrease) in securities sold under repurchase agreements                     |  |                            | (606,777    | )                          |  
|Proceeds from issuance of Common Stock                                            |  |                            | 102,685     |                            |  
|Repurchase of Common Stock                                                        |  |                            | (54,145     | )                          |  
|Dividends paid                                                                    |  |                            | (322,680    | )                          |  
|                                                                                  |  |                            |             |                            |  
|Net Cash Provided by Financing Activities                                         |  | $                          | 9,087,461   |                            | $
|                                                                                  |  |                            |             |                            |  
|Net Increase / (Decrease) in Cash & Due from Banks                                |  |                            | 4,075,104   |                            |  
|Cash & Due From Banks at Beginning of period                                      |  | $                          | 9,875,840   |                            | $
|Cash & Due From Banks at End of period                                            |  | $                          | 13,950,944  |                            | $
|                                                                                  |  |                            |             |                            |  
|SUPPLEMENTAL DISCLOSURES:                                                         |  |                            |             |                            |  
|Interest paid                                                                     |  | $                          | 1,240,402   |                            | $
|Income taxes paid                                                                 |  |                            | 17,129      |                            |  
|Unrealized gain (loss) on investment securities                                   |  |                            | 144,638     |                            |  

See Notes to Consolidated Financial Statements.

5



---

##### Table of Contents

Bay Banks of Virginia, Inc.Consolidated Statement of Changes in Shareholders Equity (Unaudited)

|                                                                                            |  | Common Stock |            | Additional Paid-in Capital |  | Retained Earnings |   | Accumulated Other Comprehensive Income/ (Loss) |            | Total Shareholders Equity | 
|------------------------------------------------------------------------------------------- |  | ------------ | ---------- | -------------------------- |  | ----------------- | - | ---------------------------------------------- | ---------- | ------------------------- | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Balance on 1/1/2002                                                                         |  |              | 5,766,405  |                            |  | 3,940,720         |   |                                                | 12,363,054 |                           | 
|Comprehensive Income:                                                                       |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Net Income                                                                                  |  |              |            |                            |  |                   |   |                                                | 642,126    |                           | 
|Net changes in unrealized gain of available- for-sale securities, net of taxes of ($68,355) |  |              |            |                            |  |                   |   |                                                |            |                           | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Total Comprehensive Income                                                                  |  |              |           |                            |  |                  |   |                                                | 642,126    |                           | 
|Dividends paid ($0.12/share)                                                                |  |              |            |                            |  |                   |   |                                                | (275,782   | )                         | 
|Stock repurchases                                                                           |  |              | (33,895    | )                          |  | (73,252           | ) |                                                | (119,780   | )                         | 
|Sale of common stock:                                                                       |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Dividends Reinvested                                                                        |  |              | 11,292     |                            |  | 65,496            |   |                                                |           |                           | 
|Stock Options exercised                                                                     |  |              | 14,875     |                            |  | 24,346            |   |                                                | (18,558    | )                         | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Balance on 3/31/02                                                                          |  |              | 5,758,677  |                            |  | 3,957,310         |   |                                                | 12,591,060 |                           | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Balance on 1/1/2003                                                                         |  |              | 11,536,800 |                            |  | 4,080,693         |   |                                                | 7,514,790  |                           | 
|Comprehensive Income:                                                                       |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Net Income                                                                                  |  |              |            |                            |  |                   |   |                                                | 438,921    |                           | 
|Net changes in unrealized gain of available- for-sale securities, net of taxes of ($49,177) |  |              |            |                            |  |                   |   |                                                |            |                           | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Total Comprehensive Income                                                                  |  |              |           |                            |  |                  |   |                                                | 438,921    |                           | 
|Dividends paid ($0.14/share)                                                                |  |              |            |                            |  |                   |   |                                                | (322,680   | )                         | 
|Stock repurchases                                                                           |  |              | (17,500    | )                          |  | (5,264            | ) |                                                | (31,381    | )                         | 
|Sale of common stock:                                                                       |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Dividends Reinvested                                                                        |  |              | 31,645     |                            |  | 63,290            |   |                                                |           |                           | 
|Stock Options exercised                                                                     |  |              | 5,000      |                            |  | 2,750             |   |                                                |           |                           | 
|                                                                                            |  |              |            |                            |  |                   |   |                                                |            |                           | 
|Balance on 3/31/03                                                                          |  |              | 11,555,944 |                            |  | 4,141,469         |   |                                                | 7,599,651  |                           | 

See Notes to Consolidated Financial Statements.

6



---

##### Table of Contents

Notes to Consolidated Financial Statements

Note 1:

| | Bay Banks of Virginia, Inc. owns 100% of the Bank of Lancaster (the Bank) and 100% of Bay Trust Company of Virginia, Inc. (the Trust Company).  The
consolidated financial statements include the accounts of the Bank, the Trust Company, and Bay Banks of Virginia.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The accounting and reporting policies of the registrant conform to accounting principles generally accepted by the United States of America and to the general practices within
the banking industry.  This interim statement has not been audited.  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 reclassifications have been made to prior period balances to conform to the current presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | At March 31, 2003, the Company has three stock-based compensation plans.  The Company accounts for the plans under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations.  No stock-based compensation cost is reflected in net income, as all options granted under these plans had an
exercise price equal to market value of the underlying common stock on the date of the grant.  The following table illustrates the effect on net income and earnings per share if the Company had applied fair value recognition provisions of FASB
No. 123, Accounting for Stock-Based Compensation.

|                                                                                                                           |  | Quarter ended March 31, |        
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                                                           |  |                         |        
|(Unaudited)                                                                                                                |  | 2003                    |        
|                                                                                                                           |  |                         |        
|Net income, as reported                                                                                                    |  | $                       | 438,921
|Total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                         | (33,642
|                                                                                                                           |  |                         |        
|Pro forma net income                                                                                                       |  | $                       | 405,279
|Earnings per share:                                                                                                        |  |                         |        
|Basic - as reported                                                                                                        |  | $                       | 0.19   
|Basic - pro forma                                                                                                          |  | $                       | 0.18   
|Diluted - as reported                                                                                                      |  | $                       | 0.19   
|Diluted - pro forma                                                                                                        |  | $                       | 0.18   

| | These consolidated financial statements should be read in conjunction with the financial statements and notes to financial statements included in the registrants 2002
Annual Report to Shareholders.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 2:  Securities Available for Sale

| | The carrying amounts of debt and other securities and their approximate fair values at March 31, 2003, and December 31, 2002, follow:
| | -------------------------------------------------------------------------------------------------------------------------------------

|March 31, 2003 (unaudited):    |  | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value |       
|------------------------------ |  | -------------- | ---------- | ---------------------- | - | ----------------------- |  | ---------- | ------
|                               |  |                |            |                        |   |                         |  |            |       
|U.S. Government agencies       |  | $              | 7,108,319  |                        | $ | 310,632                 |  | $          | 0     
|State and municipal securities |  |                | 26,059,184 |                        |   | 1,623,909               |  |            | (1,326
|Corporate bonds                |  |                | 9,596,968  |                        |   | 676,680                 |  |            | (3,869
|Restricted securities          |  |                | 1,309,100  |                        |   | 0                       |  |            | 0     
|                               |  |                |            |                        |   |                         |  |            |       
|                               |  | $              | 44,073,571 |                        | $ | 2,611,221               |  | $          | (5,195

|December 31, 2002:             |  | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value |        
|------------------------------ |  | -------------- | ---------- | ---------------------- | - | ----------------------- |  | ---------- | -------
|                               |  |                |            |                        |   |                         |  |            |        
|U.S. Government agencies       |  | $              | 7,511,155  |                        | $ | 358,248                 |  |            |        
|State and municipal securities |  |                | 25,712,115 |                        |   | 1,410,938               |  |            | (15,619
|Corporate bonds                |  |                | 13,146,266 |                        |   | 715,713                 |  |            | (7,892 
|Restricted securities          |  |                | 1,320,341  |                        |   | 0                       |  |            | 0      
|                               |  |                |            |                        |   |                         |  |            |        
|                               |  | $              | 47,689,877 |                        | $ | 2,484,899               |  | $          | (23,511

7



---

##### Table of Contents

Note 3:  Loans

| | The components of loans in the balance sheets were as follows:
| | --------------------------------------------------------------

|                                                             |  | March 31, 2003 |             | December 31, 2002 |  
|------------------------------------------------------------ |  | -------------- | ----------- | ----------------- | -
|                                                             |  |                |             |                   |  
|                                                             |  | (unaudited)    |             |                   |  
|Mortgage loans on real estate:                               |  |                |             |                   |  
|Construction                                                 |  | $              | 20,990,850  |                   | $
|Secured by farmland                                          |  |                | 173,034     |                   |  
|Secured by 1-4 family residential                            |  |                | 91,142,619  |                   |  
|Other real estate loans                                      |  |                | 24,996,242  |                   |  
|Loans to farmers (except those secured by real estate)       |  |                | 610,541     |                   |  
|Commercial and industrial loans (not secured by real estate) |  |                | 19,109,441  |                   |  
|Consumer installment loans                                   |  |                | 9,749,886   |                   |  
|All other loans                                              |  |                | 1,271,496   |                   |  
|Net deferred loan costs and fees                             |  |                | 1,316,405   |                   |  
|                                                             |  |                |             |                   |  
|Total loans                                                  |  | $              | 169,360,514 |                   | $
|Allowance for loan losses                                    |  |                | (1,735,510  | )                 |  
|                                                             |  |                |             |                   |  
|Loans, net                                                   |  | $              | 167,625,004 |                   | $

Loans upon which the accrual of interest has been discontinued totaled $318
thousand as of March 31, 2003, and $268 thousand as of December 31, 2002.

Note 4:  Earnings per share

| | The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common
stock, as adjusted for a 2-for-1 stock split in the form of a 100% stock dividend issued on June 7, 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(Unaudited)                    |  | March 31, 2003 |           | March 31, 2002   |  
|------------------------------ |  | -------------- | --------- | ---------------- | -
|                               |  |                |           |                  |  
|                               |  | Avg Shares     |           | Per share Amount |  
|                               |  |                |           |                  |  
|Basic earnings per share       |  |                | 2,305,385 |                  | $
|Effect of dilutive securities: |  |                |           |                  |  
|Stock options                  |  |                | 10,903    |                  |  
|Diluted earnings per share     |  |                | 2,316,288 |                  | $

Note 5:  Core Deposit Intangibles

The Company has core deposit intangibles recorded on the financial statements relating to the purchase of five branches.  The balance of the intangibles at March 31, 2003, as reflected on the Consolidated Balance Sheet,
was $2,807,842.  Management has determined that these purchases qualified as acquisitions of businesses, as is allowed under FASB No. 147, and therefore has discontinued amortization, effective January 1, 2002. The resulting adjustment to the
March 31, 2002, income statement was elimination of amortization of $58,211.

The Company will be required to perform an annual impairment test to support the value reported.



ITEM 2. MANAGEMENTS 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 Bay Banks of Virginia, Inc. (the Company) a two bank holding 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

8



---

##### Table of Contents

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.

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 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.

RECENT ACCOUNTING PRONOUNCEMENTS.There were no new Financial Accounting Standards Board promulgations in the first quarter of 2003 that
will impact Bay Banks of VA, Inc.

9



---

##### Table of Contents

Bay Banks of Virginia, Inc.Financial Highlights (Unaudited)

|(Thousands)                                              |  | Quarter ended 3/31/03 |           | Quarter ended 3/31/02 |   | Change    |  
|-------------------------------------------------------- |  | --------------------- | --------- | --------------------- | - | --------- | -
|                                                         |  |                       |           |                       |   |           |  
|FINANCIAL CONDITION                                      |  |                       |           |                       |   |           |  
|Average Assets                                           |  | $                     | 265,998   |                       | $ | 245,832   |  
|Average Interest-earning Assets                          |  |                       | 238,489   |                       |   | 223,559   |  
|Average Earning Assets to Total Average Assets           |  |                       | 89.7      | %                     |   | 90.9      | %
|Period-end Interest-bearing Liabilities                  |  |                       | 215,335   |                       |   | 210,266   |  
|Average Interest-bearing Liabilities                     |  |                       | 212,184   |                       |   | 196,861   |  
|Average Equity, including FAS 115 adjustment             |  |                       | 24,929    |                       |   | 22,640    |  
|Tier 1 Capital                                           |  |                       | 20,489    |                       |   | 19,499    |  
|Net Risk-weighted Assets                                 |  |                       | 178,026   |                       |   | 159,671   |  
|Tier 2 Capital                                           |  |                       | 1,736     |                       |   | 1,528     |  
|                                                         |  |                       |           |                       |   |           |  
|RESULTS OF OPERATIONS                                    |  |                       |           |                       |   |           |  
|Net Interest Income before Provision                     |  | $                     | 2,142     |                       | $ | 2,142     |  
|Net Income                                               |  |                       | 439       |                       |   | 642       |  
|Annualized Yield on Average Interest-earning Assets      |  |                       | 5.87      | %                     |   | 6.47      | %
|Annualized Cost of Average Interest-bearing Liabilities  |  |                       | 2.39      | %                     |   | 2.89      | %
|Annualized Net Yield on Average Interest-earning Assets  |  |                       | 3.74      | %                     |   | 3.93      | %
|Annualized Net Interest Rate Spread                      |  |                       | 3.48      | %                     |   | 3.58      | %
|                                                         |  |                       |           |                       |   |           |  
|RATIOS                                                   |  |                       |           |                       |   |           |  
|Total Capital to Risk-weighted Assets (10% min)          |  |                       | 12.5      | %                     |   | 13.2      | %
|Tier 1 Capital to Risk-weighted Assets (6% min)          |  |                       | 11.5      | %                     |   | 12.2      | %
|Leverage Ratio (5% min)                                  |  |                       | 7.8       | %                     |   | 8.0       | %
|Annualized Return on Average Assets (ROA)                |  |                       | 0.7       | %                     |   | 1.0       | %
|Annualized Return on Average Equity (ROE)                |  |                       | 7.0       | %                     |   | 11.3      | %
|                                                         |  |                       |           |                       |   |           |  
|Period-end basic shares outstanding*                     |  |                       | 2,311,189 |                       |   | 2,303,470 |  
|Average basic shares outstanding*                        |  |                       | 2,305,385 |                       |   | 2,300,742 |  
|Average diluted shares outstanding*                      |  |                       | 2,316,288 |                       |   | 2,335,228 |  
|                                                         |  |                       |           |                       |   |           |  
|PER SHARE DATA                                           |  |                       |           |                       |   |           |  
|Diluted earnings per average share (EPS) (three months)* |  | $                     | 0.19      |                       | $ | 0.27      |  
|Cash Dividends per average share (three months)*         |  |                       | 0.14      |                       |   | 0.12      |  
|Book Value per share, basic*                             |  |                       |           |                       |   |           |  
|before Accumulated Comprehensive Income/Loss             |  | $                     | 10.08     |                       | $ | 9.66      |  
|after Accumulated Comprehensive Income/Loss              |  |                       | 10.82     |                       |   | 9.84      |  
|Book Value per average share, basic*                     |  |                       |           |                       |   |           |  
|before Accumulated Comprehensive Income/Loss             |  | $                     | 10.11     |                       | $ | 9.67      |  
|after Accumulated Comprehensive Income/Loss              |  |                       | 10.85     |                       |   | 9.85      |  

* Shares outstanding and Per Share data for 2002 is adjusted for a 2-for-1 split
which occurred on 6/7/02.

10



---

##### Table of Contents

EARNINGS SUMMATION

For the three
months ended March 31, 2003, net income was $439 thousand as compared to $642 thousand for the comparable period in 2002, a decrease of 31.6%.  Diluted earnings per average share for the first three months of 2003 were $0.19 as compared to
$0.27 for the first three months of 2002.  Annualized return on average equity was 7.0% for the first three months of 2003 as compared to 11.3% for the first three months of 2002, a decrease of 38.1%.  Annualized return on average assets
was 0.7% for the first three months of 2003, compared to 1.0% for the first three months of 2002, a decrease of 30.0%.  Net interest income for the first three months of 2003 and 2002 was $2.1 million.  Average interest-earning assets
totaled $238 million for the first three months of 2003 as compared to $224 million for the first three months of 2002, an increase of 6.7%.  Average interest-bearing liabilities totaled $212 million for the first three months of 2003 as
compared to $197 million for the first three months of 2002, an increase of 7.8%.  The annualized yield on average interest-earning assets for the first three months of 2003 was 5.87% as compared to 6.47% for the first three months of 2002, a
decrease of 9.3%.  The annualized yield (cost) on interest-bearing liabilities for the first three months of 2003 was 2.39% as compared to 2.89% for the first three months of 2002, a decrease of 17.3%.  Average interest-earning assets as a
percent of total average assets was 89.7% for the first three months of 2003 as compared to 90.9% for the comparable period of 2002, a decrease of 1.3%.  Average total assets for the first three months of 2003 were $266 million as compared to
$246 million for the first three months of 2002, growth of 8.2%.

Bay Banks of Virginia, Inc.Net Interest Income Analysis(Unaudited)

|                                             |  | Three months ended 3/31/2003 |         | Three months ended 3/31/2002 | 
|-------------------------------------------- |  | ---------------------------- | ------- | ---------------------------- | 
|                                             |  |                              |         |                              | 
|(Fully taxable equivalent basis) (Thousands) |  | Average Balance              |         | Income/ Expense              | 
|                                             |  |                              |         |                              | 
|INTEREST EARNING ASSETS:                     |  |                              |         |                              | 
|Investments (Amortized cost ):               |  |                              |         |                              | 
|Taxable Investments                          |  |                              | 27,958  |                              | 
|Tax-Exempt Investments (1)                   |  |                              | 16,515  |                              | 
|                                             |  |                              |         |                              | 
|Total Investments                            |  |                              | 44,473  |                              | 
|                                             |  |                              |         |                              | 
|Gross Loans (2)                              |  |                              | 169,256 |                              | 
|Interest-bearing Deposits                    |  |                              | 135     |                              | 
|Fed Funds Sold                               |  |                              | 24,625  |                              | 
|                                             |  |                              |         |                              | 
|TOTAL INTEREST EARNING ASSETS                |  |                              | 238,489 |                              | 
|                                             |  |                              |         |                              | 
|INTEREST-BEARING LIABILITIES:                |  |                              |         |                              | 
|Deposits:                                    |  |                              |         |                              | 
|Savings Deposits                             |  |                              | 60,134  |                              | 
|NOW Deposits                                 |  |                              | 39,367  |                              | 
|CDs >= $100,000                             |  |                              | 25,226  |                              | 
|CDs < $100,000                              |  |                              | 67,556  |                              | 
|Money Market Deposit Accounts                |  |                              | 16,144  |                              | 
|                                             |  |                              |         |                              | 
|Total Interest Bearing Deposits              |  |                              | 208,427 |                              | 
|Securities Sold to Repurchase                |  |                              | 3,757   |                              | 
|TOTAL INTEREST-BEARING LIABILITIES           |  |                              | 212,184 |                              | 
|                                             |  |                              |         |                              | 
|Net Interest Income/Yield on Earning Assets  |  |                              |         |                              | 
|Net Interest Rate Spread                     |  |                              |         |                              | 

Notes:(1)-Yield and income assumes a federal tax rate of 34%
(2)-Includes Visa Program & nonaccrual loans.

11



---

##### Table of Contents

This Net Interest Income Analysis table shows net interest margin decreasing to 3.74%
from 3.93% for the first three months of 2003 compared to the first three months of 2002.  This has been driven mainly by a reduction in real estate loan yields due to competitive market forces and mortgage refinancings.

The Company has reclassified loan fee income for 2002 to conform to Financial Accounting Standards Boards Statement No.
91, which addresses accounting for loan fees and costs.  The reclassification reduced loan fee income by $263 thousand in the first quarter of 2002.  The corresponding entries reduced salary expense by the same amount, as discussed later
in the Non-Interest Expense section.

Through the three months ended March 31, 2003, average
interest-earning assets were comprised mainly of the loan portfolio with $169.3 million and the investment portfolio with $44.5 million.  For the three month period ended March 31, 2003, compared to the same period in 2002, on a fully tax
equivalent basis, tax-exempt investment yields declined to 6.59% from 7.05%, and taxable investment yields increased to 6.08% from 5.99%.  Total investment yield increased slightly to 6.27% from 6.25%.  In the first three months of 2003,
gross loans on average volumes yielded 6.46% as compared to 7.34% for the same period in 2002.

Yields on average interest-bearing deposits comparing the first three months of 2003 to the same period in 2002, were as follows. 
Savings yields were down to 1.90% compared to 2.29%, NOW accounts were down to 1.04% compared to 1.26%, money market demand accounts were down to 1.45% compared to 1.60%, certificates of deposit greater than $100 thousand were down to 3.68% compared
to 4.09%, and certificates of deposit less than $100 thousand were down to 3.44% compared to 4.02%.  The resulting total yield on deposits through March 31, 2003, was down to 2.42% compared to 2.91% for the three months ended March 31,
2002.

Table XIIIInterest Rate Sensitivity Analysis as of 3/31/2003

|(Thousands)(Unaudited)             |  | Within 3 months |         | 3-12 Months |  | 1-5 Years |   | Over 5 Years |         | Total | 
|---------------------------------- |  | --------------- | ------- | ----------- |  | --------- | - | ------------ | ------- | ----- | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|Interest-Bearing Due From Banks    |  |                 | 172     |             |  | 0         |   |              | 0       |       | 
|Fed Funds Sold                     |  |                 | 30,042  |             |  | 0         |   |              | 0       |       | 
|Investments (Market Value)         |  |                 | 142     |             |  | 4,563     |   |              | 23,466  |       | 
|Loans                              |  |                 | 38,938  |             |  | 33,868    |   |              | 73,450  |       | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|Total Earning Assets               |  |                 | 69,294  |             |  | 38,431    |   |              | 96,916  |       | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|NOW Accounts                       |  |                 | 39,829  |             |  | 0         |   |              | 0       |       | 
|MMDAs                             |  |                 | 17,058  |             |  | 0         |   |              | 0       |       | 
|Savings                            |  |                 | 60,372  |             |  | 0         |   |              | 0       |       | 
|CDs < $100,000                    |  |                 | 8,241   |             |  | 17,754    |   |              | 42,067  |       | 
|CDs >= $100,000                   |  |                 | 3,087   |             |  | 3,825     |   |              | 19,207  |       | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|Total Interest Bearing Deposits    |  |                 | 128,587 |             |  | 21,579    |   |              | 61,274  |       | 
|Fed Funds Purchased                |  |                 | 0       |             |  | 0         |   |              | 0       |       | 
|Securities Sold to Repurchase      |  |                 | 3,875   |             |  | 0         |   |              | 0       |       | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|Total Interest Bearing Liabilities |  |                 | 132,462 |             |  | 21,579    |   |              | 61,274  |       | 
|                                   |  |                 |         |             |  |           |   |              |         |       | 
|Rate Sensitive Gap                 |  |                 | (63,168 | )           |  | 16,852    |   |              | 35,642  |       | 
|Cumulative Gap                     |  |                 | (63,168 | )           |  | (46,316   | ) |              | (10,674 | )     | 

As of March 31, 2003, the Bank had interest-earning assets that mature within 3 months totaling $69.3 million, in 3-12 months totaling
$38.4 million, in 1-5 years totaling $96.9 million, and over 5 years totaling $41.6 million.  In comparison, interest-bearing liabilities maturing within 3 months totaled $132.5 million, in 3-12 months totaled $21.6 million, in 1-5 years
totaled $61.2 million, and $20 thousand over 5 years.  Management is continually reviewing loan and deposit products to modify or develop offerings that are less subject to interest rate risk.

12



---

##### Table of Contents

LIQUIDITY

The Company maintains
adequate short-term assets to meet the Companys 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 March 31,
2003, federal funds sold totaled $30.0 million and securities maturing in one year or less totaled $4.7 million, for a total pool of $34.7 million.  The liquidity ratio as of March 31, 2003 was 34.0% as compared to 31.0% as of December 31,
2002.  The Company determines this ratio by dividing the sum of cash and cash equivalents, unpledged investment securities and Federal Funds Sold, by net liabilities.  Management, through historical analysis, has deemed 15% an adequate
liquidity ratio.

CAPITAL RESOURCES

From December 31,
2002, to March 31, 2003, total shareholders equity has grown by 1.0%.  It is impacted by net unrealized gains on securities in the amount of $1.7 million as of March 31, 2003.  There were net unrealized gains on December 31, 2002 of
$1.6 million.  Unrealized gains or losses, net of taxes, are recognized as accumulated comprehensive income or loss on the balance sheet and statement of changes in shareholders equity.  Shareholders equity before unrealized
gains or losses was $23.3 million on March 31, 2003, and $23.1 million on December 31, 2002.  This represents an increase of $165 thousand or 0.7% during the three-month period.

The Company paid a 2-for-1 stock split in the form of a 100% stock dividend on June 7, 2002.  All share information has been
adjusted to reflect the split for all periods presented.

Book value per share, basic, on March 31, 2003,
compared to March 31, 2002, grew to $10.82 from $9.84, an increase of 10.0%.  Book value per share, basic, before accumulated comprehensive income on March 31, 2003, compared to March 31, 2002, grew to $10.08 from $9.66, an increase of
4.4%.  Cash dividends paid for the three months ended March 31, 2003, were $323 thousand, or $0.14 per average share, basic, compared to $276 thousand, or $0.12 per average share, for the comparable period ended March 31, 2002, an increase of
17.0%.  Average basic shares outstanding for the three months ended March 31, 2003, were 2,305,385 compared to 2,300,742 for the comparable period ended March 31, 2002.  The Company began a share repurchase program in August of 1999 and
has continued the program into 2003.  The total number of shares authorized for repurchase is 115,000 shares.

The Company is subject to minimum regulatory capital ratios as defined by Federal Financial Institutions Examination Council
guidelines.  As of March 31, 2003 the Company maintained Tier 1 capital of $20.5 million, net risk weighted assets of $178.0 million, and Tier 2 capital of $1.7 million.  On March 31, 2003, the Tier 1 capital to risk weighted assets ratio
was 11.5%, the total capital ratio was 12.5%, and the tier 1 leverage ratio was 7.8%.  These ratios continue to be well in excess of regulatory minimums.

FINANCIAL CONDITION

As of March 31, 2003, total assets have increased 3.6% since December 31, 2002, from $263.1 million to $272.6
million.  Cash and cash equivalents totaled $14.1 million on March 31, 2003, compared to $10.0 million at year-end 2002.

During the three months ended March 31, 2003, gross loans decreased by 0.5%, from $170.1 million to $169.4 million.  During the
same three-month period, real estate mortgage loans decreased 2.2% to $137.3 million, commercial loans increased 14.0% to $19.1 million, and installment and other loans decreased by 2.3% to $11.0 million.

For the three months ended March 31, 2003, the Company charged off loans totaling $43 thousand.  For the comparable period in 2002,
total loans charged off were $48.6 thousand.  The Company maintained $495 thousand of other real estate owned (OREO) as of March 31, 2003.  As of year-end 2002, the balance was $580 thousand.  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 $78 thousand through the first three months, and the allowance for loan losses as of March 31,
2003, was $1.7 million.  The allowance for loan losses, as a percentage of average total loans through the first three months of 2003 was 1.0%.

As of March 31, 2003, $318 thousand of loans were on on non-accrual status.  There were $268 thousand of loans on non-accrual
status as of March 31, 2002.  Loans still accruing interest but delinquent for 90 days or more were $889 thousand on March 31, 2003, as compared to $877 thousand on March 31, 2002.

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

13



---

##### Table of Contents

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 March 31, 2003, management deemed the loan
loss reserve reasonable for the loss risk identified in the loan portfolio.

As of March 31, 2003,
securities available for sale totaled $46.7 million at market value.  This compares with December 2002 market value of $50.2 million.  This represents a decrease of 6.9% during the three months ended March 31, 2003.  The investment
portfolio represents 17.1% of total assets and 19.1% of earning assets.  The Companys investment portfolio is classified as available-for-sale, and therefore management has elected to mark the entire investment portfolio to market. 
The resulting accumulated adjustment to book value as of March 31, 2003 was an unrealized gain of $2.6 million.  The corresponding accumulated adjustment to shareholders equity was $1.7 million.  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.  Management does not anticipate the realization of net losses on investments during
2003.

As of March 31, 2003, total deposits were $241.5 million.  Compared to $231.5 at year-end 2002,
balances have increased 4.3%.  Comparing types of deposit balances on March 31, 2003, to year-end 2002 results in the following, non-interest-bearing demand deposits increased by 16.6% to $30.0 million, savings and NOW accounts increased by
2.5% to $117.3 million, and other time deposits increased by 3.1% to $94.2 million.

RESULTS OF OPERATIONS

NON-INTEREST INCOME

Non-interest income for the first three months of 2003 totaled $610 thousand compared to $507 thousand for the same
period in 2002.  This is an increase of 20.3%.  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, fiduciary activities contributed the majority at $138 thousand.  Service charges on deposit accounts contributed $138 thousand.  Other miscellaneous fees contributed $148 thousand.  Other income contributed to the balance
with $185 thousand.  For the first three months of 2002, these totals were $176 thousand, $121 thousand, $125 thousand, and $85 thousand, respectively.

Management continues to explore methods of increasing its 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

Non-interest expenses totaled $2.0 million during the first three months of 2003 as compared to $1.7 million for the same
period in 2002, an increase of 22.2%.  Non-interest expenses include salaries and benefits, occupancy expense, and other operating expense.  Of these categories, salaries and benefits are the major expense.  Through the three months
ended March 31, 2003, salary and benefit expense was $1.0 million, occupancy expense was $261 thousand, and other operating expense was $737 thousand.  For the same period in 2002, the totals were $835 thousand, $199 thousand, and $638
thousand, respectively.

In the fourth quarter of 2002, the Company adopted Financial Accounting Standards
Board Statement No. 147, Acquisitions of Certain Financial Institutions.  This statement amended previous interpretive guidance on the application of the purchase method of accounting for acquisitions of financial institutions, and
requires the application of Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets.  Upon adoption of Statement No. 147, the Bank was able to recover the non-cash expense allocated to
the amortization of the core deposit intangible that was associated with each of the branch acquisition transactions previously executed.  The result was a reduction in other expense of $58 thousand in the first quarter of 2002.

Also in the fourth quarter of 2002, the Company reclassified salary expense to conform to Financial Accounting
Standards Boards Statement No. 91, which addresses accounting for loan fees and costs.  Salary expense was reduced due to this reclassification by $263 thousand in the first quarter of 2002.  As discussed earlier, the corresponding
entries reduced loan fee income by the same amount.

FORWARD LOOKING STATEMENT

In addition to the historical information contained herein, this discussion contains forward-looking statements that involve risks and
uncertainties.  Economic circumstances, the operations of the

14



---

##### Table of Contents

Bank, and the Companys actual results could differ significantly from those discussed in the forward looking statements.  Some of the factors that could cause or
contribute to such differences are discussed herein, but also include changes in economic conditions in the Companys or Banks market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in
the Banks market area, and competition.  Any of these factors could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

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 report on Form 10-K
for the year ended December 31, 2002.

ITEM 4.  CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company has carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934, as Amended.  Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are
effective 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 & Exchange Commission filings.  There have been no
significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

PART II.

ITEM 1.  LEGAL PROCEEDINGS

None to report.

ITEM 2.  CHANGES IN SECURITIES

None to report.

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 6:  EXHIBITS AND REPORTS ON FORM 8-K.

|(a) Exhibit Index:
|------------------
|                  
|                  
|                  
|                  
|                  
|                  
|                  

15



---

##### Table of Contents

|                         | 99.1                                                                                                                                  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------
|                         |                                                                                                                                       |                                                                                                                       
|(b) Reports on Form 8-K:
|                        
|                         | One report on Form 8-K was filed with the Securities and Exchange Commission on March 4, 2003, announcing the first quarter dividend.
|                         |                                                                                                                                       |                                                                                                                       

16



---

##### 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)                                                                               | 
|         |                                                                                            | 
|05/14/03 | /s/ AUSTIN L. ROBERTS, III                                                                 | 
|         |                                                                                            | 
|         | Austin L. Roberts, III President and Chief Executive Officer (principal executive officer) | 
|         |                                                                                            | 
|05/14/03 | /s/ RICHARD C. ABBOTT                                                                      | 
|         |                                                                                            | 
|         | Richard C. Abbott Treasurer (principal financial officer)                                  | 

17



---

##### Table of Contents

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Section 302 Certification

I, Austin L. Roberts,
III, certify that:

1.          I have reviewed this
quarterly report on Form 10-Q of Bay Banks of Virginia, Inc.;

2.
         Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.          Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.          The registrants other certifying officers and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)        
 designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this quarterly report is being prepared;

(b)        
 evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

(c)        
 presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.          The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):

(a)        
 all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

(b)        
 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.          The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|/s/ AUSTIN L. ROBERTS, III                                   |  | Dated:  May 14, 2003
|------------------------------------------------------------ |  | --------------------
|                                                             |  |                     
|Austin L. Roberts, III President and Chief Executive Officer |  |                     

18



---

##### Table of Contents

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Section 302 Certification

I, Richard C. Abbott,
certify that:

1.          I have reviewed this quarterly
report on Form 10-Q of Bay Banks of Virginia, Inc.;

2.          Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.          Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4.          The registrants
other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)        
 designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this quarterly report is being prepared;

(b)        
 evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

(c)        
 presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.          The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):

(a)        
 all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

(b)        
 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.          The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

|/s/ RICHARD C. ABBOTT       |  | Dated:  May 14, 2003
|--------------------------- |  | --------------------
|                            |  |                     
|Richard C. Abbott Treasurer |  |                     

19