##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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



FOR THE QUARTERLY PERIOD ENDED September 30, 2005



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



COMMISSION FILE NUMBER 0-22955



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BAY BANKS OF VIRGINIA, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|VIRGINIA                                                       |  | 54-1838100                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)
|                                                               | 
|100 SOUTH MAIN STREET, KILMARNOCK, VA                          |  | 22482                               
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       |  | (ZIP CODE)                          



(804) 435-1171

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days    x  yes ̈no



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



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



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



2,381,017 shares of common stock on November 3,
2005.



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##### Table of Contents

FORM 10-Q



For the interim period ending
September 30, 2005.



INDEX



|                                                                                                                             |  |   
|---------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I - FINANCIAL INFORMATION                                                                                               |  |   
|                                                                                                                             | 
|ITEM 1.
FINANCIAL STATEMENTS                                                                                                 |  |   
|                                                                                                                             | 
|CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004                                              |  | 3 
|                                                                                                                             | 
|CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30, 2005 AND 2004 (UNAUDITED)                 |  | 4 
|                                                                                                                             | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2005 AND 2004 (UNAUDITED)                       |  | 5 
|                                                                                                                             | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED) |  | 6 
|                                                                                                                             | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                   |  | 7 
|                                                                                                                             | 
|ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                |  | 11
|                                                                                                                             | 
|FINANCIAL HIGHLIGHTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SEPTEMBER 30, 2004 (UNAUDITED)                 |  | 13
|                                                                                                                             | 
|NET INTEREST INCOME ANALYSIS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SEPTEMBER 30, 2004 (UNAUDITED)         |  | 15
|                                                                                                                             | 
|ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                           |  | 18
|                                                                                                                             | 
|ITEM 4.
CONTROLS AND PROCEDURES                                                                                              |  | 18
|                                                                                                                             | 
|PART II - OTHER INFORMATION                                                                                                  |  |   
|                                                                                                                             | 
|ITEM 1.
LEGAL PROCEEDINGS                                                                                                    |  | 19
|                                                                                                                             | 
|ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                          |  | 19
|                                                                                                                             | 
|ITEM 3.
DEFAULTS UPON SENIOR SECURITIES                                                                                      |  | 19
|                                                                                                                             | 
|ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                  |  | 19
|                                                                                                                             | 
|ITEM 5.
OTHER INFORMATION                                                                                                    |  | 19
|                                                                                                                             | 
|ITEM 6.
EXHIBITS                                                                                                             |  | 19



2



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1. FINANCIAL STATEMENTS.



Bay Banks of Virginia, Inc.

Consolidated Balance Sheets



|                                                                                  |  |                    |             |                   |   |            
|--------------------------------------------------------------------------------- |  | ------------------ | ----------- | ----------------- | - | -----------
|                                                                                  |  | September 30, 2005 |             | December 31, 2004
|                                                                                  |  | (Unaudited)        |             |                  
|ASSETS                                                                            |  |                    |             |                   |   |            
|Cash and due from banks                                                           |  | $                  | 5,429,871   |                   | $ | 8,572,672  
|Interest-bearing deposits                                                         |  |                    | 110,978     |                   |   | 104,949    
|Federal funds sold                                                                |  |                    | 2,226,798   |                   |   | 13,989,278 
|Securities available for sale, at fair value                                      |  |                    | 51,790,571  |                   |   | 51,916,490 
|Securities held to maturity, at amortized cost (fair value $432,895 and $426,320) |  |                    | 439,847     |                   |   | 429,815    
|Loans, net of allowance for loan losses of $2,024,652 and $2,032,185              |  |                    | 228,532,662 |                   |   | 213,350,454
|Premises and equipment, net                                                       |  |                    | 9,925,422   |                   |   | 9,086,442  
|Accrued interest receivable                                                       |  |                    | 1,356,757   |                   |   | 1,163,976  
|Other real estate owned                                                           |  |                    | 561,601     |                   |   | 16,601     
|Core deposit intangible                                                           |  |                    | 2,807,842   |                   |   | 2,807,842  
|Other assets                                                                      |  |                    | 1,737,737   |                   |   | 2,031,067  
|                                                                                  |  |                    |             |                   |   |            
|Total assets                                                                      |  | $                  | 304,920,086 |                   | $ | 303,469,586
|                                                                                  |  |                    |             |                   |   |            
|LIABILITIES                                                                       |  |                    |             |                   |   |            
|Non-interest bearing deposits                                                     |  | $                  | 46,650,632  |                   | $ | 38,877,338 
|Savings and interest-bearing demand deposits                                      |  |                    | 128,116,590 |                   |   | 133,887,530
|Time deposits                                                                     |  |                    | 86,541,136  |                   |   | 89,181,113 
|                                                                                  |  |                    |             |                   |   |            
|Total deposits                                                                    |  |                    | 261,308,358 |                   |   | 261,945,981
|                                                                                  |  |                   
|Federal funds purchased and securities sold under repurchase agreements           |  |                    | 5,314,608   |                   |   | 6,342,456  
|Federal Home Loan Bank advance                                                    |  |                    | 10,000,000  |                   |   | 7,500,000  
|Other liabilities                                                                 |  |                    | 1,711,616   |                   |   | 1,861,627  
|                                                                                  |  |                    |             |                   |   |            
|Total liabilities                                                                 |  | $                  | 278,334,582 |                   | $ | 277,650,064
|                                                                                  |  |                    |             |                   |   |            
|SHAREHOLDERS EQUITY                                                              |  |                    |             |                   |   |            
|Common stock ($5 par value;                                                       |  |                    |             |                   |   |            
|Authorized - 5,000,000 shares;                                                    |  |                    |             |                   |   |            
|Outstanding - 2,381,017 and 2,354,187 shares)                                     |  | $                  | 11,905,084  |                   | $ | 11,770,937 
|Additional paid-in capital                                                        |  |                    | 4,802,293   |                   |   | 4,621,295  
|Retained earnings                                                                 |  |                    | 9,689,941   |                   |   | 8,860,506  
|Accumulated other comprehensive income, net                                       |  |                    | 188,186     |                   |   | 566,784    
|                                                                                  |  |                    |             |                   |   |            
|Total shareholders equity                                                        |  | $                  | 26,585,504  |                   | $ | 25,819,522 
|                                                                                  |  |                    |             |                   |   |            
|Total liabilities and shareholders equity                                        |  | $                  | 304,920,086 |                   | $ | 303,469,586
|                                                                                  |  |                    |             |                   |   |            



See Notes to Consolidated Financial
Statements.



3



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##### Table of Contents

Bay Banks of Virginia, Inc.

Consolidated Statements of Income

(Unaudited)



|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|--------------------------------------------------------- |  | --------------------------------------------- | --------- | - | --------------------------------------------- | - | --------- | ------------------------------------------- |  | ------------------------------------------- | ---------- |  | - | ----------
|                                                          |  | For the three months ended September 30, 2005 |           |   | For the three months ended September 30, 2004 |   |           | For the nine monthsended September 30, 2005 |  | For the nine monthsended September 30, 2004
|INTEREST INCOME                                           |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Loans, including fees                                     |  | $                                             | 3,591,826 |   |                                               | $ | 2,979,692 |                                             |  | $                                           | 10,242,781 |  | $ | 8,681,462 
|Securities:                                               |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Taxable                                                   |  |                                               | 334,201   |   |                                               |   | 338,750   |                                             |  |                                             | 963,276    |  |   | 1,008,424 
|Tax-exempt                                                |  |                                               | 188,450   |   |                                               |   | 191,720   |                                             |  |                                             | 560,133    |  |   | 591,873   
|Federal funds sold                                        |  |                                               | 48,616    |   |                                               |   | 43,506    |                                             |  |                                             | 173,392    |  |   | 106,985   
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Total interest income                                     |  |                                               | 4,163,093 |   |                                               |   | 3,553,668 |                                             |  |                                             | 11,939,582 |  |   | 10,388,744
|                                                          |  |                                               |           |  
|INTEREST EXPENSE                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Deposits                                                  |  |                                               | 1,224,480 |   |                                               |   | 1,048,864 |                                             |  |                                             | 3,450,946  |  |   | 3,151,289 
|Federal funds purchased and securities sold to repurchase |  |                                               | 31,733    |   |                                               |   | 4,979     |                                             |  |                                             | 74,061     |  |   | 15,554    
|Other short term borrowings                               |  |                                               | 67,247    |   |                                               |   | 14,947    |                                             |  |                                             | 161,633    |  |   | 19,322    
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Total interest expense                                    |  |                                               | 1,323,460 |   |                                               |   | 1,068,790 |                                             |  |                                             | 3,686,640  |  |   | 3,186,165 
|                                                          |  |                                               |           |  
|Net Interest Income                                       |  |                                               | 2,839,633 |   |                                               |   | 2,484,878 |                                             |  |                                             | 8,252,942  |  |   | 7,202,579 
|                                                          |  |                                               |           |  
|Provision for loan losses                                 |  |                                               | 137,500   |   |                                               |   | 75,000    |                                             |  |                                             | 412,500    |  |   | 225,000   
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Net interest income after provision for loan losses       |  |                                               | 2,702,133 |   |                                               |   | 2,409,878 |                                             |  |                                             | 7,840,442  |  |   | 6,977,579 
|                                                          |  |                                               |           |  
|NON-INTEREST INCOME                                       |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Income from fiduciary activities                          |  |                                               | 179,049   |   |                                               |   | 160,496   |                                             |  |                                             | 539,854    |  |   | 488,952   
|Service charges & fees on deposit accounts                |  |                                               | 201,682   |   |                                               |   | 178,882   |                                             |  |                                             | 551,306    |  |   | 480,566   
|Other miscellaneous fees                                  |  |                                               | 272,851   |   |                                               |   | 240,988   |                                             |  |                                             | 726,644    |  |   | 638,414   
|Secondary market lending fees                             |  |                                               | 52,782    |   |                                               |   | 38,348    |                                             |  |                                             | 123,259    |  |   | 140,538   
|Other real estate gains/(losses)                          |  |                                               | 10,417    |   |                                               |   | (2,093    | )                                           |  |                                             | 10,581     |  |   | 20,654    
|Net securities gains/(losses)                             |  |                                               | (48       | ) |                                               |   | 15,524    |                                             |  |                                             | 142        |  |   | 170,261   
|Other income                                              |  |                                               | 38,620    |   |                                               |   | 52,372    |                                             |  |                                             | 94,045     |  |   | 90,478    
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Total non-interest income                                 |  |                                               | 755,353   |   |                                               |   | 684,517   |                                             |  |                                             | 2,045,831  |  |   | 2,029,863 
|                                                          |  |                                               |           |  
|NON-INTEREST EXPENSES                                     |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Salaries and employee benefits                            |  |                                               | 1,283,009 |   |                                               |   | 1,232,615 |                                             |  |                                             | 3,715,260  |  |   | 3,879,976 
|Occupancy expense                                         |  |                                               | 465,215   |   |                                               |   | 358,512   |                                             |  |                                             | 1,246,446  |  |   | 1,054,760 
|Bank franchise tax                                        |  |                                               | 31,760    |   |                                               |   | 55,850    |                                             |  |                                             | 145,954    |  |   | 168,759   
|Visa Expense                                              |  |                                               | 130,342   |   |                                               |   | 117,112   |                                             |  |                                             | 342,529    |  |   | 299,688   
|Telephone                                                 |  |                                               | 47,865    |   |                                               |   | 48,090    |                                             |  |                                             | 139,073    |  |   | 122,711   
|Other expense                                             |  |                                               | 547,858   |   |                                               |   | 505,987   |                                             |  |                                             | 1,635,893  |  |   | 1,503,589 
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Total non-interest expenses                               |  |                                               | 2,506,049 |   |                                               |   | 2,318,166 |                                             |  |                                             | 7,225,155  |  |   | 7,029,483 
|                                                          |  |                                               |           |  
|Net Income before income taxes                            |  |                                               | 951,437   |   |                                               |   | 776,229   |                                             |  |                                             | 2,661,118  |  |   | 1,977,959 
|                                                          |  |                                               |           |  
|Income tax expense                                        |  |                                               | 264,604   |   |                                               |   | 186,539   |                                             |  |                                             | 731,876    |  |   | 540,342   
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Net Income                                                |  | $                                             | 686,833   |   |                                               | $ | 589,690   |                                             |  | $                                           | 1,929,242  |  | $ | 1,437,617 
|                                                          |  |                                               |           |   |                                               |   |           |                                             |  |                                             |            |  |   |           
|Average basic shares outstanding                          |  |                                               | 2,371,752 |   |                                               |   | 2,341,955 |                                             |  |                                             | 2,363,115  |  |   | 2,334,036 
|Earnings per share, basic                                 |  | $                                             | 0.29      |   |                                               | $ | 0.25      |                                             |  | $                                           | 0.82       |  | $ | 0.62      
|                                                          |  |                                               |           |  
|Average diluted shares outstanding                        |  |                                               | 2,380,625 |   |                                               |   | 2,357,636 |                                             |  |                                             | 2,374,835  |  |   | 2,354,062 
|Earnings per share, diluted                               |  | $                                             | 0.29      |   |                                               | $ | 0.25      |                                             |  | $                                           | 0.81       |  | $ | 0.61      



See Notes to Consolidated Financial
Statements.



4



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##### Table of Contents

Bay Banks of Virginia, Inc.

|Consolidated | Statements of Cash Flows
|------------ | ------------------------

|(unaudited) | 
|----------- | 



|                                                                                  |  |                    |             |   |                    |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------ | ----------- | - | ------------------ | - | ----------- | -
|Nine months ended:                                                                |  | September 30, 2005 |             |   | September 30, 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                    |             |   |                    |   |             |  
|Net income                                                                        |  | $                  | 1,929,242   |   |                    | $ | 1,437,617   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |             |   |                    |   |             |  
|                                                                                  |  |                   
|Depreciation                                                                      |  |                    | 605,637     |   |                    |   | 579,825     |  
|Net amortization and accretion of securities                                      |  |                    | 19,685      |   |                    |   | 37,003      |  
|Provision for loan losses                                                         |  |                    | 412,500     |   |                    |   | 225,000     |  
|Net (gain) on sale of securities                                                  |  |                    | (142        | ) |                    |   | (170,261    | )
|(Gain) on sale of other real estate owned                                         |  |                    | (10,581     | ) |                    |   | (20,654     | )
|Increase / (decrease) in accrued income and other assets                          |  |                    | 77,708      |   |                    |   | (312,373    | )
|Increase / (decrease) in other liabilities                                        |  |                    | 45,024      |   |                    |   | (84,686     | )
|                                                                                  |  |                    |             |   |                    |   |             |  
|Net cash provided by operating activities                                         |  |                    | 3,079,073   |   |                    |   | 1,691,471   |  
|                                                                                  |  |                    |             |   |                    |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                    |             |   |                    |   |             |  
|Proceeds from maturities of available-for-sale securities                         |  |                    | 1,152,033   |   |                    |   | 3,269,002   |  
|Proceeds from sales of available-for-sale securities                              |  |                    | 900,000     |   |                    |   | 24,657,270  |  
|Purchases of available-for-sale securities                                        |  |                    | (2,529,322  | ) |                    |   | (17,573,038 | )
|(Increase) in interest bearing deposits                                           |  |                    | (6,029      | ) |                    |   | (4,504      | )
|Decrease in federal funds sold                                                    |  |                    | 11,762,480  |   |                    |   | (1,546,005  | )
|(Increase) in loans outstanding                                                   |  |                    | (16,129,127 | ) |                    |   | (18,433,398 | )
|Purchases of premises and equipment                                               |  |                    | (1,421,776  | ) |                    |   | (639,433    | )
|Proceeds from sale of other real estate owned                                     |  |                    |            |   |                    |   | 100,751     |  
|                                                                                  |  |                    |             |   |                    |   |             |  
|Net cash (used in) investing activities                                           |  |                    | (6,260,763  | ) |                    |   | (10,169,355 | )
|                                                                                  |  |                    |             |   |                    |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                    |             |   |                    |   |             |  
|Increase in demand, savings, & other interest-bearing deposits                    |  |                    | 2,002,354   |   |                    |   | 10,279,535  |  
|(Decrease) in time deposits                                                       |  |                    | (2,639,977  | ) |                    |   | (5,159,652  | )
|Net (decrease) in securities sold under repurchase agreements                     |  |                    | (1,027,848  | ) |                    |   | (755,655    | )
|Increase in FHLB advances                                                         |  |                    | 2,500,000   |   |                    |   | 7,500,000   |  
|Proceeds from issuance of common stock                                            |  |                    | 344,154     |   |                    |   | 323,148     |  
|Dividends paid                                                                    |  |                    | (1,099,807  | ) |                    |   | (1,050,397  | )
|Repurchase of common stock                                                        |  |                    | (29,009     | ) |                    |   | (45,155     | )
|                                                                                  |  |                    |             |   |                    |   |             |  
|Net cash provided by financing activities                                         |  |                    | 49,867      |   |                    |   | 11,091,824  |  
|                                                                                  |  |                    |             |   |                    |   |             |  
|Net increase / (decrease) in cash & due from banks                                |  |                    | (3,131,823  | ) |                    |   | 2,613,940   |  
|Cash & due from banks at beginning of period                                      |  |                    | 8,572,672   |   |                    |   | 7,762,030   |  
|                                                                                  |  |                    |             |   |                    |   |             |  
|Cash & due from banks at end of period                                            |  |                    | 5,429,871   |   |                    | $ | 10,375,970  |  
|                                                                                  |  |                    |             |   |                    |   |             |  
|SUPPLEMENTAL DISCLOSURES                                                          |  |                    |             |   |                    |   |             |  
|Interest paid                                                                     |  | $                  | 3,692,653   |   |                    | $ | 3,192,504   |  
|Income taxes paid                                                                 |  | $                  | 710,073     |   |                    | $ | 510,000     |  
|Unrealized (loss) on investment securities                                        |  | $                  | (573,633    | ) |                    | $ | (207,741    | )
|Loans transferred to other real estate owned                                      |  | $                  | 545,000     |   |                    | $ | 60,180      |  



See Notes to Consolidated Financial
Statements.



5



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##### Table of Contents

Bay Banks of Virginia, Inc.

Consolidated Statement of Changes in Shareholders Equity

(Unaudited)



|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ------------------------- | - | --------- | ---------------- |  | - | ------------------------------------------- | - |  | ------------------------- | -------- | - |  | - | ---------- | -
|                                                                                                        |  | CommonStock |            |   | AdditionalPaid-in Capital |   |           | RetainedEarnings |  |   | Accumulated OtherComprehensiveIncome/(Loss) |   |  | Total ShareholdersEquity |         
|Balance on January 1, 2004                                                                              |  | $           | 11,630,401 |   |                           | $ | 4,336,929 |                  |  | $ | 8,146,613                                   |   |  | $                         | 964,461  |   |  | $ | 25,078,404 |  
|Comprehensive Income:                                                                                   |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Net Income                                                                                              |  |             |            |   |                           |   |           |                  |  |   | 1,437,617                                   |   |  |                           |          |   |  |   | 1,437,617  |  
|Other comprehensive loss:                                                                               |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Changes in unrealized holding gains on securities arising during the period, net of taxes of ($12,743)  |  |             |           |   |                           |   |          |                  |  |   |                                             |   |  |                           | (24,737  | ) |  |   | (24,737    | )
|Reclassification adjustment for securities gains included in net income, net of taxes of ($57,889)      |  |             |           |   |                           |   |          |                  |  |   |                                            |   |  |                           | (112,372 | ) |  |   | (112,372   | )
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Total Comprehensive Income/(loss)                                                                       |  |             |           |   |                           |   |          |                  |  |   | 1,437,617                                   |   |  |                           | (137,109 | ) |  |   | 1,300,508  |  
|                                                                                                        |  |             |            |   |                          
|Cash dividends paid  $0.45/share                                                                       |  |             |            |   |                           |   |           |                  |  |   | (1,050,397                                  | ) |  |                           |          |   |  |   | (1,050,397 | )
|Stock repurchases                                                                                       |  |             | (14,750    | ) |                           |   | (5,500    | )                |  |   | (24,905                                     | ) |  |                           |          |   |  |   | (45,155    | )
|Sale of common stock:                                                                                   |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Dividends Reinvested                                                                                    |  |             | 99,138     |   |                           |   | 199,840   |                  |  |   |                                            |   |  |                           |         |   |  |   | 298,978    |  
|Stock Options exercised:                                                                                |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Shares issued                                                                                           |  |             | 38,500     |   |                           |   | 28,525    |                  |  |   |                                             |   |  |                           |          |   |  |   | 67,025     |  
|Shares traded in                                                                                        |  |             | (13,605    | ) |                           |   | (5,073    | )                |  |   | (24,177                                     | ) |  |                           |         |   |  |   | (42,855    | )
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Balance on September 30, 2004                                                                           |  | $           | 11,739,684 |   |                           | $ | 4,554,721 |                  |  | $ | 8,484,751                                   |   |  | $                         | 827,352  |   |  | $ | 25,606,508 |  
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Balance on January 1, 2005                                                                              |  | $           | 11,770,937 |   |                           | $ | 4,621,295 |                  |  | $ | 8,860,506                                   |   |  | $                         | 566,784  |   |  | $ | 25,819,522 |  
|Comprehensive Income:                                                                                   |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Net Income                                                                                              |  |             |            |   |                           |   |           |                  |  |   | 1,929,242                                   |   |  |                           |          |   |  |   | 1,929,242  |  
|Other comprehensive loss:                                                                               |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Changes in unrealized holding gains on securities arising during the period, net of taxes of ($194,987) |  |             |           |   |                           |   |          |                  |  |   |                                            |   |  |                           | (378,504 | ) |  |   | (378,504   | )
|Reclassification adjustment for securities gains included in net income, net of taxes of ($48)          |  |             |           |   |                           |   |          |                  |  |   |                                            |   |  |                           | (94      | ) |  |   | (94        | )
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Total Comprehensive Income/(loss)                                                                       |  |             |           |   |                           |   |          |                  |  |   | 1,929,242                                   |   |  |                           | (378,598 | ) |  |   | 1,550,644  |  
|                                                                                                        |  |             |            |   |                          
|Cash dividends paid  $0.465/share                                                                      |  |             |            |   |                           |   |           |                  |  |   | (1,099,807                                  | ) |  |                           |          |   |  |   | (1,099,807 | )
|Stock repurchases                                                                                       |  |             | (9,570     | ) |                           |   | (19,439   | )                |  |   |                                            |   |  |                           |          |   |  |   | (29,009    | )
|Sale of common stock:                                                                                   |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Dividends Reinvested                                                                                    |  |             | 82,987     |   |                           |   | 172,767   |                  |  |   |                                            |   |  |                           |         |   |  |   | 255,754    |  
|Stock Options exercised:                                                                                |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Shares issued                                                                                           |  |             | 92,350     |   |                           |   | 92,151    |                  |  |   |                                            |   |  |                           |         |   |  |   | 184,501    |  
|Shares traded in                                                                                        |  |             | (31,620    | ) |                           |   | (64,481   | )                |  |   |                                            |   |  |                           |         |   |  |   | (96,101    | )
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  
|Balance on September 30, 2005                                                                           |  | $           | 11,905,084 |   |                           | $ | 4,802,293 |                  |  | $ | 9,689,941                                   |   |  | $                         | 188,186  |   |  | $ | 26,585,504 |  
|                                                                                                        |  |             |            |   |                           |   |           |                  |  |   |                                             |   |  |                           |          |   |  |   |            |  



See Notes to Consolidated Financial
Statements



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##### Table of Contents

Notes to Consolidated Financial Statements



Note 1:



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



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



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



These
consolidated financial statements should be read in conjunction with the financial statements and notes to financial statements included in the registrants 2004 Annual Report to Shareholders.



As of September 30, 2005, the Company has four 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 for the nine months ended September 30, 2005 and 2004 if the Company had applied fair value recognition provisions of the Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation.



|                                                                                                                           |  |                                 |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                                                           |  | Nine Months Ended September 30, |          
|                                                                                                                           |  | 2005                            |           |   | 2004 |  
|Net income, as reported                                                                                                    |  | $                               | 1,929,242 |   |      | $ | 1,437,617 |  
|Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects |  |                                 | (9,105    | ) |      |   | (22,641   | )
|                                                                                                                           |  |                                 |           |   |      |   |           |  
|Pro forma net income                                                                                                       |  | $                               | 1,920,137 |   |      | $ | 1,414,976 |  
|                                                                                                                           |  |                                 |           |   |      |   |           |  
|Earnings per share:                                                                                                        |  |                                 |           |   |      |   |           |  
|Basic - as reported                                                                                                        |  | $                               | 0.82      |   |      | $ | 0.62      |  
|Basic - pro forma                                                                                                          |  | $                               | 0.81      |   |      | $ | 0.61      |  
|Diluted - as reported                                                                                                      |  | $                               | 0.81      |   |      | $ | 0.61      |  
|Diluted - pro forma                                                                                                        |  | $                               | 0.81      |   |      | $ | 0.60      |  



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##### Table of Contents

Note 2: Securities



The carrying amounts of debt and other securities and their approximate fair values at September 30, 2005, and December 31, 2004, follow:



|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|------------------------------------------------------------ |  | ------------- | ---------- | -------------------- | - | ----------------------- |  | - | ---------- | - |  | - | ----------
|Available-for-sale securities September 30, 2005 (unaudited) |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|U.S. Government agencies                                     |  | $             | 17,005,573 |                      | $ | 8,948                   |  | $ | (166,927   | ) |  | $ | 16,847,594
|State and municipal obligations                              |  |               | 30,590,115 |                      |   | 420,927                 |  |   | (97,283    | ) |  |   | 30,913,759
|Corporate bonds                                              |  |               | 2,537,052  |                      |   | 119,466                 |  |   |           |   |  |   | 2,656,518 
|Restricted securities                                        |  |               | 1,372,700  |                      |   |                        |  |   |           |   |  |   | 1,372,700 
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                             |  | $             | 51,505,440 |                      | $ | 549,341                 |  | $ | (264,210   | ) |  | $ | 51,790,571
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                             |  |               |            |                     
|Available-for-sale securities December 31, 2004              |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|U.S. Government agencies                                     |  | $             | 12,178,591 |                      | $ | 25,767                  |  | $ | (85,636    | ) |  | $ | 12,118,722
|State and municipal obligations                              |  |               | 30,105,661 |                      |   | 773,164                 |  |   | (45,322    | ) |  |   | 30,833,503
|Corporate bonds                                              |  |               | 7,539,474  |                      |   | 190,791                 |  |   |           |   |  |   | 7,730,265 
|Restricted securities                                        |  |               | 1,234,000  |                      |   |                        |  |   |           |   |  |   | 1,234,000 
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                             |  | $             | 51,057,726 |                      | $ | 989,722                 |  | $ | (130,958   | ) |  | $ | 51,916,490
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                             |  |               |            |                     
|Held-to-maturity securities September 30, 2005 (unaudited)   |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|State and municipal obligations                              |  | $             | 439,847    |                      | $ |                        |  | $ | (6,952     | ) |  | $ | 432,895   
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           
|                                                             |  |               |            |                     
|Held-to-maturity securities December 31, 2004                |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | Fair Value
|State and municipal obligations                              |  | $             | 429,815    |                      | $ |                        |  | $ | (3,495     | ) |  | $ | 426,320   
|                                                             |  |               |            |                      |   |                         |  |   |            |   |  |   |           



Securities with a
market value of $12.4 million were pledged as collateral for public deposits, repurchase agreements and for other purposes as required by law as of September 30, 2005. The market value of pledged securities at year-end 2004 was $11.9 million.



Securities in an unrealized loss position at
September 30, 2005, and December 31, 2004, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments.
All securities are investment grade or better and all losses are temporary. Bonds with unrealized loss positions at September 30, 2005, included 25 federal agencies and 35 municipal bonds, as shown below.



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##### Table of Contents

|                                      |  |                     |            |                   |   |            |  |                |           |            |   |                |  |   |            |  |   |        
|------------------------------------- |  | ------------------- | ---------- | ----------------- | - | ---------- |  | -------------- | --------- | ---------- | - | -------------- |  | - | ---------- |  | - | -------
|                                      |  | Less than 12 months |            | 12 months or more |   | Total     
|September 30, 2005                    |  | Fair Value          |            | UnrealizedLoss    |   | Fair Value |  | UnrealizedLoss |           | Fair Value |   | UnrealizedLoss
|U.S. Government agencies              |  | $                   | 7,694,099  |                   | $ | 96,031     |  | $              | 3,737,873 |            | $ | 70,896         |  | $ | 11,431,972 |  | $ | 166,927
|States and municipal obligations      |  |                     | 7,197,630  |                   |   | 53,725     |  |                | 2,626,110 |            |   | 50,510         |  |   | 9,823,740  |  |   | 104,235
|                                      |  |                     |            |                   |   |            |  |                |           |            |   |                |  |   |            |  |   |        
|Total temporarily impaired securities |  | $                   | 14,891,729 |                   | $ | 149,756    |  | $              | 6,363,983 |            | $ | 121,406        |  | $ | 21,255,712 |  | $ | 271,162
|                                      |  |                     |            |                   |   |            |  |                |           |            |   |                |  |   |            |  |   |        
|                                      |  |                     |           
|                                      |  | Less than 12 months |            | 12 months or more |   | Total     
|December 31, 2004                     |  | Fair Value          |            | UnrealizedLoss    |   | Fair Value |  | UnrealizedLoss |           | Fair Value |   | UnrealizedLoss
|U.S. Government agencies              |  | $                   | 7,907,795  |                   | $ | 53,196     |  | $              | 1,652,560 |            | $ | 32,440         |  | $ | 9,560,355  |  | $ | 85,636 
|States and municipal obligations      |  |                     | 4,715,650  |                   |   | 36,936     |  |                | 552,331   |            |   | 11,881         |  |   | 5,267,981  |  |   | 48,817 
|                                      |  |                     |            |                   |   |            |  |                |           |            |   |                |  |   |            |  |   |        
|Total temporarily impaired securities |  | $                   | 12,623,445 |                   | $ | 90,132     |  | $              | 2,204,891 |            | $ | 44,321         |  | $ | 14,828,336 |  | $ | 134,453
|                                      |  |                     |            |                   |   |            |  |                |           |            |   |                |  |   |            |  |   |        



No impairment has been
recognized on any of the securities in a loss position because of managements intent and demonstrated ability to hold securities to scheduled maturity or call dates.



Note 3: Loans



The components of loans were as follows:



|                                                             |  |                    |             |   |                   |   |             |  
|------------------------------------------------------------ |  | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                                                             |  | September 30, 2005 |             |   | December 31, 2004 |  
|                                                             |  | (unaudited)        |             |   |                   |  
|Mortgage loans on real estate:                               |  |                    |             |   |                   |   |             |  
|Construction                                                 |  | $                  | 39,461,358  |   |                   | $ | 31,184,514  |  
|Secured by farmland                                          |  |                    | 1,380,416   |   |                   |   | 2,017,226   |  
|Secured by 1-4 family residential                            |  |                    | 124,701,672 |   |                   |   | 120,060,032 |  
|Other real estate loans                                      |  |                    | 29,175,474  |   |                   |   | 28,050,397  |  
|Loans to farmers (except those secured by real estate)       |  |                    | 14,824      |   |                   |   | 71,810      |  
|Commercial and industrial loans (not secured by real estate) |  |                    | 21,839,828  |   |                   |   | 21,519,358  |  
|Consumer installment loans                                   |  |                    | 11,086,007  |   |                   |   | 9,897,965   |  
|All other loans                                              |  |                    | 1,839,912   |   |                   |   | 1,296,370   |  
|Net deferred loan costs and fees                             |  |                    | 1,057,823   |   |                   |   | 1,284,967   |  
|                                                             |  |                    |             |   |                   |   |             |  
|Total loans                                                  |  | $                  | 230,557,314 |   |                   | $ | 215,382,639 |  
|Allowance for loan losses                                    |  |                    | (2,024,652  | ) |                   |   | (2,032,185  | )
|                                                             |  |                    |             |   |                   |   |             |  
|Loans, net                                                   |  | $                  | 228,532,662 |   |                   | $ | 213,350,454 |  
|                                                             |  |                    |             |   |                   |   |             |  



Loans upon which the
accrual of interest has been discontinued totaled $243 thousand as of September 30, 2005, and $1.3 million as of December 31, 2004.



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##### Table of Contents

Note 4: Allowance for Loan Losses



An analysis of the change in the allowance for loan losses follows:



|                           |  |                    |           |   |                   |   |           |                    |  |   |           |  
|-------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | ------------------ |  | - | --------- | -
|                           |  | September 30, 2005 |           |   | December 31, 2004 |   |           | September 30, 2004 | 
|                           |  | (unaudited)        |           |   |                   |   |           | (unaudited)        | 
|Balance, beginning of year |  | $                  | 2,032,185 |   |                   | $ | 1,901,576 |                    |  | $ | 1,901,576 |  
|Provision for loan losses  |  |                    | 412,500   |   |                   |   | 300,000   |                    |  |   | 225,000   |  
|Recoveries                 |  |                    | 77,256    |   |                   |   | 31,874    |                    |  |   | 28,796    |  
|Loans charged off          |  |                    | (497,289  | ) |                   |   | (201,265  | )                  |  |   | (142,256  | )
|                           |  |                    |           |   |                   |   |           |                    |  |   |           |  
|Balance, end of period     |  | $                  | 2,024,652 |   |                   | $ | 2,032,185 |                    |  | $ | 2,013,116 |  
|                           |  |                    |           |   |                   |   |           |                    |  |   |           |  



Information about impaired loans is as
follows:



|                                                                                 |  |                    |           |                   |   |        
|-------------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | - | -------
|                                                                                 |  | September 30, 2005 |           | December 31, 2004
|Impaired loans for which an allowance has been provided                          |  | $                  | 14,599    |                   | $ | 979,701
|Impaired loans for which no allowance has been provided                          |  |                    |          |                   |   |       
|                                                                                 |  |                    |           |                   |   |        
|Total impaired loans                                                             |  | $                  | 14,599    |                   | $ | 979,701
|                                                                                 |  |                    |           |                   |   |        
|Allowance provided for impaired loans, included in the allowance for loan losses |  | $                  | 14,808    |                   | $ | 572,930
|                                                                                 |  |                    |           |                   |   |        
|Average balance impaired loans                                                   |  | $                  | 1,471,929 |                   | $ | 983,451
|                                                                                 |  |                    |           |                   |   |        
|Interest income recognized                                                       |  | $                  | 16,926    |                   | $ | 3      
|                                                                                 |  |                    |           |                   |   |        



Note 5: Earnings per share



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



|                               |               |                    |                 |                    |               |  |                 |  |   |     
|------------------------------ | ------------- | ------------------ | --------------- | ------------------ | ------------- |  | --------------- |  | - | ----
|Nine Months Ended              |               | September 30, 2005 |                 | September 30, 2004
|                               | AverageShares |                    | Per shareAmount |                    | AverageShares |  | Per shareAmount
|Basic earnings per share       |               | 2,363,115          |                 | $                  | 0.82          |  | 2,334,036       |  | $ | 0.62
|                               |               |                    |                 |                   
|Effect of dilutive securities: |               |                    |                 |                    |               |  |                 |  |   |     
|Stock options                  |               | 11,720             |                 |                    |               |  | 20,026          |  |   |     
|                               |               |                    |                 |                   
|Diluted earnings per share     |               | 2,374,835          |                 | $                  | 0.81          |  | 2,354,062       |  | $ | 0.61



As of September 30, 2005 and
2004, options on 122,588 shares and 139,053 shares, respectively, were not included in computing diluted earnings per share, because their effects were anti-dilutive.



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##### Table of Contents

Note 6: Unidentifiable Intangibles



The Company has unidentifiable intangibles recorded on the consolidated financial statements relating to the purchase of
five branches. The balance of the intangibles at September 30, 2005, as reflected on the consolidated balance sheet, was $2,807,842. Management has determined that these purchases qualified as acquisitions of businesses, and therefore
discontinued amortization, effective January 1, 2002. Based on managements assessment, there is no impairment in value at September 30, 2005.



Note 7: Employee Benefit Plans



Components of Net Periodic Benefit Cost

(unaudited)



|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       
|----------------------------------------------- |  | ---------------- | -------- | - | ------------------------ | - | -------- | ---- |  | ---- | ------ |  | - | ------
|                                                |  | Pension Benefits |          |   | Post Retirement Benefits
|Nine months ended September 30,                 |  | 2005             |          |   | 2004                     |   |          | 2005 |  | 2004
|Service cost                                    |  | $                | 229,042  |   |                          | $ | 177,759  |      |  | $    | 12,763 |  | $ | 11,487
|Interest cost                                   |  |                  | 148,339  |   |                          |   | 124,665  |      |  |      | 25,030 |  |   | 24,456
|Expected return on plan assets                  |  |                  | (148,587 | ) |                          |   | (101,067 | )    |  |      |       |  |   |      
|Amortization of unrecognized prior service cost |  |                  | 12,279   |   |                          |   | 12,279   |      |  |      |       |  |   |      
|Amortization of unrecognized net loss           |  |                  | 47,662   |   |                          |   | 33,972   |      |  |      | 9,865  |  |   | 15,000
|Amortization of transition obligation           |  |                  |         |   |                          |   |         |      |  |      | 2,185  |  |   | 2,184 
|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       
|Net periodic benefit cost                       |  | $                | 288,735  |   |                          | $ | 247,608  |      |  | $    | 49,843 |  | $ | 53,127
|                                                |  |                  |          |   |                          |   |          |      |  |      |        |  |   |       



Employer Contributions



The Company disclosed in its Annual Report on Form 10-K
its consolidated financial statements for the year ended December 31, 2004, that it expected to contribute $324,479 to its pension plan and $27,843 to its post-retirement benefit plan in 2005. The Company has made these contributions and
presently anticipates no further contributions during the remainder of 2005.



Note 8: FHLB Advance



On September 30,
2005, the Company had Federal Home Loan Bank of Atlanta (FHLB) debt consisting of one advance for $10.0 million. The interest rate is variable at the one-month London Interbank Offering Rate (LIBOR) minus 50 basis points
until May 19, 2006, after which it is fixed at 3.83%, maturing on May 19, 2010. At September 30, 2005, the actual rate was 3.08%. Interest is payable monthly. This instrument has an early conversion option which gives FHLB the option
to convert, in whole only, into a one-month LIBOR-based floating rate advance, effective May 19, 2006. If the FHLB elects to convert, the Company may elect to terminate, in whole or in part, without a prepayment fee.



Advances on the FHLB line are secured by a blanket lien on qualified 1 to 4
family residential real estate loans. Immediate available credit, as of September 30, 2005, was $20.5 million.



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



The following discussion is intended to assist in understanding the results of operations and the financial condition of Bay Banks of Virginia, Inc. (the
Company), a bank holding company. This discussion should be read in conjunction with the above consolidated financial statements and the notes thereto.



11



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##### Table of Contents

CRITICAL ACCOUNTING POLICIES



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



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.



On December 16,
2004, the Financial Accounting Standards Board issued Statement No. 123R (revised 2004), Share-Based Payment, (FAS 123R) that addresses the accounting for share-based payment transactions in which a company receives
employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R
eliminates the ability to account for share-based compensation transactions using the intrinsic method and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the consolidated statement of
income. The effective date of FAS 123R (as amended by the Securities and Exchange Commission (SEC) is for annual periods beginning after June 15, 2005. The provisions of FAS 123R do not have an impact on the Companys results
of operations at the present time.



On March 29, 2005, the
SEC Staff issued Staff Accounting Bulletin No. 107 (SAB 107). SAB 107 expresses the views of the SEC staff regarding the interaction of FAS123R and certain SEC rules and regulations and provides the SEC staffs view regarding
the valuation of share-based payment arrangements for public companies. SAB 107 does not impact the Companys results of operations at the present time.



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##### Table of Contents

Bay Banks of Virginia, Inc.

Financial Highlights (unaudited)

Dollars in thousands



|                                                        |  |                    |           |   |                    |   |           |        |  |      |  
|------------------------------------------------------- |  | ------------------ | --------- | - | ------------------ | - | --------- | ------ |  | ---- | -
|Nine months ended                                       |  | September 30, 2005 |           |   | September 30, 2004 |   |           | Change | 
|FINANCIAL CONDITION                                     |  |                    |           |   |                    |   |           |        |  |      |  
|Average Assets                                          |  | $                  | 304,793   |   |                    | $ | 296,699   |        |  | 2.7  | %
|Average Interest-earning Assets                         |  |                    | 284,275   |   |                    |   | 275,648   |        |  | 3.1  | %
|Average Earning Assets to Total Average Assets          |  |                    | 93.3      | % |                    |   | 92.9      | %      |  | 0.4  | %
|Period-end Interest-bearing Liabilities                 |  | $                  | 229,972   |   |                    | $ | 233,519   |        |  | -1.5 | %
|Average Interest-bearing Liabilities                    |  |                    | 234,250   |   |                    |   | 232,683   |        |  | 0.7  | %
|Average Equity, including FAS 115 adjustment            |  |                    | 26,229    |   |                    |   | 25,283    |        |  | 3.7  | %
|Tier 1 Capital                                          |  |                    | 23,589    |   |                    |   | 21,971    |        |  | 7.4  | %
|Net Risk-weighted Assets                                |  |                    | 235,407   |   |                    |   | 211,111   |        |  | 11.5 | %
|Tier 2 Capital                                          |  |                    | 2,025     |   |                    |   | 2,013     |        |  | 0.6  | %
|                                                        |  |                    |          
|RESULTS OF OPERATIONS                                   |  |                    |           |   |                    |   |           |        |  |      |  
|Net Interest Income before Provision                    |  | $                  | 8,253     |   |                    | $ | 7,203     |        |  | 14.6 | %
|Net Income                                              |  |                    | 1,929     |   |                    |   | 1,438     |        |  | 34.2 | %
|Annualized Yield on Average Interest-earning Assets     |  |                    | 5.73      | % |                    |   | 5.17      | %      |  | 10.8 | %
|Annualized Cost of Average Interest-bearing Liabilities |  |                    | 2.10      | % |                    |   | 1.83      | %      |  | 14.8 | %
|Annualized Net Yield on Average Interest-earning Assets |  |                    | 4.01      | % |                    |   | 3.63      | %      |  | 10.5 | %
|Annualized Net Interest Rate Spread                     |  |                    | 3.64      | % |                    |   | 3.35      | %      |  | 8.7  | %
|                                                        |  |                    |          
|RATIOS                                                  |  |                    |           |   |                    |   |           |        |  |      |  
|Total Capital to Risk-weighted Assets (10% min)         |  |                    | 10.9      | % |                    |   | 11.4      | %      |  | -4.2 | %
|Tier 1 Capital to Risk-weighted Assets (6% min)         |  |                    | 10.0      | % |                    |   | 10.4      | %      |  | -3.7 | %
|Leverage Ratio (5% min)                                 |  |                    | 7.7       | % |                    |   | 7.5       | %      |  | 3.3  | %
|Annualized Return on Average Assets (ROA)               |  |                    | 0.8       | % |                    |   | 0.6       | %      |  | 30.6 | %
|Annualized Return on Average Equity (ROE)               |  |                    | 9.7       | % |                    |   | 7.6       | %      |  | 29.4 | %
|                                                        |  |                    |          
|Period-end basic shares outstanding                     |  |                    | 2,381,017 |   |                    |   | 2,347,937 |        |  | 1.4  | %
|Average basic shares outstanding                        |  |                    | 2,363,115 |   |                    |   | 2,334,036 |        |  | 1.2  | %
|Average diluted shares outstanding                      |  |                    | 2,374,835 |   |                    |   | 2,354,062 |        |  | 0.9  | %
|                                                        |  |                    |          
|PER SHARE DATA                                          |  |                    |           |   |                    |   |           |        |  |      |  
|Diluted earnings per average share (EPS) (nine months)  |  | $                  | 0.81      |   |                    | $ | 0.61      |        |  | 7.0  | %
|Cash Dividends per average share (nine months)          |  |                    | 0.465     |   |                    |   | 0.45      |        |  | 7.1  | %
|Book Value per share                                    |  |                    |           |   |                    |   |           |        |  |      |  
|before Accumulated Comprehensive Income/Loss            |  |                    | 11.09     |   |                    |   | 10.55     |        |  | 3.4  | %
|after Accumulated Comprehensive Income/Loss             |  |                    | 11.17     |   |                    |   | 10.91     |        |  | 1.7  | %
|                                                        |  |                    |          
|Book Value per average share                            |  |                    |           |   |                    |   |           |        |  |      |  
|before Accumulated Comprehensive Income/Loss            |  |                    | 11.17     |   |                    |   | 10.62     |        |  | 3.9  | %
|after Accumulated Comprehensive Income/Loss             |  |                    | 11.25     |   |                    |   | 10.97     |        |  | 2.0  | %



EARNINGS SUMMATION



For the nine months ended September 30, 2005, net income was $1.9
million as compared to $1.4 million for the comparable period in 2004, an increase of 34.2%. Diluted earnings per average share for the nine months ended September 30, 2005 were $0.81 as compared to $0.61 for the nine months ended September 30,
2004. Annualized return on average assets was 0.8% for the nine months ended September 30, 2005 and 0.6% for the similar period in 2004, an increase of 30.6%. Annualized return on average equity was 9.7% for the nine months ended
September 30, 2005, compared to 7.6% for the nine months ended September 30, 2004, an increase of 29.4%.



13



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##### Table of Contents

The principal source of earnings for the Company is net interest income. Net interest income is the
amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest earning assets and interest bearing liabilities,
the associated yields and rates, and the volume of non-performing assets have a significant impact on net interest income, the net interest margin, and net income. The annualized net interest margin was 4.01% for the nine months ended
September 30, 2005, compared to 3.63% for the same period in 2004.



Net interest income before provision for loan losses for the nine months ended September 30, 2005 was $8.2 million, compared to $7.2 million for the nine months ended September 30, 2004, an increase of $1.0 million or 14.6%.
Increases in net interest income were driven by loan growth (changes in volume) during the nine months ended September 30, 2005, compared to the same period in 2004. Average interest-earning assets totaled $284.3 million for the nine months
ended September 30, 2005 as compared to $275.6 million for the nine months ended September 30, 2004, an increase of 3.1%. Average interest-earning assets as a percent of total average assets was 93.3% for the nine months ended
September 30, 2005 as compared to 92.9% for the comparable period of 2004, an increase of 0.4%. The annualized yield on average interest-earning assets for the nine months ended September 30, 2005 was 5.73% as compared to 5.17% for the
nine months ended September 30, 2004.



As loan volume
continues to increase and loan rates adjust upward, the Company should realize increasing net interest income. Management expects loan growth and rate increases to continue through 2005 and into 2006, in which case net interest income should
continue to improve. Based on the Companys assumptions, the balance sheet has been asset sensitive, and therefore, should be well-positioned to take advantage of a rising rate environment.



Average interest-bearing liabilities totaled $234.2 million for the nine
months ended September 30, 2005 as compared to $232.7 million for the nine months ended September 30, 2004, an increase of 0.7%. The annualized yield (cost) on interest-bearing liabilities for the nine months ended September 30, 2005
was 2.10% as compared to 1.83% for the nine months ended September 30, 2004.



In May of 2005, the Company took a new advance of $10.0 million from the Federal Home Bank of Atlanta after repaying the $7.5 million advance it took in May of 2004. The average cost of these funds was 2.49% for the
nine months ended September 30, 2005.



The net interest
spread, which is the difference between the annualized yield on earning assets and the annualized cost of interest bearing liabilities was 3.64% for the nine months ended September 30, 2005 and 3.35% for the same period in 2004.



Average total assets for the nine months ended September 30, 2005 were
$304.8 million as compared to $296.7 million for the nine months ended September 30, 2004, an increase of 2.7%.



14



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##### Table of Contents

Bay Banks of Virginia, Inc.

Net Interest Income Analysis (unaudited)



|                                                          |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|--------------------------------------------------------- |  | --------------------------- |  | -------------- | --------------------------- | -------------------- | - |  | -------------- |  | -------------- |  | -------------------- | -
|(Fully taxable equivalent basis)                          |  | Nine months ended 9/30/2005 |  |                | Nine months ended 9/30/2004 |                     
|(Dollars in thousands)                                    |  | AverageBalance              |  | Income/Expense |                             | AnnualizedYield/Rate |   |  | AverageBalance |  | Income/Expense |  | AnnualizedYield/Rate |  
|INTEREST EARNING ASSETS:                                  |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|Taxable investments                                       |  | 32,458                      |  | 960            |                             | 3.94                 | % |  | 38,862         |  | 1,008          |  | 3.46                 | %
|Tax-exempt investments (1)                                |  | 19,704                      |  | 849            |                             | 5.74                 | % |  | 20,629         |  | 897            |  | 5.80                 | %
|                                                          |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|Total Investments                                         |  | 52,162                      |  | 1,808          |                             | 4.63                 | % |  | 59,491         |  | 1,905          |  | 4.27                 | %
|                                                          |  |                             |  |                |                             |                     
|Gross loans (2)                                           |  | 224,044                     |  | 10,243         |                             | 6.10                 | % |  | 203,203        |  | 8,681          |  | 5.70                 | %
|Interest-bearing deposits                                 |  | 117                         |  | 2              |                             | 2.72                 | % |  | 123            |  | 1              |  | 1.44                 | %
|Federal funds sold                                        |  | 7,952                       |  | 173            |                             | 2.91                 | % |  | 12,831         |  | 106            |  | 1.10                 | %
|                                                          |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|TOTAL INTEREST EARNING ASSETS                             |  | 284,275                     |  | 12,227         |                             | 5.73                 | % |  | 275,648        |  | 10,693         |  | 5.17                 | %
|                                                          |  |                             |  |                |                             |                     
|INTEREST-BEARING LIABILITIES:                             |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|Savings deposits                                          |  | 66,562                      |  | 1,005          |                             | 2.01                 | % |  | 66,276         |  | 739            |  | 1.49                 | %
|NOW deposits                                              |  | 47,925                      |  | 197            |                             | 0.55                 | % |  | 46,121         |  | 171            |  | 0.49                 | %
|Time deposits >= $100,000                                 |  | 30,392                      |  | 782            |                             | 3.43                 | % |  | 31,364         |  | 742            |  | 3.15                 | %
|Time deposits < $100,000                                  |  | 58,721                      |  | 1,404          |                             | 3.19                 | % |  | 63,290         |  | 1,454          |  | 3.06                 | %
|Money market deposit accounts                             |  | 16,763                      |  | 63             |                             | 0.50                 | % |  | 16,954         |  | 46             |  | 0.36                 | %
|                                                          |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|Total interest bearing deposits                           |  | 220,363                     |  | 3,451          |                             | 2.09                 | % |  | 224,005        |  | 3,152          |  | 1.88                 | %
|                                                          |  |                             |  |                |                             |                     
|Federal funds purchased and securities sold to repurchase |  | 5,233                       |  | 74             |                             | 1.89                 | % |  | 4,846          |  | 16             |  | 0.43                 | %
|FHLB advance                                              |  | 8,654                       |  | 162            |                             | 2.49                 | % |  | 3,832          |  | 19             |  | 0.67                 | %
|                                                          |  |                             |  |                |                             |                      |   |  |                |  |                |  |                      |  
|TOTAL INTEREST-BEARING LIABILITIES                        |  | 234,250                     |  | 3,687          |                             | 2.10                 | % |  | 232,683        |  | 3,187          |  | 1.83                 | %
|                                                          |  |                             |  |                |                             |                     
|Net interest income/yield on earning assets               |  |                             |  | 8,540          |                             | 4.01                 | % |  |                |  | 7,506          |  | 3.63                 | %
|Net interest rate spread                                  |  |                             |  |                |                             | 3.64                 | % |  |                |  |                |  | 3.35                 | %

---

Notes:

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

|(2)- | Includes Visa Program & nonaccrual loans.
|---- | -----------------------------------------



Through the nine months ended September 30, 2005, average interest-earning assets were comprised of the loan portfolio with $224.0 million and the
investment portfolio with $52.2 million. For the nine month period ended September 30, 2005, compared to the same period in 2004, on a fully tax equivalent basis, tax-exempt investment yields declined to 5.74% from 5.80%, and taxable investment
yields increased to 3.94% from 3.46%, resulting in a increase in total investment yield to 4.63% from 4.27%. The investment portfolio will provide liquidity as short investments mature during 2005 and 2006.



In the nine months ended September 30, 2005, gross loans on average
yielded 6.10% as compared to 5.70% for the same period in 2004. The Company has been successful in growing the loan portfolio with variable and adjustable rate loans since 2004. By keeping the re-pricing terms of the loan portfolio short, the
Company is positioned well for a rising rate environment.



As
short-term rates in the market increased during 2004 and 2005, the Company held its deposit rates wherever possible in order to control its cost of funds. As this rising rate trend continues in the market, and competitive pressure has increased, the
Company has begun to raise its deposit rates. For the nine months ended September 30.2005 compared to 2004, the cost of total interest bearing deposits has increased to 2.09% from 1.88%, with increases in each type of deposit category.



15



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##### 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 September 30, 2005, federal funds sold totaled $2.2 million and securities maturing in one year or less totaled $14.9 million, for a total
pool of $17.1 million. The liquidity ratio as of September 30, 2005 was 26.0% as compared to 22.7% as of December 31, 2004. The Company determines this ratio by dividing the sum of cash and cash equivalents, unpledged investment securities
and federal funds sold, by interest bearing liabilities. Management, through historical analysis, has deemed 15% an adequate liquidity ratio and does not anticipate a significant change in the liquidity structure of the Company. In addition, the
Company maintains available lines of credit with the Federal Home Loan Bank of Atlanta and several correspondent banks.



CAPITAL RESOURCES



From December 31, 2004, to September 30, 2005, total shareholders equity increased to $26.6 million from $25.8 million or 3.0%. The
Companys capital resources are impacted by net unrealized gains or losses on securities. The securities portfolio is marked to market monthly and unrealized gains or losses, net of taxes, are recognized as accumulated other comprehensive
income or loss on the balance sheet and statement of changes in shareholders equity. Shareholders equity before accumulated other comprehensive income was $26.4 million on September 30, 2005, and $25.3 million on December 31,
2004. Accumulated other comprehensive income was $188 thousand at September 30, 2005, and $567 thousand at December 31, 2004, a decrease of $378 thousand or 66.8% during the nine month period.



Book value per share, basic, on September 30, 2005, compared to
September 30, 2004, increased to $11.17 from $10.91, or 1.7%. Book value per share, basic, before accumulated comprehensive income on September 30, 2005, compared to September 30, 2004, grew to $11.09 from $10.55, an increase of 3.4%.
Cash dividends paid for the nine months ended September 30, 2005, were $1.1 million, or $0.45 per share, compared to $1.0 million, or $0.45 per share, for the comparable period ended September 30, 2004 an increase of 4.7%. Average basic
shares outstanding for the nine months ended September 30, 2005, were 2,363,115 compared to 2,334,036 for the comparable period ended September 30, 2004. The Company began a share repurchase program in August of 1999 and has continued the
program into 2004. The plan authorizes a total of 115,000 shares for repurchase. A total of 1,914 shares have been repurchased at an average price of $15.16 during the nine month period ending September 30, 2005.



The Company is subject to minimum regulatory capital ratios as defined by
Federal Financial Institutions Examination Council guidelines. As of September 30, 2005, the Company maintained Tier 1 capital of $23.6 million, net risk weighted assets of $235.4 million, and Tier 2 capital of $2.0 million. On
September 30, 2005, the Tier 1 capital to risk weighted assets ratio was 10.0%, the total capital ratio was 10.9%, and the Tier 1 leverage ratio was 7.7%. These ratios continue to be well in excess of regulatory minimums.



FINANCIAL CONDITION



As of September 30, 2005, total assets increased by 0.5% for the nine month period. Total assets were $304.9 million at
September 30, 2005, as compared to $303.5 million at year-end 2004. Cash and cash equivalents, which produce no income, decreased to $5.4 million on September 30, 2005, compared to $8.6 million at year-end 2004.



During the nine months ended September 30, 2005, gross loans increased
by $15.2 million or 7.0%, to $230.5 million from $215.4 million at year-end 2004. The major components of this increase were construction loans, with 26.5% growth to 39.5 million, and real estate mortgage loans secured by 1-4 family residential
collateral, with 3.9% growth to $124.7 million.



For the nine
months ended September 30, 2005, the Company charged off loans totaling $497 thousand. For the comparable period in 2004, total loans charged off were $142 thousand. The increase in charged off loans in 2005 is primarily related to a charge off
of one loan to one borrower in the amount of $291,805. The Company maintained $562 thousand of other real estate owned (OREO) as of September 30, 2005. As of year-end 2004, this balance was $17 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.



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##### Table of Contents

The provision for loan losses amounted to $412 thousand through the nine months ended September 30,
2005, and the allowance for loan losses as of September 30, 2005, was $2.0 million. The allowance for loan losses, as a percentage of average total loans through the nine months ended September 30, 2005 was 0.89%. The allowance for loan
losses is analyzed for adequacy on a quarterly basis to determine the necessary provision. A loan by loan review is conducted of all loan classes and inherent losses on these individual loans are determined. This valuation is then compared to
historical data in an effort to determine the prevailing trends. A third component of the process is the analysis of a tabular presentation of loss allocation percentages by loan type. Through this process the Company assesses the appropriate
provision for the coming quarter. As of September 30, 2005, management deemed the loan loss reserve reasonable for the loss risk identified in the loan portfolio.



As of September 30, 2005, $243 thousand of loans were on non-accrual status, of which $15 thousand are considered
impaired. There were $1.3 million of loans on non-accrual status as of year-end 2004. On September 30, 2004, non-accrual loans totaled $1.6 million, of which $1.0 million were considered impaired. Impaired loans are those non-accrual loans that
are considered commercial or non-farm/non-residential in nature. Loans still accruing interest but delinquent for 90 days or more were $2.0 million on September 30, 2005, as compared to $336 thousand on September 30, 2004. Management has
reviewed these credits and the underlying collateral and expects no additional loss above that which is specifically reserved in the allowance for loan losses.



As of September 30, 2005, securities available for sale at market value totaled $51.8 million as compared to $51.9 million on December 31,
2004. This represents a net decrease of $126 thousand or 0.2% for the nine months. Securities held to maturity were $440 thousand as of September 30, 2005, compared to $430 at December 31, 2004. As of September 30, 2005, the
investment portfolio represented 17.1% of total assets and 18.5% of earning assets. The greater portion of the Companys investment portfolio is classified as available-for-sale and marked to market on a monthly basis. The resulting accumulated
adjustment to book value as of September 30, 2005, was a net unrealized gain of $285 thousand. The corresponding accumulated adjustment to shareholders equity was $188 thousand. 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 2005.



As of September 30, 2005, total deposits were $261.3 million compared to
$261.9 at year-end 2004. This represents a decrease in balances of $638 thousand or 0.24% during the nine months. Components of this decrease include savings and interest-bearing demand deposits, with 4.3% decline to $128.1 million, and time
deposits, with 3.0% decline to $86.5 million. However, non-interest bearing deposit accounts increased by 20.0% to $46.7 million.



RESULTS OF OPERATIONS



NON-INTEREST INCOME



Non-interest income for the nine months ended September 30, 2005 and 2004 totaled $2.0 million. Non-interest income includes income from fiduciary activities, service charges on deposit accounts, other miscellaneous fees, gains on the
sale of securities, and other income. Of these categories, the major components are fiduciary activities which contributed $540 thousand compared to $488 thousand through nine months of 2005 versus 2004, service charges on deposit accounts which
contributed $551 thousand through nine months of 2005 versus $480 thousand for the comparable period in 2004, and other service charges and fees, which contributed $727 thousand compared to $638 thousand through the nine months of 2005 and 2004,
respectively. The primary component of the increase in other service charges and fees is miscellaneous VISA income. Minor contributors to the increase in other service charges and fees were improvements in collection of cashiers check and money
order fees, as well as increases in ATM interchange fees. Secondary market lending fees declined to $123 thousand compared to $141 thousand through nine months of 2005 versus 2004, due mainly to reductions in refinancing activity.



17



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##### Table of Contents

The Companys fiduciary income is derived from the operations of its subsidiary, Bay Trust Company.
The Trust Company offers a broad range of trust and related fiduciary services. Among these are estate settlement and testamentary trusts, revocable and irrevocable personal trusts, managed agency, custodial accounts, and rollover IRAs both
self-directed and managed. Fiduciary income is largely affected by changes in the performance of the stock market, which directly impacts the market value of the accounts upon which fees are earned. This being the case, performance of fiduciary
activities can be expected to approximate the performance of the national stock markets. In recent quarters the fee income of the Trust Company has improved as the stock markets have gained value, thereby increasing the market value of the assets
under management. In addition, the Trust Company has also been successful in increasing new accounts. Increased marketing and sales efforts are expected to continue this trend.



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



NON-INTEREST EXPENSE



For the nine months ended September 30, 2005, compared to September 30, 2004, non-interest expenses were 7.2 million compared to 7.0
million. The largest components of non-interest expense are salaries and benefits, and occupancy expense. Through the nine months ended September 30, 2005, salary and benefit expense was $3.7 million, and $3.9 million for the same period of
2004. Occupancy expense was $1.2 million through the nine months ended September 30, 2005 as compared to $1.1 million for the same period of 2004. The Company capitalized an addition to its main office building in May 2005, resulting in
increased depreciation expense.



Other expenses include bank
franchise taxes which totaled $146 thousand through nine months of 2005 and $169 thousand for 2004, expenses related to the Visa® program which were $342 thousand through nine months of 2005 and $300 thousand through nine months of 2004,
telephone expenses which were $139 thousand for the current period and $123 thousand through nine months of 2004, and other operating expenses which totaled $1.6 million for the current period versus $1.5 million for the nine months ended
September 30, 2004. Telephone expenses include the cost of the Companys Customer Care Center and data network communications.



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, 2004.



ITEM 4. CONTROLS AND PROCEDURES



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



18



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##### Table of Contents

PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None.



ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



There have been no repurchases of the Companys equity securities during this three month period.



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 5b. CHANGES IN NOMINATING PROCESS



None to report.



ITEM 6. EXHIBITS



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



19



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##### Table of Contents

SIGNATURES



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



|                 |  |  |  |                             |  |                                                              
|---------------- |  |  |  | --------------------------- |  | -------------------------------------------------------------
|                 |  |  |  | Bay Banks of Virginia, Inc.
|                 |  |  |  | (Registrant)               
|                 |  |  | 
|November 7, 2005 |  |  |  | By:                         |  | /s/ Austin L. Roberts, III                                   
|                 |  |  |  |                             |  | Austin L. Roberts, III                                       
|                 |  |  |  |                             |  | President and Chief Executive Officer                        
|                 |  |  |  |                             |  | (principal executive officer and principal financial officer)



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