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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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED March 31, 2004



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the 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: 2,331,918 shares of
common stock on March 31, 2004.



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##### Table of Contents

FORM 10-Q



For the interim period ending
March 31, 2004.



INDEX



|                                                                                             |  |                                                                                                                           |  |   
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I FINANCIAL INFORMATION                                                                 |  |                                                                                                                          
|                                                                                             | 
|ITEM 1.
FINANCIAL STATEMENTS                                                                 |  |                                                                                                                          
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003                                              |  | 3 
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)                          |  | 4 
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)                      |  | 5 
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) |  | 6 
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                |  | 7 
|                                                                                             | 
|ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |  | 10                                                                                                                       
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO MARCH 31, 2003 (UNAUDITED)                     |  | 11
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | NET INTEREST INCOME ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO MARCH 31, 2003 (UNAUDITED)             |  | 14
|                                                                                             |  |                                                                                                                          
|                                                                                             |  | INTEREST RATE SENSITIVITY GAP ANALYSIS AS OF MARCH 31, 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                                                                    |  | 18                                                                                                                       
|                                                                                             | 
|ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS                                            |  | 18                                                                                                                       
|                                                                                             | 
|ITEM 3.
DEFAULTS UPON SENIOR SECURITIES                                                      |  | 18                                                                                                                       
|                                                                                             | 
|ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  |  | 19                                                                                                                       
|                                                                                             | 
|ITEM 5.
OTHER INFORMATION                                                                    |  | 19                                                                                                                       
|                                                                                             | 
|ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K                                                     |  | 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



|                                                                     |  |                |             |                   |   |            
|-------------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                                                     |  | March 31, 2004 |             | December 31, 2003
|                                                                     |  | (unaudited)    |             |                  
|ASSETS                                                               |  |                |             |                   |   |            
|Cash and due from banks                                              |  | $              | 8,227,757   |                   | $ | 7,762,030  
|Interest-bearing deposits                                            |  |                | 116,678     |                   |   | 102,868    
|Federal funds sold                                                   |  |                | 15,386,001  |                   |   | 13,907,525 
|Securities available for sale, at fair value                         |  |                | 54,743,881  |                   |   | 66,076,937 
|Securities held to maturity, at amortized cost                       |  |                | 420,012     |                   |   | 416,794    
|Loans, net of allowance for loan losses of $1,909,158 and $1,901,576 |  |                | 201,093,550 |                   |   | 188,450,953
|Premises and equipment, net                                          |  |                | 8,474,939   |                   |   | 8,411,776  
|Accrued interest receivable                                          |  |                | 1,249,066   |                   |   | 1,261,784  
|Other real estate owned                                              |  |                | 139,606     |                   |   | 76,514     
|Core deposit intangible                                              |  |                | 2,807,842   |                   |   | 2,807,842  
|Other assets                                                         |  |                | 1,940,517   |                   |   | 1,435,602  
|                                                                     |  |                |             |                   |   |            
|Total Assets                                                         |  | $              | 294,599,847 |                   | $ | 290,710,625
|                                                                     |  |                |             |                   |   |            
|LIABILITIES                                                          |  |                |             |                   |   |            
|Demand deposits                                                      |  | $              | 34,614,584  |                   | $ | 34,290,391 
|Savings and interest-bearing demand deposits                         |  |                | 131,233,399 |                   |   | 126,127,299
|Time deposits                                                        |  |                | 95,707,753  |                   |   | 96,665,504 
|Total Deposits                                                       |  |                | 261,555,736 |                   |   | 257,083,194
|                                                                     |  |               
|Securities sold under repurchase agreements                          |  |                | 5,218,047   |                   |   | 6,478,601  
|Other liabilities                                                    |  |                | 2,196,231   |                   |   | 2,070,426  
|                                                                     |  |                |             |                   |   |            
|Total Liabilities                                                    |  | $              | 268,970,014 |                   | $ | 265,632,221
|                                                                     |  |                |             |                   |   |            
|SHAREHOLDERS EQUITY                                                 |  |                |             |                   |   |            
|Common stock - $5 par value;                                         |  |                |             |                   |   |            
|Authorized - 5,000,000 shares;                                       |  |                |             |                   |   |            
|Outstanding - 2,331,918 and 2,326,080 shares                         |  | $              | 11,659,588  |                   | $ | 11,630,401 
|Additional paid-in capital                                           |  |                | 4,403,835   |                   |   | 4,336,929  
|Retained earnings                                                    |  |                | 8,188,480   |                   |   | 8,146,613  
|Accumulated other comprehensive income, net                          |  |                | 1,377,930   |                   |   | 964,461    
|                                                                     |  |                |             |                   |   |            
|Total Shareholders Equity                                           |  | $              | 25,629,833  |                   | $ | 25,078,404 
|                                                                     |  |                |             |                   |   |            
|Total Liabilities and Shareholders Equity                           |  | $              | 294,599,847 |                   | $ | 290,710,625
|                                                                     |  |                |             |                   |   |            



See
Notes to Consolidated Financial Statements.



3



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##### Table of Contents

Bay Banks of Virginia, Inc.

Consolidated Statements of Income (unaudited)



|                                                                        |  |                             |           |                             |   |          
|----------------------------------------------------------------------- |  | --------------------------- | --------- | --------------------------- | - | ---------
|                                                                        |  | Quarter EndedMarch 31, 2004 |           | Quarter EndedMarch 31, 2003
|INTEREST INCOME                                                         |  |                             |           |                             |   |          
|Loans, including fees                                                   |  | $                           | 2,819,926 |                             | $ | 2,732,489
|Securities:                                                             |  |                             |           |                             |   |          
|Taxable                                                                 |  |                             | 350,884   |                             |   | 425,409  
|Tax-exempt                                                              |  |                             | 200,381   |                             |   | 179,553  
|Federal funds sold                                                      |  |                             | 29,238    |                             |   | 72,806   
|                                                                        |  |                             |           |                             |   |          
|Total interest income                                                   |  |                             | 3,400,429 |                             |   | 3,410,257
|                                                                        |  |                             |           |                             |   |          
|INTEREST EXPENSE                                                        |  |                             |           |                             |   |          
|Deposits                                                                |  |                             | 1,057,899 |                             |   | 1,258,978
|Federal funds purchased and securities sold under repurchase agreements |  |                             | 5,911     |                             |   | 9,327    
|                                                                        |  |                             |           |                             |   |          
|Total interest expense                                                  |  |                             | 1,063,810 |                             |   | 1,268,305
|                                                                        |  |                             |           |                             |   |          
|Net interest income                                                     |  |                             | 2,336,619 |                             |   | 2,141,952
|Provision for loan losses                                               |  |                             | 75,000    |                             |   | 78,000   
|                                                                        |  |                             |           |                             |   |          
|Net interest income after provision for loan losses                     |  |                             | 2,261,619 |                             |   | 2,063,952
|                                                                        |  |                             |           |                             |   |          
|NONINTEREST INCOME                                                      |  |                             |           |                             |   |          
|Income from fiduciary activities                                        |  |                             | 165,006   |                             |   | 138,468  
|Service charges on deposit accounts                                     |  |                             | 137,536   |                             |   | 138,294  
|Other service charges and fees                                          |  |                             | 182,289   |                             |   | 147,996  
|Secondary market lending fees                                           |  |                             | 21,481    |                             |   | 92,288   
|Securities gains                                                        |  |                             | 154,599   |                             |   | 20,857   
|Other real estate gains                                                 |  |                             | 7,136     |                             |   | 34,911   
|Other income                                                            |  |                             | 23,169    |                             |   | 36,878   
|                                                                        |  |                             |           |                             |   |          
|Total non-interest income                                               |  |                             | 691,216   |                             |   | 609,692  
|                                                                        |  |                             |           |                             |   |          
|NONINTEREST EXPENSES                                                    |  |                             |           |                             |   |          
|Salaries and employee benefits                                          |  |                             | 1,405,295 |                             |   | 1,044,609
|Occupancy expense                                                       |  |                             | 358,762   |                             |   | 261,496  
|Bank franchise tax                                                      |  |                             | 56,455    |                             |   | 52,488   
|Visa expense                                                            |  |                             | 80,414    |                             |   | 71,366   
|Telephone expense                                                       |  |                             | 41,196    |                             |   | 46,300   
|Other expenses                                                          |  |                             | 445,376   |                             |   | 567,232  
|                                                                        |  |                             |           |                             |   |          
|Total non-interest expenses                                             |  |                             | 2,387,498 |                             |   | 2,043,491
|                                                                        |  |                             |           |                             |   |          
|Income before income taxes                                              |  |                             | 565,337   |                             |   | 630,153  
|Income tax expense                                                      |  |                             | 168,618   |                             |   | 191,232  
|                                                                        |  |                             |           |                             |   |          
|Net Income                                                              |  | $                           | 396,719   |                             | $ | 438,921  
|                                                                        |  |                             |           |                             |   |          
|Basic Earnings per Share                                                |  |                             |           |                             |   |          
|Average basic shares outstanding                                        |  |                             | 2,325,920 |                             |   | 2,305,385
|Net income per share of common stock                                    |  | $                           | 0.17      |                             | $ | 0.19     
|                                                                        |  |                            
|Diluted Earnings per Share                                              |  |                             |           |                             |   |          
|Average diluted shares outstanding                                      |  |                             | 2,352,716 |                             |   | 2,316,288
|Net income per share of common stock                                    |  | $                           | 0.17      |                             | $ | 0.19     



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)



|                                                                                              |  |                             |             |   |                             |   |             |  
|--------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | --------------------------- | - | ----------- | -
|                                                                                              |  | Quarter endedMarch 31, 2004 |             |   | Quarter endedMarch 31, 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                          |  |                             |             |   |                             |   |             |  
|Net Income                                                                                    |  | $                           | 396,719     |   |                             | $ | 438,921     |  
|Adjustments to reconcile net income to net cash (used in) / provided by operating activities: |  |                             |             |   |                             |   |             |  
|Depreciation                                                                                  |  |                             | 186,794     |   |                             |   | 183,724     |  
|Amortization and accretion of securities                                                      |  |                             | (15,158     | ) |                             |   | 5,587       |  
|Provision for loan losses                                                                     |  |                             | 74,965      |   |                             |   | 78,000      |  
|Gain on sale of securities                                                                    |  |                             | (154,599    | ) |                             |   | (20,857     | )
|Gain on sale of other real estate owned                                                       |  |                             | (7,136      | ) |                             |   | (34,911     | )
|(Increase) / Decrease in other assets                                                         |  |                             | (492,197    | ) |                             |   | 337,914     |  
|Decrease in Other Liabilities                                                                 |  |                             | (87,194     | ) |                             |   | (107,332    | )
|                                                                                              |  |                             |             |   |                             |   |             |  
|Net cash (used in) / provided by operating activities                                         |  |                             | (97,806     | ) |                             |   | 881,046     |  
|                                                                                              |  |                             |             |   |                             |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                          |  |                             |             |   |                             |   |             |  
|Proceeds from maturities of available-for-sale securities                                     |  |                             | 2,399,803   |   |                             |   | 3,797,835   |  
|Proceeds from sales of available-for-sale securities                                          |  |                             | 18,166,037  |   |                             |   | 2,449,500   |  
|Purchases of available-for-sale securities                                                    |  |                             | (8,439,776  | ) |                             |   | (2,615,760  | )
|Increase in interest bearing deposits                                                         |  |                             | (13,810     | ) |                             |   | (12,125     | )
|Increase in Fed Funds Sold                                                                    |  |                             | (1,478,476  | ) |                             |   | (10,062,834 | )
|(Increase) / Decrease in loans outstanding                                                    |  |                             | (12,778,010 | ) |                             |   | 739,152     |  
|Purchases of premises and equipment                                                           |  |                             | (249,956    | ) |                             |   | (308,818    | )
|Proceeds from sale of other real estate owned                                                 |  |                             | 4,492       |   |                             |   | 119,647     |  
|                                                                                              |  |                             |             |   |                             |   |             |  
|Net cash used in investing activities                                                         |  |                             | (2,389,696  | ) |                             |   | (5,893,403  | )
|                                                                                              |  |                             |             |   |                             |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                          |  |                             |             |   |                             |   |             |  
|Increase in demand, savings, & other interest-bearing deposits                                |  |                             | 5,430,293   |   |                             |   | 7,130,105   |  
|Increase / (Decrease) in time deposits                                                        |  |                             | (957,751    | ) |                             |   | 2,838,273   |  
|Decrease in securities sold under repurchase agreements                                       |  |                             | (1,260,554  | ) |                             |   | (606,777    | )
|Proceeds from issuance of common stock                                                        |  |                             | 100,555     |   |                             |   | 102,685     |  
|Dividends paid                                                                                |  |                             | (348,815    | ) |                             |   | (322,680    | )
|Repurchase of common stock                                                                    |  |                             | (10,499     | ) |                             |   | (54,145     | )
|                                                                                              |  |                             |             |   |                             |   |             |  
|Net cash provided by financing activities                                                     |  |                             | 2,953,229   |   |                             |   | 9,087,461   |  
|                                                                                              |  |                             |             |   |                             |   |             |  
|Net increase in cash & due from banks                                                         |  |                             | 465,727     |   |                             |   | 4,075,104   |  
|Cash & due from banks at beginning of period                                                  |  |                             | 7,762,030   |   |                             |   | 9,875,840   |  
|                                                                                              |  |                             |             |   |                             |   |             |  
|Cash & due from banks at end of period                                                        |  | $                           | 8,227,757   |   |                             | $ | 13,950,944  |  
|                                                                                              |  |                             |             |   |                             |   |             |  
|SUPPLEMENTAL DISCLOSURES                                                                      |  |                             |             |   |                             |   |             |  
|Interest paid                                                                                 |  | $                           | 1,059,258   |   |                             | $ | 1,240,402   |  
|Income taxes paid                                                                             |  | $                           | 0           |   |                             | $ | 17,129      |  
|Unrealized gain on investment securities                                                      |  | $                           | 626,468     |   |                             | $ | 144,638     |  
|Loans transferred to other real estate owned                                                  |  | $                           | 60,180      |   |                             | $ | 0           |  



See
Notes to 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-inCapital |   |           | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome |   | TotalShareholdersEquity |  
|Balance on 1/1/2003                                                                                   |  | $           | 11,536,800 |   |                          | $ | 4,080,693 |                  |  | $ | 7,514,790                           |   |                         | $ | 1,624,516 |  | $ | 24,756,799 |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Comprehensive Income:                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Net Income                                                                                            |  |             |            |   |                          |   |           |                  |  |   | 438,921                             |   |                         |   |           |  |   | 438,921    |  
|Other comprehensive income:                                                                           |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Changes in unrealized holding gains on securities arising during the period, net of taxes of $42,950  |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   | 83,373    |  |   | 83,373     |  
|Reclassification adjustment for security gains included in net income, net of taxes of $6,227         |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   | 12,088    |  |   | 12,088     |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Total Comprehensive Income                                                                            |  |             |           |   |                          |   |          |                  |  |   | 438,921                             |   |                         |   | 95,461    |  |   | 534,382    |  
|Cash dividends paid  $0.14/share                                                                     |  |             |            |   |                          |   |           |                  |  |   | (322,680                            | ) |                         |   |           |  |   | (322,680   | )
|Stock repurchases                                                                                     |  |             | (17,500    | ) |                          |   | (5,264    | )                |  |   | (31,381                             | ) |                         |   |           |  |   | (54,145    | )
|Sale of common stock                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Dividend reinvestment plan                                                                            |  |             | 31,645     |   |                          |   | 63,290    |                  |  |   |                                    |   |                         |   |          |  |   | 94,935     |  
|Stock Options exercised                                                                               |  |             | 5,000      |   |                          |   | 2,750     |                  |  |   |                                    |   |                         |   |          |  |   | 7,750      |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Balance on 3/31/03                                                                                    |  | $           | 11,555,944 |   |                          | $ | 4,141,469 |                  |  | $ | 7,599,651                           |   |                         | $ | 1,719,977 |  | $ | 25,017,041 |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Balance on 1/1/2004                                                                                   |  | $           | 11,630,401 |   |                          | $ | 4,336,929 |                  |  | $ | 8,146,613                           |   |                         | $ | 964,461   |  | $ | 25,078,404 |  
|Comprehensive Income:                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Net Income                                                                                            |  |             |            |   |                          |   |           |                  |  |   | 396,719                             |   |                         |   |           |  |   | 396,719    |  
|Other comprehensive income:                                                                           |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Changes in unrealized holding gains on securities arising during the period, net of taxes of $160,436 |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   | 311,434   |  |   | 311,434    |  
|Reclassification adjustment for security gains included in net income, net of taxes of $52,564        |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   | 102,035   |  |   | 102,035    |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Total Comprehensive Income                                                                            |  |             |           |   |                          |   |          |                  |  |   | 396,719                             |   |                         |   | 413,469   |  |   | 810,188    |  
|Cash dividends paid  $0.15/share                                                                     |  |             |            |   |                          |   |           |                  |  |   | (348,815                            | ) |                         |   |           |  |   | (348,815   | )
|Stock repurchases                                                                                     |  |             | (3,250     | ) |                          |   | (1,212    | )                |  |   | (6,037                              | ) |                         |   |           |  |   | (10,499    | )
|Sale of common stock:                                                                                 |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Dividends Reinvested                                                                                  |  |             | 32,437     |   |                          |   | 68,118    |                  |  |   |                                    |   |                         |   |          |  |   | 100,555    |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  
|Balance on 3/31/04                                                                                    |  | $           | 11,659,588 |   |                          | $ | 4,403,835 |                  |  | $ | 8,188,480                           |   |                         | $ | 1,377,930 |  | $ | 25,629,833 |  
|                                                                                                      |  |             |            |   |                          |   |           |                  |  |   |                                     |   |                         |   |           |  |   |            |  



See
Notes to Consolidated Financial Statements.



6



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



The accounting and
reporting policies of the registrant conform to accounting principles generally accepted 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 2003 Annual Report to Shareholders.



As of March 31, 2004, 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 three months ended March 31, 2004 and 2003 if the Company had applied fair value recognition provisions of FASB No. 123, Accounting for Stock-Based Compensation.



|                                                                                                                           |  |                |         |   |                |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                           |  | March 31, 2004 |         |   | March 31, 2003 |  
|                                                                                                                           |  | (unaudited)    |         |   | (unaudited)    |  
|Net Income, as reported                                                                                                    |  | $              | 396,719 |   |                | $ | 438,921 |  
|Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects |  |                | (10,563 | ) |                |   | (33,642 | )
|                                                                                                                           |  |                |         |   |                |   |         |  
|Pro forma net income                                                                                                       |  | $              | 386,156 |   |                | $ | 405,279 |  
|                                                                                                                           |  |                |         |   |                |   |         |  
|Earnings per share:                                                                                                        |  |                |         |   |                |   |         |  
|Basic - as reported                                                                                                        |  | $              | 0.17    |   |                | $ | 0.19    |  
|Basic - pro forma                                                                                                          |  | $              | 0.16    |   |                | $ | 0.18    |  
|Diluted - as reported                                                                                                      |  | $              | 0.17    |   |                | $ | 0.19    |  
|Diluted - pro forma                                                                                                        |  | $              | 0.16    |   |                | $ | 0.18    |  



Note 2: Securities



The carrying amounts of debt and other securities and their approximate
fair values at March 31, 2004, and December 31, 2003, follow:



|                                                         |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|-------------------------------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|Available-for-sale securities March 31,
2004 (unaudited) |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. Government agencies                                 |  | $             | 13,607,712 |                      | $ | 119,611               |  | $ | (6,493     | ) |  | $ | 13,720,830
|State and municipal securities                           |  |               | 29,112,986 |                      |   | 1,589,149             |  |   | (3,519     | ) |  |   | 30,698,616
|Corporate bonds                                          |  |               | 8,551,084  |                      |   | 385,451               |  |   | 0          |   |  |   | 8,936,535 
|Restricted securities                                    |  |               | 1,387,900  |                      |   | 0                     |  |   | 0          |   |  |   | 1,387,900 
|                                                         |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|                                                         |  | $             | 52,659,682 |                      | $ | 2,094,211             |  | $ | (10,012    | ) |  | $ | 54,743,881



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##### Table of Contents

|                                                       |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|------------------------------------------------------ |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|Available-for-sale securities December 31,
2003        |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. Government agencies                               |  | $             | 20,644,546 |                      | $ | 66,235                |  | $ | (102,717   | ) |  | $ | 20,608,064
|State and municipal securities                         |  |               | 36,081,277 |                      |   | 1,196,751             |  |   | (174,565   | ) |  |   | 37,103,463
|Corporate bonds                                        |  |               | 6,565,676  |                      |   | 476,134               |  |   | 0          |   |  |   | 7,041,810 
|Restricted securities                                  |  |               | 1,323,600  |                      |   | 0                     |  |   | 0          |   |  |   | 1,323,600 
|                                                       |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|                                                       |  | $             | 64,615,099 |                      | $ | 1,739,120             |  | $ | (277,282   | ) |  | $ | 66,076,937
|                                                       |  |               |            |                     
|Held-to-maturity securities March 31, 2004
(unaudited) |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. Government agencies                               |  | $             | 0          |                      | $ | 0                     |  | $ | 0          |   |  | $ | 0         
|State and municipal securities                         |  |               | 420,012    |                      |   | 3,573                 |  |   | 0          |   |  |   | 423,585   
|Corporate bonds                                        |  |               | 0          |                      |   | 0                     |  |   | 0          |   |  |   | 0         
|Restricted securities                                  |  |               | 0          |                      |   | 0                     |  |   | 0          |   |  |   | 0         
|                                                       |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|                                                       |  | $             | 420,012    |                      | $ | 3,573                 |  | $ | 0          |   |  | $ | 423,585   
|                                                       |  |               |            |                     
|Held-to-maturity securities December 31,
2003          |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|U.S. Government agencies                               |  | $             | 0          |                      | $ | 0                     |  | $ | 0          |   |  | $ | 0         
|State and municipal securities                         |  |               | 416,794    |                      |   | 0                     |  |   | (534       | ) |  |   | 416,260   
|Corporate bonds                                        |  |               | 0          |                      |   | 0                     |  |   | 0          |   |  |   | 0         
|Restricted securities                                  |  |               | 0          |                      |   | 0                     |  |   | 0          |   |  |   | 0         
|                                                       |  |               |            |                      |   |                       |  |   |            |   |  |   |           
|                                                       |  | $             | 416,794    |                      | $ | 0                     |  | $ | (534       | ) |  | $ | 416,260   



Securities with a
market value of $10.8 million were pledged as collateral for public deposits, repurchase agreements and for other purposes as required by law as of March 31, 2004. The market value of pledged securities at year-end 2003 was $12.3 million.



Note 3: Loans



The components of loans were as follows:



|                                                             |  |                |             |   |                   |   |             |  
|------------------------------------------------------------ |  | -------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                             |  | March 31, 2004 |             |   | December 31, 2003 |  
|                                                             |  | (unaudited)    |             |   |                   |  
|Mortgage loans on real estate:                               |  |                |             |   |                   |   |             |  
|Construction                                                 |  | $              | 27,217,713  |   |                   | $ | 24,959,214  |  
|Secured by farmland                                          |  |                | 1,683,102   |   |                   |   | 1,134,585   |  
|Secured by 1-4 family residential                            |  |                | 109,229,755 |   |                   |   | 104,104,372 |  
|Other real estate loans                                      |  |                | 22,109,701  |   |                   |   | 22,338,503  |  
|Loans to farmers (except those secured by real estate)       |  |                | 741,536     |   |                   |   | 71,479      |  
|Commercial and industrial loans (not secured by real estate) |  |                | 29,677,513  |   |                   |   | 24,819,068  |  
|Consumer installment loans                                   |  |                | 9,837,871   |   |                   |   | 10,555,735  |  
|All other loans                                              |  |                | 1,114,854   |   |                   |   | 974,448     |  
|Net deferred loan costs and fees                             |  |                | 1,390,663   |   |                   |   | 1,395,125   |  
|                                                             |  |                |             |   |                   |   |             |  
|Total loans                                                  |  | $              | 203,002,708 |   |                   | $ | 190,352,529 |  
|Allowance for loan losses                                    |  |                | (1,909,158  | ) |                   |   | (1,901,576  | )
|                                                             |  |                |             |   |                   |   |             |  
|Loans, net                                                   |  | $              | 201,093,550 |   |                   | $ | 188,450,953 |  



Loans upon which the
accrual of interest has been discontinued totaled $1,377 thousand as of March 31, 2004, and $269 thousand as of December 31, 2003.



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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:



|                           |  |             |           |   |            |   |           |             |  |   |           |  
|-------------------------- |  | ----------- | --------- | - | ---------- | - | --------- | ----------- |  | - | --------- | -
|                           |  | 3/31/2004   |           |   | 12/31/2003 |   |           | 3/31/2003   | 
|                           |  | (unaudited) |           |   |            |   |           | (unaudited) | 
|Balance, beginning of year |  | $           | 1,901,576 |   |            | $ | 1,696,914 |             |  | $ | 1,696,914 |  
|Provision for loan losses  |  |             | 75,000    |   |            |   | 312,000   |             |  |   | 78,000    |  
|Recoveries                 |  |             | 10,456    |   |            |   | 13,032    |             |  |   | 3,524     |  
|Loans charged off          |  |             | (77,874   | ) |            |   | (120,370  | )           |  |   | (42,928   | )
|                           |  |             |           |   |            |   |           |             |  |   |           |  
|Balance, end of period     |  | $           | 1,909,158 |   |            | $ | 1,901,576 |             |  | $ | 1,735,510 |  
|                           |  |             |           |   |            |   |           |             |  |   |           |  



Note 5: Earnings per share



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



|                               |  |                              |  |                              |      |               |           |                 |   |     
|------------------------------ |  | ---------------------------- |  | ---------------------------- | ---- | ------------- | --------- | --------------- | - | ----
|                               |  | Quarter ended March 31, 2004 |  | Quarter ended March 31, 2003
|(Unaudited)                    |  | AverageShares                |  | Per shareAmount              |      | AverageShares |           | Per shareAmount
|Basic earnings per share       |  | 2,325,920                    |  | $                            | 0.17 |               | 2,305,385 |                 | $ | 0.19
|Effect of dilutive securities: |  |                              |  |                              |      |               |           |                 |   |     
|Stock options                  |  | 26,796                       |  |                              |      |               | 10,903    |                 |   |     
|Diluted earnings per share     |  | 2,352,716                    |  | $                            | 0.17 |               | 2,316,288 |                 | $ | 0.19



As of March 31, 2004, and March 31,
2003, options on 74,308 shares and 103,410 shares, respectively, were not included in computing diluted earnings per share, because their effects were anti-dilutive.



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 March 31, 2004, 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 March 31, 2004.



Note 7: Employee Benefit Plans



Components of Net Periodic Benefit Cost

Quarter ended March 31, 2004 (unaudited)



|                                      |  |                  |         |   |                          |   |         |      |  |      |        |  |   |      
|------------------------------------- |  | ---------------- | ------- | - | ------------------------ | - | ------- | ---- |  | ---- | ------ |  | - | -----
|                                      |  | Pension Benefits |         |   | Post Retirement Benefits
|                                      |  | 2004             |         |   | 2003                     |   |         | 2004 |  | 2003
|Service Cost                          |  | $                | 59,253  |   |                          | $ | 46,986  |      |  | $    | 3,829  |  | $ | 3,250
|Interest Cost                         |  |                  | 41,555  |   |                          |   | 33,962  |      |  |      | 8,152  |  |   | 3,255
|Expected Return on Plan Assets        |  |                  | (33,689 | ) |                          |   | (27,044 | )    |  |      | 0      |  |   | 0    
|Amortization of Prior Service Cost    |  |                  | 4,093   |   |                          |   | 4,093   |      |  |      | 0      |  |   | 0    
|Amortization of Net (Gain)/Loss       |  |                  | 11,324  |   |                          |   | 10,158  |      |  |      | 5,000  |  |   | 2,017
|Amortization of Transition Obligation |  |                  | 0       |   |                          |   | (4,578  | )    |  |      | 728    |  |   | 728  
|                                      |  |                  |         |   |                          |   |         |      |  |      |        |  |   |      
|Net Periodic Benefit Cost             |  | $                | 82,536  |   |                          | $ | 63,577  |      |  | $    | 17,709 |  | $ | 9,250



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Employer Contributions



The Company previously disclosed in its Annual Report on Form 10-K its consolidated financial statements for the year-ended December 31, 2003, that it
expected to contribute $771,589 to its pension plan and $27,843 to its post-retirement benefit plan in 2004. As of March 31, 2004, a contribution of $771,589 and $27,843, respectively, has been made. The Company presently anticipates no further
contributions during the remainder of 2004.



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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



CRITICAL ACCOUNTING POLICIES



GENERAL. The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States
(GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of
factors could affect the 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.



GOODWILL. In October 2003, the Financial Accounting Standards Board issued
Statement No. 147, Acquisitions of Certain Financial Institutions. The Statement amends previous interpretive guidance on the application of the purchase method of accounting to acquisitions of financial institutions, and requires the
application of Statement No. 141, Business Combinations,and Statement No. 142, Goodwill and Other Intangible Assets,to branch acquisitions if such transactions meet the definition of a business combination. The provisions of the
Statement do not apply to transactions between two or more mutual enterprises. In addition, the Statement amends Statement No. 144, Accounting for the Impairment of Long-Lived Assets,to include in its scope core deposit intangibles of
financial institutions. Accordingly, such intangibles are subject to a recoverability test based on undiscounted cash flows, and to the impairment recognition and measurement provisions required for other long-lived assets held and used. The Company
adopted this interpretation of Statement 147 for the intangibles associated with branch acquisitions that were executed in 1994, 1997, and 2000. The Company conducted an in-depth study of the issue and has determined that the intangibles associated
with these branch acquisitions qualify as a business combination as described in Statement 141 and 142, as well as Emerging Issues Task Force Ruling 98-3.



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##### Table of Contents

RECENT ACCOUNTING PRONOUNCEMENTS.



There were no new Financial Accounting Standards Board promulgations in the first quarter of 2004 that will impact
Bay Banks of Virginia, Inc.



STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



This report contains statements concerning the
Companys expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute forward-looking statements as defined by federal securities laws. These
statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a
material adverse effect on the operations and future prospects of the Company include, but are not limited to, changes in: interest rates, general economic conditions, the legislative/regulatory climate, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the
Companys market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on
such statements, which speak only as of the date they are made.



Bay Banks of Virginia, Inc.

Financial Highlights (unaudited)



|                                                        |  |                     |   |  |                     |   |  |        |  
|------------------------------------------------------- |  | ------------------- | - |  | ------------------- | - |  | ------ | -
|Three months ended (Thousands)                          |  | As ofMarch 31, 2004 |   |  | As ofMarch 31, 2003 |   |  | Change |  
|FINANCIAL CONDITION                                     |  |                     |   |  |                     |   |  |        |  
|Average Assets                                          |  | 292,655             |   |  | 265,998             |   |  | 10.0   | %
|Average Interest-earning Assets                         |  | 266,237             |   |  | 238,490             |   |  | 11.6   | %
|Average Earning Assets to Total Average Assets          |  | 91.0                | % |  | 89.7                | % |  | 1.4    | %
|Period-end Interest-bearing Liabilities                 |  | 232,159             |   |  | 215,335             |   |  | 7.8    | %
|Average Interest-bearing Liabilities                    |  | 227,303             |   |  | 212,184             |   |  | 7.1    | %
|Average Equity, including FAS 115 adjustment            |  | 25,231              |   |  | 24,929              |   |  | 1.2    | %
|Tier 1 Capital                                          |  | 21,444              |   |  | 20,489              |   |  | 4.7    | %
|Net Risk-weighted Assets                                |  | 202,239             |   |  | 178,026             |   |  | 13.6   | %
|Tier 2 Capital                                          |  | 1,909               |   |  | 1,736               |   |  | 10.0   | %
|                                                        |  |                     |  
|RESULTS OF OPERATIONS                                   |  |                     |   |  |                     |   |  |        |  
|Net Interest Income before Provision                    |  | 2,337               |   |  | 2,142               |   |  | 9.1    | %
|Net Income                                              |  | 397                 |   |  | 439                 |   |  | -9.6   | %
|Annualized Yield on Average Interest-earning Assets     |  | 5.26                | % |  | 5.87                | % |  | -10.4  | %
|Annualized Cost of Average Interest-bearing Liabilities |  | 1.88                | % |  | 2.39                | % |  | -21.3  | %
|Annualized Net Yield on Average Interest-earning Assets |  | 3.66                | % |  | 3.74                | % |  | -2.1   | %
|Annualized Net Interest Rate Spread                     |  | 3.38                | % |  | 3.48                | % |  | -2.6   | %
|                                                        |  |                     |  
|RATIOS                                                  |  |                     |   |  |                     |   |  |        |  
|Total Capital to Risk-weighted Assets (10% min)         |  | 11.5                | % |  | 12.5                | % |  | -8.0   | %
|Tier 1 Capital to Risk-weighted Assets (6% min)         |  | 10.6                | % |  | 11.5                | % |  | -7.8   | %
|Leverage Ratio (5% min)                                 |  | 7.4                 | % |  | 7.8                 | % |  | -5.1   | %
|Annualized Return on Average Assets (ROA)               |  | 0.5                 | % |  | 0.7                 | % |  | -28.6  | %
|Annualized Return on Average Equity (ROE)               |  | 6.3                 | % |  | 7.0                 | % |  | -10.0  | %
|                                                        |  |                     |  
|Period-end basic shares outstanding                     |  | 2,331,918           |   |  | 2,311,189           |   |  | 0.9    | %
|Average basic shares outstanding                        |  | 2,325,920           |   |  | 2,305,385           |   |  | 0.9    | %
|Average diluted shares outstanding                      |  | 2,352,716           |   |  | 2,316,288           |   |  | 1.6    | %
|                                                        |  |                     |  
|PER SHARE DATA                                          |  |                     |   |  |                     |   |  |        |  
|Diluted earnings per average share (EPS)                |  | 0.17                |   |  | 0.19                |   |  | -10.5  | %
|Cash Dividends per average share (three months)         |  | 0.15                |   |  | 0.14                |   |  | 7.1    | %
|Book Value per share - basic                            |  |                     |   |  |                     |   |  |        |  
|before Accumulated Comprehensive Income/Loss            |  | 10.40               |   |  | 10.08               |   |  | 3.2    | %
|after Accumulated Comprehensive Income/Loss             |  | 10.99               |   |  | 10.82               |   |  | 1.6    | %
|                                                        |  |                     |  
|Book Value per average share - basic                    |  |                     |   |  |                     |   |  |        |  
|before Accumulated Comprehensive Income/Loss            |  | 10.43               |   |  | 10.11               |   |  | 3.2    | %
|after Accumulated Comprehensive Income/Loss             |  | 11.02               |   |  | 10.85               |   |  | 1.6    | %





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EARNINGS SUMMATION



For the three months ended March 31, 2004, net income was $397 thousand as compared to $439 thousand for the comparable period in 2003, a decrease of
9.6%. Diluted earnings per average share for the first three months of 2004 were $0.17 as compared to $0.19 for the first three months of 2003. Annualized return on average assets was .5% for the first three months of 2004 as compared to .7% for the
first three months of 2003, a decrease of 28.6%. Annualized return on average equity was 6.3% for the first three months of 2004, compared to 7.0% for the first three months of 2003, a decrease of 10.0%.



The principal source of earnings for the Company is net interest income. Net
interest income is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest earning assets and
interest bearing liabilities, the associated yields and rates, and the volume of non-performing assets have a significant impact on net interest income, the net interest margin, and net income. The annualized net interest margin was 3.66% as of
March 31, 2004 compared to 3.74% for the same period in 2003 for a decrease of 2.1%.



Net interest income before provision for loan losses for the first three months of 2004 was $2.3 million, compared to $2.1 million for the first three months of 2003, an increase of $195 thousand or 9.1%. Increases in
net interest income were driven by loan growth (changes in volume) during the first quarter of 2004. Average interest-earning assets totaled $266.2 million for the first three months of 2004 as compared to $238.5 million for the first three months
of 2003, an increase of 11.6%. Average interest-earning assets as a percent of total average assets was 91.0% for the first three months of 2004 as compared to 89.7% for the comparable period of 2003, an increase of 1.4%. The annualized yield on
average interest-earning assets for the first three months of 2004 was 5.26% as compared to 5.87% for the first three months of 2003, a decrease of 10.4%.



As loan volumes continue to increase, the Company will realize increasing net interest income based upon these increases. These increases are incremental
however, as the increase in yield on new loan volume which is replacing Federal Funds Sold, is partially offset by the decline in investment yields. Management expects loan growth to continue to improve throughout 2004, in which case net interest
income will continue to improve. In addition, as the investment portfolio management continues, yields on this asset should also improve, thereby further improving net interest income.



Average interest-bearing liabilities totaled $227.3 million for the first three months of 2004 as compared to $212.2 million
for the first three months of 2003, an increase of 7.1%. The annualized yield (cost) on interest-bearing liabilities for the first three months of 2004 was 1.88% as compared to 2.39% for the first three months of 2003, a decrease of 21.3%.



The net interest spread, which is the difference between the
annualized yield on earning assets and the annualized rate on interest bearing liabilities was 3.38% at quarter end 2004 and 3.48% at quarter end 2003. This represents a reduction in net interest spread of 10 basis points or 2.9%.



Average total assets for the first three months of 2004 were $292.7 million
as compared to $266.0 million for the first three months of 2003, an increase of 10.0%.



12



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Throughout 2003, the Company experienced significant compression in its net interest margin and
consequently its net interest income. As the general rate environment reached historic lows during the fourth quarter of 2002 and throughout 2003, the Company experienced heavy volumes of loan prepayments as consumers fled adjustable rate mortgages
for conventional 30 year fixed rate loans. These conventional mortgages are not held in the Companys portfolio, but rather, are sold into the secondary market on an individual loan by loan basis. The sale of these loans creates fee income at
the time of sale, but reduces the Companys expected future cash flow from interest income and principal repayment. Fortunately, while record numbers of loans were being paid off into the secondary market, record numbers of new loans were being
generated for the Companys loan portfolio.



However, as
the historically low interest rate environment continues to persist, the new loan volume that is being placed in the Companys loan portfolio is at significantly lower rates than those that were paid off and re-financed into conventional
secondary market mortgages during 2003. The first quarter of 2004 has resulted in very strong loan growth. This growth has resulted in increases in net interest income through volume rather than rate. The vast majority of loans being recorded are
adjustable and variable rate loans which will re-price upwardly when the interest rate market becomes less accommodative. The balance sheet of the Company is slightly asset sensitive as of quarter end 2004 and is therefore well positioned for a
rising rate environment. In contrast, a continuing accommodative interest rate policy will result in further compression in the interest income of the Company.



13



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##### Table of Contents

Bay Banks of Virginia, Inc.

Net Interest Income Analysis (unaudited)



|                                            |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|------------------------------------------- |  | ---------------------------- | ------- | -------------- | ---------------------------- | -------------------- |  | ---- | -------------- |  | -------------- | ------- | -------------------- | - | ----- |  | ---- | -
|(Fully taxable equivalent basis)            |  | Three months ended 3/31/2004 |         |                | Three months ended 3/31/2003 |                     
|(Thousands)                                 |  | AverageBalance               |         | Income/Expense |                              | AnnualizedYield/Rate |  |      | AverageBalance |  | Income/Expense |         | AnnualizedYield/Rate |  
|INTEREST EARNING ASSETS:                    |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Investments (Book Value):                   |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Taxable Investments                         |  | $                            | 38,400  |                | $                            | 351                  |  | 3.65 | %              |  | $              | 27,958  |                      | $ | 425   |  | 6.08 | %
|Tax-Exempt Investments (1)                  |  |                              | 20,464  |                |                              | 303                  |  | 5.93 | %              |  |                | 16,515  |                      |   | 272   |  | 6.59 | %
|                                            |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Total Investments                           |  |                              | 58,864  |                |                              | 654                  |  | 4.45 | %              |  |                | 44,473  |                      |   | 697   |  | 6.27 | %
|                                            |  |                              |         |                |                              |                     
|Gross Loans (2)                             |  |                              | 196,411 |                |                              | 2,820                |  | 5.74 | %              |  |                | 169,256 |                      |   | 2,732 |  | 6.46 | %
|Interest-bearing Deposits                   |  |                              | 117     |                |                              | 0                    |  | 0.33 | %              |  |                | 135     |                      |   | 0     |  | 0.79 | %
|Fed Funds Sold                              |  |                              | 10,845  |                |                              | 29                   |  | 1.08 | %              |  |                | 24,625  |                      |   | 73    |  | 1.18 | %
|                                            |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|TOTAL INTEREST EARNING ASSETS               |  | $                            | 266,237 |                | $                            | 3,504                |  | 5.26 | %              |  | $              | 238,489 |                      | $ | 3,502 |  | 5.87 | %
|                                            |  |                              |         |                |                              |                     
|INTEREST-BEARING LIABILITIES:               |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Deposits:                                   |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Savings Deposits                            |  | $                            | 64,414  |                | $                            | 236                  |  | 1.46 | %              |  | $              | 60,134  |                      | $ | 286   |  | 1.90 | %
|NOW Deposits                                |  |                              | 44,777  |                |                              | 57                   |  | 0.51 | %              |  |                | 39,367  |                      |   | 103   |  | 1.04 | %
|CDs >= $100,000                            |  |                              | 31,719  |                |                              | 250                  |  | 3.15 | %              |  |                | 25,226  |                      |   | 232   |  | 3.68 | %
|CDs < $100,000                             |  |                              | 64,617  |                |                              | 502                  |  | 3.10 | %              |  |                | 67,556  |                      |   | 581   |  | 3.44 | %
|Money Market Deposit Accounts               |  |                              | 18,235  |                |                              | 17                   |  | 0.37 | %              |  |                | 16,144  |                      |   | 59    |  | 1.45 | %
|                                            |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|Total Interest Bearing Deposits             |  | $                            | 223,762 |                | $                            | 1,062                |  | 1.90 | %              |  | $              | 208,427 |                      | $ | 1,261 |  | 2.42 | %
|Fed funds purchased                         |  |                              | 10      |                |                              | 0                    |  | 1.12 | %              |  |                |         |                      |   |       |  |      |  
|Securities Sold to Repurchase               |  |                              | 3,531   |                |                              | 6                    |  | 0.65 | %              |  |                | 3,757   |                      |   | 9     |  | 0.98 | %
|                                            |  |                              |         |                |                              |                      |  |      |                |  |                |         |                      |   |       |  |      |  
|TOTAL INTEREST-BEARING LIABILITIES          |  | $                            | 227,303 |                | $                            | 1,068                |  | 1.88 | %              |  | $              | 212,184 |                      | $ | 1,270 |  | 2.39 | %
|                                            |  |                              |         |                |                              |                     
|Net Interest Income/Yield on Earning Assets |  |                              |         |                | $                            | 2,436                |  | 3.66 | %              |  |                |         |                      | $ | 2,232 |  | 3.74 | %
|Net Interest Rate Spread                    |  |                              |         |                |                              |                      |  | 3.38 | %              |  |                |         |                      |   |       |  | 3.48 | %

---

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

|(2) |  Includes Visa program and non-accrual loans
|--- | ---------------------------------------------



Through the three months ended March 31, 2004, average interest-earning assets were comprised of the loan portfolio with $196.4 million and the investment
portfolio with $58.9 million. For the three month period ended March 31, 2004, compared to the same period in 2003, on a fully tax equivalent basis, tax-exempt investment yields declined to 5.93% from 6.59%, and taxable investment yields decreased
to 3.65% from 6.08%, resulting in a decrease in total investment yield to 4.45% from 6.27%. During 2003 the Company experienced higher volumes of called bonds and pay-downs on mortgage-backed investments. Coupled with the sale of bonds, at a gain,
the yield on the investment portfolio in real terms has declined. However, management has positioned the bond portfolio with a much shorter average life in anticipation of improving yields.



In the first three months of 2004, gross loans on average yielded 5.74% as
compared to 6.46% for the same period in 2003. As mentioned above, loan prepayments were significant in 2003 and have resulted in compression in the net interest margin. The Company has been successful in growing the loan portfolio with variable and
adjustable rate loans through the first quarter of 2004. In addition, the Company did not enter into the thirty year fixed rate market and did not, therefore, place any significant amount of fixed rate loans in its portfolio. By keeping the
re-pricing terms of the loan portfolio short, the Company is positioned for a rising rate environment.



In an effort to offset the reduction in loan and investment yields, management has reduced the yields (costs) on average interest-bearing deposits during
the first three months of 2004, compared to the same period in 2003, as



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follows. Savings yields were reduced to 1.46% compared to 1.90%, NOW accounts were reduced to 0.51% compared to 1.04%,
money market demand accounts were reduced to 0.37% compared to 1.45%, certificates of deposit greater than or equal to $100 thousand were reduced to 3.15% compared to 3.68%, and certificates of deposit less than $100 thousand were reduced to 3.10%
compared to 3.44%. The resulting total yield on average deposits through March 31, 2004, was reduced to 1.90% compared to 2.42% for the same period of 2003.



The Company is positioned in a highly competitive environment. The competition for deposits has been historically strong. Management expects that the
current deposit interest rate environment will remain throughout 2004. Currently, competition for deposits has not resulted in significant increases in the advertised rates for deposits and this has allowed the Company to maintain a favorable
deposit rate structure. However, competitive pressure from other local banks, regional banks, insurance companies, credit unions and credit card companies may increase throughout 2004.



Interest Rate Sensitivity Analysis

as of March 31, 2004



|                                   |  |                |  |             |   |  |           |  |             |  |        
|---------------------------------- |  | -------------- |  | ----------- | - |  | --------- |  | ----------- |  | -------
|(Thousands)                        |  | Within 3months |  | 3-12 Months |   |  | 1-5 Years |  | Over 5Years |  | Total  
|Interest-Bearing Due From Banks    |  | 117            |  | 0           |   |  | 0         |  | 0           |  | 117    
|Fed Funds Sold                     |  | 15,386         |  | 0           |   |  | 0         |  | 0           |  | 15,386 
|Investments                        |  | 10,520         |  | 4,675       |   |  | 18,195    |  | 21,774      |  | 55,164 
|Loans                              |  | 51,972         |  | 51,176      |   |  | 78,037    |  | 20,427      |  | 201,612
|                                   |  |                |  |             |   |  |           |  |             |  |        
|Total Earning Assets               |  | 77,995         |  | 55,851      |   |  | 96,232    |  | 42,201      |  | 272,279
|                                   |  |                |  |             |  
|NOW Accounts                       |  | 0              |  | 28,661      |   |  | 19,106    |  | 0           |  | 47,767 
|MMDAs                             |  | 0              |  | 10,825      |   |  | 7,218     |  | 0           |  | 18,043 
|Savings                            |  | 43,213         |  | 13,326      |   |  | 0         |  | 8,884       |  | 65,423 
|CDs < $100,000                    |  | 8,676          |  | 12,054      |   |  | 43,178    |  | 5           |  | 63,913 
|CDs >= $100,000                   |  | 3,495          |  | 6,137       |   |  | 22,163    |  | 0           |  | 31,795 
|                                   |  |                |  |             |   |  |           |  |             |  |        
|Total Interest Bearing Deposits    |  | 55,384         |  | 71,003      |   |  | 91,665    |  | 8,884       |  | 226,941
|Securities Sold to Repurchase      |  | 5,218          |  | 0           |   |  | 0         |  | 0           |  | 5,218  
|                                   |  |                |  |             |   |  |           |  |             |  |        
|Total Interest Bearing Liabilities |  | 60,602         |  | 71,003      |   |  | 91,665    |  | 8,884       |  | 232,159
|Rate Sensitive Gap                 |  | 17,393         |  | (15,152     | ) |  | 4,567     |  | 33,312      |  | 40,120 
|Cumulative Gap                     |  | 17,393         |  | 2,241       |   |  | 6,808     |  | 40,120      |  |        



As of March 31, 2004,
the Company had interest-earning assets that mature within three months totaling $78.0 million, within twelve months totaling $55.9 million, through five years totaling $96.2 million, and over five years totaling $42.2 million. In comparison,
interest-bearing liabilities maturing within three months totaled $60.6 million, within twelve months totaled $71.0 million, within five years totaled $91.7 million and over five years totaled $8.8 million. The tabular information indicates that the
Company is slightly asset sensitive at twelve months, and becoming more asset-sensitive beyond one year. Management believes this will position the Company favorably in a rising rate environment. Management is continually reviewing loan and deposit
products to modify or develop offerings that are less subject to interest rate risk.



LIQUIDITY



The Company maintains adequate
short-term assets to meet the Companys liquidity needs as anticipated by management. Federal funds sold and investments that mature in one year or less provide the major sources of funding for liquidity needs. On March 31, 2004, federal funds
sold totaled $15.4 million and securities maturing in one year or less totaled $15.2 million, for a total pool of $30.6 million. The liquidity ratio as of March 31, 2004 was 25.4% as compared to 28.8% as of December 31, 2003. The Company determines
this ratio by dividing the sum of cash and cash



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equivalents, unpledged investment securities and Federal Funds Sold, by net 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, 2003, to March 31, 2004, total shareholders equity
increased to $25.6 million from $25.1 million or 2.2%. 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 comprehensive income or loss on the balance sheet and statement of changes in shareholders equity. Shareholders equity before unrealized gains or losses was $24.3 million on March 31, 2004, and $24.1
million on December 31, 2003. Unrealized gains were $1.4 million at quarter end 2004 and $964 thousand at December 31, 2003. This represents an increase of $413 thousand or 42.9% during the three month period.



Book value per share, basic, on March 31, 2004, compared to March 31, 2003,
grew to $10.99 from $10.82, an increase of 1.6%. Book value per share, basic, before accumulated comprehensive income on March 31, 2004, compared to March 31, 2003, grew to $10.40 from $10.08, an increase of 3.2%. Cash dividends paid for the three
months ended March 31, 2004, were $349 thousand, or $0.15 per share, compared to $323 thousand, or $0.14 per share, for the comparable period ended March 31, 2003 an increase of 7.1%. Average basic shares outstanding for the three months ended March
31, 2004, were 2,325,920 compared to 2,305,385 for the comparable period ended March 31, 2003. 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.



The Company is subject to minimum regulatory
capital ratios as defined by Federal Financial Institutions Examination Council guidelines. As of March 31, 2004 the Company maintained Tier 1 capital of $21.4 million, net risk weighted assets of $202.2 million, and Tier 2 capital of $1.9 million.
On March 31, 2004, the Tier 1 capital to risk weighted assets ratio was 10.6%, the total capital ratio was 11.5%, and the tier 1 leverage ratio was 7.4%. These ratios continue to be well in excess of regulatory minimums.



FINANCIAL CONDITION



As of March 31, 2004, total assets increased by 1.3% for the three month period ended December 31, 2003. Total assets were
$294.6 million at quarter end 2004 as compared to $290.7 million at year-end 2003. Cash and cash equivalents totaled $8.3 million on March 31, 2004, compared to $7.8 million at year-end 2003.



During the three months ended March 31, 2004, gross loans increased by $12.6
million or 6.7%, to $201.1 million from $188.5 million at year-end 2003. The components of this increase were real estate mortgage loans secured by 1-4 family residential collateral with 4.8% growth to $109.2 million, residential construction loans
grew 9.0% to $27.2 million, and commercial loans with 19.6% growth to $29.7 million.



For the three months ended March 31, 2004, the Company charged off loans totaling $78 thousand. For the comparable period in 2003, total loans charged off were $43 thousand. The Company maintained $140 thousand of
other real estate owned (OREO) as of March 31, 2004. As of year-end 2003, this balance was $77 thousand. The Company actively markets all OREO properties, and expects no loss on any of these properties. All properties maintained as other
real estate owned are carried at the lesser of book or market value.



The provision for loan losses amounted to $75 thousand through the first three months, and the allowance for loan losses as of March 31, 2004, was $1.9 million. The allowance for loan losses, as a percentage of average total loans through
the first three months of 2004 was .95%. 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 March 31, 2004, management deemed the loan loss reserve reasonable for the loss risk identified in the loan portfolio.



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As of March 31, 2004, $1.4 million of loans were on non-accrual status. There were $269 thousand of loans
on non-accrual status as of year-end 2003. This increase is primarily composed of one credit for which the expected loss has been accounted for within the allowance for loan losses. Nevertheless, a change in market conditions, interest rates, or the
local economy could increase the realized loss on this credit. Management has reviewed the credit and the underlying collateral and expects no additional loss above that which is recognized in the allowance for loan losses. Impaired loans totaled
$1,071,571 on March 31, 2004 and $157,810 on March 31, 2003. 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 $271
thousand on March 31, 2004, as compared to $889 thousand on March 31, 2003.



As of March 31, 2004, securities available for sale at market value totaled $54.7 million as compared to December 31, 2003 market value of $66.1 million. This represents a net decrease of $11.3 million or 17.1% for
the three months. Securities held to maturity were $420 thousand as of March 31, 2004, compared to $417 thousand at December 31, 2003. At quarter end the investment portfolio represented 18.7% of total assets and 19.7% 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 March 31, 2004 was a net unrealized gain of $2.1 million. The
corresponding accumulated adjustment to shareholders equity was $1.4 million. These gains or losses are booked monthly as an adjustment to book value based upon market conditions, and are not realized as an adjustment to earnings until the
securities are actually sold. Management does not anticipate the realization of net losses on investments during 2004.



As of March 31, 2004, total deposits were $261.6 million compared to $257.1 at year-end 2003. This represents growth in balances of $4.5 million or 1.7%
during the three months. Components of this growth include non-interest-bearing demand deposits at 0.9% growth to $34.6 million, and savings and interest bearing demand deposit accounts at 4.0% growth to $131.2 million. Time deposits decreased by
1.0% to $95.7 million.



RESULTS OF OPERATIONS



NON-INTEREST INCOME



Non-interest income for the first three months of 2004 totaled $691 thousand compared to $610 thousand for the same period
in 2003, an increase of 13.4%. 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 $165 thousand compared to $138 thousand at quarter end 2003, service charges on deposit accounts contributed $138 thousand for quarters ended 2004 and 2003, other miscellaneous fees contributed $183
thousand compared to $148 thousand at quarter end 2003. Secondary market real estate loan brokerage income contributed $22 thousand compared to $92 thousand at quarter end 2003, gains on the sale of investments were $155 thousand at quarter end 2004
compared to $21 thousand at quarter end 2003. Gains on the sale of other real estate totaled $7 thousand at quarter end 2004 compared to $35 thousand at quarter end 2003, and other income totaled $23 thousand at quarter end 2004 compared to $37
thousand for the quarter ended March 31, 2003.



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 testamentary trusts, revocable and irrevocable
personal, managed agency, and custodial trusts. 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.



17



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##### Table of Contents

NON-INTEREST EXPENSE



Non-interest expenses totaled $2.4 million during the first three months of 2004 as compared to $2.0 million for the same period in 2003, an increase of
16.8%. The largest components of non-interest expense are salaries and benefits, and occupancy expense. Through the three months ended March 31, 2004, salary and benefit expense was $1.4 million, and occupancy expense was $359 thousand. For the same
period in 2003, these totals were $1.1 million, and $261 thousand, respectively.



Other expenses include bank franchise taxes which totaled $56 thousand at quarter end 2004 and $52 thousand for 2003, expenses related to the Visa® program which were $80 thousand at quarter end 2004 and $71 thousand at quarter end 2003, expenses related to the
operation of the Company Customer Care Center (telephony) which were $41 thousand for the current period and $46 thousand for quarter end 2003, and other operating expenses which totaled $445 thousand for quarter end 2004 and $567 thousand for
quarter ended 2003.



Management is conducting extensive
internal reviews of operational efficiencies in an effort to maximize the human resource component of the Company. In an effort to meet the needs of an expanding market, the Company hired several employees throughout 2003 in an effort to fill
certain middle management and sales staffing needs. The full impact of the salary component is realized in the first quarter of 2004 while only partially realized in the first quarter of 2003. In addition, the Company has experienced dramatic
increases in the cost of medical coverage for its employees. The Company pays 100% of the employees basic medical coverage and this expense has increased approximately 30% during 2003 and 2004. Management intends to enter into the study of
alternative providers as a means of reducing the cost of medical coverage while not diminishing the depth or quality of service to its employees.



In addition, the Company recognized an additional $140 thousand in salary expense during the current quarter as a one time adjustment to accrued salary
expense. The Company expenses salary expense with twenty six pay periods. During a typical year there will be two months with three pay periods. Accrual accounting is employed whereby the month with three pay periods is accrued for and thereby
levels the salary expense for the months that would have an additional pay period. During 2004 the Company will account for three months with an additional pay period. The additional expense for this pay period was fully recognized in the first
quarter of 2004. This anomaly increased salary expense by $140 thousand in comparison to 2003.



In addition, regulatory requirements created by the Sarbanes Oxley Act of 2002 have increased the legal and accounting expenses of the Company significantly. Management expects this trend to continue as the reporting
and risk monitoring process develops. Legal and accounting expenses are expected to increase by 10% annually for the foreseeable future.



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, 2003.



ITEM 4. CONTROLS AND PROCEDURES



The Company, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of
the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of the period covered by this report. Based upon that evaluation, the Companys Chief Executive Officer and Chief 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.



PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None to report



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



None to report



ITEM 3. DEFAULT UPON SENIOR SECURITIES



None to
report



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##### Table of Contents

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



None to report



ITEM 5. OTHER INFORMATION



None to report



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a)
Exhibit Index:



|     |  |                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.0  |  | Articles of Incorporation and Bylaws of Bay Banks of Virginia, Inc. (Incorporated by reference to previously filed Form 10-K for the year-ended December 31, 2003).
|     | 
|10.1 |  | 1994 Incentive Stock option plan (Incorporated by reference to the previously filed Form S-4EF, Commission File number 333-22579 dated February 28, 1997.)         
|     | 
|10.2 |  | 1998 Non-Employee Directors Stock Option Plan (Incorporated by reference to the previously filed Annual Report on Form 10-K for the year-ended December 31, 1999.) 
|     | 
|10.3 |  | 2003 Incentive Stock Option Plan (Incorporated by reference to the previously filed Form 10-Q for the quarter ended September 30, 2003.)                           
|     | 
|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                                              



(b)
Reports on Form 8-K:



One report on Form 8-K was filed with
the Securities and Exchange Commission on February 20, 2004, announcing the first quarter dividend, and one report on Form 8-K/A was filed on March 1, 2004 amending this 8-K.



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SIGNATURES



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



|         |  |                                      
|-------- |  | -------------------------------------
|         |  | Bay Banks of Virginia, Inc.          
|         |  | (Registrant)                         
|         | 
|05/06/04 |  | /s/ Austin L. Roberts, III           
|         |  | Austin L. Roberts, III               
|         |  | President and Chief Executive Officer
|         |  | (principal executive officer)        
|         | 
|05/06/04 |  | /s/ Richard C. Abbott                
|         |  | Richard C. Abbott                    
|         |  | Treasurer                            
|         |  | (principal financial officer)        



20