(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

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

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ yes ☐ no

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~13,314,850~~13,332,484 shares of common stock on ~~May~~August 2, 2019.

	March 31, 2019			December 31, 2018 (1)			(unaudited)
(Dollars in thousands, except share data)	(unaudited)						June 30, 2019			December 31, 2018 (1)
ASSETS
Cash and due from banks	$	7,404		$	7,685		$	8,139		$	7,685
Interest-earning deposits		23,091			18,981			15,869			18,981
Federal funds sold								596			625
Certificates of deposit		3,746			3,746			3,498			3,746
Federal funds sold		182			625
Available-for-sale securities, at fair value		82,030			82,232			81,169			82,232
Restricted securities		7,804			7,600			6,769			7,600
Loans receivable, net of allowance for loan losses of $7,858 and $7,902, respectively		910,762			894,191
Loans receivable, net of allowance for loan losses of $7,479 and $7,902, respectively								909,913			894,191
Loans held for sale		—			368			593			368
Premises and equipment, net		21,822			18,169			21,001			18,169
Accrued interest receivable		3,274			3,172			3,191			3,172
Other real estate owned, net		3,718			3,597			3,168			3,597
Bank owned life insurance		19,390			19,270			19,511			19,270
Goodwill		10,374			10,374			10,374			10,374
Mortgage servicing rights		923			977			916			977
Core deposit intangible		2,013			2,193			1,840			2,193
Deferred tax asset, net		1,295			1,510			1,128			1,510
Other assets		6,012			5,927			6,585			5,927
Total assets	$	1,103,840		$	1,080,617		$	1,094,260		$	1,080,617
LIABILITIES
Noninterest-bearing demand deposits	$	112,315		$	114,122		$	116,229		$	114,122
Savings and interest-bearing demand deposits		371,587			359,400			374,175			359,400
Time deposits		372,751			368,670			385,218			368,670
Total deposits		856,653			842,192			875,622			842,192
Securities sold under repurchase agreements		7,220			6,089			6,983			6,089
Federal Home Loan Bank advances		100,000			100,000			70,000			100,000
Subordinated notes, net of issuance costs		6,897			6,893			6,902			6,893
Other liabilities		13,133			7,967			12,136			7,967
Total liabilities		983,903			963,141			971,643			963,141
SHAREHOLDERS’ EQUITY
Common stock ($5 par value; authorized - 30,000,000 shares; outstanding - 13,313,537 and 13,201,682 shares, respectively) (2)		66,568			66,008
Common stock ($5 par value; authorized - 30,000,000 shares; outstanding - 13,332,484 and 13,201,682 shares, respectively) (2)								66,662			66,008
Additional paid-in capital		36,493			36,972			36,699			36,972
Unearned employee stock ownership plan shares		(1,697	)		(1,734	)		(1,668	)		(1,734	)
Retained earnings		19,094			17,557			20,817			17,557
Accumulated other comprehensive loss, net		(521	)		(1,327	)
Accumulated other comprehensive income (loss), net								107			(1,327	)
Total shareholders’ equity		119,937			117,476			122,617			117,476
Total liabilities and shareholders’ equity	$	1,103,840		$	1,080,617		$	1,094,260		$	1,080,617

	For the Three Months Ended						For the Three Months Ended						For the Six Months Ended
(Dollars in thousands, except per share data)	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
INTEREST INCOME
Loans, including fees	$	11,461		$	9,984		$	11,458		$	9,745		$	22,919		$	19,729
Securities:
Taxable		595			397			577			497			1,172			894
Tax-exempt		118			120			97			117			214			237
Federal funds sold		56			74			18			52			25			126
Interest-bearing deposit accounts		86			98
Interest-earning deposit accounts								152			80			288			178
Certificates of deposit		20			19			19			17			39			36
Total interest income		12,336			10,692			12,321			10,508			24,657			21,200
INTEREST EXPENSE
Deposits		2,809			1,604			3,088			1,796			5,896			3,400
Securities sold under repurchase agreements		3			3			4			4			7			7
Subordinated notes		137			128			138			128			275			256
Federal Home Loan Bank advances		704			313			614			386			1,319			699
Total interest expense		3,653			2,048			3,844			2,314			7,497			4,362
Net interest income		8,683			8,644			8,477			8,194			17,160			16,838
Provision for loan losses		314			320
Provision for (recovery of) loan losses								62			(348	)		376			(28	)
Net interest income after provision for loan losses		8,369			8,324			8,415			8,542			16,784			16,866
NONINTEREST INCOME
Income from fiduciary activities		214			247			206			198			420			445
Service charges and fees on deposit accounts		238			135			246			152			484			287
Wealth management		206			132			262			282			469			414
Interchange fees, net		101			(8	)		121			124			222			116
Other service charges and fees		29			30			27			30			56			61
Secondary market sales and servicing		71			133			267			243			339			376
Increase in cash surrender value of bank owned life insurance		120			127			121			124			240			251
Net (loss) on disposition of other assets		(1	)		(69	)
Gain on rabbi trust assets		90			52
Net losses on sale of available-for-sale securities								(2	)		—			(2	)		—
Net loss on disposition of other assets								(1	)		—			(1	)		(69	)
Gain (loss) on rabbi trust assets								40			(25	)		130			27
Gain on curtailment of post-retirement benefit plan		—			352			—			—			—			352
Other		22			39			8			35			28			74
Total noninterest income		1,090			1,170			1,295			1,163			2,385			2,334
NONINTEREST EXPENSE
Salaries and employee benefits		4,001			4,106			3,892			4,273			7,893			8,379
Occupancy		868			785			837			874			1,705			1,659
Data processing		588			472			609			834			1,197			1,306
Bank franchise tax		216			176			230			177			446			353
Telecommunications and other technology		207			195			262			166			469			362
FDIC assessments		216			183			162			187			378			370
Foreclosed property		43			12			19			53			62			65
Consulting		115			382			147			341			262			723
Advertising and marketing		67			68			109			153			176			221
Directors’ fees		164			168			213			68			377			236
Audit and accounting		204			363			189			240			393			603
Legal		83			133			27			119			110			249
Merger-related		—			363			—			—			—			363
Core deposit intangible amortization		180			211			173			203			353			414
Net other real estate owned (gains)		(6	)		(141	)
Net other real estate owned loss (gains)								72			84			66			(57	)
Other		684			644			651			790			1,335			1,437
Total noninterest expense		7,630			8,120			7,592			8,562			15,222			16,683
Income before income taxes		1,829			1,374			2,118			1,143			3,947			2,517
Income tax expense		337			250			395			197			732			447
Net income	$	1,492		$	1,124		$	1,723		$	946		$	3,215		$	2,070
Basic and diluted earnings per share	$	0.11		$	0.09		$	0.13		$	0.07		$	0.25		$	0.16

	For the Three Months Ended						For the Three Months Ended						For the Six Months Ended
(Dollars in thousands)	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net income	$	1,492		$	1,124		$	1,723		$	946		$	3,215		$	2,070
Other comprehensive income (loss):
Unrealized holding gain (loss) on available-for-sale securities arising during the period		1,020			(1,192	)		793			(272	)		1,814			(1,467	)
Deferred tax (expense) benefit		(214	)		248			(167	)		57			(382	)		308
Reclassification of net available-for-sale securities losses recognized in net income								2			—			2			—
Total other comprehensive income (loss)		806			(944	)		628			(215	)		1,434			(1,159	)
Comprehensive income	$	2,298		$	180		$	2,351		$	731		$	4,649		$	911

								Unearned																	Unearned
								Employee Stock					Accumulated												Employee Stock					Accumulated
	Shares of				Additional			Ownership					Other			Total		Shares of				Additional			Ownership					Other			Total
	Common		Common		Paid-in			Plan			Retained		Comprehensive			Shareholders’		Common		Common		Paid-in			Plan			Retained		Comprehensive			Shareholders’
(Dollars in thousands)	Stock		Stock		Capital			Shares			Earnings		Loss, net			Equity		Stock		Stock		Capital			Shares			Earnings		Income (Loss), net			Equity
Three months ended March 31, 2019
Balance at beginning of period		13,201,682	$	66,008	$	36,972		$	(1,734	)	$	17,557	$	(1,327	)	$	117,476
Balances at December 31, 2018																			13,201,682	$	66,008	$	36,972		$	(1,734	)	$	17,557	$	(1,327	)	$	117,476
Net income		—		—		—			—			1,492		—			1,492		—		—		—			—			3,215		—			3,215
Other comprehensive income		—		—		—			—			—		806			806		—		—		—			—			—		1,434			1,434
Stock options exercised, net		5,173		26		(17	)		—			—		—			9		5,173		26		(17	)		—			—		—			9
Director stock grant		762		4		2			—			—		—			6		18,396		92		56			—			—		—			148
Restricted stock awards		105,920		530		(530	)		—			—		—			—		107,233		536		(536	)		—			—		—			—
ESOP collateral release		—		—		—			37			—		—			37		—		—		—			66			—		—			66
Share-based compensation expense		—		—		66			—			—		—			66		—		—		224			—			—		—			224
Cumulative effect adjustment of adoption of accounting principle		—		—		—			—			45		—			45		—		—		—			—			45		—			45
Balance at end of period		13,313,537	$	66,568	$	36,493		$	(1,697	)	$	19,094	$	(521	)	$	119,937
Balances at June 30, 2019																			13,332,484	$	66,662	$	36,699		$	(1,668	)	$	20,817	$	107		$	122,617

								Unearned																	Unearned
								Employee Stock					Accumulated												Employee Stock					Accumulated
		Shares of				Additional		Ownership					Other			Total			Shares of				Additional		Ownership					Other			Total
		Common		Common		Paid-in		Plan			Retained		Comprehensive			Shareholders’			Common		Common		Paid-in		Plan			Retained		Comprehensive			Shareholders’
(Dollars in thousands)		Stock		Stock		Capital		Shares			Earnings		Loss, net			Equity			Stock		Stock		Capital		Shares			Earnings		Loss, net			Equity
Three months ended March 31, 2018
Balance at beginning of period			13,203,605	$	66,018	$	37,142	$	(1,129	)	$	13,679	$	(1,156	)	$	114,554
Balances at December 31, 2017																				13,203,605	$	66,018	$	37,142	$	(1,129	)	$	13,679	$	(1,156	)	$	114,554
Net income			—		—		—		—			1,124		—			1,124			—		—		—		—			2,070		—			2,070
Other comprehensive loss			—		—		—		—			—		(944	)		(944	)		—		—		—		—			—		(1,159	)		(1,159	)
Stock options exercised, net	��		19,491		97		16		—			—		—			113			22,491		112		19		—			—		—			131
ESOP collateral release			—		—		—		41			—		—			41			—		—		—		82			—		—			82
Share-based compensation expense			—		—		31		—			—		—			31			—		—		46		—			—		—			46
Balance at end of period			13,223,096	$	66,115	$	37,189	$	(1,088	)	$	14,803	$	(2,100	)	$	114,919
Balances at June 30, 2018																				13,226,096	$	66,130	$	37,207	$	(1,047	)	$	15,749	$	(2,315	)	$	115,724

	For the Three Months Ended						For the Six Months Ended
(Dollars in thousands)	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018
Cash Flows From Operating Activities
Net income	$	1,492		$	1,124		$	3,215		$	2,070
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		446			382			871			805
Net premium amortization on available-for-sale securities		118			111			276			207
Amortization of subordinated notes issuance costs		4			4			9			8
Amortization of core deposit intangible		180			211			353			414
Accretion of fair value adjustment on acquired time deposits		(34	)		(68	)		(65	)		(110	)
Accretion of fair value adjustments (discounts) on acquired loans		(439	)		(503	)
Provision for loan losses		314			320
Accretion of fair value discounts on acquired loans								(636	)		(1,051	)
Provision for (recovery of) loan losses								376			(28	)
Share-based compensation expense		66			31			224			46
Net loss on the sale of available-for-sale securities								2			—
Increase in other real estate owned valuation allowance		16			78			61			91
Gain on sale of other real estate owned		(22	)		(219	)
Net loss (gain) on sale of other real estate owned								5			(148	)
Net loss on the disposition of fixed and other assets		1			69			1			69
Decrease in value of mortgage servicing rights		54			69			61			22
Originations of loans held for sale (HFS)		(2,344	)		(7,189	)		(13,982	)		(13,926	)
Proceeds from HFS loan sales		2,773			8,544			14,004			15,135
Gain on HFS sold loans		(61	)		(118	)		(247	)		(227	)
Increase in cash surrender value of bank owned life insurance		(120	)		(127	)		(240	)		(251	)
Gain on curtailment of post-retirement benefit plan		—			(352	)		—			(352	)
(Increase) decrease in other assets and accrued interest receivable		(4,099	)		787
Increase in other assets and accrued interest receivable								(4,707	)		(269	)
Increase in other liabilities		5,110			1,986			4,119			1,186
Net cash provided by operating activities		3,455			5,140			3,700			3,691
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities		1,098			816			2,089			1,808
Proceeds from sales and calls of available-for-sale securities								4,510			—
Purchases of available-for-sale securities		—			(400	)		(4,000	)		(650	)
(Purchases) sales of restricted securities, net		(204	)		277
Sales (purchases) of restricted securities, net								831			(403	)
Maturities of certificates of deposit								248			—
Decrease in federal funds sold		443			3,603			29			5,017
Net increase in loans		(16,583	)		(24,103	)		(15,613	)		(36,799	)
Proceeds from sale of other real estate owned		22			1,879			515			3,001
Net disposals (purchases) of premises and equipment		27			(580	)
Net decrease (increase) of premises and equipment								705			(1,421	)
Net cash used in investing activities		(15,197	)		(18,508	)		(10,686	)		(29,447	)
Cash Flows From Financing Activities
Increase in demand, savings, and other interest-bearing demand deposits		10,380			20,931
Net increase in demand, savings, and other interest-bearing demand deposits								16,882			2,292
Net increase in time deposits		4,115			14,242			16,613			11,038
Stock options exercised, net		9			113			9			131
Net increase (decrease) in securities sold under repurchase agreements and other borrowings		1,061			(2,947	)		824			(2,490	)
Director stock grant		6			—
(Decrease) in Federal Home Loan Bank advances		—			(10,000	)
Decrease in Federal Home Loan Bank advances								(30,000	)		—
Net cash provided by financing activities		15,571			22,339			4,328			10,971
Net increase in cash and due from banks		3,829			8,971
Net decrease in cash and due from banks								(2,658	)		(14,785	)
Cash and cash equivalents (including interest-earning deposits) at beginning of period		26,666			51,367			26,666			51,367
Cash and cash equivalents (including interest-earning deposits) at end of period	$	30,495		$	60,338		$	24,008		$	36,582
Supplemental Schedule of Cash Flow Information
Cash paid for:
Interest	$	3,587		$	2,166		$	7,473		$	4,334
Income taxes		—			—			—			620
Non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale securities		1,020			(1,192	)		1,814			(1,467	)
Changes in deferred taxes resulting from other comprehensive income transactions								(382	)		308
Loans transferred to other real estate owned		137			47			152			2,161
Changes in deferred taxes resulting from other comprehensive income transactions		(214	)		248
Cumulative effect adjustment of adoption of accounting principle		(45	)		—			(45	)		—
Employee stock ownership plan transactions		(37	)		(41	)		(66	)		(82	)
Director stock grant								148			—

Bay Banks of Virginia, Inc. (the “Company”) is the holding company for Virginia Commonwealth Bank (the “Bank”), for VCB Financial Group, Inc. (the “Financial Group” or “VCBFG”), and for Steptoes Holdings, LLC (“Steptoes Holdings”). The consolidated financial statements of the Company include the accounts of ~~Bay Banks of Virginia, Inc.,~~the Company, the Bank, the Financial Group, and Steptoes Holdings.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to the general practices within the banking industry. 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 or for any other interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations. The reclassifications had no effect on net income, net income per share, or shareholders’ equity as previously reported.

All dollar amounts included in the tables in these notes are in thousands, except per share data, unless otherwise stated.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Accounting Standards Codification (“ASC”) 326), which is new guidance for the accounting for credit losses on instruments within its scope. This ASU introduces a new model for current expected credit losses (“CECL”), which will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures, including loans, held-to-maturity debt securities, loan commitments, financial guarantees, net investments in leases, reinsurance, and trade receivables. The CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. In addition, this ASC will replace the current available-for-sale debt securities other-than-temporary impairment model with an estimate of expected credit losses only when the fair value falls below the amortized cost of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The available-for-sale debt security model will also require the use of an allowance to record estimated credit losses and subsequent recoveries. This ASU also addresses purchased financial assets with credit deterioration. Disclosure requirements are expanded regarding an entity’s assumptions, models, and methods for estimating the allowance for loan losses. The Company has a CECL cross-functional working group that is implementing the standard supported by its third-party vendor. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. On July 17, 2019, the FASB voted to delay the effective date of this ASU for smaller reporting companies and non-SEC registrants to interim and annual periods beginning after December 15, 2022. The FASB directed its staff to draft a proposed ASU outlining this delay for public comment. The Company ~~has~~meets the definition of a ~~CECL cross-functional working group that~~smaller reporting company and is ~~evaluating~~monitoring the ~~effect this ASU will have on the Company’s consolidated financial statements. During 2019, this working group has begun implementation~~impact of the ~~standard supported by its third-party vendor.~~proposed delay.

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) (“ASU 2016-02”). This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. This ASU iswas effective for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is a lessee in several lease agreements, such as for office space, which were considered operating leases and not recognized on its consolidated balance sheet for the year ended December 31, 2018. On January 1, 2019, the Company adopted the requirements of ASU 2016-02, and as part of the transition to the new standard, the Company measured and recognized leases that existed on January 1, 2019 using a modified retrospective approach.

The adoption of ASU 2016-02 resulted in the recognition of operating Right-of-Use ~~(ROU)~~(“ROU”) assets and operating lease liabilities of $3.5 million and $3.8 million, respectively, primarily related to real estate leases for branches and office space and information technology related equipment. The Company does not have any finance leases as stipulated in ASC 842. A cumulative effect adjustment of $45 thousand was recorded upon adoption of ASU 2016-02, which is reflected in the Company’s statement of shareholders’ equity. Refer to Note 7 for additional information and disclosures regarding ASU 2016-02.

The aggregate amortized costs and fair values of available-for-sale securities as of the dates stated were as follows.

			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
March 31, 2019	Cost		Gains		(Losses)			Value
June 30, 2019										Cost		Gains		(Losses)			Value
U.S. Government agencies and mortgage backed securities	$	49,965	$	74	$	(735	)	$	49,304	$	51,941	$	205	$	(279	)	$	51,867
State and municipal obligations		20,437		192		(98	)		20,531		16,810		281		(37	)		17,054
Corporate bonds		12,187		46		(38	)		12,195		12,180		68		—			12,248
Total available-for-sale securities	$	82,589	$	312	$	(871	)	$	82,030	$	80,931	$	554	$	(316	)	$	81,169

Securities with fair values of ~~$18.8~~$12.1 million and $17.5 million were pledged as collateral for securities sold under repurchase agreements as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. As of ~~March 31,~~June 30, 2019 and December 31, 2018, all of the securities pledged for repurchase agreements were state and municipal obligations. All of the repurchase agreements had remaining contractual maturities that were overnight and continuous. Securities sold under repurchase agreements were ~~$7.2~~$7.0 million and $6.1 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, and are included in liabilities on the consolidated balance sheets. The securities pledged to each agreement are reviewed daily and can be changed at the option of the Bank with minimal risk of loss due to fair value changes.

Securities in an unrealized loss position as of ~~March 31,~~June 30, 2019 and December 31, 2018, by period of the unrealized loss, are shown below. The unrealized loss positions were primarily related to interest rate movements and not the credit quality of the issuers. All agency securities and state and municipal securities are investment grade or better, and their losses are considered temporary. Management does not intend to sell nor expect to be required to sell these securities, and all amortized cost bases are expected to be recovered.

The following tables provide information on securities in an unrealized loss position as of the dates stated.

			Less than 12 months					12 months or more					Total							Less than 12 months				12 months or more					Total
March 31, 2019	Number of Securities		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
June 30, 2019																		Number of Securities		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agencies and mortgage backed securities		50	$	161	$	(2	)	$	40,648	$	(733	)	$	40,809	$	(735	)		45	$	983	$	—	$	31,302	$	(279	)	$	32,285	$	(279	)
State and municipal obligations		26		660		(3	)		6,772		(95	)		7,432		(98	)		8		—		—		3,403		(37	)		3,403		(37	)
Corporate bonds		4		4,536		(36	)		498		(2	)		5,034		(38	)		—		—		—		—		—			—		—
Total temporarily impaired securities		80	$	5,357	$	(41	)	$	47,918	$	(830	)	$	53,275	$	(871	)		53	$	983	$	—	$	34,705	$	(316	)	$	35,688	$	(316	)

The following table presents the amortized cost and fair value by contractual maturity of available-for-sale securities as of the dates stated. Expected maturities may differ from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,351	$	2,355	$	1,080	$	1,079	$	1,543	$	1,545	$	1,080	$	1,079
Due after one year but less than five years		47,354		47,006		47,065		46,358		43,940		44,036		47,065		46,358
Due after five years but less than ten years		25,015		24,956		26,615		26,149		27,454		27,704		26,615		26,149
Due after ten years		7,869		7,713		9,044		8,646		7,994		7,884		9,044		8,646
Total available-for-sale securities	$	82,589	$	82,030	$	83,804	$	82,232	$	80,931	$	81,169	$	83,804	$	82,232

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled ~~$5.2~~$3.9 million and $5.1 million as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. The Company also has an investment in the Federal Reserve Bank of Richmond (“FRB”) stock, which totaled ~~$2.4~~$2.6 million as of ~~March 31,~~June 30, 2019 and $2.3 million as of December 31, 2018 and a stock investment in the Bank’s primary correspondent bank totaling $220 thousand ~~at March 31,~~as of June 30, 2019 and December 31, 2018. The investments in both FHLB and FRB stock are required investments related to the Bank’s membership with the FHLB and FRB. These securities do not have a readily determinable fair value as their ownership is restricted, and they lack an active market for trading. Additionally, ~~per~~pursuant to charter provisions related to the FHLB and FRB stock, all repurchase transactions of such stock must occur at par. Accordingly, these securities are carried at cost and are periodically evaluated for impairment.

Loans are reported at their recorded investment, which is the outstanding principal balance net of any unearned income and costs, such as deferred fees and costs, charge-offs, and discounts or premiums on acquired or purchased loans. Interest on loans is recognized in earnings over the contractual term of the loan and is calculated using the effective interest method on principal amounts outstanding. Loan fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield over the contractual term of the loan, adjusted for early pay-offs or principal curtailments, as applicable.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off are reversed against interest income at the time the loans are placed in nonaccrual or ~~charged off.~~charged-off. Any subsequent interest received on these loans is recognized as interest income under the cash basis method of accounting until ~~qualifying~~the loan qualifies for return to accrual status. Generally, a loan is returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured, or the loan becomes well-secured and in the process of collection.

	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Mortgage loans on real estate:
Construction, land and land development	$	117,502		$	109,475		$	110,598		$	109,475
Commercial mortgages (non-owner occupied)		180,007			180,074			178,532			180,074
Commercial mortgages (owner occupied)		88,644			87,241			82,990			87,241
Residential first mortgages		303,090			298,894			305,252			298,894
Residential revolving and junior mortgages		36,251			38,313			35,875			38,313
Commercial and industrial		173,360			164,608			187,531			164,608
Consumer		20,095			23,740			16,889			23,740
Total loans		918,949			902,345			917,667			902,345
Net unamortized deferred loan (fees)		(329	)		(252	)
Net unamortized deferred loan fees								(275	)		(252	)
Allowance for loan losses		(7,858	)		(7,902	)		(7,479	)		(7,902	)
Loans receivable, net	$	910,762		$	894,191		$	909,913		$	894,191

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company had ~~$234.3~~$261.7 million and $229.1 million, respectively, of loans pledged to the FHLB as collateral for borrowings.

The following tables present the recorded investment for past due, based upon contractual terms, and nonaccrual loans as of the dates stated. A loan past due 90 days or more is generally placed on nonaccrual unless it is both ~~well secured~~well-secured and in the process of collection. Loans presented below as 90 days or more past due and still accruing include purchased credit-impaired (“PCI”) loans.

March 31, 2019	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans
June 30, 2019													30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans
Mortgage loans on real estate:
Construction, land and land development	$	137	$	—	$	914	$	1,051	$	116,451	$	117,502	$	225	$	—	$	698	$	923	$	109,675	$	110,598
Commercial mortgages (non-owner occupied)		—		—		435		435		179,572		180,007		—		—		434		434		178,098		178,532
Commercial mortgages (owner occupied)		1,573		23		1,060		2,656		85,988		88,644		144		—		238		382		82,608		82,990
Residential first mortgages		2,735		24		1,846		4,605		298,485		303,090		1,063		156		1,984		3,203		302,049		305,252
Residential revolving and junior mortgages		179		—		803		982		35,269		36,251		99		—		936		1,035		34,840		35,875
Commercial and industrial		—		—		—		—		173,360		173,360		—		—		—		—		187,531		187,531
Consumer		310		—		326		636		19,459		20,095		279		—		287		566		16,323		16,889
Total loans	$	4,934	$	47	$	5,384	$	10,365	$	908,584	$	918,949	$	1,810	$	156	$	4,577	$	6,543	$	911,124	$	917,667

Approximately $2.2 million of the $4.9 million of loans 30-89 days past due as of March 31, 2019 was attributable to four loans (two relationships) that were brought current in the second quarter of 2019.

The following tables include an aging analysis, based upon contractual terms, of the recorded investment of PCI loans included in the tables above, as of the dates ~~stated, included in the tables above.~~stated.

March 31, 2019	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total PCI Loans
June 30, 2019													30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total PCI Loans
Mortgage loans on real estate:
Construction, land and land development	$	23	$	—	$	—	$	23	$	1,348	$	1,371	$	16	$	—	$	—	$	16	$	1,360	$	1,376
Commercial mortgages (non-owner occupied)		—		—		—		—		135		135		—		—		—		—		129		129
Commercial mortgages (owner occupied)		26		23		—		49		232		281		—		—		—		—		274		274
Residential first mortgages		257		24		—		281		3,154		3,435		30		156		—		186		3,088		3,274
Residential revolving and junior mortgages		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		48		48		—		—		—		—		45		45
Total purchased credit-impaired loans	$	306	$	47	$	—	$	353	$	4,917	$	5,270	$	46	$	156	$	—	$	202	$	4,896	$	5,098

The following table presents the changes in accretable yield for PCI loans for the period stated.

	For the Three Months Ended			For the Six Months Ended
	March 31, 2019			June 30, 2019
Balance as of December 31, 2018	$	1,083		$	1,083
Accretion of acquisition accounting adjustment		(86	)		(184	)
Reclassifications from nonaccretable balance, net		45			55
Other changes, net		65			(96	)
Balance as of March 31, 2019	$	1,107
Balance as of June 30, 2019				$	858

Loans in the Company’s loan portfolio are risk rated on a periodic basis by experienced credit personnel.

Pass – ~~Borrower is strong~~Several pass credit grades comprise loans in this category, which are assigned based on varying levels of risk, ranging from credits that are secured by cash or ~~sound, and collateral securing~~marketable securities, to management attention credits that have all characteristics of an acceptable credit risk but warrant more than the ~~loan, if any, is adequate.~~

~~Watch~~ ~~– Borrower exhibits some signs~~normal level of ~~financial stress but is generally believed to be a satisfactory customer, and collateral, if any, may be in excess of 90% of the loan balance.~~monitoring.

Special Mention – Adverse trends in the borrower’s financial position are evident and warrant management’s close attention. Any collateral may not be fully adequate to secure the loan balance.

Substandard – A loan in this category has a well-defined weakness in the primary repayment source that jeopardizes the timely collection of the ~~debt.~~loan. There is a distinct possibility that a loss may result if the weakness is not corrected.

Doubtful – Default has already occurred and it is likely that foreclosure or repossession procedures have begun or will begin in the near future. Weaknesses make collection or liquidation in full, based on currently existing information, highly questionable and improbable.

Loss – Uncollectible and of such little value that continuance as an asset is not warranted.

The following tables present the Company’s risk rating of loans by loan type as of the dates stated.

March 31, 2019	Construction, Land and Land Development		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Residential First Mortgages		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans
Grade:
June 30, 2019																	Construction, Land and Land Development		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Residential First Mortgages		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans
Rating:
Pass	$	108,907	$	176,780	$	78,620	$	285,717	$	34,218	$	167,408	$	6,306	$	857,956	$	108,524	$	177,969	$	82,423	$	301,753	$	34,552	$	180,375	$	16,598	$	902,194
Watch		6,236		2,657		8,644		14,049		905		4,587		13,447		50,525
Special mention		67		—		158		454		—		—		—		679		—		—		154		478		63		5,951		—		6,646
Substandard		2,292		570		1,222		2,870		1,128		1,365		342		9,789		2,074		563		413		3,021		1,260		1,205		291		8,827
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	117,502	$	180,007	$	88,644	$	303,090	$	36,251	$	173,360	$	20,095	$	918,949	$	110,598	$	178,532	$	82,990	$	305,252	$	35,875	$	187,531	$	16,889	$	917,667

December 31, 2018	Construction, Land and Land Development		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Residential First Mortgages		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans		Construction, Land and Land Development		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Residential First Mortgages		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans
Grade:
Rating:
Pass	$	101,007	$	174,661	$	79,375	$	280,663	$	35,900	$	158,590	$	8,144	$	838,340	$	107,306	$	178,936	$	85,897	$	295,372	$	37,206	$	162,392	$	23,389	$	890,498
Watch		6,299		4,275		6,522		14,709		1,306		3,802		15,245		52,158
Special mention		68		—		107		1,071		—		893		121		2,260		68		—		107		1,071		—		893		121		2,260
Substandard		2,101		1,138		1,237		2,451		1,107		1,323		230		9,587		2,101		1,138		1,237		2,451		1,107		1,323		230		9,587
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	109,475	$	180,074	$	87,241	$	298,894	$	38,313	$	164,608	$	23,740	$	902,345	$	109,475	$	180,074	$	87,241	$	298,894	$	38,313	$	164,608	$	23,740	$	902,345

The allowance for loan losses (“ALL”) reflects management’s judgment of probable loan losses inherent in the loan portfolio as of the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter-end. To determine the total ALL, the Company estimates the reserves needed for each homogenous type of the loan portfolio, in addition to loans analyzed individually for impairment. Depending on the nature of each loan type, considerations include historical loss experience, adverse situations that may affect a borrower’s ability to repay, credit scores, past due history, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as conditions change.

The ALL consists of specific, general, and unallocated components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one individually to calculate the amount of impairment. Impaired loans measured individually for impairment generally include (1) any loan risk rated Special Mention or worse where the borrower has filed for bankruptcy; (2) all loans risk rated Substandard or worse with balances of $400 thousand or more; and (3) all loans classified as a troubled debt restructuring (“TDR”). For the general component of the ALL, the Company collectively evaluates any loans not evaluated individually for a specific reserve, including impaired loans risk rated Substandard or worse with balances less than $400 thousand. All loans evaluated collectively are grouped into types, and historical loss experience is calculated and applied to each loan type and the resultant reserve is adjusted for qualitative factors. Qualitative factors include changes in local and national economic indicators, such as unemployment rates, interest rates, gross domestic product growth, and real estate market trends; the level of past due and nonaccrual loans; risk ratings on individual loans; strength of credit policies and procedures; loan officer experience; borrower credit scores; and other intrinsic risks related to the types and geographic locations of loans. These qualitative adjustments reflect management’s judgment of risks inherent in the loan types. An unallocated component is maintained, if needed, to cover uncertainties that could affect management’s estimate of probable losses.

The following table presents the ALL by loans evaluated for impairment individually and collectively by loan type as of the dates stated.

March 31, 2019	Mortgage Loans on Real Estate		Commercial and Industrial		Consumer		Total
June 30, 2019									Mortgage Loans on Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses applicable to:
Loans individually evaluated for impairment	$	1,151	$	—	$	120	$	1,271	$	987	$	—	$	119	$	1,106
Loans collectively evaluated for impairment		4,108		1,406		1,073		6,587		4,065		1,537		771		6,373
Purchased credit-impaired loans		—		—		—		—		—		—		—		—
Total allowance for loan losses	$	5,259	$	1,406	$	1,193	$	7,858	$	5,052	$	1,537	$	890	$	7,479
Loan balances applicable to:
Loans individually evaluated for impairment	$	7,444	$	—	$	120	$	7,564	$	7,358	$	—	$	119	$	7,477
Loans collectively evaluated for impairment		712,828		173,360		19,927		906,115		700,837		187,531		16,724		905,092
Purchased credit-impaired loans		5,222		—		48		5,270		5,052		—		46		5,098
Total loans	$	725,494	$	173,360	$	20,095	$	918,949	$	713,247	$	187,531	$	16,889	$	917,667
December 31, 2018
Allowance for loan losses applicable to:
Loans individually evaluated for impairment	$	1,036	$	—	$	121	$	1,157	$	1,036	$	—	$	121	$	1,157
Loans collectively evaluated for impairment		3,931		1,374		1,440		6,745		3,931		1,374		1,440		6,745
Purchased credit-impaired loans		—		—		—		—		—		—		—		—
Total allowance for loan losses	$	4,967	$	1,374	$	1,561	$	7,902	$	4,967	$	1,374	$	1,561	$	7,902
Loan balances applicable to:
Loans individually evaluated for impairment	$	7,485	$	—	$	121	$	7,606	$	7,485	$	—	$	121	$	7,606
Loans collectively evaluated for impairment		701,235		164,608		23,573		889,416		701,235		164,608		23,573		889,416
Purchased credit-impaired loans		5,277		—		46		5,323		5,277		—		46		5,323
Total loans	$	713,997	$	164,608	$	23,740	$	902,345	$	713,997	$	164,608	$	23,740	$	902,345

The following tables present an analysis of the change in the ALL by loan type for the periods presented.

	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
For the Three Months Ended March 31, 2019
For the Three Months Ended June 30, 2019													Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance	$	4,967		$	1,374		$	1,561		$	7,902		$	5,259		$	1,406		$	1,193		$	7,858
Charge-offs		(54	)		—			(407	)		(461	)		(105	)		—			(411	)		(516	)
Recoveries		24			1			78			103			18			—			57			75
Provision (recovery of)		322			31			(39	)		314			(120	)		131			51			62
Ending Balance	$	5,259		$	1,406		$	1,193		$	7,858		$	5,052		$	1,537		$	890		$	7,479

	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
For the Three Months Ended March 31, 2018
For the Three Months Ended June 30, 2018													Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance	$	3,864		$	878		$	3,028		$	7,770		$	4,190		$	1,043		$	2,690		$	7,923
Charge-offs		(31	)		(14	)		(343	)		(388	)		(83	)		(101	)		(335	)		(519	)
Recoveries		27			—			194			221			16			—			41			57
Provision (recovery of)		330			179			(189	)		320			121			2			(471	)		(348	)
Ending Balance	$	4,190		$	1,043		$	2,690		$	7,923		$	4,244		$	944		$	1,925		$	7,113

For the Six Months Ended June 30, 2019													Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance													$	4,967		$	1,374		$	1,561		$	7,902
Charge-offs														(159	)		-			(819	)		(978	)
Recoveries														43			1			135			179
Provision														201			162			13			376
Ending Balance													$	5,052		$	1,537		$	890		$	7,479

For the Six Months Ended June 30, 2018													Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance													$	3,864		$	878		$	3,028		$	7,770
Charge-offs														(114	)		(116	)		(677	)		(907	)
Recoveries														43			—			235			278
Provision (recovery of)														451			182			(661	)		(28	)
Ending Balance													$	4,244		$	944		$	1,925		$	7,113

Net charge-offs of consumer loans relate primarily to a select portfolio of purchased loans. The recovery of provision in the quarter ended March 31, 2019 was primarily attributable to loan loss factor adjustments in the consumer loan portfolio.

The following ~~tables present~~table presents the Company’s recorded investment and the borrowers’ unpaid principal balances for impaired loans, excluding PCI loans, with the associated ALL amount, if applicable, by loan type as of the dates stated.

	As of March 31, 2019						As of December 31, 2018						As of June 30, 2019						As of December 31, 2018
	Recorded Investment		Borrowers’ Unpaid Principal Balance		Related Allowance		Recorded Investment		Borrowers’ Unpaid Principal Balance		Related Allowance		Recorded Investment		Borrowers’ Unpaid Principal Balance		Related Allowance		Recorded Investment		Borrowers’ Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction, land and land development	$	332	$	403	$	—	$	335	$	406	$	—	$	328	$	399	$	—	$	335	$	406	$	—
Commercial mortgages (non-owner occupied)		—		—		—		386		386		—		—		—		—		386		386		—
Commercial mortgages (owner occupied)		382		382		—		—		—		—		429		429		—		—		—		—
Residential first mortgages		1,428		1,428		—		—		—		—		1,385		1,385		—		—		—		—
Residential revolving and junior mortgages		—		—		—		1,028		1,028		—		—		—		—		1,028		1,028		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Total impaired loans with no related allowance		2,142		2,213		—		1,749		1,820		—		2,142		2,213		—		1,749		1,820		—
With an allowance recorded:
Construction, land and land development		274		274		135		275		275		132		176		176		39		275		275		132
Commercial mortgages (non-owner occupied)		435		435		35		443		443		18		434		434		34		443		443		18
Commercial mortgages (owner occupied)		1,063		1,063		56		1,069		1,069		57		1,058		1,058		54		1,069		1,069		57
Residential first mortgages		3,029		3,029		641		3,447		3,447		565		3,048		3,048		644		3,447		3,447		565
Residential revolving and junior mortgages		501		501		284		502		502		264		500		500		216		502		502		264
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		120		120		120		121		121		121		119		119		119		121		121		121
Total impaired loans with allowance recorded		5,422		5,422		1,271		5,857		5,857		1,157		5,335		5,335		1,106		5,857		5,857		1,157
Total impaired loans:
Construction, land and land development		606		677		135		610		681		132		504		575		39		610		681		132
Commercial mortgages (non-owner occupied)		435		435		35		829		829		18		434		434		34		829		829		18
Commercial mortgages (owner occupied)		1,445	��	1,445		56		1,069		1,069		57		1,487		1,487		54		1,069		1,069		57
Residential first mortgages		4,457		4,457		641		3,447		3,447		565		4,433		4,433		644		3,447		3,447		565
Residential revolving and junior mortgages		501		501		284		1,530		1,530		264		500		500		216		1,530		1,530		264
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		120		120		120		121		121		121		119		119		119		121		121		121
Total impaired loans	$	7,564	$	7,635	$	1,271	$	7,606	$	7,677	$	1,157	$	7,477	$	7,548	$	1,106	$	7,606	$	7,677	$	1,157

The following table presents the average recorded investment and interest income recognized for impaired loans, excluding PCI loans, by loan type for the periods presented.

	For the Three Months Ended								For the Three Months Ended								For the Six Months Ended
	March 31, 2019				March 31, 2018				June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Construction, land and land development	$	334	$	2	$	851	$	1	$	330	$	4	$	84	$	—	$	332	$	9	$	165	$	1
Commercial mortgages (non-owner occupied)		—		—		—		—		—		—		—		—		—		—		—		—
Commercial mortgages (owner occupied)		384		6		1,777		7		405		7		1,385		20		399		13		1,380		32
Residential first mortgages		1,431		19		1,510		17		1,389		18		1,513		24		1,391		36		1,471		41
Residential revolving and junior mortgages		—		—		414		1		—		—		415		1		—		—		415		3
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		1		—		—		—		3		—		—		—		—
Total impaired loans with no allowance		2,149		27		4,552		27		2,124		29		3,397		48		2,122		58		3,431		77
With an allowance recorded:
Construction, land and land development		274		4		500		5		225		10		571		8		241		15		553		17
Commercial mortgages (non-owner occupied)		439		23		—		—		435		4		224		—		437		27		149		—
Commercial mortgages (owner occupied)		1,066		14		544		6		1,061		14		538		8		1,063		28		541		15
Residential first mortgages		3,034		33		2,159		10		3,055		34		2,623		36		3,065		65		2,386		67
Residential revolving and junior mortgages		502		3		1,357		3		501		3		131		2		501		6		123		4
Commercial and industrial		—		—		97		—		—		—		—		—		—		—		—		—
Consumer		121		2		—		—		120		2		—		—		120		5		—		5
Total impaired loans with allowance recorded		5,436		79		4,657		24		5,397		67		4,087		54		5,427		146		3,752		108
Total impaired loans:
Construction, land and land development		608		6		1,351		6		555		14		655		8		573		24		718		18
Commercial mortgages (non-owner occupied)		439		23		—		—		435		4		224		—		437		27		149		—
Commercial mortgages (owner occupied)		1,450		20		2,321		13		1,466		21		1,923		28		1,462		41		1,921		47
Residential first mortgages		4,465		52		3,669		27		4,444		52		4,136		60		4,456		101		3,857		108
Residential revolving and junior mortgages		502		3		1,771		4		501		3		546		3		501		6		538		7
Commercial and industrial		—		—		97		—		—		—		—		—		—		—		—		—
Consumer		121		2		—		1		120		2		—		3		120		5		—		5
Total impaired loans	$	7,585	$	106	$	9,209	$	51	$	7,521	$	96	$	7,484	$	102	$	7,549	$	204	$	7,183	$	185

The following table presents a reconciliation of nonaccrual loans to impaired loans as of the dates stated.

	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Nonaccrual loans	$	5,384		$	5,206		$	4,577		$	5,206
Nonaccrual loans collectively evaluated for impairment		(1,622	)		(2,040	)		(1,470	)		(2,040	)
Nonaccrual impaired loans		3,762			3,166			3,107			3,166
TDRs on accrual		3,478			4,115			4,046			4,115
Other impaired loans on accrual		324			325			324			325
Total impaired loans	$	7,564		$	7,606		$	7,477		$	7,606

For economic or legal reasons related to a borrower’s financial condition, management may grant a concession to a borrower that it would not otherwise consider. In cases where borrowers are experiencing financial difficulties and are granted new terms that provide for a reduction of either interest or principal or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risks, the related loan is classified as a troubled debt restructuring. Management strives to identify borrowers in financial difficulty early and may work with them to modify their loan(s) to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance, and other actions intended to minimize the economic loss to the ~~Company.~~Company and are classified as TDRs.

~~Loans modified as~~ TDRs are considered impaired and are individually evaluated for impairment for the ALL. The following ~~table presents~~tables present by loan type information related to loans modified as TDRs for the periods presented.

No loans designated as TDRs subsequently defaulted in the first three or six months of 2019 or 2018.

The following table presents a roll-forward of accruing and nonaccrual TDRs for the period presented.

	Accruing			Nonaccrual			Total			Accruing			Nonaccrual			Total
Balance as of December 31, 2018	$	4,115		$	1,477		$	5,592		$	4,115		$	1,477		$	5,592
Charge-offs		—			—			—			—			—			—
Payments and other adjustments		(21	)		(6	)		(27	)		(52	)		(106	)		(158	)
New TDR designation		—			—			—			52			—			52
Release TDR designation		—			—			—			—			—			—
Transfer		(616	)		616			—			(69	)		69			—
Balance as of March 31, 2019	$	3,478		$	2,087		$	5,565
Balance as of June 30, 2019										$	4,046		$	1,440		$	5,486

The following table presents the number and carrying values of properties included in other real estate owned (“OREO”) as of the dates stated.

	March 31, 2019				December 31, 2018				June 30, 2019				December 31, 2018
	Number of		Carrying		Number of		Carrying		Number of		Carrying		Number of		Carrying
	Properties		Value		Properties		Value		Properties		Value		Properties		Value
Residential		7	$	1,477		6	$	1,339		3	$	983		6	$	1,339
Land		16		1,724		17		1,741		16		1,729		17		1,741
Commercial properties		3		517		3		517		3		456		3		517
Total other real estate owned, net		26		3,718		26		3,597		22		3,168		26		3,597

There ~~was one $13 thousand~~were three residential mortgage ~~loan~~loans totaling $349 thousand in the process of foreclosure as of ~~March 31,~~June 30, 2019.

On January 1, 2019, the Company adopted the requirements of ASU 2016-02. As part of the adoption of this accounting standard, the Company evaluated its population of existing real estate and equipment leases as of January 1, 2019. The purpose ~~of this exercise~~ was to determine whether the Company’s existing contractual arrangements constitute a lease, or contains an embedded lease, which would be in scope under ASU 2016-02, and whether such leases would meet the requirements of an operating or financing lease under the new accounting standard. Based on this evaluation, the Company identified 16 operating leases for land, buildings, and equipment with remaining lease terms ranging from one to 10 years. Most of the Company’s leases include renewal options, with renewal terms extending the lease obligation up to as much as five years. Lease terms may include renewal or extension options to the extent they are reasonably certain to be exercised as assessed at lease commencement. As of and for the ~~three~~six months ended ~~March 31,~~June 30, 2019, the Company ~~does~~did not have any leases that ~~meet~~met the standard definition of a finance lease nor ~~does~~did it engage in any sale-leaseback transactions, have any short-term leases, or have any sublease income.

For operating leases, ROU assets and lease liabilities are recognized at the commencement date of the respective lease. ROU assets represent the Company’s right to use leased assets over the term of the lease. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term and are measured as the present value of the lease payments over the lease term. ROU assets are measured as the amount of the lease liability adjusted for certain items such as prepaid lease payments, unamortized lease incentives, and unamortized direct costs. ROU assets are amortized on a straight-line basis less the periodic interest expense adjustment of the lease liability and the amortization is included in occupancy expense in the Company’s consolidated statements of operations. For the three and six months ended ~~March 31,~~June 30, 2019, operating lease expense totaled ~~$227 thousand.~~$233 thousand and $460 thousand, respectively. The discount rate used for the present value calculations for lease liabilities was the rate implicit in the lease if determinable, and when the rate was not

determinable, the Company used its incremental, collateralized borrowing rate with the FHLB for the period that most closely coincided with the respective lease term as of the commencement date of the lease.

The Company recorded ROU assets and lease liabilities of $3.5 million and $3.8 million, respectively, and recorded a cumulative effect adjustment of $45 thousand to retained earnings, upon adoption of ASU 2016-02 effective January 1, 2019. During the first quarter of 2019, the Company commenced a new operating lease for the Richmond, Virginia office of the Financial Group, which resulted in the recognition of an operating ROU asset and lease liability of $826 thousand. During the second quarter of 2019, the Company commenced a new operating lease for a retail branch in Henrico County, Virginia, which resulted in the recognition of an operating ROU asset and lease liability of $478 thousand and $473 thousand, respectively.

The following table presents the ROU assets and lease liabilities as of the date stated. ROU assets and lease liabilities are included in other assets and other liabilities, respectively, in the Company’s consolidated balance sheets.

	March 31, 2019		June 30, 2019
Operating lease right-of-use assets	$	4,127	$	4,410

Current operating lease liabilities		766	$	802
Noncurrent lease liabilities		3,700		3,930
Total operating lease liabilities	$	4,466	$	4,732

The following table presents the weighted average remaining lease term and discount rate associated with the Company’s operating leases as of the date stated.

The following table presents a maturity analysis of the Company’s operating lease liabilities for the five years ending subsequent ~~periods after March 31,~~to June 30, 2019 and in total thereafter.

2019	$	663		$	449
2020		894			944
2021		925			977
2022		547			601
2023		296			351
Thereafter		1,746			2,062
Total		5,071			5,384
Less interest		(605	)		(652	)
Lease liability	$	4,466		$	4,732

The following table presents supplemental cash flow information related to the Company’s operating leases for the period stated.

	For the Three Months Ended		For the Six Months Ended
	March 31, 2019		June 30, 2019
Cash paid for amount included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	246	$	496
Right-of-use assets obtained in exchange for new operating lease liabilities	$	826	$	1,304

As of March 31, 2019, the Company had entered into an additional operating lease for branch office space that had not yet commenced with an estimated ROU asset and lease liability at lease commencement of $478 thousand and $473 thousand, respectively. The Company anticipates this operating lease will commence in 2019 with an expected lease term of 10 years, including the likely exercise of one 5-year renewal option.

As part of the implementation of ASU 2016-02, the Company elected the following practical expedients. The Company elected to retain the operating lease classification for all of its existing leases as of January 1, 2019 under the former lease accounting standard. The Company elected not to reassess whether existing leases contained embedded lease arrangements or whether there were initial directs costs that should have been considered as part of the transition to ASU 2016-02. The Company also elected not to recognize an ROU asset and lease obligation for contracts with an initial term of twelve months or less. The expense associated with these short-term leases is included in ~~occupancy~~noninterest expense in the consolidated statements of operations. To the extent that a lease arrangement includes both lease and non-lease components, the Company has elected not to account for these separately. Lastly, the Company has

elected in its accounting policies to utilize a fair value threshold, such that a contract with an ROU asset or lease obligation below a minimum threshold of $7.5 thousand is excluded from the provisions of ASU 2016-02.

The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Basic earnings per share amounts are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding (the denominator). Diluted earnings per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments, unless the effect is to reduce the loss or increase earnings per common share. For both computations, the weighted average number of employee stock ownership plan (“ESOP”) shares not committed to be released to participant accounts ~~purchased by the ESOP~~ are not assumed to be outstanding. The weighted average ESOP shares excluded from the computation were ~~210,005~~204,675 and ~~161,369~~207,462 for the three and six months ended ~~March 31,~~June 30, 2019, respectively. The weighted average ESOP shares excluded from the computation were 154,410 and 157,885 for the three and six months ended June 30, 2018, respectively. For the three months ended ~~March 31,~~June 30, 2019 and 2018, options on ~~88,784~~76,784 and ~~87,548~~96,415 shares, respectively, were not included in computing diluted earnings per share because their effects would have been anti-dilutive. For the six months ended June 30, 2019 and 2018, options on 76,784 and 96,415 shares, respectively, were not included in computing diluted earnings per share because their effects would have been anti-dilutive.

	For the Three Months Ended March 31,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018		2019		2018
Net income	$	1,492	$	1,124	$	1,723	$	946	$	3,215	$	2,070
Weighted average shares outstanding, basic		12,972,850		13,038,593		13,059,824		13,059,604		13,030,528		13,049,142
Dilutive shares:
Stock options		33,944		67,596		32,425		62,081		33,189		67,484
Restricted stock		2,023		25		12,694		4,734		7,087		5,021
Weighted average shares outstanding, dilutive		13,008,817		13,106,214		13,104,943		13,126,419		13,070,804		13,121,647
Basic and diluted earnings per share	$	0.11	$	0.09	$	0.13	$	0.07	$	0.25	$	0.16

As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Bank had $70.0 million and $100.0 million of outstanding FHLB borrowings, consisting of two and four advances, respectively. Advances on the FHLB ~~lines~~line are secured by a blanket lien on qualified one-to-four family real estate, commercial real estate, and multifamily residential loans. Immediate available credit, as of ~~March 31,~~June 30, 2019, was ~~$151.0~~$186.7 million against a total line of credit of ~~$269.0~~$274.7 million. As of ~~March 31,~~June 30, 2019, the Bank had $18.0 million of letters of credit issued by the FHLB for the benefit of the Virginia Department of the Treasury as collateral for public deposits held by the Bank to comply with the Security of Public Deposits Act. The $18.0 million is not an outstanding borrowing, as of ~~March 31,~~June 30, 2019, but does reduce the available credit under the FHLB credit line.

The following table presents information regarding the two advances outstanding as of ~~March 31,~~June 30, 2019.

				Stated			Maturity				Stated			Maturity
	Balance		Originated	Interest Rate			Date	Balance		Originated	Interest Rate			Date
Adjustable rate hybrid	$	10,000	4/12/2013		5.18	%	4/13/2020	$	10,000	4/12/2013		4.98	%	4/13/2020
Fixed rate credit		90,000	3/4/2019		2.55	%	4/5/2019		60,000	6/3/2019		2.48	%	7/3/2019
Total FHLB borrowings	$	100,000						$	70,000

On May 28, 2015, the Company entered into a purchase agreement with 29 accredited investors under which the Company issued an aggregate of $7.0 million of subordinated notes (the “notes”) to the accredited investors. The notes have a maturity date of May 28, 2025 and bear interest, payable on the first of March and September of each year, at a fixed interest rate of 6.50% per year. The notes are not convertible into common stock or preferred stock and are not callable by the holders. The Company has the right to redeem the notes, in whole or in part, without premium or penalty, at any interest payment date on or after May 28, 2020, but in all cases in a principal amount with integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default occurs, such as the bankruptcy of the Company, the holder of a note may declare the principal amount of the notes to be due and immediately payable. The notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s existing and future senior indebtedness. The notes qualify as Tier 2 capital for regulatory reporting. The aggregate carrying value of the notes, including capitalized debt issuance costs, was $6.9 million as of ~~March 31,~~June 30, 2019 and December 31, 2018. For the three and six months ended ~~March 31,~~June 30, 2019 and 2018, the effective interest rate on the notes was 6.84% and ~~6.86%~~6.85%, respectively.

The aggregate carrying value of debt secured by shares of Company stock, issued and outstanding, in the Company’s ESOP was $1.7 million as of ~~March 31,~~June 30, 2019 and December 31, 2018 and is included in other liabilities on the consolidated balance sheets. The debt is comprised of ~~five~~four fixed ~~rate-amortizing~~rate amortizing notes, ~~four~~three of which carry an interest rate of 3.25% and one that carries an interest rate of 4.50% with maturity dates ranging from March 1, ~~2019~~2025 to December 31, 2027, and one variable rate amortizing note with a maturity date of June 14, 2024. Shares that collateralize these loans are not allocated to ESOP participants’ accounts.

The Company uses fair value to record certain assets and liabilities and to determine fair value disclosures. Authoritative accounting guidance (ASC 820, Fair Value Measurements (“ASC 820”)) clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value also assumes that the reporting entity would sell the asset or transfer the liability in the principal or most advantageous market.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Available-for-sale securities: Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third-party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases, where

there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The Company engages a third-party to determine the fair value of its available-for-sale securities.

Rabbi trust: The Company has a rabbi trust for the benefit of participants in the company’s deferred compensation benefit plan. The assets held by the rabbi trust are invested at the direction of the individual participants and are generally invested in marketable investment securities such as common stocks and mutual funds or short-term investments (e.g., cash) (Level 1). Rabbi trust assets are included in other assets on the consolidated balance sheets.

Mortgage servicing rights (“MSRs”): The Company currently owns MSRs from two residential loan portfolios, one serviced for Fannie Mae ~~(“FNMA”)~~ and one serviced for Freddie ~~Mac (“FHLMC”).~~Mac. The MSRs are recorded at fair value on a recurring basis, with changes in fair value recorded in results of operations.

AThe Company engages a third-party to determine the fair value of MSRs. The third-party employs a model ~~is used~~ to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool, and applies a discount rate to each pool. Loans are segregated into 12 pools based on each loan’s term and seasoning (age). All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Monthly service costs were assumed to be $6.50 per loan as of ~~March 31,~~June 30, 2019 and as of December 31, 2018. Prepayment speeds are determined primarily based on the average interest rate of the loans in each pool. The prepayment scale used is the Public Securities Association (“PSA”) model, where “100% PSA” means prepayments are zero in the first month, then increase by 0.2% of the loan balance each month until reaching 6.0% in month 30. Thereafter, the 100% PSA model assumes an annual prepayment of 6.0% of the remaining loan balance. The average PSA speed assumption in the fair value model is ~~154%~~181% and 133% as of ~~March 31,~~June 30, 2019 and December 31, 2018, respectively. A discount rate of 12.5% was then applied to each pool as of ~~March 31,~~June 30, 2019 and as of December 31, 2018. The discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. MSRs are classified as Level 3.

The following ~~table presents~~tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as ofthe dates stated.

			Fair Value Measurements as of March 31, 2019 Using								Fair Value Measurements as of June 30, 2019 Using
	Balance as of March 31, 2019		Level 1		Level 2		Level 3		Balance as of June 30, 2019		Level 1		Level 2		Level 3
Available-for-sale securities:
U. S. Government agencies and mortgage backed securities	$	49,304	$	—	$	49,304	$	—	$	51,867	$	—	$	51,867	$	—
State and municipal obligations		20,531		—		20,531		—		17,054		—		17,054		—
Corporate bonds		12,195		—		8,526		3,669		12,248		—		6,537		5,711
Total available-for-sale securities	$	82,030	$	—	$	78,361	$	3,669	$	81,169	$	—	$	75,458	$	5,711
Mortgage servicing rights	$	923	$	—	$	—	$	923	$	916	$	—	$	—	$	916
Rabbi trust assets	$	1,062	$	1,062	$	—			$	1,053	$	1,053	$	—

			Fair Value Measurements as of December 31, 2018 Using								Fair Value Measurements as of December 31, 2018 Using
	Balance as of December 31, 2018		Level 1		Level 2		Level 3		Balance as of December 31, 2018		Level 1		Level 2		Level 3
Available-for-sale securities:
U. S. Government agencies and mortgage backed securities	$	49,882	$	—	$	49,882	$	—	$	49,882	$	—	$	49,882	$	—
State and municipal obligations		20,217		—		20,217		—		20,217		—		20,217		—
Corporate bonds		12,133		—		8,462		3,671		12,133		—		8,462		3,671
Total available-for-sale securities	$	82,232	$	—	$	78,561	$	3,671	$	82,232	$	—	$	78,561	$	3,671
Mortgage servicing rights	$	977	$	—	$	—	$	977	$	977	$	—	$	—	$	977
Rabbi trust assets	$	972	$	972					$	972	$	972	$	—	$	—

The following table presents the change in financial assets valued using Level 3 inputs for the periods stated.

	MSRs			Corporate Bonds			MSRs			Corporate Bonds
Balance as of January 1, 2019	$	977		$	3,671		$	977		$	3,671
Purchases		—						—			—
Impairments		—			—
Transfer from level 2 to level 3								—			2,044
Fair value adjustments		(54	)		(2	)		(61	)		(4	)
Sales		—			—			—			—
Balance as of March 31, 2019	$	923		$	3,669
Balance as of June 30, 2019							$	916		$	5,711

The $2.0 million transfer from level 2 to level 3 fair value for corporate bonds was attributable to a lack of a third-party pricing valuation as of June 30, 2019.

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. The measurement of loss associated with impaired loans can be based on either the discounted cash flows of the loan or the fair value of the collateral ~~if any,~~ less estimated costs to sell, if the loan is collateral-dependent. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any given loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of operations.

Other Real Estate Owned, net: OREO is measured at fair value less estimated costs to sell, generally based on an appraisal conducted by an independent, licensed appraiser, or using other methods such as a brokered price opinion of a third-party real estate agent. If the collateral value is significantly adjusted due to differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. Fair value adjustments, if any, are recorded in the period incurred and included in other noninterest expense on the consolidated statements of operations.

The following tables present the Company’s assets that were measured at fair value on a nonrecurring basis as of the dates stated.

			Fair Value Measurements as of March 31, 2019 Using								Fair Value Measurements as of June 30, 2019 Using
	Balance as of March 31, 2019		Level 1		Level 2		Level 3		Balance as of June 30, 2019		Level 1		Level 2		Level 3
Impaired loans, net	$	4,151	$	—	$	—	$	4,151	$	4,229	$	—	$	—	$	4,229
Other real estate owned, net		3,718		—		—		3,718		3,168		—		—		3,168

The following tables present quantitative information about Level 3 fair value measurements as of the dates stated.

Balance as of March 31, 2019

Valuation

Technique

Unobservable

Input

Range

(Weighted

Average)

Balance as of June 30, 2019

Valuation

Technique

Unobservable

Input

Range

(Weighted

Average)

Impaired loans, net

4,151

Discounted appraised value

Selling Cost

Lack of Marketability

20%-25% (20%)

100%

4,229

Discounted appraised value

Selling Cost

Lack of Marketability

20%-25% (20%)

100% (100%)

Discounted cash flows

Discount rate

5%-7% (6%)

Discounted cash flows

Discount rate

5%-7% (6%)

Other real estate owned, net

3,718

Discounted appraised value

Selling Cost

Lack of Marketability

6%-32% (13%)

9%-100% (27%)

3,168

Discounted appraised value

Selling Cost

Lack of Marketability

6%-23% (9%)

9%-100% (21%)

The carrying values of cash and due from banks, interest-earning deposits, federal funds sold or purchased, noninterest-bearing deposits, savings and interest-bearing deposits, and securities sold under repurchase agreements are payable on demand or are of such short duration that carrying value approximates market value (Level 1).

The carrying values of certificates of deposit, loans held for sale, and accrued interest receivable are payable on demand or are of such short duration that carrying value approximates market value (Level 2).

The carrying value of restricted securities approximates fair value based on the redemption provisions of the issuer (Level 3).

The fair value of performing loans is estimated by discounting the future cash flows using two sets of data sources. First, recent originations occurring over the prior twelve months were evaluated, and second, market data showing originations over the prior three months was evaluated. The selected rate was the greater of the two sources. For all loans other than a selective consumer loan portfolio, credit loss severity rates were calculated using the probability of default and the loss given default percentages derived from market data. For the consumer loan portfolio, historical delinquency data was obtained by the servicer of the portfolio. The fair value of impaired loans is measured as described within the Impaired Loans section of this note. The fair value of loans does consider the lack of liquidity and uncertainty in the market that might affect the valuation (Level 3).

Time deposits are presented at estimated fair value by discounting the future cash flows using recent issuance rates over the prior three months and a market rate analysis of recent offering rates (Level 3).

The fair value of the Company’s subordinated notes is estimated by utilizing recent issuance rates for subordinated debt offerings of similar issuer size (Level 3).

The fair value of ~~the~~ FHLB advances is estimated by discounting the future cash flows using current interest rates offered for similar advances (Level 2).

Commitments to extend and standby letters of credit are generally not sold or traded. The estimated fair values of off-balance sheet credit commitments, including standby letters of credit and guarantees written, are not readily available due to the lack of cost-effective and reliable measurement methods for these instruments.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

The following tables summarize the Company’s financial assets and liabilities at carrying values and estimated fair values on a nonrecurring basis as of the dates stated.

	Carrying Value as of		Fair Value as of		Fair Value Measurements as of March 31, 2019 Using						Carrying Value as of		Fair Value as of		Fair Value Measurements as of March 31, 2019 Using
	March 31, 2019		March 31, 2019		Level 1		Level 2		Level 3		June 30, 2019		June 30, 2019		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	7,404	$	7,404	$	7,404	$	—	$	—	$	8,139	$	8,139	$	8,139	$	—	$	—
Interest-earning deposits		23,091		23,091		23,091		—		—		15,869		15,869		15,869		—		—
Federal funds sold												596		596		596		—		—
Certificates of deposit		3,746		3,746		—		3,746		—		3,498		3,498		—		3,498		—
Federal funds sold		182		182		182		—		—
Restricted securities		7,804		7,804		—		—		7,804		6,769		6,769		—		—		6,769
Loans receivable, net		910,762		896,740		—		—		896,740		909,913		898,163		—		—		898,163
Loans held for sale		—		—		—		—		—		593		593		—		593		—
Accrued interest receivable		3,274		3,274		—		3,274		—		3,191		3,191		—		3,191		—
Financial Liabilities:
Noninterest-bearing demand deposits		112,315		112,315		112,315		—		—		116,229		116,229		116,229		—		—
Savings and interest-bearing demand deposits		371,587		330,690		330,690		—		—		374,175		374,175		374,175		—		—
Time deposits		372,751		372,921		—		—		372,921		385,218		379,095		—		—		379,095
Securities sold under repurchase agreements		7,220		7,220		7,220		—		—		6,983		6,983		6,983		—		—
FHLB advances		100,000		99,773		—		99,773		—		70,000		69,828		—		69,828		—
Subordinated notes, net		6,897		7,045		—		—		7,045		6,902		7,033		—		—		7,033

The components of accumulated other comprehensive income (loss), net of deferred taxes, are presented in the following ~~table~~tables for the period presented.

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

The following discussion is intended to assist in understanding the results of operations and the financial condition of Bay Banks of Virginia, Inc. (the “Company”), the holding company for Virginia Commonwealth Bank (the “Bank”) and VCB Financial Group, Inc. (the “Financial Group”). This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

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. These forward-looking statements include statements about the Company’s plans, obligations, expectations and intentions, and other statements that are not historical facts. Words such as “anticipates,” “believes,” “intends,” “should,” “expects,” “will,” and variations of similar expressions are intended to identify forward-looking 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 Board of Governors of the Federal Reserve System (the “Federal Reserve”); the quality or composition of the loan and investment portfolios; demand for loan products; deposit flows; competition; expansion activities; demand for financial services in the Company’s market area; accounting principles, policies, and guidelines; changes in banking, tax, and other laws and regulations and interpretations or guidance thereunder; and other factors detailed in the Company’s publicly filed documents, including the factors described in Item 1A., “Risk Factors,” in the 2018 Form 10-K. 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.

All dollar amounts included in the tables of this discussion are in thousands, except per share data, unless otherwise stated. There were no changes to the Critical Accounting Policies disclosed in Item 7 of the 2018 Form 10-K.

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. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Changes in the volume and/or mix of interest-earning assets and interest-bearing liabilities, the associated yields and rates, the level of noninterest-bearing deposits, and the volume of nonperforming assets have an effect on net interest income, net interest margin, and net income.

The following table presents average interest-earning assets and interest-bearing liabilities, taxable-equivalent yields on such assets, and rates (costs) paid on such liabilities, net interest margin (“NIM”), and net interest spread, as of and for the periods stated. Yields and costs are annualized.

	Average Balances, Income and Expense, Yields and Rates																							Average Balances, Income and Expense, Yields and Rates
	As of and for the For the Three Months Ended March 31,																							As of and for the Three Months Ended June 30,
	2019							2018							2019 Compared to 2018									2019							2018							2019 Compared to 2018
	'Average		Income/		Yield/			Average		Income/		'Yield/			Income/ Expense			Variance Attributable to (8)						Average		Income/		Yield/			Average		Income/		Yield/			Income/ Expense			Variance Attributable to (8)
	Balance		Expense		Cost			Balance		Expense		Cost			Variance			Rate			Volume			Balance		Expense		Cost			Balance		Expense		Cost			Variance			Rate			Volume
INTEREST-EARNING ASSETS:
Taxable securities	$	70,263	$	595		3.43	%	$	61,303	$	397		2.59	%	$	198		$	141		$	57		$	69,617	$	577		3.32	%	$	61,309	$	497		3.24	%	$	80		$	13		$	67
Tax-exempt securities (1)		19,257		149		3.15	%		20,741		152		2.94	%		(3	)		8			(11	)		17,001		123	��	2.90	%		19,163		148		3.09	%		(25	)		(9	)		(17	)
Total securities		89,520		744		3.37	%		82,044		549		2.68	%		195			149			46			86,618		700		3.24	%		80,472		645		3.21	%		55			4			50
Gross loans (2) (3)		907,606		11,461		5.12	%		772,009		9,984		5.17	%		1,477			(253	)		1,730			917,474		11,458		5.01	%		798,353		9,745		4.88	%		1,713			265			1,448
Interest-earning deposits and federal funds sold		23,186		142		2.48	%		47,714		172		1.44	%		(30	)		57			(87	)		29,719		170		2.29	%		31,437		131		1.67	%		39			46			(7	)
Certificates of deposits		3,746		20		2.17	%		3,224		19		2.36	%		1			(2	)		3			3,716		19		2.05	%		3,224		18		2.23	%		1			(2	)		3
Total interest-earning assets		1,024,058		12,367		4.90	%		904,991		10,724		4.74	%	$	1,643		$	(49	)	$	1,692			1,037,527		12,347		4.77	%		913,486		10,539		4.61	%	$	1,808		$	314		$	1,494
Noninterest-earning assets		64,122							77,625																67,884							75,460
Total average assets	$	1,088,180						$	982,616															$	1,105,411						$	988,946
INTEREST-BEARING LIABILITIES:
Savings deposits	$	57,502	$	42		0.30	%	$	64,258	$	44		0.27	%	$	(2	)	$	3		$	(5	)	$	57,670	$	45		0.31	%	$	62,739	$	49		0.31	%	$	(4	)	$	(0	)	$	(4	)
Demand deposits		75,266		35		0.19	%		85,450		41		0.19	%		(6	)		(1	)		(5	)		74,045		35		0.19	%		79,776		42		0.21	%		(7	)		(4	)		(3	)
Time deposits (4)		369,629		1,826		2.00	%		366,392		1,215		1.33	%		611			600			11			383,783		2,048		2.14	%		370,350		1,353		1.47	%		695			646			49
Money market deposits		236,399		906		1.55	%		149,056		304		0.82	%		602			426			176			240,831		960		1.60	%		153,398		352		0.92	%		608			407			201
Total deposits		738,796		2,809		1.54	%		665,156		1,604		0.98	%		1,205			1,028			177			756,329		3,088		1.64	%		666,263		1,796		1.08	%		1,292			1,049			243
Securities sold under repurchase agreements		6,217		3		0.20	%		7,651		3		0.00	%		—			—			—			6,594		4		0.24	%		6,402		4		0.25	%		—			—			—
Subordinated notes and ESOP debt		8,598		137		6.46	%		8,006		128		6.40	%		9			—			9			8,586		138		6.45	%		7,969		128		6.42	%		10			—			10
FHLB advances		100,000		704		2.86	%		67,000		313		1.87	%		391			239			152			85,846		614		2.87	%		66,593		386		2.32	%		228			116			112
Total interest-bearing liabilities		853,611		3,653		1.74	%		747,813		2,048		1.10	%	$	1,605		$	1,267		$	338			857,355		3,844		1.80	%		747,227		2,314		1.24	%	$	1,530		$	1,166		$	364
Noninterest-bearing deposits		108,916							112,978																115,547							107,992
Other noninterest-bearing liabilities		7,554							7,089																11,950							18,405
Total average liabilities		970,081							867,880																984,852							873,624
Average shareholders' equity		118,099							114,736																120,559							115,321
Total average liabilities and shareholders' equity	$	1,088,180						$	982,616															$	1,105,411						$	988,946
Net interest income and NIM (5)			$	8,714		3.45	%			$	8,676		3.83	%	$	38		$	(1,316	)	$	1,354				$	8,503		3.29	%			$	8,225		3.60	%	$	278		$	(852	)	$	1,130
Total cost of funds (6)						1.54	%						0.95	%															1.58	%						1.08	%
Net interest spread (7)						3.16	%						3.64	%															2.97	%						3.38	%

Interest income for the three months ended ~~March 31,~~June 30, 2019, on a taxable-equivalent basis, was ~~$12.4~~$12.3 million, an increase of ~~$1.6~~$1.8 million from the ~~first~~second quarter of 2018, primarily ~~driven by~~attributable to higher average interest-earning assets of ~~$1.02~~$1.04 billion in the 2019 period compared to ~~$905.0~~$913.5 million in the 2018 period, an increase of ~~$119.1 million. This~~$124.0 million, and higher yields on gross loans quarter-over-quarter. The increase in average interest-earning assets was primarily attributable to higher average gross loan balances in the 2019 period of ~~$135.6~~$119.1 million. Higher loan yields in the 2019 period were partially offset by lower accretion of acquired loan discounts, which had a negative 11 basis point effect on quarter-over-quarter yields, as further discussed below. Interest income in the second quarter of 2018 included negative adjustments totaling $145 thousand for amounts incorrectly reported in the first quarter of 2018, ~~also included approximately $300 thousand of additional fee income and other adjustments, a portion of which was reversed in the second quarter of 2018.~~as previously reported.

Loans acquired in the Merger were discounted to estimated fair value (for credit losses and interest rates) as of the effective date of the Merger. A portion of the acquisition accounting adjustments (discounts) to record the acquired loans at estimated fair value is being recognized (accreted) into interest income over the estimated remaining life of the loans for those loans that were deemed to be, as of the Merger date, purchased performing and over the period of expected cash flows from the loans that were deemed to be purchased credit-impaired (“PCI”). The amount of accretion income recognized within a period is based on many factors, including among other factors, loan prepayments and curtailments; therefore, amounts recognized are subject to volatility. Accretion of discounts on acquired loans in the second quarter of 2019 was $197 thousand compared to $547 thousand in the second quarter of 2018, a $350 thousand decline.

Average interest-earning assets comprised ~~94.1%~~93.9% and ~~92.1%~~92.5% of the Company’s average assets for the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Interest expense for the three months ended ~~March 31,~~June 30, 2019 was ~~$3.7~~$3.8 million, an increase of ~~$1.6~~$1.5 million from the ~~first~~second quarter of 2018, primarily ~~driven by~~attributable to higher costs of interest-bearing liabilities. Average interest-bearing liabilities ~~grew~~increased by ~~$105.8~~$110.1 million to ~~$853.6~~$857.4 million in the 2019 period compared to ~~$747.8~~$747.2 million in the 2018 period. ~~This~~The increase in average interest-bearing liabilities was primarily attributable to deposit growth, particularly money market deposits, which ~~grew $87.3~~increased $87.4 million. Higher cost of funds (1.58% and 1.08% for the second quarters of 2019 and 2018, respectively) was primarily due to competition for deposits in the Company’s markets, the repricing of maturing time deposits, and higher rates paid on Federal Home Loan Bank of Atlanta (“FHLB”) advances.

Net interest income, on a taxable-equivalent basis, for the three months ended June 30, 2019 was $8.5 million, an increase of $680 thousand from the three months ended June 30, 2018.

Net interest margin was 3.29% and 3.60% for the three months ended June 30, 2019 and 2018, respectively. The decrease in NIM was primarily attributable to the increase in cost of funds, as noted above, and lower accretion of discounts on acquired loans, also noted above, partially offset by higher yields on gross loans in the 2019 period and the negative effect of interest income adjustments in the 2018 period, as noted above.

The following table presents average interest-earning assets and interest-bearing liabilities, taxable-equivalent yields on such assets, and rates (costs) paid on such liabilities, NIM, and net interest spread, as of and for the periods stated. Yields and costs are annualized.

	Average Balances, Income and Expense, Yields and Rates
	As of and for the For the Six Months Ended June 30,
	2019							2018							2019 Compared to 2018
																		Variance Attributable to (8)
	Average Balance		Income/ Expense		Yield/ Cost			Average Balance		Income/ Expense		Yield/ Cost			Income/ Expense Variance			Rate			Volume
INTEREST-EARNING ASSETS:
Taxable securities	$	69,937	$	1,172		3.38	%	$	62,075	$	894		2.88	%	$	278		$	166		$	112
Tax-exempt securities (1)		18,123		271		3.01	%		19,218		300		3.12	%		(29	)		(12	)		(17	)
Total securities		88,060		1,443		3.30	%		81,293		1,194		2.94	%		249			153			96
Gross loans (2) (3)		912,568		22,919		5.06	%		786,973		19,729		5.01	%		3,190			73			3,117
Interest-earning deposits and federal funds sold		26,470		312		2.38	%		37,528		304		1.62	%		8			97			(89	)
Certificates of deposits		3,731		39		2.11	%		3,224		37		2.30	%		2			(4	)		6
Total interest-earning assets		1,030,829	$	24,713		4.83	%		909,018	$	21,264		4.68	%	$	3,449		$	319		$	3,130
Noninterest-earning assets		66,079							64,525
Total average assets	$	1,096,908						$	973,543
INTEREST-BEARING LIABILITIES:
Savings deposits	$	57,586	$	87		0.30	%	$	63,494	$	92		0.29	%	$	(5	)	$	4		$	(9	)
Demand deposits		74,652		70		0.19	%		82,598		83		0.20	%		(13	)		(5	)		(8	)
Time deposits (4)		376,745		3,873		2.07	%		368,582		2,568		1.40	%		1,305			1,248			57
Money market deposits		238,628		1,866		1.58	%		151,239		657		0.87	%		1,209			834			375
Total deposits		747,611		5,896		1.59	%		665,913		3,400		1.04	%		2,496			2,080			416
Securities sold under repurchase agreements		6,406		7		0.22	%		7,008		7		0.20	%		—			1			(1	)
Subordinated notes and ESOP debt		8,592		275		6.45	%		7,987		256		6.41	%		19			—			19
FHLB advances		92,884		1,319		2.86	%		66,796		699		2.10	%		620			348			272
Total interest-bearing liabilities		855,493	$	7,497		1.77	%		747,704	$	4,362		1.18	%	$	3,135		$	2,429		$	706
Noninterest-bearing deposits		112,250							103,424
Other noninterest-bearing liabilities		9,829							8,434
Total average liabilities		977,572							859,562
Average shareholders' equity		119,336							113,981
Total average liabilities and shareholders' equity	$	1,096,908						$	973,543
Net interest income and NIM (5)			$	17,216		3.37	%			$	16,902		3.75	%	$	314		$	(2,110	)	$	2,424
Total cost of funds (6)						1.56	%						0.98	%
Net interest spread (7)						3.06	%						3.50	%

Interest income for the six months ended June 30, 2019, on a taxable-equivalent basis, was $24.7 million, an increase of $3.4 million from the first half of 2018, primarily attributable to higher average interest-earning assets of $1.03 billion in the 2019 period compared to $909.0 million in the 2018 period, an increase of $121.8 million. The increase in average interest-earning assets was primarily attributable to higher average gross loan balances in the 2019 period of $125.6 million. Accretion of discounts on acquired loans in the

first half of 2019 was $636 thousand compared to $1.1 million in the first half of 2018, a decline of $414 thousand. The higher yield on average interest-earning assets in the 2019 period was primarily due to higher loan yields, partially offset by lower accretion of acquired loan discounts, which had a negative 11 basis point effect.

Average interest-earning assets comprised 94.0% and 93.4% of the Company’s average assets for the six months ended June 30, 2019 and 2018, respectively.

Interest expense for the six months ended June 30, 2019 was $7.5 million, an increase of $3.1 million from the first half of 2018, primarily attributable to higher costs of interest-bearing liabilities. Average interest-bearing liabilities increased by $107.8 million to $855.5 million in the 2019 period compared to $747.7 million in the 2018 period. The increase in average interest-bearing liabilities was primarily attributable to deposit growth, particularly money market deposits, ~~(1.54%~~which increased $87.4 million. Higher cost of funds (1.56% and 0.98% for the first ~~quarters~~six months of 2019 and 2018, respectively) were primarily due to competition for deposits in the Company’s markets, ~~higher interest rates in general, and~~ the repricing of maturing time ~~deposits. In addition,~~deposits, and higher rates ~~were~~ paid on ~~higher balances of Federal Home Loan Bank of Atlanta (“FHLB”) advances (2.86% and 1.87% for the first quarters of 2019 and 2018, respectively).~~FHLB.

A time deposit (certificate of deposit) fair value adjustment was also recorded as of the Merger date, which represents a premium over the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar term deposits. The resulting fair value adjustment is being amortized into interest expense on a level-yield basis over the weighted average remaining life of the acquired time deposit portfolio.

~~Due to the changes in interest income and interest expense discussed above, net~~Net interest income, on a taxable-equivalent basis, for the ~~three~~six months ended ~~March 31,~~June 30, 2019 was ~~$8.7~~$17.2 million, an increase of ~~$38~~$314 thousand from the ~~three~~six months ended ~~March 31,~~June 30, 2018.

Net interest margin was ~~3.45%~~3.37% and ~~3.83%~~3.75% for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, respectively. ~~This~~The decrease in NIM was primarily attributable to the increase in ~~costs~~cost of ~~interest-bearing liabilities,~~funds, as ~~noted above, the effect of interest income adjustments in the 2018 period, also~~ noted above, and lower accretion of ~~fair value adjustments (discounts)~~discounts on acquired loans ($~~439~~636 thousand and ~~$503 thousand~~$1.1 million for 2019 and 2018, respectively)~~. Excluding the acquisition accounting adjustments~~, partially offset by higher yields on gross loans ~~and time deposits, net interest margin was 3.26%~~ in the 2019 ~~period compared to 3.58% in the 2018~~ period.

~~The following table presents the effect of acquisition accounting adjustments (accretion of loan discounts and amortization of acquired time deposits) on net interest margin for the periods stated.~~

Provision for loan losses was ~~$314~~$62 thousand for the three months ended ~~March 31,~~June 30, 2019, while ~~the~~ provision for loan losses was ~~$320~~a benefit of $348 thousand in the same period of 2018. Provision in the 2019 period was primarily attributable to adjustments to certain qualitative loan loss factors to adjust for the change in the composition of the Company’s loan portfolio, particularly recent growth in loan types with little or no historical losses. Reserves resulting from these factors were partially offset by lowered reserves for individually evaluated loans. Provision for loan losses in the 2018 period included a $580 thousand benefit to correct for an overstatement in the Company’s allowance for loan losses as of December 31, 2017, as previously reported. Provision for loan losses was $376 thousand for the six months ended June 30, 2019, while provision for loan losses for the first half of 2018 was a recovery of $28 thousand. The increase in provision for loan losses in the first ~~quarter~~half of 2019 was primarily attributable to an increase of approximately $16.5 million of gross ~~loans~~loans. The recovery in the ~~quarter.~~2018 period was primarily attributable to the correction of the December 31, 2017 allowance for loan losses overstatement.

The following ~~table presents~~tables present a summary of noninterest income and the dollar and percentage change for the periods presented.

	Three Months Ended												Three Months Ended
	March 31, 2019			March 31, 2018			$ Change			% Change			June 30, 2019			June 30, 2018			$ Change			% Change
Income from fiduciary activities	$	214		$	247		$	(33	)		(13.4	%)	$	206		$	198		$	8			4.0	%
Service charges and fees on deposit accounts		238			135			103			76.3	%		246			152			94			61.8	%
Wealth management		206			132			74			56.1	%		262			282			(20	)		(7.1	%)
Interchange fees, net		101			(8	)		109		(N/M				121			124			(3	)		(2.4	%)
Other service charges and fees		29			30			(1	)		(3.3	%)		27			30			(3	)		(10.0	%)
Secondary market sales and servicing		71			133			(62	)		(46.6	%)		267			243			24			9.9	%
Increase in cash surrender value of bank owned life insurance		120			127			(7	)		(5.5	%)		121			124			(3	)		(2.4	%)
Net (loss) on disposition of other assets		(1	)		(69	)		68			98.6	%
Gain on rabbi trust assets		90			52			38			(73.1	%)
Gain on curtailment of post-retirement benefit plan		—			352			(352	)		(100.0	%)
Net losses on sale of available-for-sale securities														(2	)		—			(2	)		(100.0	%)
Net loss on disposition of other assets														(1	)		—			(1	)		(100.0	%)
Gain (loss) on rabbi trust assets														40			(25	)		65			(260.0	%)
Other		22			39			(17	)		(43.6	%)		8			35			(27	)		(77.1	%)
Total noninterest income	$	1,090		$	1,170		$	(80	)		(6.8	%)	$	1,295		$	1,163		$	132			11.3	%

~~Contributing to lower~~The increase in noninterest income in the three months ended June 30, 2019 was primarily attributable to service charges and fees on deposit accounts, as the Company implemented a consecutive days overdraft program in the second half of 2018, and a gain on rabbi trust assets for the benefit of participants in the Company’s deferred compensation benefit plan.

Higher noninterest income in the six months ended June 30, 2019 was primarily attributable to higher service charges and fees on deposit accounts, due to lower fee income collected in the 2018 period ~~was~~due to the core operating system conversion initiated in the fourth quarter of 2017 as a result of the Merger, and interchange fees, net, and a larger gain on rabbi trust assets. The first half of 2018 included a gain on the curtailment of the Company’s post-retirement benefit plan ~~of $352 thousand in the 2018 period. Partially offsetting this decline was higher service charges and fees~~ on deposit accounts and interchange fee income, net, in the first quarter of 2019 of $103 thousand and $109 thousand, respectively. The increase in service charges and fees on deposit accounts was primarily attributable to lower fee income collected in the first quarter of 2018 due to fee waivers after the core operating system conversion (as a result of the Merger) occurring in the fourth quarter of 2017. Interchange fee income, net, in the first quarter of 2018 was understated by approximately $90 thousand due to core operating system conversion issues, resulting in amounts being incorrectly reported in the consolidated balance sheet as March 31, 2018, which was corrected in the Company’s 2018 second quarter Form 10-Q. Lower secondary market sales and servicing income in the first quarter of 2019 was primarily due to a lower volume of secondary market sales in the period.1, 2018.

The following ~~table presents~~tables present a summary of noninterest expense and the dollar and percentage change for the periods presented.

	Three Months Ended												Three Months Ended
	March 31, 2019			March 31, 2018			$ Change			% Change			June 30, 2019		June 30, 2018		$ Change			% Change
Salaries and employee benefits	$	4,001		$	4,106		$	(105	)		(2.6	%)	$	3,892	$	4,273	$	(381	)		(8.9	%)
Occupancy		868			785			83			10.6	%		837		874		(37	)		(4.2	%)
Data processing		588			472			116			24.6	%		609		834		(225	)		(27.0	%)
Bank franchise tax		216			176			40			22.7	%		230		177		53			29.9	%
Telecommunications and other technology		207			195			12			6.2	%		262		166		96			57.8	%
FDIC assessments		216			183			33			18.0	%		162		187		(25	)		(13.4	%)
Foreclosed property		43			12			31			258.3	%		19		53		(34	)		(64.2	%)
Consulting		115			382			(267	)		(69.9	%)		147		341		(194	)		(56.9	%)
Advertising and marketing		67			68			(1	)		(1.5	%)		109		153		(44	)		(28.8	%)
Directors’ fees		164			168			(4	)		(2.4	%)		213		68		145			213.2	%
Audit and accounting		204			363			(159	)		(43.8	%)		189		240		(51	)		(21.3	%)
Legal		83			133			(50	)		(37.6	%)		27		119		(92	)		(77.3	%)
Merger-related		—			363			(363	)		(100.0	%)
Core deposit intangible amortization		180			211			(31	)		(14.7	%)		173		203		(30	)		(14.8	%)
Net other real estate owned (gains)		(6	)		(141	)		135			95.7	%
Net other real estate owned loss														72		84		(12	)		14.3	%
Other		684			644			40			6.2	%		651		790		(139	)		(17.6	%)
Total noninterest expense	$	7,630		$	8,120		$	(490	)		(6.0	%)	$	7,592	$	8,562	$	(970	)		(11.3	%)

Lower noninterest expenses in the three months ended June 30, 2019 compared to the same period of 2018 were primarily due to lower salaries and benefits, data processing costs, and consulting costs in the 2019 period. Lower salaries and benefits in the 2019 period were primarily due to certain management personnel that exited the Company in the third quarter of 2018 and those retiring pursuant to the fourth 2018 quarter early retirement program. Lower data processing costs in the 2019 period were primarily due to higher expenses in the 2018 period related primarily to Merger conversion activities, while consulting expenses related to the implementation of an enterprise risk management platform and a three-year strategic plan.

Noninterest expenses in the ~~first quarter of~~six months ended June 30, 2018 included $363 thousand of merger-related expenses, while there were no merger-related expenses in the first ~~quarter~~half of 2019. ~~Costs~~In addition, costs associated with the succession of the Company’s Chief Financial Officer and costs related to fees incurred in the first ~~quarter~~half of 2018 in the completion of the ~~company’s~~Company’s 2017 year-end financial reporting, ~~totaled~~totaling approximately ~~$1.0~~$1.2 million, which ~~were primarily reported in~~increased salaries and employee benefits, consulting, and audit and ~~accounting. Higher noninterest expenses~~accounting during this period. Lower data processing and consulting costs in the ~~first quarter of~~ 2019 ~~compared to the same~~ period ~~of 2018, when excluding these items,~~ were primarily due to ~~the Company’s expansion into the Hampton Roads market, expansion of the Financial Group~~those items discussed above. Audit and accounting fees in the ~~Richmond, Virginia market, and costs for general infrastructure to support the Company’s growing operations.~~six months ended June 30, 2018 include expenses associated with a Sarbanes-Oxley readiness assessment. Additionally, the first ~~quarter~~half of 2018 included a net gain on the sale and valuation of other real estate owned of ~~$141~~$57 thousand compared to a $6$66 thousand ~~gain~~net loss in the first ~~quarter~~half of 2019.

The following table presents income tax expense and effective income tax rate for the periods presented.

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Income tax expense	$	337		$	250		$	395		$	197		$	732		$	447
Effective income tax rate		18.4	%		18.2	%		18.6	%		17.2	%		18.6	%		17.8	%

Loans charged-off during the ~~first~~second quarter of 2019, net of recoveries, totaled ~~$358~~$441 thousand compared to ~~$167~~$462 thousand for the ~~first~~second quarter of ~~2018. This resulted~~2018, resulting in an ~~increase in the~~ annualized net charge-off ratio of 0.19% and 0.23% for the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, the annualized net charge off ratio was 0.18% compared to 0.16% for the ~~first quarter of 2019 compared to 0.09% for the first quarter of~~six months ended June 30, 2018.

The ratio of allowance for loan losses (“ALL”) to gross loans was ~~0.86%~~0.82% as of ~~March 31,~~June 30, 2019 compared to 0.88% as of December 31, 2018. The decline in the ratio of allowance for loan losses to gross loans since December 31, 2018 was primarily attributable to the reduction in balances (and related allowance for loan losses) attributable to a select portfolio of purchased consumer loans.

The following table presents certain asset quality measures as of the dates stated.

	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Loans 90 days or more past due and still accruing (1)	$	—		$	—		$	—		$	—
Nonaccrual loans (1)		5,384			5,206			4,577			5,206
Total nonperforming loans		5,384			5,206			4,577			5,206
Other real estate owned, net		3,718			3,597			3,168			3,597
Total nonperforming assets	$	9,102		$	8,803		$	7,745		$	8,803
Allowance for loan losses	$	7,858		$	7,902		$	7,479		$	7,902
ALL to gross loans		0.86	%		0.88	%		0.82	%		0.88	%
Nonperforming assets to total assets		0.82	%		0.81	%		0.71	%		0.81	%
Nonperforming loans to gross loans		0.59	%		0.58	%		0.50	%		0.58	%

Total assets increased by ~~$23.2~~$13.6 million to ~~$1.10~~$1.09 billion as of ~~March 31,~~June 30, 2019 from $1.08 billion as of December 31, 2018, primarily due to net loan growth in the first ~~three months~~half of 2019 of ~~$16.6~~$15.7 million. ~~Cash, including federal funds sold and interest-earning deposits, was $30.7 million and $27.2 million as of March 31, 2019 and December 31, 2018, respectively.~~

The following tables present information about the ~~Company’s~~ securities portfolio on a taxable-equivalent basis as of the dates stated. The decrease in fair value of $202 thousand from December 31, 2018 in the available-for-sale securities portfolio was primarily attributable to principal amortization, partially offset by a decrease in unrealized losses of $1.0 million primarily due to a decrease in long-term interest rates. As of ~~March 31,~~June 30, 2019 and December 31, 2018, available-for-sale securities represented 7.4% and 7.6% of total assets, respectively.

The following table presents the ~~Company’s~~ composition of loans in dollar amounts and as a percentage of total loans as of the dates stated.

	March 31, 2019						December 31, 2018						June 30, 2019						December 31, 2018
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
Mortgage loans on real estate:
Construction, land and land development	$	117,502			12.9	%	$	109,475			12.2	%	$	110,598			12.2	%	$	109,475			12.2	%
Commercial mortgages (non-owner occupied)		180,007			19.6	%		180,074			20.0	%		178,532			19.5	%		180,074			20.0	%
Commercial mortgages (owner occupied)		88,644			9.6	%		87,241			9.7	%		82,990			9.0	%		87,241			9.7	%
Residential first mortgages		303,090			32.9	%		298,894			33.1	%		305,252			33.2	%		298,894			33.1	%
Residential revolving and junior mortgages		36,251			3.9	%		38,313			4.2	%		35,875			3.9	%		38,313			4.2	%
Commercial and industrial		173,360			18.9	%		164,608			18.2	%		187,531			20.4	%		164,608			18.2	%
Consumer		20,095			2.2	%		23,740			2.6	%		16,889			1.8	%		23,740			2.6	%
Total loans		918,949			100.0	%		902,345			100.0	%		917,667			100.0	%		902,345			100.0	%
Net unamortized deferred loan (fees)		(329	)					(252	)
Net unamortized deferred loan fees														(275	)					(252	)
Allowance for loan losses		(7,858	)					(7,902	)					(7,479	)					(7,902	)
Loans receivable, net	$	910,762					$	894,191					$	909,913					$	894,191

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, gross loans increased by ~~$16.6~~$15.3 million, an annualized growth rate of over 7%3%, from December 31, 2018. Excluding the ~~pay-down~~payoff of approximately ~~$16.4~~$19.5 million of purchased portfolio loans in the first ~~three months~~half of 2019, ~~of purchased portfolio loans,~~ including those acquired in the Merger, gross loan growth for the ~~quarter~~six months ended ~~March 31,~~June 30, 2019 on an annualized basis was ~~approximately 14.5%~~nearly 8%. The largest components of this increase were ~~an $8.8~~a $22.9 million increase in commercial and industrial loans ~~an $8.0 million increase in construction, land,~~ and ~~land development loans,~~ a ~~$4.2~~$3.9 million increase in residential ~~first mortgages, and a $1.3 million increase in owner-occupied commercial mortgages,~~loans, partially offset by a ~~$3.6~~$6.9 million decline in consumer ~~loans. In the first quarter of 2019, the Company began intentionally slowing loan growth to preserve liquidity for higher yielding assets.~~loans and a $5.8 million decline in commercial mortgages.

The following table presents the Company’s ALL by loan type and the percent of loans in each category to total loans as of the dates stated.

	March 31, 2019					December 31, 2018					June 30, 2019					December 31, 2018
	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans
Mortgage loans on real estate	$	5,259		78.9	%	$	4,967		79.2	%	$	5,052		77.8	%	$	4,967		79.2	%
Commercial and industrial		1,406		18.9	%		1,374		18.2	%		1,537		20.4	%		1,374		18.2	%
Consumer		1,193		2.2	%		1,561		2.6	%		890		1.8	%		1,561		2.6	%
Total allowance for loan losses	$	7,858		100.0	%	$	7,902		100.0	%	$	7,479		100.0	%	$	7,902		100.0	%

Allowance for loan losses decreased ~~by $44~~$423 thousand ~~since~~from December 31, 2018 to ~~$7.9~~$7.5 million as of ~~March 31,~~June 30, 2019, primarily due to net charge-offs ~~(net~~ of ~~recoveries) of $358~~$799 thousand, almost exclusively for a select portfolio of purchased consumer loans, partially offset by provision for loan ~~loss provision~~losses of ~~$314 thousand.~~$376 thousand recorded for the six months ended June 30, 2019.

Other real estate owned, net (“OREO”), as of ~~March 31,~~June 30, 2019 was ~~$3.7~~$3.2 million, consisting of 2622 properties (16 of which were land lots), compared to $3.6 million inof OREO (26 properties) as of December 31, 2018, or a ~~$121~~$429 thousand ~~increase.~~decrease. This ~~increase~~decrease was primarily attributable to the ~~addition~~sale of ~~one~~six residential ~~property~~properties ($~~138~~481 thousand carrying amount) in the first ~~quarter~~half of 2019, partially offset by the ~~disposal~~addition of ~~one land lot.~~two residential properties ($152 thousand carrying amount).

As of ~~March 31,~~June 30, 2019, total deposits were ~~$856.7~~$875.6 million compared to $842.2 million at December 31, 2018, a ~~$14.5~~$33.4 million, ~~(or 6% annualized)~~or 8% annualized, increase. The increase was primarily due to an increase of ~~$12.2~~$16.5 million in time deposits and an increase of $14.8 million in savings and interest-bearing demand ~~deposits and a $4.1 million increase in time~~ deposits.

Maturities of large denomination time deposits (equal to or greater than $100 thousand) as of ~~March 31,~~June 30, 2019 are presented in the following table.

As of ~~March 31,~~June 30, 2019, the Company had one fixed rate FHLB advance ~~totaling $90.0~~of $60.0 million and one variable rate FHLB advance of $10.0 million outstanding. As of December 31, 2018, the Company had three fixed rate FHLB advances totaling $90.0 million and one variable rate FHLB advance of $10.0 million outstanding. The following table presents various information regarding FHLB advances as of and for the periods presented.

Liquidity represents an institution’s ability to meet present and future financial obligations (such as commitments to fund loans or meet depositors’ requirements) through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-earning deposits with other banks, federal funds sold, and investments and loans maturing within one year. The Company’s ability to obtain deposits and purchase funds at favorable rates are major factors for liquidity. Management believes that the Company maintains overall liquidity that is sufficient to satisfy its depositors’ requirements and its customers’ credit needs.

~~At March 31,~~As of June 30, 2019, cash and cash equivalents totaled ~~$30.7~~$24.6 million; investment securities maturing in one year or less totaled ~~$2.5~~$4.7 million, and loans maturing in one year or less totaled ~~$208.0~~$214.0 million. This resulted in a liquidity ratio as of ~~March 31,~~June 30, 2019 of ~~21.8%~~22.2% compared to 21.5% as of December 31, 2018. The Company determines this ratio by dividing the sum of cash and cash equivalents, and investment securities and loans maturing in one year or less, by total assets.

The Company has a secured borrowing line ~~of credit~~ with the FHLB of ~~$269.0~~$274.7 million, with ~~$151.0~~$186.7 million available as of ~~March 31,~~June 30, 2019, and unsecured federal funds lines of credit with various correspondent banks totaling ~~$21.0~~$41.0 million. Federal funds lines of credit are uncommitted and can be cancelled at any time by the lending bank.

As of ~~March 31,~~June 30, 2019, the Company was not aware of any other known trends, events, or uncertainties that have or are reasonably likely to have a material effect on liquidity.

Capital resources represent funds, earned or obtained, over which a financial institution can exercise greater long-term control in comparison with deposits and borrowed funds. The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’s resources, and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allows management to effectively leverage its capital to maximize return to shareholders. The Company’s capital, also known as shareholders’ equity, is comprised primarily of outstanding common stock, additional paid-in capital, and retained earnings.

Shareholders’ equity is primarily affected by net income and net unrealized gains or losses on available-for-sale securities, ~~(net~~net of ~~tax).~~taxes. The available-for-sale securities portfolio is reported at fair value with unrealized gains or losses, net of taxes, recognized as accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Another factor affecting accumulated other comprehensive income (loss) is changes in the fair value of the Company’s pension and post-retirement benefit plans and changes in said plan obligations. Shareholders’ equity before accumulated other comprehensive ~~loss~~income (loss), net of taxes, was ~~$120.5~~$122.5 million as of ~~March 31,~~June 30, 2019 compared to $118.8 million as of December 31, 2018. The increase of ~~$1.7~~$3.7 million was primarily attributable to net income of ~~$1.5~~$3.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. Accumulated other comprehensive ~~loss,~~income (loss), net ~~increased~~of taxes, decreased by ~~$806 thousand~~$1.4 million from December 31, 2018 to ~~March 31,~~June 30, 2019, primarily due to ~~a decrease~~an increase in unrealized net ~~losses (net~~gains, net of ~~tax)~~taxes, in the Company’s available-for-sale securities ~~portfolio, primarily due to increasing long-term interest rates.~~portfolio.

Book value per share of the Company’s common stock, including accumulated other comprehensive ~~loss,~~income (loss), net of tax, increased to ~~$9.01~~$9.20 as of ~~March 31,~~June 30, 2019 from $8.90 as of December 31, 2018.

The Bank is subject to minimum regulatory capital ratios as defined by the Federal Reserve. As of ~~March 31,~~June 30, 2019, the Bank’s capital ratios continue to be in excess of regulatory minimums and the Bank was ~~well-capitalized~~well capitalized by these guidelines.

The Bank is required to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 Capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 Capital ratio of 6.0% of risk-weighted assets; (iii) a Total Risked-based Capital ratio of 8.0% of risk-weighted assets; and (iv) a Leverage ratio of 4.0% of total assets. The following additional capital requirements related to the “capital conservation buffer” have been phased in over a four-year period, beginning on January 1, 2016. As fully phased in on January 1, 2019, the rules require the Bank to ~~maintain~~maintain: (i) a minimum ratio of Common Equity Tier 1 to risk-weighted assets of 4.5%, plus a

2.5% capital conservation buffer resulting in a minimum ratio of Common Equity Tier 1 to risk-weighted assets of 7.0% ~~upon full~~

~~implementation,~~, (ii) a minimum ratio of Tier 1 Capital to risk-weighted assets of 6.0%, plus the 2.5% capital conservation buffer, resulting in a minimum Tier 1 Capital ratio of 8.5% ~~upon full implementation,~~, (iii) a minimum ratio of Total Risk-based Capital to risk-weighted assets of 8.0%, plus the 2.5% capital conservation buffer, resulting in a minimum Total Risk-based Capital ratio of 10.5% ~~upon full implementation,~~, and (iv) a minimum Leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets. The capital conservation buffer requirement was phased in beginning January 1, 2016, increasing by 0.625% each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The following ~~table presents~~tables present capital ratios for the Bank, minimum capital ratios required, and ratios defined as ~~“well-capitalized”~~“well capitalized” by the Bank’s regulators as of the dates stated.

As of March 31, 2019	Actual Ratio			Minimum Capital Requirement Ratio			Well- Capitalized Ratio
As of June 30, 2019										Actual Ratio			Minimum Capital Requirement Ratio			Well- Capitalized Ratio
Total risk-based capital		12.60	%		10.50	%		10.00	%		12.82	%		10.50	%		10.00	%
Tier 1 capital		11.74	%		8.50	%		8.00	%		12.00	%		8.50	%		8.00	%
Common equity tier 1		11.74	%		7.00	%		6.50	%		12.00	%		7.00	%		6.50	%
Tier 1 leverage ratio		10.09	%		4.00	%		5.00	%		10.14	%		4.00	%		5.00	%

In the normal course of business, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and stand-by letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional commitments as it does for on-balance sheet commitments. Subject to its normal credit standards and risk monitoring procedures, the Company makes contractual commitments to extend credit. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third party. Additionally, but to a much lesser extent, the Company issues financial stand-by letters of credit, which guarantee payment to the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation.

The following table presents ~~the Company’s~~ off balance sheet commitments as of the dates stated.

	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Total loan commitments outstanding	$	156,786	$	160,479	$	156,786	$	160,479
Stand-by letters of credit		2,879		2,848		3,683		2,848

There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s 2018 Form 10-K.

Refer to Note 2, Amendments to the Accounting Standards Codification, in the Notes to the Consolidated Financial Statements contained in Item 1 of this report, for information related to the adoption of amendments to the Accounting Standards Codification.

As of the end of the period to which this report relates, the Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the disclosure controls and procedures are met. The design of any disclosure control and procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. Based upon the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s reports and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure, as of ~~March 31,~~June 30, 2019.

There was no change to the Company’s internal control over financial reporting during the three months ended ~~March 31,~~June 30, 2019 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In the ordinary course of its operations, the Company is a party to various legal proceedings. Based upon information currently available, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.

There have been no material changes to the risk factors disclosed in the 2018 Form 10-K.

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.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None


~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~None~~

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS		4

CONSOLIDATED BALANCE SHEETS AS OF ~~MARCH 31,~~JUNE 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018		4

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019 AND 2018 (UNAUDITED)		5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019 AND 2018 (UNAUDITED)		6

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019 AND 2018 (UNAUDITED)		7

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019 AND 2018 (UNAUDITED)		89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		910

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2629

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		3440

ITEM 4. CONTROLS AND PROCEDURES		3541

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		3541

ITEM 1A. RISK FACTORS		3541

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		3541

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		3541

ITEM 4. MINE SAFETY DISCLOSURES		3541

ITEM 5. OTHER INFORMATION		3541

ITEM 6. EXHIBITS		3642

	~~March 31,~~June 30, 2019
Weighted average remaining lease term - operating leases	8 years
Weighted average discount rate - operating leases		~~3.14~~3.11	%


Level 1 –		Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 –		Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 –		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

	Balance as of December 31, 2018		Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans, net	$	4,700	Discounted appraised value	Selling Cost Lack of Marketability	15%-20% (16%) 100% (100%)
			Discounted cash flows	Discount rate	5%-7% (6%)
Other real estate owned, net		3,597	Discounted appraised value	Selling Cost Lack of Marketability	5%-19% (8%) 9%-100% (28%)

	For the Three Months Ended March 31, 2019
	Net Unrealized Losses on Securities			Pension and Post-retirement Benefit Plans			Accumulated Other Comprehensive Loss, net
Balance as of January 1, 2019	$	(1,252	)	$	(75	)	$	(1,327	)
Change in net unrealized holding gain (loss) on available-for-sale securities, net of deferred tax expense of $214		806			—			806
Balance as of March 31, 2019	$	(446	)	$	(75	)	$	(521	)

	For the Three Months Ended June 30, 2019
	Net Unrealized Gains (Losses) on Securities			Pension and Post-retirement Benefit Plans			Accumulated Other Comprehensive Income (Loss), net
Balance as of April 1, 2019	$	(446	)	$	(75	)	$	(521	)
Change in net unrealized holding gain on available-for-sale securities, net of deferred tax expense of $167		628			—			628
Balance as of June 30, 2019	$	182		$	(75	)	$	107

	For the Six Months Ended June 30, 2019
	Net Unrealized Gains (Losses) on Securities			Pension and Post-retirement Benefit Plans			Accumulated Other Comprehensive Income (Loss), net
Balance as of January 1, 2019	$	(1,252	)	$	(75	)	$	(1,327	)
Change in net unrealized holding gain on available-for-sale securities, net of deferred tax expense of $382		1,434			—			1,434
Balance as of June 30, 2019	$	182		$	(75	)	$	107

		Within 3 Months				3-6 Months				6-12 Months				Over 12 Months				Total				Percent of Total Deposits
Time deposits		$	18,041			$	25,416			$	62,435			$	103,694			$	209,586				24.5	%

	Three Months Ended March 31, 2019										Twelve Months Ended December 31, 2018
	Period-End Balance		Highest Month-End Balance		Average Balance		Weighted Average Rate			Period-End Balance			Highest Month-End Balance			Average Balance			Weighted Average Rate
FHLB advances	$	100,000	$	100,000	$	100,000		2.86	%		$	100,000		$	100,000		$	71,753		2.38	%

	Six Months Ended June 30, 2019									Year Ended December 31, 2018
	Period-End Balance		Highest Month-End Balance		Average Balance		Weighted Average Rate			Period-End Balance		Highest Month-End Balance		Average Balance		Weighted Average Rate
FHLB advances	$	70,000	$	100,000	$	92,884		2.86	%	$	100,000	$	100,000	$	71,753		2.38	%


31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) 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.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of ~~March 31,~~June 30, 2019 and December 31, 2018, (ii) Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, (v) Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, and (vi) Notes to Consolidated Financial Statements.

	Bay Banks of Virginia, Inc.
	(Registrant)

~~May~~August 8, 2019	By:	/s/ Randal R. Greene
		Randal R. Greene
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Judy C. Gavant
		Judy C. Gavant
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)