(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”,~~filer,” “smaller reporting ~~company”,~~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: ~~13,332,484~~13,332,874 shares of common stock on ~~August 2, 2019.~~May 1, 2020.

	(unaudited)						March 31, 2020			December 31, 2019 (1)
(Dollars in thousands, except share data)	June 30, 2019			December 31, 2018 (1)			(unaudited)
ASSETS
Cash and due from banks	$	8,139		$	7,685		$	9,976		$	6,096
Interest-earning deposits		15,869			18,981			44,711			34,358
Federal funds sold		596			625			1,319			1,359
Certificates of deposit		3,498			3,746			2,754			2,754
Available-for-sale securities, at fair value		81,169			82,232			94,618			99,454
Restricted securities		6,769			7,600			5,752			5,706
Loans receivable, net of allowance for loan losses of $7,479 and $7,902, respectively		909,913			894,191
Loans receivable, net of allowance for loan losses of $10,172 and $7,562, respectively								960,023			916,628
Loans held for sale		593			368			747			1,231
Premises and equipment, net		21,001			18,169			19,462			20,141
Accrued interest receivable		3,191			3,172			3,139			3,035
Other real estate owned, net		3,168			3,597			1,679			1,916
Bank owned life insurance		19,511			19,270			19,870			19,752
Goodwill		10,374			10,374			10,374			10,374
Mortgage servicing rights		916			977			774			935
Core deposit intangible		1,840			2,193			1,369			1,518
Deferred tax asset, net		1,128			1,510
Other assets		6,585			5,927			6,986			6,666
Total assets	$	1,094,260		$	1,080,617		$	1,183,553		$	1,131,923
LIABILITIES
Noninterest-bearing demand deposits	$	116,229		$	114,122		$	136,437		$	137,933
Savings and interest-bearing demand deposits		374,175			359,400			394,637			382,607
Time deposits		385,218			368,670			433,393			389,900
Total deposits		875,622			842,192			964,467			910,440
Securities sold under repurchase agreements		6,983			6,089			3,284			6,525
Federal Home Loan Bank advances		70,000			100,000			45,000			45,000
Subordinated notes, net of issuance costs		6,902			6,893			31,029			31,001
Other liabilities		12,136			7,967			12,371			12,772
Total liabilities		971,643			963,141			1,056,151			1,005,738
SHAREHOLDERS’ EQUITY
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
Common stock ($5 par value; authorized - 30,000,000 shares; outstanding - 13,346,789 and 13,261,801 shares, respectively) (2)								66,734			66,309
Additional paid-in capital		36,699			36,972			36,536			36,658
Unearned employee stock ownership plan shares		(1,668	)		(1,734	)		(1,463	)		(1,525	)
Retained earnings		20,817			17,557			24,646			24,660
Accumulated other comprehensive income (loss), net		107			(1,327	)
Accumulated other comprehensive income, net								949			83
Total shareholders’ equity		122,617			117,476			127,402			126,185
Total liabilities and shareholders’ equity	$	1,094,260		$	1,080,617		$	1,183,553		$	1,131,923

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
(Dollars in thousands, except per share data)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			March 31, 2020			March 31, 2019
INTEREST INCOME
Loans, including fees	$	11,458		$	9,745		$	22,919		$	19,729		$	11,352		$	11,461
Securities:
Taxable		577			497			1,172			894			652			595
Tax-exempt		97			117			214			237			94			118
Federal funds sold		18			52			25			126			2			7
Interest-earning deposit accounts		152			80			288			178
Interest-bearing deposit accounts														104			135
Certificates of deposit		19			17			39			36			14			20
Total interest income		12,321			10,508			24,657			21,200			12,218			12,336
INTEREST EXPENSE
Deposits		3,088			1,796			5,896			3,400			2,848			2,809
Securities sold under repurchase agreements		4			4			7			7			2			3
Subordinated notes		138			128			275			256			512			137
Federal Home Loan Bank advances		614			386			1,319			699			234			704
Total interest expense		3,844			2,314			7,497			4,362			3,596			3,653
Net interest income		8,477			8,194			17,160			16,838			8,622			8,683
Provision for (recovery of) loan losses		62			(348	)		376			(28	)
Provision for loan losses														2,777			314
Net interest income after provision for loan losses		8,415			8,542			16,784			16,866			5,845			8,369
NONINTEREST INCOME
Income from fiduciary activities		206			198			420			445
Trust management														193			214
Service charges and fees on deposit accounts		246			152			484			287			236			238
Wealth management		262			282			469			414			247			206
Interchange fees, net		121			124			222			116			98			101
Other service charges and fees		27			30			56			61			33			29
Secondary market sales and servicing		267			243			339			376			202			71
Increase in cash surrender value of bank owned life insurance		121			124			240			251			118			120
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
Net gains on sales and calls of available-for-sale securities														26			—
Net losses on disposition of other assets														(7	)		(1	)
Net (losses) gains on rabbi trust assets														(263	)		90
Referral fees														471			—
Other		8			35			28			74			37			22
Total noninterest income		1,295			1,163			2,385			2,334			1,391			1,090
NONINTEREST EXPENSE
Salaries and employee benefits		3,892			4,273			7,893			8,379			3,628			4,001
Occupancy		837			874			1,705			1,659			751			868
Data processing		609			834			1,197			1,306			537			588
Bank franchise tax		230			177			446			353			256			216
Telecommunications and other technology		262			166			469			362			358			207
FDIC assessments		162			187			378			370			148			216
Foreclosed property		19			53			62			65			7			43
Consulting		147			341			262			723			71			115
Advertising and marketing		109			153			176			221			67			67
Directors’ fees		213			68			377			236			192			164
Audit and accounting		189			240			393			603			140			204
Legal		27			119			110			249			191			83
Merger-related		—			—			—			363
Core deposit intangible amortization		173			203			353			414			149			180
Net other real estate owned loss (gains)		72			84			66			(57	)
Net other real estate owned gains														—			(6	)
Other		651			790			1,335			1,437			813			684
Total noninterest expense		7,592			8,562			15,222			16,683			7,308			7,630
Income before income taxes		2,118			1,143			3,947			2,517
Income tax expense		395			197			732			447
Net income	$	1,723		$	946		$	3,215		$	2,070
(Loss) income before income taxes														(72	)		1,829
Income tax (benefit) expense														(58	)		337
Net (loss) income													$	(14	)	$	1,492
Basic and diluted earnings per share	$	0.13		$	0.07		$	0.25		$	0.16		$	—		$	0.11

Unearned

Employee
Stock

Accumulated

Shares of

Additional

Ownership

Other

Total

Common

Common

Paid-in

Plan

Retained

Comprehensive

Shareholders’

(Dollars in thousands)

Stock

Stock

Capital

Shares

Earnings

Income (Loss), net

Equity

Balances at December 31, 2018

13,201,682

$
66,008

$
36,972

$
(1,734
)

$
17,557

$
(1,327
)

$
117,476

Net income

—

—

—

—

3,215

—

3,215

Other comprehensive income

—

—

—

—

—

1,434

1,434

Stock options exercised, net

5,173

26

(17
)

—

—

—

9

Director stock grant

18,396

92

56

—

—

—

148

Restricted stock awards

107,233

536

(536
)

—

—

—

—

ESOP collateral release

—

—

—

66

—

—

66

Share-based compensation expense

—

—

224

—

—

—

224

Cumulative effect adjustment of adoption of accounting principle

—

—

—

—

45

—

45

Balances at June 30, 2019

13,332,484

$
66,662

$
36,699

$
(1,668
)

$
20,817

$
107

$
122,617

										Unearned
										Employee Stock						Accumulated
	Shares of						Additional			Ownership						Other		Total
	Common			Common			Paid-in			Plan			Retained			Comprehensive		Shareholders’
(Dollars in thousands)	Stock			Stock			Capital			Shares			Earnings			Income, net		Equity
Three months ended March 31, 2020
Balance at beginning of period		13,261,801		$	66,309		$	36,658		$	(1,525	)	$	24,660		$	83	$	126,185
Net loss		—			—			—			—			(14	)		—		(14	)
Other comprehensive income, net		—			—			—			—			—			866		866
Stock options exercised, net		15,514			77			4			—			—			—		81
Director and executive stock grant		11,734			59			46			—			—			—		105
Restricted stock awards		61,020			305			(305	)		—			—			—		—
Shares repurchased pursuant to ESOP		(3,280	)		(16	)		(9	)		—			—			—		(25	)
ESOP collateral release		—			—			—			62			—			—		62
Share-based compensation expense		—			—			142			—			—			—		142
Balance at end of period		13,346,789		$	66,734		$	36,536		$	(1,463	)	$	24,646		$	949	$	127,402

							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
Balances at April 1, 2018		13,223,096	$	66,115	$	37,189	$	(1,088	)	$	14,803	$	(2,100	)	$	114,919
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
Net income		—		—		—		—			946		—			946			—		—		—			—			1,492		—			1,492
Other comprehensive loss		—		—		—		—			—		(215	)		(215	)
Other comprehensive income, net																			—		—		—			—			—		806			806
Stock options exercised, net		3,000		15		3		—			—		—			18			5,173		26		(17	)		—			—		—			9
Director stock grant																			762		4		2			—			—		—			6
Restricted stock awards																			105,920		530		(530	)		—			—		—			—
ESOP collateral release		—		—		—		41			—		—			41			—		—		—			37			—		—			37
Share-based compensation expense		—		—		15		—			—		—			15			—		—		66			—			—		—			66
Balances at June 30, 2018		13,226,096	$	66,130	$	37,207	$	(1,047	)	$	15,749	$	(2,315	)	$	115,724
Cumulative effect adjustment of adoption of accounting principle																			—		—		—			—			45		—			45
Balance at end of period																			13,313,537	$	66,568	$	36,493		$	(1,697	)	$	19,094	$	(521	)	$	119,937

	For the Six Months Ended						For the Three Months Ended
(Dollars in thousands)	June 30, 2019			June 30, 2018			March 31, 2020			March 31, 2019
Cash Flows From Operating Activities
Net income	$	3,215		$	2,070
Net (loss) income							$	(14	)	$	1,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		871			805			375			446
Net premium amortization on available-for-sale securities		276			207			130			118
Amortization of subordinated notes issuance costs		9			8			28			4
Amortization of core deposit intangible		353			414			149			180
Accretion of fair value adjustment on acquired time deposits		(65	)		(110	)		(24	)		(34	)
Accretion of fair value discounts on acquired loans		(636	)		(1,051	)
Provision for (recovery of) loan losses		376			(28	)
Accretion of fair value adjustments (discounts) on acquired loans								(189	)		(439	)
Provision for loan losses								2,777			314
Share-based compensation expense		224			46			142			66
Net loss on the sale of available-for-sale securities		2			—
Increase in other real estate owned valuation allowance		61			91			10			16
Net loss (gain) on sale of other real estate owned		5			(148	)
Gain on sale of other real estate owned								(10	)		(22	)
Net loss on the disposition of fixed and other assets		1			69			7			1
Decrease in value of mortgage servicing rights		61			22			161			54
Increase in cash surrender value of bank owned life insurance								(118	)		(120	)
Net gains on sales and calls of available-for-sale securities								(26	)		—
Originations of loans held for sale (HFS)		(13,982	)		(13,926	)		(23,327	)		(2,344	)
Proceeds from HFS loan sales		14,004			15,135			24,068			2,773
Gain on HFS sold loans		(247	)		(227	)		(257	)		(61	)
Increase in cash surrender value of bank owned life insurance		(240	)		(251	)
Gain on curtailment of post-retirement benefit plan		—			(352	)
Increase in other assets and accrued interest receivable		(4,707	)		(269	)
Increase in other liabilities		4,119			1,186
Decrease (increase) in other assets and accrued interest receivable								103			(4,099	)
(Decrease) increase in other liabilities								(444	)		5,116
Net cash provided by operating activities		3,700			3,691			3,541			3,461
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities		2,089			1,808
Proceeds from sales and calls of available-for-sale securities		4,510			—
Proceeds from maturities, calls, and principal paydowns of available-for-sale securities								7,846			1,098
Purchases of available-for-sale securities		(4,000	)		(650	)		(2,018	)		—
Sales (purchases) of restricted securities, net		831			(403	)
Maturities of certificates of deposit		248			—
Purchases of restricted securities, net								(46	)		(204	)
Decrease in federal funds sold		29			5,017			40			443
Net increase in loans		(15,613	)		(36,799	)		(46,113	)		(16,583	)
Proceeds from sale of other real estate owned		515			3,001			367			22
Net decrease (increase) of premises and equipment		705			(1,421	)
Net (purchases) disposals of premises and equipment								(230	)		27
Net cash used in investing activities		(10,686	)		(29,447	)		(40,154	)		(15,197	)
Cash Flows From Financing Activities
Net increase in demand, savings, and other interest-bearing demand deposits		16,882			2,292
Increase in demand, savings, and other interest-bearing demand deposits								10,534			10,380
Net increase in time deposits		16,613			11,038			43,517			4,115
Stock options exercised, net		9			131			81			9
Net increase (decrease) in securities sold under repurchase agreements and other borrowings		824			(2,490	)
Decrease in Federal Home Loan Bank advances		(30,000	)		—
Net (decrease) increase in securities sold under repurchase agreements and other borrowings								(3,261	)		1,061
Shares repurchased pursuant to ESOP								(25	)		—
Net cash provided by financing activities		4,328			10,971			50,846			15,565
Net decrease in cash and due from banks		(2,658	)		(14,785	)
Net increase in cash and due from banks								14,233			3,829
Cash and cash equivalents (including interest-earning deposits) at beginning of period		26,666			51,367			40,454			26,666
Cash and cash equivalents (including interest-earning deposits) at end of period	$	24,008		$	36,582		$	54,687		$	30,495
Supplemental Schedule of Cash Flow Information
Cash paid for:
Interest	$	7,473		$	4,334		$	3,523		$	3,587
Income taxes		—			620			—			—
Non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale securities		1,814			(1,467	)
Unrealized gain on available-for-sale securities								1,096			1,020
Loans transferred to other real estate owned								130			137
Changes in deferred taxes resulting from other comprehensive income transactions		(382	)		308			(230	)		(214	)
Loans transferred to other real estate owned		152			2,161
Cumulative effect adjustment of adoption of accounting principle		(45	)		—			—			(45	)
Employee stock ownership plan transactions		(66	)		(82	)		(62	)		(37	)
Director stock grant		148			—
Director and executive stock grant								105			6

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 ~~the Company,~~Bay Banks of Virginia, Inc., the Bank, the Financial Group, and Steptoes Holdings. All significant intercompany accounts and transactions are eliminated upon consolidation.

The Bank is a state-chartered bank, headquartered in Richmond, Virginia, and a member of the Federal Reserve System. It serves businesses, professionals, and consumers through 18 banking offices, including one loan production office, located in the greater Richmond region, the Northern Neck region, Middlesex County, and the Hampton Roads region of Virginia. The Bank offers a wide range of deposit and loan products to its retail and commercial customers. A substantial amount of the Bank’s deposits are interest-bearing. The majority of the Bank’s loan portfolio is secured by real estate.

The Financial Group provides management services for personal and corporate trusts, including estate planning, estate settlement, trust administration, and investment and wealth management services from its Richmond and Kilmarnock, Virginia offices. Products and services include revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment planning, brokerage services, insurance investment managed accounts, and managed and self-directed individual retirement accounts.

On April 1, 2017, the Company completed a merger with Virginia BanCorp, Inc. (“Virginia BanCorp”), a bank holding company conducting substantially all of its operations through its subsidiary, Virginia Commonwealth Bank. Immediately following the Company’s merger with Virginia BanCorp, Virginia BanCorp’s subsidiary bank was merged with and into the Company’s banking subsidiary, Bank of Lancaster (collectively, the “Merger”). Bank of Lancaster then changed its name to Virginia Commonwealth Bank.

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,~~December 2019, the FASB issued Accounting Standards Update ~~(“ASU”~~(ASU) 2019-12, Income Taxes (Topic 740), which is guidance for the simplification of accounting for income taxes. This ASU removes certain exceptions to the general principals of Topic 740 and simplifies existing guidance to improve consistent application of GAAP. The exceptions removed by this ASU are the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This ASU simplifies the accounting by requiring that an entity recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; requiring that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; and making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. This ASU is effective for interim and annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the effect that this ASU will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is guidance for the modifications to fair value measurement disclosure requirements. This ASU removes, modifies, and adds disclosure requirements for Topic 820, Fair Value Measurement (“ASC 820”). The disclosure requirement for the valuation process of Level 3 fair value measurements was removed from ASC 820. This ASU clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The disclosure requirements added to ASC 820 were the changes in unrealized gains and losses for the period included in other comprehensive income for the recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU was effective for interim and annual reporting periods beginning after December 15, 2019. The additional

disclosure requirements are to be applied prospectively and the other modifications will be applied retrospectively. The adoption of this ASU in the first quarter of 2020 did not have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses ~~(Accounting Standards Codification (“ASC”)~~(Topic 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~~applies 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~~standard 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~~On October 16, 2019, the ~~standard supported by its third-party vendor. This~~FASB voted to extend the effective date of ASU 2016-13 for smaller reporting companies (including the Company) and non-SEC registrants; therefore, 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~~Company has a CECL cross-functional working group that implemented a third-party CECL software in 2019 and will continue to ~~draft a proposed ASU outlining this delay for public comment. The Company meets the definition of a smaller reporting company~~assess and ~~is monitoring the impact of the 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 was 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 adoptedimplement the requirements of ASU ~~2016-02, and as part of~~2016-13 by 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”) 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.date.

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
June 30, 2019	Cost		Gains		(Losses)			Value
March 31, 2020										Cost		Gains		(Losses)			Value
U.S. Government agencies and mortgage backed securities	$	51,941	$	205	$	(279	)	$	51,867	$	60,305	$	1,250	$	(14	)	$	61,541
State and municipal obligations		16,810		281		(37	)		17,054		15,492		369		—			15,861
Corporate bonds		12,180		68		—			12,248		17,175		94		(53	)		17,216
Total available-for-sale securities	$	80,931	$	554	$	(316	)	$	81,169	$	92,972	$	1,713	$	(67	)	$	94,618

			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
December 31, 2018	Cost		Gains		(Losses)			Value
December 31, 2019										Cost		Gains		(Losses)			Value
U.S. Government agencies and mortgage backed securities	$	51,126	$	35	$	(1,279	)	$	49,882	$	67,491	$	284	$	(178	)	$	67,597
State and municipal obligations		20,484		60		(327	)		20,217		16,238		341		(3	)		16,576
Corporate bonds		12,194		23		(84	)		12,133		15,165		116		—			15,281
Total available-for-sale securities	$	83,804	$	118	$	(1,690	)	$	82,232	$	98,894	$	741	$	(181	)	$	99,454

Securities with fair values of ~~$12.1~~$11.2 million and ~~$17.5~~$11.1 million were pledged as collateral for securities sold under repurchase agreements as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 ~~$7.0~~$3.3 million and ~~$6.1~~$6.5 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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.

The following tables present securities in an unrealized loss position as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, by period of the unrealized loss ~~are shown below.~~and number of securities. 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
June 30, 2019	Number of Securities		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
March 31, 2020																	Number of Securities		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agencies and mortgage backed securities		45	$	983	$	—	$	31,302	$	(279	)	$	32,285	$	(279	)		6	$	1,954	$	(9	)	$	449	$	(5	)	$	2,403	$	(14	)
State and municipal obligations		8		—		—		3,403		(37	)		3,403		(37	)
Corporate bonds		—		—		—		—		—			—		—			6		6,976		(53	)		—		—			6,976		(53	)
Total temporarily impaired securities		53	$	983	$	—	$	34,705	$	(316	)	$	35,688	$	(316	)		12	$	8,930	$	(62	)	$	449	$	(5	)	$	9,379	$	(67	)

			Less than 12 months					12 months or more					Total							Less than 12 months					12 months or more					Total
December 31, 2018	Number of Securities		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2019																		Number of Securities		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government agencies and mortgage backed securities		54	$	2,911	$	(22	)	$	43,843	$	(1,257	)	$	46,754	$	(1,279	)		38	$	12,356	$	(53	)	$	16,930	$	(125	)	$	29,286	$	(178	)
State and municipal obligations		39		2,723		(27	)		9,119		(300	)		11,842		(327	)		1		610		(3	)		—		—			610		(3	)
Corporate bonds		5		5,742		(84	)		—		—			5,742		(84	)
Total temporarily impaired securities		98	$	11,376	$	(133	)	$	52,962	$	(1,557	)	$	64,338	$	(1,690	)	$	39	$	12,966	$	(56	)	$	16,930	$	(125	)	$	29,896	$	(181	)

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.

	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	1,543	$	1,545	$	1,080	$	1,079	$	10,913	$	10,962	$	10,528	$	10,563
Due after one year but less than five years		43,940		44,036		47,065		46,358		48,594		49,745		49,586		49,921
Due after five years but less than ten years		27,454		27,704		26,615		26,149		28,973		29,325		33,332		33,535
Due after ten years		7,994		7,884		9,044		8,646		4,492		4,586		5,448		5,435
Total available-for-sale securities	$	80,931	$	81,169	$	83,804	$	82,232	$	92,972	$	94,618	$	98,894	$	99,454

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled ~~$3.9 million and $5.1~~$2.9 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~2019. The Company also has an investment in the Federal Reserve Bank of Richmond (“FRB”) stock, which totaled $2.6 million as of ~~June 30, 2019~~March 31, 2020 and ~~$2.3 million as of~~ December 31, ~~2018~~2019 and a stock investment in the Bank’s primary correspondent bank totaling $220 thousand as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. 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, 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 inon nonaccrual or charged-off. Any subsequent interest received on these loans is recognized as interest income under the cash basis method of accounting or applied as a reduction of the principal balance of the loan until 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.

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Mortgage loans on real estate:
Residential first mortgages							$	298,539		$	293,913
Commercial mortgages (non-owner occupied)								229,488			196,143
Construction, land and land development	$	110,598		$	109,475			127,417			126,010
Commercial mortgages (non-owner occupied)		178,532			180,074
Commercial mortgages (owner occupied)		82,990			87,241			75,455			82,829
Residential first mortgages		305,252			298,894
Residential revolving and junior mortgages		35,875			38,313			31,505			31,893
Commercial and industrial		187,531			164,608			198,278			181,730
Consumer		16,889			23,740			9,846			11,985
Total loans		917,667			902,345			970,528			924,503
Net unamortized deferred loan fees		(275	)		(252	)		(333	)		(313	)
Allowance for loan losses		(7,479	)		(7,902	)		(10,172	)		(7,562	)
Loans receivable, net	$	909,913		$	894,191		$	960,023		$	916,628

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~$261.7~~$371.6 million and ~~$229.1~~$369.5 million, respectively, of loans pledged to the FHLB as collateral for borrowings. After adjustments by the FHLB, the total lendable collateral was $288.2 million and $288.8 million as of March 31, 2020 and December 31, 2019, respectively.

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 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.

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
March 31, 2020													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:
Residential first mortgages													$	3,079	$	103	$	3,139	$	6,321	$	292,218	$	298,539
Commercial mortgages (non-owner occupied)														201		—		433		634		228,854		229,488
Construction, land and land development	$	225	$	—	$	698	$	923	$	109,675	$	110,598		327		—		302		629		126,788		127,417
Commercial mortgages (non-owner occupied)		—		—		434		434		178,098		178,532
Commercial mortgages (owner occupied)		144		—		238		382		82,608		82,990		50		—		443		493		74,962		75,455
Residential first mortgages		1,063		156		1,984		3,203		302,049		305,252
Residential revolving and junior mortgages		99		—		936		1,035		34,840		35,875		50		—		721		771		30,734		31,505
Commercial and industrial		—		—		—		—		187,531		187,531		548		—		217		765		197,513		198,278
Consumer		279		—		287		566		16,323		16,889		56		—		186		242		9,604		9,846
Total loans	$	1,810	$	156	$	4,577	$	6,543	$	911,124	$	917,667	$	4,311	$	103	$	5,441	$	9,855	$	960,673	$	970,528

December 31, 2018	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans
December 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
Mortgage loans on real estate:
Residential first mortgages													$	3,904	$	16	$	1,403	$	5,323	$	288,590	$	293,913
Commercial mortgages (non-owner occupied)														126		—		433		559		195,584		196,143
Construction, land and land development	$	552	$	—	$	740	$	1,292	$	108,183	$	109,475		77		—		417		494		125,516		126,010
Commercial mortgages (non-owner occupied)		50		—		996		1,046		179,028		180,074
Commercial mortgages (owner occupied)		—		56		1,064		1,120		86,121		87,241		173		—		587		760		82,069		82,829
Residential first mortgages		1,341		55		1,361		2,757		296,137		298,894
Residential revolving and junior mortgages		115		—		782		897		37,416		38,313		52		—		724		776		31,117		31,893
Commercial and industrial		—		—		48		48		164,560		164,608		570		—		670		1,240		180,490		181,730
Consumer		329		—		215		544		23,196		23,740		139		—		242		381		11,604		11,985
Total loans	$	2,387	$	111	$	5,206	$	7,704	$	894,641	$	902,345	$	5,041	$	16	$	4,476	$	9,533	$	914,970	$	924,503

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.

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
March 31, 2020													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:
Residential first mortgages													$	274	$	103	$	—	$	377	$	2,486	$	2,863
Commercial mortgages (non-owner occupied)														127		—		—		127		—		127
Construction, land and land development	$	16	$	—	$	—	$	16	$	1,360	$	1,376		—		—		—		—		1,346		1,346
Commercial mortgages (non-owner occupied)		—		—		—		—		129		129
Commercial mortgages (owner occupied)		—		—		—		—		274		274		50		—		—		50		197		247
Residential first mortgages		30		156		—		186		3,088		3,274
Residential revolving and junior mortgages		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		45		45		—		—		—		—		40		40
Total purchased credit-impaired loans	$	46	$	156	$	—	$	202	$	4,896	$	5,098	$	451	$	103	$	—	$	554	$	4,069	$	4,623

December 31, 2018	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total PCI Loans
December 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
Mortgage loans on real estate:
Residential first mortgages													$	239	$	16	$	—	$	255	$	2,836	$	3,091
Commercial mortgages (non-owner occupied)														126		—		—		126		—		126
Construction, land and land development	$	23	$	—	$	—	$	23	$	1,355	$	1,378		—		—		—		—		1,357		1,357
Commercial mortgages (non-owner occupied)		—		—		—		—		142		142
Commercial mortgages (owner occupied)		—		56		—		56		237		293		25		—		—		25		229		254
Residential first mortgages		92		55		—		147		3,317		3,464
Residential revolving and junior mortgages		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		46		46		—		—		—		—		42		42
Total purchased credit-impaired loans	$	115	$	111	$	—	$	226	$	5,097	$	5,323	$	390	$	16	$	—	$	406	$	4,464	$	4,870

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

	For the Six Months Ended			For the Three Months Ended
	June 30, 2019			March 31, 2020			March 31, 2019
Balance as of December 31, 2018	$	1,083
Balance at beginning of period				$	973		$	1,083
Accretion of acquisition accounting adjustment		(184	)		(72	)		(86	)
Reclassifications from nonaccretable balance, net		55			3			45
Other changes, net		(96	)		(150	)		65
Balance as of June 30, 2019	$	858
Balance at end of period				$	754		$	1,107

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

Pass – Several pass credit ~~grades comprise~~risk ratings apply to loans in this ~~category, which~~category. These ratings are assigned based on varying levels of risk, ranging from credits that are secured by cash or marketable securities to management attention credits that have all characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Special Mention – Adverse trends in the borrower’s financial position are evident and warrant management’s close ~~attention.~~attention for loans risk rated special mention. Any collateral securing loans in this category 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 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.~~warranted.

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

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:
March 31, 2020																	Residential First Mortgages		Commercial Mortgages (Non-Owner Occupied)		Construction, Land and Land Development		Commercial Mortgages (Owner Occupied)		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans
Grade:
Pass	$	108,524	$	177,969	$	82,423	$	301,753	$	34,552	$	180,375	$	16,598	$	902,194	$	292,427	$	187,794	$	109,739	$	62,192	$	30,198	$	177,247	$	9,647	$	869,244
Special mention		—		—		154		478		63		5,951		—		6,646		1,886		41,134		15,711		12,669		586		19,111		—		91,097
Substandard		2,074		563		413		3,021		1,260		1,205		291		8,827		4,226		560		1,967		594		721		1,920		199		10,187
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	110,598	$	178,532	$	82,990	$	305,252	$	35,875	$	187,531	$	16,889	$	917,667	$	298,539	$	229,488	$	127,417	$	75,455	$	31,505	$	198,278	$	9,846	$	970,528

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
Rating:
December 31, 2019																	Residential First Mortgages		Commercial Mortgages (Non-Owner Occupied)		Construction, Land and Land Development		Commercial Mortgages (Owner Occupied)		Residential Revolving and Junior Mortgages		Commercial and Industrial		Consumer		Total Loans
Grade:
Pass	$	107,306	$	178,936	$	85,897	$	295,372	$	37,206	$	162,392	$	23,389	$	890,498	$	290,322	$	195,584	$	123,916	$	81,936	$	31,084	$	177,608	$	11,729	$	912,179
Special mention		68		—		107		1,071		—		893		121		2,260		1,091		—		—		149		86		2,289		—		3,615
Substandard		2,101		1,138		1,237		2,451		1,107		1,323		230		9,587		2,500		559		2,094		744		723		1,833		256		8,709
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total loans	$	109,475	$	180,074	$	87,241	$	298,894	$	38,313	$	164,608	$	23,740	$	902,345	$	293,913	$	196,143	$	126,010	$	82,829	$	31,893	$	181,730	$	11,985	$	924,503

In March of 2020, the Company downgraded approximately $88.5 million of loans to borrowers in industries highly affected by the COVID-19 pandemic, such as hotels, restaurants, churches, and assisted-living facilities. The majority of the risk rating downgrades due to COVID-19 were from pass grades to special mention, and the majority were in commercial and construction loan types.

The allowance for loan losses (“ALL”) reflects management’s ~~judgment~~estimate 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~~category and for any 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~~substandard or worse with balances of $400 thousand or ~~more;~~more, and ~~(3)~~(2) all loans ~~classified~~designated 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~~plus impaired loans risk rated ~~Substandard~~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.

June 30, 2019	Mortgage Loans on Real Estate		Commercial and Industrial		Consumer		Total
March 31, 2020									Mortgage Loans on Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses applicable to:
Loans individually evaluated for impairment	$	987	$	—	$	119	$	1,106	$	1,113	$	336	$	110	$	1,559
Loans collectively evaluated for impairment		4,065		1,537		771		6,373		6,142		2,064		407		8,613
Purchased credit-impaired loans		—		—		—		—		—		—		—		—
Total allowance for loan losses	$	5,052	$	1,537	$	890	$	7,479	$	7,255	$	2,400	$	517	$	10,172
Loan balances applicable to:
Loans individually evaluated for impairment	$	7,358	$	—	$	119	$	7,477	$	7,011	$	489	$	110	$	7,610
Loans collectively evaluated for impairment		700,837		187,531		16,724		905,092		750,810		197,789		9,696		958,295
Purchased credit-impaired loans		5,052		—		46		5,098		4,583		—		40		4,623
Total loans	$	713,247	$	187,531	$	16,889	$	917,667	$	762,404	$	198,278	$	9,846	$	970,528
December 31, 2018
December 31, 2019
Allowance for loan losses applicable to:
Loans individually evaluated for impairment	$	1,036	$	—	$	121	$	1,157	$	878	$	49	$	112	$	1,039
Loans collectively evaluated for impairment		3,931		1,374		1,440		6,745		4,494		1,522		507		6,523
Purchased credit-impaired loans		—		—		—		—		—		—		—		—
Total allowance for loan losses	$	4,967	$	1,374	$	1,561	$	7,902	$	5,372	$	1,571	$	619	$	7,562
Loan balances applicable to:
Loans individually evaluated for impairment	$	7,485	$	—	$	121	$	7,606	$	5,502	$	455	$	112	$	6,069
Loans collectively evaluated for impairment		701,235		164,608		23,573		889,416		720,458		181,275		11,831		913,564
Purchased credit-impaired loans		5,277		—		46		5,323		4,828		—		42		4,870
Total loans	$	713,997	$	164,608	$	23,740	$	902,345	$	730,788	$	181,730	$	11,985	$	924,503

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

For the Three Months Ended June 30, 2019	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance	$	5,259		$	1,406		$	1,193		$	7,858
For the Three Months Ended March 31, 2020													Mortgage Loans on Real Estate			Commercial and Industrial		Consumer			Total
Beginning of period													$	5,372		$	1,571	$	619		$	7,562
Charge-offs														(63	)		—		(183	)		(246	)
Recoveries														5			—		74			79
Provision														1,941			829		7			2,777
Ending of period													$	7,255		$	2,400	$	517		$	10,172


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

For the Three Months Ended June 30, 2018	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer			Total
Beginning Balance	$	4,190		$	1,043		$	2,690		$	7,923
Charge-offs		(83	)		(101	)		(335	)		(519	)
Recoveries		16			—			41			57
Provision (recovery of)		121			2			(471	)		(348	)
Ending Balance	$	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
Ending of period													$	5,259		$	1,406	$	1,193		$	7,858

Approximately $1.5 million of the $2.8 million of provision for loan losses reported in the first quarter of 2020 was attributable to estimated reserve needs due to the negative economic impact of the COVID-19 pandemic occurring in the quarter. Of this $1.5 million, approximately $200 thousand was due to risk rating downgrades of loans in highly-affected industry segments. The remaining $1.3 million relates to a qualitative loss factor applied to the majority of the Company’s loan portfolio for management’s estimate of losses for negative economic implications, such as the rising unemployment in the Bank’s markets. The remaining $1.3 million of the total provision for loan losses was unrelated to COVID-19 and primarily due to gross loan growth of $46.0 million and higher specific reserves recorded in the first quarter of 2020.

The following 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 June 30, 2019						As of December 31, 2018						As of March 31, 2020						As of December 31, 2019
	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:
Residential first mortgages													$	509	$	509	$	—	$	510	$	510	$	—
Commercial mortgages (non-owner occupied)														—		—		—		—		—		—
Construction, land and land development	$	328	$	399	$	—	$	335	$	406	$	—		16		16		—		17		17		—
Commercial mortgages (non-owner occupied)		—		—		—		386		386		—
Commercial mortgages (owner occupied)		429		429		—		—		—		—		341		341		—		419		419		—
Residential first mortgages		1,385		1,385		—		—		—		—
Residential revolving and junior mortgages		—		—		—		1,028		1,028		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Total impaired loans with no related allowance		2,142		2,213		—		1,749		1,820		—		866		866		—		946		946		—
With an allowance recorded:
Residential first mortgages														4,062		4,062		794		2,857		2,857		676
Commercial mortgages (non-owner occupied)														433		433		65		433		433		58
Construction, land and land development		176		176		39		275		275		132		167		167		42		171		171		44
Commercial mortgages (non-owner occupied)		434		434		34		443		443		18
Commercial mortgages (owner occupied)		1,058		1,058		54		1,069		1,069		57		1,116		1,116		53		1,048		1,048		53
Residential first mortgages		3,048		3,048		644		3,447		3,447		565
Residential revolving and junior mortgages		500		500		216		502		502		264		367		367		159		47		47		47
Commercial and industrial		—		—		—		—		—		—		489		489		336		455		455		49
Consumer		119		119		119		121		121		121		110		110		110		112		112		112
Total impaired loans with allowance recorded		5,335		5,335		1,106		5,857		5,857		1,157		6,744		6,744		1,559		5,123		5,123		1,039
Total impaired loans:
Residential first mortgages														4,571		4,571		794		3,367		3,367		676
Commercial mortgages (non-owner occupied)														433		433		65		433		433		58
Construction, land and land development		504		575		39		610		681		132		183		183		42		188		188		44
Commercial mortgages (non-owner occupied)		434		434		34		829		829		18
Commercial mortgages (owner occupied)		1,487		1,487		54		1,069		1,069		57		1,457		1,457		53		1,467		1,467		53
Residential first mortgages		4,433		4,433		644		3,447		3,447		565
Residential revolving and junior mortgages		500		500		216		1,530		1,530		264		367		367		159		47		47		47
Commercial and industrial		—		—		—		—		—		—		489		489		336		455		455		49
Consumer		119		119		119		121		121		121		110		110		110		112		112		112
Total impaired loans	$	7,477	$	7,548	$	1,106	$	7,606	$	7,677	$	1,157	$	7,610	$	7,610	$	1,559	$	6,069	$	6,069	$	1,039

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 Six Months Ended								For the Three Months Ended				For the Three Months Ended
	June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018				March 31, 2020				March 31, 2019
	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:
Residential first mortgages																	$	510	$	8	$	1,431	$	19
Commercial mortgages (non-owner occupied)																		—		—		—		—
Construction, land and land development	$	330	$	4	$	84	$	—	$	332	$	9	$	165	$	1		16		—		334		2
Commercial mortgages (non-owner occupied)		—		—		—		—		—		—		—		—
Commercial mortgages (owner occupied)		405		7		1,385		20		399		13		1,380		32		342		6		384		6
Residential first mortgages		1,389		18		1,513		24		1,391		36		1,471		41
Residential revolving and junior mortgages		—		—		415		1		—		—		415		3		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		3		—		—		—		—		—		—		—		—
Total impaired loans with no allowance		2,124		29		3,397		48		2,122		58		3,431		77		868		14		2,149		27
With an allowance recorded:
Residential first mortgages																		3,298		21		3,034		33
Commercial mortgages (non-owner occupied)																		433		5		439		23
Construction, land and land development		225		10		571		8		241		15		553		17		169		3		274		4
Commercial mortgages (non-owner occupied)		435		4		224		—		437		27		149		—
Commercial mortgages (owner occupied)		1,061		14		538		8		1,063		28		541		15		1,120		15		1,066		14
Residential first mortgages		3,055		34		2,623		36		3,065		65		2,386		67
Residential revolving and junior mortgages		501		3		131		2		501		6		123		4		368		1		502		3
Commercial and industrial		—		—		—		—		—		—		—		—		700		7		—		—
Consumer		120		2		—		—		120		5		—		5		111		—		121		2
Total impaired loans with allowance recorded		5,397		67		4,087		54		5,427		146		3,752		108		6,199		52		5,436		79
Total impaired loans:
Residential first mortgages																		3,808		29		4,465		52
Commercial mortgages (non-owner occupied)																		433		5		439		23
Construction, land and land development		555		14		655		8		573		24		718		18		185		3		608		6
Commercial mortgages (non-owner occupied)		435		4		224		—		437		27		149		—
Commercial mortgages (owner occupied)		1,466		21		1,923		28		1,462		41		1,921		47		1,462		21		1,450		20
Residential first mortgages		4,444		52		4,136		60		4,456		101		3,857		108
Residential revolving and junior mortgages		501		3		546		3		501		6		538		7		368		1		502		3
Commercial and industrial		—		—		—		—		—		—		—		—		700		7		—		—
Consumer		120		2		—		3		120		5		—		5		111		—		121		2
Total impaired loans	$	7,521	$	96	$	7,484	$	102	$	7,549	$	204	$	7,183	$	185	$	7,067	$	66	$	7,585	$	106

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

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Nonaccrual loans	$	4,577		$	5,206		$	5,441		$	4,476
Nonaccrual loans collectively evaluated for impairment		(1,470	)		(2,040	)		(1,569	)		(1,895	)
Nonaccrual impaired loans		3,107			3,166			3,872			2,581
TDRs on accrual		4,046			4,115			3,249			3,270
Other impaired loans on accrual		324			325			489			218
Total impaired loans	$	7,477		$	7,606		$	7,610		$	6,069

~~For~~In some situations, for economic or legal reasons related to a borrower’s financial condition, ~~management~~the Company may grant a concession to a borrower that it would not otherwise consider. ~~In cases where borrowers are experiencing financial difficulties and are granted~~Concessions include new terms that provide for a reduction of ~~either~~the face amount or maturity amount of the debt as stated in the original agreement, a reduction (absolute or contingent) of the stated interest ~~or principal~~ rate for the remaining original life of the loan, and/or an extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar ~~risks, the related~~risk. Concessions granted to a borrower experiencing financial difficulties results in a loan that is subsequently classified as a troubled debt ~~restructuring.~~restructuring or TDR. Management strives to identify borrowers in financial difficulty early and ~~may~~ work with them to modify their ~~loan(s)~~loan 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~~status to minimize the economic loss and to ~~the Company and are classified as TDRs.~~

avoid foreclosure or repossession of underlying collateral, if any. TDRs are considered impaired loans and are individually evaluated for impairment for the ALL. ~~The following tables present by loan type information related to~~

Nonewloans ~~modified as~~were designated TDRs ~~for~~in the ~~periods presented.~~

three months ended March 31, 2020 or 2019. No loans designated as TDRs subsequently defaulted in the ~~first three or six~~twelve months ~~of 2019 or 2018.~~following the restructuring.

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
Balance as of December 31, 2019										$	3,270		$	1,352		$	4,622
Charge-offs		—			—			—			—			—			—
Payments and other adjustments		(52	)		(106	)		(158	)		(21	)		(16	)		(37	)
New TDR designation		52			—			52			—			—			—
Release TDR designation		—			—			—			—			—			—
Transfer		(69	)		69			—			—			—			—
Balance as of June 30, 2019	$	4,046		$	1,440		$	5,486
Balance as of March 31, 2020										$	3,249		$	1,336		$	4,585

The Company modified approximately 180 loans totaling $86.5 million of principal balances in March 2020 in response to the COVID-19 pandemic’s impact on certain of its borrowers (“COVID-19 Loan Modifications”). The COVID-19 Loan Modifications allow for the short-term deferral of principal payments or of principal and interest payments and were made on a good faith basis to borrowers who were current in their payments prior to the modifications. As a result of regulatory guidance regarding such modifications, the COVID-19 Loan Modifications are not considered TDRs as of March 31, 2020 and are not included in the disclosures in “Troubled Debt Restructurings” above.

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

	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	Number of		Carrying		Number of		Carrying		Number of		Carrying		Number of		Carrying
	Properties		Value		Properties		Value		Properties		Value		Properties		Value
Residential		3	$	983		6	$	1,339		3	$	164		4	$	302
Land		16		1,729		17		1,741		11		1,255		13		1,354
Commercial properties		3		456		3		517		1		260		1		260
Total other real estate owned, net		22		3,168		26		3,597		15	$	1,679		18	$	1,916

~~There were three~~No residential mortgage loans ~~totaling $349 thousand~~were in the process of foreclosure as of ~~June 30, 2019.~~March 31, 2020.

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 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 six months ended June 30, 2019, the Company did not have any leases that met the standard definition of a finance lease nor 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 ~~June 30,~~March 31, 2020 and 2019, operating lease expense totaled ~~$233~~$226 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.

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$227 thousand, respectively.

The following table presents the ~~ROU~~right-of-use (“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.

	June 30, 2019		March 31, 2020
Operating lease right-of-use assets	$	4,410	$	4,094

Current operating lease liabilities	$	802		841
Noncurrent lease liabilities		3,930		3,545
Total operating lease liabilities	$	4,732	$	4,386

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 to ~~June 30, 2019~~March 31, 2020 and in total thereafter.

2019	$	449
2020		944		$	714
2021		977			995
2022		601			619
2023		351			370
2024					380
Thereafter		2,062			1,908
Total		5,384			4,986
Less interest		(652	)		(600	)
Lease liability	$	4,732		$	4,386

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

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 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 calculation of basic and diluted earnings per share and the weighted average number of shares outstanding used in computing earnings per share and the effect on the weighted average number of shares outstanding 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. Potential dilutive common stock instruments include exercisable stock options and restricted shares. For both computations, the weighted average number of the Company’s employee stock ownership plan (“ESOP”) shares not committed to be released to participant accounts are not assumed to be outstanding. The weighted average ESOP shares excluded from the computation were ~~204,675~~180,190 and ~~207,462~~210,005 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 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 ~~June 30, 2019~~March 31, 2020, 176,488 of options and ~~2018, options on 76,784 and 96,415~~30,020 restricted shares ~~respectively,~~ were not included in ~~computing~~the computation of diluted earnings per share because their effects would have been anti-dilutive. For the ~~six~~three months ended ~~June 30,~~March 31, 2019, ~~and 2018,~~88,784 options ~~on 76,784 and 96,415 shares, respectively,~~ were not included in ~~computing~~the computation of diluted earnings per share because their effects would have been anti-dilutive.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2019		2018		2019		2018		2020			2019
Net income	$	1,723	$	946	$	3,215	$	2,070
Net (loss) income									$	(14	)	$	1,492
Weighted average shares outstanding, basic		13,059,824		13,059,604		13,030,528		13,049,142		13,056,576			13,001,182
Dilutive shares:
Stock options		32,425		62,081		33,189		67,484		—			33,944
Restricted stock		12,694		4,734		7,087		5,021
Restricted shares										—			2,023
Weighted average shares outstanding, dilutive		13,104,943		13,126,419		13,070,804		13,121,647		13,056,576			13,037,149
Basic and diluted earnings per share	$	0.13	$	0.07	$	0.25	$	0.16	$	—		$	0.11

In October 2019, the Company’s board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock (approximately 3% of the Company’s currently outstanding common stock) (the “Repurchase Program”). The Repurchase Program is effective through December 31, 2020, and the Company may repurchase shares through open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with rules issued under the Securities Exchange Act of 1934. The actual timing, quantities, prices, and manner of any share repurchases under the Repurchase Program is determined by the Company in its discretion and depends on a number of factors, including the market price of the Company’s common stock, share repurchases required under the Company’s employee benefit plans, general market and economic conditions, and applicable legal and regulatory requirements. The Repurchase Program may be modified, amended, or terminated by the Company’s board of directors at any time. There is no guarantee as to the number of shares that the Company will repurchase under the Repurchase Program. The Company did not purchase any of its common shares in the first quarter of 2020.

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Bank had ~~$70.0 million and $100.0~~$45.0 million of outstanding FHLB borrowings, consisting of ~~two and~~ four ~~advances, respectively.~~advances. Advances on the FHLB line are secured by a blanket lien on qualified one-to-four family real estate, commercial real estate, and multifamily residential loans. ~~Immediate~~Immediately available credit, as of ~~June 30, 2019,~~March 31, 2020, was ~~$186.7~~$205.9 million against a total line of credit of ~~$274.7~~$281.9 million. As of ~~June 30, 2019,~~March 31, 2020, the Bank had ~~$18.0~~$31.0 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~~$31.0 million is not an outstanding borrowing as of ~~June 30, 2019,~~March 31, 2020, but does reduce the available credit under the FHLB credit line.

The following table presents information regarding the ~~two~~four advances outstanding as of ~~June 30, 2019.~~March 31, 2020.

				Stated			Maturity				Stated			Maturity
	Balance		Originated	Interest Rate			Date	Balance		Originated	Interest Rate			Date
Adjustable rate hybrid	$	10,000	4/12/2013		4.98	%	4/13/2020	$	10,000	4/12/2013		4.23	%	4/13/2020
Fixed rate credit		60,000	6/3/2019		2.48	%	7/3/2019		15,000	3/20/2020		0.29	%	4/20/2020
Fixed rate hybrid									10,000	8/7/2019		1.79	%	8/7/2020
Convertible									10,000	2/28/2020		0.56	%	2/28/2030
Total FHLB borrowings	$	70,000						$	45,000

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”~~“2025 Notes”) ~~to the accredited investors. The notes have~~with a maturity date of May 28, 2025 and that 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,~~2025 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~~2025 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~~2025 Notes qualify as Tier 2 capital for regulatory reporting. The aggregate carrying value of the ~~notes,~~2025 Notes, including capitalized, unamortized debt issuance costs, was $6.9 million ~~as of June 30, 2019~~at both March 31, 2020 and December 31, ~~2018.~~2019. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the effective interest rate on the ~~notes~~2025 Notes was ~~6.84%~~6.83% and ~~6.85%~~6.84%, respectively.

On October 7, 2019, the Company issued $25.0 million in fixed-to-floating rate subordinated notes due 2029 (the “2029 Notes”). The 2029 Notes qualify as Tier 2 capital for regulatory reporting. The 2029 Notes bear interest at 5.625% per annum, beginning October 7, 2019 through October 14, 2024, payable semi-annually in arrears. From October 15, 2024 through October 14, 2029, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Funding Rate (“SOFR”) (as defined in the 2029 Notes) plus 433.5 basis points, payable quarterly in arrears. The 2029 Notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s existing and future senior indebtedness and rank in parity with the 2025 Notes. Beginning on October 15, 2024 through maturity, the 2029 Notes may be redeemed, at the Company's option, on any scheduled interest payment date. The 2029 Notes will mature on October 15, 2029. The aggregate carrying value of the 2029 Notes, including capitalized, unamortized debt issuance costs was $24.1 million at March 31, 2020 and December 31, 2019. For the three months ended March 31, 2020, the effective interest rate on the 2029 Notes was 6.08%.

The aggregate carrying value of debt secured by shares of Company stock, issued and outstanding, in the Company’s ESOP was ~~$1.7~~$1.5 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, and is included in other liabilities on the consolidated balance sheets. ~~The~~As of March 31, 2020, the debt is comprised of ~~four~~three fixed rate amortizing notes, ~~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, 2025 to ~~December 31, 2027,~~November 1, 2026, and ~~one~~two variable rate amortizing ~~note~~notes (5.50% as of March 31, 2020) with a maturity ~~date of~~dates ranging from June 14, ~~2024.~~2024 to December 31, 2027. 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:~~trust assets: The Company ~~has~~established a rabbi trust for the benefit of participants in the ~~company’s~~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.~~sheets.

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

~~The Company engages a~~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 ~~June 30, 2019~~both March 31, 2020 and ~~as of~~ December 31, ~~2018.~~2019. 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 ~~181%~~292% and ~~133%~~187% as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. A discount rate of 12.5% was then applied to each pool as of ~~June 30, 2019~~March 31, 2020 and as of December 31, ~~2018.~~2019. The

discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. ~~MSRs~~MSR assets are classified as Level 3.

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

			Fair Value Measurements as of June 30, 2019 Using								Fair Value Measurements as of March 31, 2020 Using
	Balance as of June 30, 2019		Level 1		Level 2		Level 3		Balance as of March 31, 2020		Level 1		Level 2		Level 3
Available-for-sale securities:
U. S. Government agencies and mortgage backed securities	$	51,867	$	—	$	51,867	$	—	$	61,541	$	—	$	61,541	$	—
State and municipal obligations		17,054		—		17,054		—		15,861		—		15,861		—
Corporate bonds		12,248		—		6,537		5,711		17,216		2,017		12,549		2,650
Total available-for-sale securities	$	81,169	$	—	$	75,458	$	5,711	$	94,618	$	2,017	$	89,951	$	2,650
Mortgage servicing rights	$	916	$	—	$	—	$	916
MSR assets									$	774	$	—	$	—	$	774
Rabbi trust assets	$	1,053	$	1,053	$	—			$	849	$	849	$	—	$	—

			Fair Value Measurements as of December 31, 2018 Using								Fair Value Measurements as of December 31, 2019 Using
	Balance as of December 31, 2018		Level 1		Level 2		Level 3		Balance as of December 31, 2019		Level 1		Level 2		Level 3
Available-for-sale securities:
U. S. Government agencies and mortgage backed securities	$	49,882	$	—	$	49,882	$	—	$	67,597	$	7,024	$	60,573	$	—
State and municipal obligations		20,217		—		20,217		—		16,576		—		16,576		—
Corporate bonds		12,133		—		8,462		3,671		15,281		2,000		10,631		2,650
Total available-for-sale securities	$	82,232	$	—	$	78,561	$	3,671	$	99,454	$	9,024	$	87,780	$	2,650
Mortgage servicing rights	$	977	$	—	$	—	$	977
MSR assets									$	935	$	—	$	—	$	935
Rabbi trust assets	$	972	$	972	$	—	$	—	$	1,082	$	1,082	$	—	$	—

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

	MSRs			Corporate Bonds			MSR Assets			Corporate Bonds
Balance as of January 1, 2019	$	977		$	3,671
Balance as of January 1, 2020							$	935		$	2,650
Purchases		—			—			—			—
Transfer from level 2 to level 3		—			2,044
Impairments								—			—
Fair value adjustments		(61	)		(4	)		(161	)		—
Sales		—			—			—			—
Balance as of June 30, 2019	$	916		$	5,711
Balance as of March 31, 2020							$	774		$	2,650

As of March 31, 2020, five corporate bonds totaling $2.7 million ~~transfer from level 2 to level~~were reported at their respective purchase prices and as Level 3 assets in the fair value hierarchy as there were no observable market prices for ~~corporate bonds was attributable to a lack of a third-party pricing valuation as of June 30, 2019.~~similar investments.

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.~~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.~~operations.

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

			Fair Value Measurements as of June 30, 2019 Using								Fair Value Measurements as of March 31, 2020 Using
	Balance as of June 30, 2019		Level 1		Level 2		Level 3		Balance as of March 31, 2020		Level 1		Level 2		Level 3
Impaired loans, net	$	4,229	$	—	$	—	$	4,229	$	5,185	$	—	$	—	$	5,185
Other real estate owned, net		3,168		—		—		3,168		1,679		—		—		1,679

			Fair Value Measurements as of December 31, 2018 Using								Fair Value Measurements as of December 31, 2019 Using
	Balance as of December 31, 2018		Level 1		Level 2		Level 3		Balance as of December 31, 2019		Level 1		Level 2		Level 3
Impaired loans, net	$	4,700	$	—	$	—	$	4,700	$	4,084	$	—	$	—	$	4,084
Other real estate owned, net		3,597		—		—		3,597		1,916		—		—		1,916

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

Balance as of June 30, 2019

Valuation

Technique

Unobservable

Input

Range

(Weighted

Average)

Balance as of March 31, 2020

Valuation

Technique

Unobservable

Input

Range

(Weighted

Average)

Impaired loans, net

4,229

Discounted appraised value

Selling Cost

Lack of Marketability

20%-25% (20%)

100% (100%)

5,185

Discounted appraised value

Selling Cost

Lack of Marketability

13%-93% (29%)

Discounted cash flows

Discount rate

5%-7% (6%)

Discounted cash flows

Discount rate

5%-7% (6%)

Other real estate owned, net

3,168

Discounted appraised value

Selling Cost

Lack of Marketability

6%-23% (9%)

9%-100% (21%)

1,679

Discounted appraised value

Selling Cost

Lack of Marketability

6%-41% (11%)

25%-65% (31%)

Balance as of December 31, 2018

Valuation

Technique

Unobservable

Input

Range

(Weighted

Average)

Balance as of December 31, 2019

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%)

4,084

Discounted appraised value

Selling Cost

Discounted cash flows

Discount rate

5%-7% (6%)

Lack of Marketability

13%-100% (24%)

Discounted cash flows

Discount rate

6%-7% (6%)

Other real estate owned, net

3,597

Discounted appraised value

Selling Cost

Lack of Marketability

5%-19% (8%)

9%-100% (28%)

1,916

Discounted appraised value

Selling Cost

6%-10% (8%)

Lack of Marketability

18%-100% (47%)

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).~~issuer.

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~~were 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 selective consumer loan portfolio, historical delinquency data ~~was~~were 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).~~rates.

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).~~size.

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

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.~~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, 2020 Using
	June 30, 2019		June 30, 2019		Level 1		Level 2		Level 3		March 31, 2020		March 31, 2020		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	8,139	$	8,139	$	8,139	$	—	$	—	$	9,976	$	9,976	$	9,976	$	—	$	—
Interest-earning deposits		15,869		15,869		15,869		—		—		44,711		44,711		44,711		—		—
Federal funds sold		596		596		596		—		—		1,319		1,319		1,319		—		—
Certificates of deposit		3,498		3,498		—		3,498		—		2,754		2,754		—		2,754		—
Restricted securities		6,769		6,769		—		—		6,769		5,752		5,752		—		—		5,752
Loans receivable, net		909,913		898,163		—		—		898,163		960,023		936,774		—		—		936,774
Loans held for sale		593		593		—		593		—		747		747		—		747		—
Accrued interest receivable		3,191		3,191		—		3,191		—		3,139		3,139		—		3,139		—
Financial Liabilities:
Noninterest-bearing demand deposits		116,229		116,229		116,229		—		—	$	136,437	$	136,437	$	136,437	$	—	$	—
Savings and interest-bearing demand deposits		374,175		374,175		374,175		—		—		394,637		394,637		394,637		—		—
Time deposits		385,218		379,095		—		—		379,095		433,393		436,486		—		—		436,486
Securities sold under repurchase agreements		6,983		6,983		6,983		—		—		3,284		3,284		3,284		—		—
FHLB advances		70,000		69,828		—		69,828		—		45,000		44,762		—		44,762		—
Subordinated notes, net		6,902		7,033		—		—		7,033		31,029		31,756		—		—		31,756

	Carrying Value as of		Fair Value as of		Fair Value Measurements as of December 31, 2018 Using						Carrying Value as of		Fair Value as of		Fair Value Measurements as of December 31, 2019 Using
	December 31, 2018		December 31, 2018		Level 1		Level 2		Level 3		December 31, 2019		December 31, 2019		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	7,685	$	7,685	$	7,685	$	—	$	—	$	6,096	$	6,096	$	6,096	$	—	$	—
Interest-earning deposits		18,981		18,981		18,981		—		—		34,358		34,358		34,358		—		—
Federal funds sold												1,359		1,359		1,359		—		—
Certificates of deposit		3,746		3,746		—		3,746		—		2,754		2,754		—		2,754		—
Federal funds sold		625		625		625		—		—
Restricted securities		7,600		7,600		—		—		7,600		5,706		5,706		—		—		5,706
Loans receivable, net		894,191		877,114		—		—		877,114		916,628		910,678		—		—		910,678
Loans held for sale		368		368		—		368		—		1,231		1,231		—		1,231		—
Accrued interest receivable		3,172		3,172		—		3,172		—		3,035		3,035		—		3,035		—
Financial Liabilities:
Noninterest-bearing demand deposits		114,122		114,122		114,122		—		—	$	137,933	$	137,933	$	137,933	$	—	$	—
Savings and interest-bearing demand deposits		359,400		359,400		359,400		—		—		382,607		382,607		382,607		—		—
Time deposits		368,670		369,347		—		—		369,347		389,900		392,562		—		—		392,562
Securities sold under repurchase agreements		6,089		6,089		6,089		—		—		6,525		6,525		6,525		—		—
FHLB advances		100,000		99,727		—		99,727		—		45,000		44,936		—		44,936		—
Subordinated notes, net		6,893		7,046		—		—		7,046		31,001		32,552		—		—		32,552

The components of accumulated other comprehensive income (loss), net of deferred income taxes, are presented in the following tables for the ~~period~~periods 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~~2019 (the ~~“2018~~“2019 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: the effect of the COVID-19 pandemic, including its potential adverse effect on economic conditions, and the Company’s employees, customers, loan losses, and financial performance; 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~~2019 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~~2019 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 Three Months Ended June 30,																							As of and for the For the Three Months Ended March 31,
	2019							2018							2019 Compared to 2018									2020							2019							2020 Compared to 2019
	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	$	69,617	$	577		3.32	%	$	61,309	$	497		3.24	%	$	80		$	13		$	67		$	87,997	$	652		2.98	%	$	70,263	$	595		3.43	%	$	57		$	(94	)	$	151
Tax-exempt securities (1)		17,001		123	��	2.90	%		19,163		148		3.09	%		(25	)		(9	)		(17	)		15,280		119		3.13	%		19,257		149		3.15	%		(30	)		1			(31	)
Total securities		86,618		700		3.24	%		80,472		645		3.21	%		55			4			50			103,277		771		3.00	%		89,520		744		3.37	%		27			(93	)		120
Gross loans (2) (3)		917,474		11,458		5.01	%		798,353		9,745		4.88	%		1,713			265			1,448			938,625		11,352		4.86	%		907,606		11,461		5.12	%		(109	)		(504	)		395
Interest-earning deposits and federal funds sold		29,719		170		2.29	%		31,437		131		1.67	%		39			46			(7	)		34,695		106		1.23	%		23,186		142		2.48	%		(36	)		(107	)		71
Certificates of deposits		3,716		19		2.05	%		3,224		18		2.23	%		1			(2	)		3			2,754		14		2.04	%		3,746		20		2.17	%		(6	)		(1	)		(5	)
Total interest-earning assets		1,037,527		12,347		4.77	%		913,486		10,539		4.61	%	$	1,808		$	314		$	1,494			1,079,351		12,243		4.56	%		1,024,058		12,367		4.90	%	$	(124	)	$	(705	)	$	581
Noninterest-earning assets		67,884							75,460																64,528							64,122
Total average assets	$	1,105,411						$	988,946															$	1,143,879						$	1,088,180
INTEREST-BEARING LIABILITIES:
Savings deposits	$	57,670	$	45		0.31	%	$	62,739	$	49		0.31	%	$	(4	)	$	(0	)	$	(4	)	$	57,160	$	35		0.25	%	$	57,502	$	42		0.30	%	$	(7	)	$	(7	)	$	—
Demand deposits		74,045		35		0.19	%		79,776		42		0.21	%		(7	)		(4	)		(3	)		72,455		24		0.13	%		75,266		35		0.19	%		(11	)		(10	)		(1	)
Time deposits (4)		383,783		2,048		2.14	%		370,350		1,353		1.47	%		695			646			49			406,839		2,065		2.04	%		369,629		1,826		2.00	%		239			54			185
Money market deposits		240,831		960		1.60	%		153,398		352		0.92	%		608			407			201			257,128		724		1.13	%		236,399		906		1.55	%		(182	)		(262	)		80
Total deposits		756,329		3,088		1.64	%		666,263		1,796		1.08	%		1,292			1,049			243			793,582		2,848		1.44	%		738,796		2,809		1.54	%		39			(225	)		264
Securities sold under repurchase agreements		6,594		4		0.24	%		6,402		4		0.25	%		—			—			—			4,240		2		0.19	%		6,217		3		0.20	%		(1	)		—			(1	)
Subordinated notes and ESOP debt		8,586		138		6.45	%		7,969		128		6.42	%		10			—			10			32,511		513		6.35	%		8,598		137		6.46	%		376			(8	)		384
FHLB advances		85,846		614		2.87	%		66,593		386		2.32	%		228			116			112			41,264		233		2.27	%		100,000		704		2.86	%		(471	)		(54	)		(417	)
Total interest-bearing liabilities		857,355		3,844		1.80	%		747,227		2,314		1.24	%	$	1,530		$	1,166		$	364			871,597		3,596		1.66	%		853,611		3,653		1.74	%	$	(57	)	$	(287	)	$	230
Noninterest-bearing deposits		115,547							107,992																133,053							108,916
Other noninterest-bearing liabilities		11,950							18,405																12,274							7,554
Total average liabilities		984,852							873,624																1,016,924							970,081
Average shareholders' equity		120,559							115,321																126,955							118,099
Total average liabilities and shareholders' equity	$	1,105,411						$	988,946															$	1,143,879						$	1,088,180
Net interest income and NIM (5)			$	8,503		3.29	%			$	8,225		3.60	%	$	278		$	(852	)	$	1,130				$	8,647		3.22	%			$	8,714		3.45	%	$	(67	)	$	(418	)	$	351
Total cost of funds (6)						1.58	%						1.08	%															1.44	%						1.54	%
Net interest spread (7)						2.97	%						3.38	%															2.90	%						3.16	%

Interest income, on a taxable-equivalent basis, for the three months ended ~~June 30, 2019, on~~March 31, 2020 was $12.2 million, a ~~taxable-equivalent basis, was $12.3 million, an increase~~decrease of ~~$1.8 million~~$124 thousand from the ~~second~~first quarter of ~~2018,~~2019, primarily attributable to lower yields on loans in the 2020 period and higher accretion of acquired loan discounts in the 2019 period. The decline in yields and accretion income was partially offset by higher average interest-earning assets of ~~$1.04~~$1.08 billion in the 2020 period compared to $1.02 billion in the 2019 period, ~~compared to $913.5 million in the 2018 period,~~ an increase of ~~$124.0~~$55.3 million ($31.0 million attributable to gross loans). Yields on average interest-earning assets were 4.56% and ~~higher yields~~4.90% for the first quarters of 2020 and 2019, respectively. The decline in yield on ~~gross loans quarter-over-quarter. The increase in~~ average interest-earning assets was primarily attributable to lower loan yields in the 2020 period and higher ~~average gross~~accretion of acquired loan ~~balances~~discounts in the 2019 period of ~~$119.1 million. Higher loan yields in the 2019 period were partially offset by lower accretion of acquired loan discounts,~~$250 thousand, which had a ~~negative~~positive 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~~compared to the first quarter of ~~2018, as previously reported.~~2020.

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”)., as of the Merger date. 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~~$189 and $439 thousand in the ~~second quarter~~first quarters of ~~2018, a $350 thousand decline.~~2020 and 2019, respectively.

Average interest-earning assets comprised ~~93.9%~~94.4% and ~~92.5%~~94.1% of the Company’s average assets for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Interest expense for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$3.8~~$3.6 million, ~~an increase~~a decrease of ~~$1.5 million~~$57 thousand from the ~~second~~first quarter of ~~2018,~~2019, primarily attributable to ~~higher~~lower costs of ~~interest-bearing liabilities.~~funds of 1.44% in the 2020 period compared to 1.54% in the 2019 period. Average interest-bearing liabilities increased by ~~$110.1~~$18.0 million to ~~$857.4~~$871.6 million in the 2020 period compared to $853.6 million in the 2019 ~~period compared~~period. Interest expense on the Company’s $25 million of 5.625% subordinated notes issued on October 7, 2019 and maturing on October 15, 2029 (the “2029 Notes”) contributed $375 thousand and 12 basis points to $747.2 million in the 2018 period. The increase in average interest-bearing liabilities was primarily attributable to deposit growth, particularly money market deposits, which increased $87.4 million. Higherinterest expense and cost of funds, ~~(1.58% and 1.08% for the second quarters of 2019 and 2018, respectively) was primarily due to competition for deposits~~respectively, in the ~~Company’s markets,~~first quarter of 2020. Offsetting the ~~repricing~~higher funding cost contributed by the 2029 Notes was lower deposit costs, which declined 10 basis points to 1.24% in the first quarter of ~~maturing time~~2020 from 1.34% in the first quarter of 2019. Higher average balances of noninterest-bearing deposits ~~and higher rates paid on Federal Home Loan Bank of Atlanta (“FHLB”) advances.~~also contributed to the decline in deposit cost.

Net interest income, on a taxable-equivalent basis, for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$8.5~~$8.6 million, ~~an increase~~a decrease of ~~$680~~$67 thousand from the three months ended ~~June 30, 2018.~~March 31, 2019.

Net interest margin was ~~3.29% and 3.60%~~3.22% for the ~~three months ended June 30, 2019 and 2018, respectively.~~first quarter of 2020 compared to 3.45% for the first quarter of 2019. 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~~and lower yields on 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, which increased $87.4 million. Higher cost of funds (1.56% and 0.98% for the first six months of 2019 and 2018, respectively) were primarily due to competition for deposits in the Company’s markets, the repricing of maturing time deposits, and higher rates paid on FHLB.

~~Net interest income, on a taxable-equivalent basis, for the six months ended June 30, 2019 was $17.2 million, an increase of $314 thousand from the six months ended June 30, 2018.~~

Net interest margin was 3.37% and 3.75% for the six 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 ($636 thousand and $1.1 million for 2019 and 2018, respectively), partially offset by ~~higher yields on gross loans~~lower cost of funds.

The Company expects NIM to be negatively affected in the ~~2019 period.~~periods subsequent to March 31, 2020 as a result in a significant decline in interest rates in March 2020, most notably the federal funds rate.

Provision for loan losses was ~~$62 thousand~~$2.8 million for the three months ended ~~June 30, 2019,~~March 31, 2020, while provision for loan losses was ~~a benefit of $348~~$314 thousand infor the same period of ~~2018. Provision in~~2019. Of the ~~2019 period~~first quarter of 2020 amount, approximately $1.5 million was ~~primarily~~ attributable to ~~adjustments~~estimated reserve needs due to ~~certain~~the negative economic impact related to the COVID-19 pandemic. Of this $1.5 million, approximately $200 thousand was due to rating downgrades on loans to borrowers in highly-impacted industry segments; the remaining $1.3 million relates to a qualitative ~~loan~~ loss ~~factors~~factor applied to ~~adjust for~~ the ~~change in the composition~~majority 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~~negative economic implications, such as rising unemployment in the ~~2018 period included a $580 thousand benefit to correct for an overstatement in~~Bank’s markets. The remaining $1.3 million of the ~~Company’s allowance for loan losses as of December 31, 2017, as previously reported. Provision~~total provision for loan losses was ~~$376 thousand for the six months ended June 30, 2019, while provision for~~unrelated to COVID-19 and primarily due to gross loan ~~losses for the first half~~growth of ~~2018 was a recovery of $28 thousand. The increase in provision for loan losses~~$46.0 million and higher specific reserves recorded in the first half of 2019 was primarily attributable to an increase of approximately $16.5 million of gross loans. The recovery in the 2018 period was primarily attributable to the correction of the December 31, 2017 allowance for loan losses overstatement.quarter.

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

	Three Months Ended												Three Months Ended
	June 30, 2019			June 30, 2018			$ Change			% Change			March 31, 2020			March 31, 2019			$ Change			% Change
Income from fiduciary activities	$	206		$	198		$	8			4.0	%
Trust management													$	193		$	214		$	(21	)		(9.8	%)
Service charges and fees on deposit accounts		246			152			94			61.8	%		236			238			(2	)		(0.8	%)
Wealth management		262			282			(20	)		(7.1	%)		247			206			41			19.9	%
Interchange fees, net		121			124			(3	)		(2.4	%)		98			101			(3	)		(3.0	%)
Other service charges and fees		27			30			(3	)		(10.0	%)		33			29			4			13.8	%
Secondary market sales and servicing		267			243			24			9.9	%		202			71			131			184.5	%
Increase in cash surrender value of bank owned life insurance		121			124			(3	)		(2.4	%)		118			120			(2	)		(1.7	%)
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	%)
Net gains on sales and calls of available-for-sale securities														26			—			26			100.0	%
Net losses on disposition of other assets														(7	)		(1	)		(6	)		600.0	%
Net (loss) gains on rabbi trust assets														(263	)		90			(353	)		(392.2	%)
Referral fees														471			—			471			100.0	%
Other		8			35			(27	)		(77.1	%)		37			22			15			68.2	%
Total noninterest income	$	1,295		$	1,163		$	132			11.3	%	$	1,391		$	1,090		$	301			27.6	%

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~~2020 period was primarily ~~attributable to higher service charges and fees on deposit accounts,~~ due to ~~lower fee~~referral fees earned for referring loan customers to a third-party financial institution to execute interest rate swaps and higher income ~~collected in the 2018 period due to the core operating system conversion initiated in the fourth quarter of 2017 as~~from secondary market sales and servicing activity, partially offset by a ~~result of the Merger, and interchange fees,~~ net ~~and a larger gain~~unrealized loss on rabbi trust ~~assets. The first half~~assets of ~~2018 included~~$263 thousand in the 2020 period compared to a $90 thousand net unrealized gain onin the ~~curtailment~~2019 period. Greater secondary market sales and servicing activity was primarily due to increased refinancing of residential mortgage loans (due to low interest rates) and the Company’s ~~post-retirement benefit plan on March 1, 2018.~~strategy to sell more mortgages into this market.

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

	Six Months Ended											Three Months Ended
	June 30, 2019		June 30, 2018			$ Change			% Change			March 31, 2020		March 31, 2019			$ Change			% Change
Salaries and employee benefits	$	7,893	$	8,379		$	(486	)		(5.8	%)	$	3,628	$	4,001		$	(373	)		(9.3	%)
Occupancy		1,705		1,659			46			2.8	%		751		868			(117	)		(13.5	%)
Data processing		1,197		1,306			(109	)		(8.3	%)		537		588			(51	)		(8.7	%)
Bank franchise tax		446		353			93			26.3	%		256		216			40			18.5	%
Telecommunications and other technology		469		362			107			29.6	%		358		207			151			72.9	%
FDIC assessments		378		370			8			2.2	%		148		216			(68	)		(31.5	%)
Foreclosed property		62		65			(3	)		(4.6	%)		7		43			(36	)		(83.7	%)
Consulting		262		723			(461	)		(63.8	%)		71		115			(44	)		(38.3	%)
Advertising and marketing		176		221			(45	)		(20.4	%)		67		67			—			(—	%)
Directors’ fees		377		236			141			59.7	%		192		164			28			17.1	%
Audit and accounting		393		603			(210	)		(34.8	%)		140		204			(64	)		(31.4	%)
Legal		110		249			(139	)		(55.8	%)		191		83			108			130.1	%
Merger-related		—		363			(363	)		(100.0	%)
Core deposit intangible amortization		353		414			(61	)		(14.7	%)		149		180			(31	)		(17.2	%)
Net other real estate owned loss (gains)		66		(57	)		123			(215.8	%)
Net other real estate owned gains													—		(6	)		6			(100.0	%)
Other		1,335		1,437			(102	)		(7.1	%)		813		684			129			18.9	%
Total noninterest expense	$	15,222	$	16,683		$	(1,461	)		(8.8	%)	$	7,308	$	7,630		$	(322	)		(4.2	%)

Lower noninterest ~~expenses~~expense in the ~~three months ended June 30, 2019 compared to the same~~2020 period ~~of 2018 were~~was primarily due to lower salaries and employee benefits, ~~data processing costs, and consulting costs in the 2019 period. Lower salaries and benefits in the 2019 period were~~ primarily due to ~~certain~~a lower management ~~personnel that exited~~incentive accrual being recorded and the ~~Company in the third quarter of 2018~~unrealized loss on rabbi trust assets. The Company’s efficiency ratio was 73.0% 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 six months ended June 30, 2018 included $363 thousand of merger-related expenses, while there were no merger-related expenses in~~78.1% for the first ~~half~~quarters of ~~2019. In addition, costs associated with the succession of the Company’s Chief Financial Officer~~2020 and costs related to fees incurred in the first half of 2018 in the completion of the Company’s 2017 year-end financial reporting, totaling approximately $1.2 million, which increased salaries and employee benefits, consulting, and audit and accounting during this period. Lower data processing and consulting costs in the 2019, period were primarily due to those items discussed above. Audit and accounting fees in the six months ended June 30, 2018 include expenses associated with a Sarbanes-Oxley readiness assessment. Additionally, the first half of 2018 included a net gain on the sale and valuation of other real estate owned of $57 thousand compared to a $66 thousand net loss in the first half of 2019.respectively.

The following table presents income tax (benefit) expense and effective income tax ~~rate~~rates for the periods presented.

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			March 31, 2020			March 31, 2019
Income tax expense	$	395		$	197		$	732		$	447
Income tax (benefit) expense													$	(58	)	$	337
Effective income tax rate		18.6	%		17.2	%		18.6	%		17.8	%		80.6	%		18.4	%

The effective income tax rate of 80.6% in the 2020 period was primarily due to the amount of tax-exempt income relative to the Company’s pre-tax net loss for the period.

Loans charged-off during the ~~second~~first quarter of ~~2019,~~2020, net of recoveries, totaled ~~$441~~$166 thousand compared to ~~$462~~$358 thousand for the ~~second~~first quarter of ~~2018, resulting~~2019. This resulted in ana decrease in the annualized net charge-off ratio ~~of 0.19% and 0.23%~~to 0.07% 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%~~first quarter of 2020 compared to 0.16% for the ~~six months ended June 30, 2018.~~first quarter of 2019.

The ~~ratio of allowance for loan losses (“ALL”) to gross loans was 0.82% as of 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~~was 1.05% as of March 31, 2020 compared to 0.82% as of December 31, ~~2018~~2019, an increase of 23 basis points. Of the increase, 15 basis points was ~~primarily attributable to the reduction in balances (and related allowance for loan losses)~~ attributable to a ~~select~~qualitative loss factor applied to the majority of the Company’s loan portfolio for management’s estimate of ~~purchased consumer~~losses due to negative economic implications, such as rising unemployment, as a result of the COVID-19 pandemic. The remaining increase in the first quarter of 2020 was attributable to risk rating downgrades, also in response to COVID-19, $46.0 million of gross loan growth, and higher specific reserves on impaired loans.

As noted, the Company downgraded risk ratings on $88.5 million of loans to businesses in industries highly affected by the COVID-19 pandemic in the first quarter of 2020. Management expects that these loans may require further downgrades and/or other loans to borrowers affected by the COVID-19 pandemic will require risk rating downgrades. Additionally, loan modifications made during the first quarter of 2020, on loan balances of $86.5 million, do not necessarily represent that these borrowers will be able to pay amounts deferred or any amounts owed to the Company. The length of the economic slow-down, including the pace at which the economy recovers once governmental mandates are lifted, could have a material adverse effect on the Company’s asset quality and the amount of ALL required.

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

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Loans 90 days or more past due and still accruing (1)	$	—		$	—
Loans past due 90 days or more and still accruing (1)							$	—		$	—
Nonaccrual loans (1)		4,577			5,206			5,441			4,476
Total nonperforming loans		4,577			5,206			5,441			4,476
Other real estate owned, net		3,168			3,597			1,679			1,916
Total nonperforming assets	$	7,745		$	8,803		$	7,120		$	6,392
Allowance for loan losses	$	7,479		$	7,902		$	10,172		$	7,562
ALL to gross loans		0.82	%		0.88	%
Gross loans								970,195			924,190
Total assets								1,183,553			1,131,923
Allowance for loan losses to gross loans								1.05	%		0.82	%
Allowance for loan losses to nonperforming loans								187.0	%		168.9	%
Nonperforming assets to total assets		0.71	%		0.81	%		0.60	%		0.56	%
Nonperforming loans to gross loans		0.50	%		0.58	%		0.56	%		0.48	%

Total assets increased by ~~$13.6~~$51.6 million to ~~$1.09~~$1.18 billion as of ~~June 30, 2019~~March 31, 2020 from ~~$1.08~~$1.13 billion as of December 31, ~~2018,~~2019, primarily due to net loan growth in the first ~~half~~three months of ~~2019~~2020 of ~~$15.7~~$43.4 million.

The following tables present information about the securities portfolio on a taxable-equivalent basis as of the dates stated. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, available-for-sale securities represented ~~7.4%~~8.0% and ~~7.6%~~8.8% of total assets, respectively.

	June 30, 2019									March 31, 2020
	Amortized Cost		Fair Value		Weighted Average Life in Years		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Life in Years		Weighted Average Yield
U.S. Government agencies and mortgage backed securities	$	51,941	$	51,867		6.7		2.31	%	$	60,305	$	61,541		5.8		2.18	%
State and municipal obligations		16,810		17,054		4.6		3.03	%		15,492		15,861		4.3		3.16	%
Corporate bonds		12,180		12,248		4.0		5.68	%		17,175		17,216		4.8		5.39	%
Total available-for-sale securities		80,931		81,169		5.1		2.99	%		92,972		94,618		5.0		2.87	%
Restricted securities		6,769		6,769	n/a			6.71	%		5,752		5,752	n/a			5.83	%
Total securities	$	87,700	$	87,938				3.30	%	$	98,724	$	100,370				3.03	%

	December 31, 2018									December 31, 2019
	Amortized Cost		Fair Value		Weighted Average Life in Years		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Life in Years			Weighted Average Yield
U.S. Government agencies and mortgage backed securities	$	51,126	$	49,882		6.1		2.28	%	$	67,491	$	67,597		6.1			2.18	%
State and municipal obligations		20,484		20,217		6.3		3.15	%		16,238		16,576		5.4	��		3.16	%
Corporate bonds		12,194		12,133		5.2		5.62	%		15,165		15,281		3.8			5.61	%
Total available-for-sale securities		83,804		82,232		5.9		2.87	%		98,894		99,454		5.1			2.92	%
Restricted securities		7,600		7,600	n/a			5.75	%		5,706		5,706	n/a				6.30	%
Total securities	$	91,404	$	89,832				3.08	%	$	104,600	$	105,160					3.18	%

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

	June 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
Mortgage loans on real estate:
Residential first mortgages													$	298,539			30.9	%	$	293,913			31.8	%
Commercial mortgages (non-owner occupied)														229,488			23.6	%		196,143			21.2	%
Construction, land and land development	$	110,598			12.2	%	$	109,475			12.2	%		127,417			13.1	%		126,010			13.6	%
Commercial mortgages (non-owner occupied)		178,532			19.5	%		180,074			20.0	%
Commercial mortgages (owner occupied)		82,990			9.0	%		87,241			9.7	%		75,455			7.8	%		82,829			9.0	%
Residential first mortgages		305,252			33.2	%		298,894			33.1	%
Residential revolving and junior mortgages		35,875			3.9	%		38,313			4.2	%		31,505			3.2	%		31,893			3.4	%
Commercial and industrial		187,531			20.4	%		164,608			18.2	%		198,278			20.4	%		181,730			19.7	%
Consumer		16,889			1.8	%		23,740			2.6	%		9,846			1.0	%		11,985			1.3	%
Total loans		917,667			100.0	%		902,345			100.0	%		970,528			100.0	%		924,503			100.0	%
Net unamortized deferred loan fees		(275	)					(252	)					(333	)					(313	)
Allowance for loan losses		(7,479	)					(7,902	)					(10,172	)					(7,562	)
Loans receivable, net	$	909,913					$	894,191					$	960,023					$	916,628

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, gross loans increased by ~~$15.3~~$46.0 million, ~~an annualized growth rate of over 3%~~or 5%, from December 31, 2018. Excluding the payoff of approximately $19.5 million of purchased portfolio loans in the first half of 2019, including those acquired in the Merger, gross loan growth for the six months ended June 30, 2019 on an annualized basis was nearly 8%.2019. The largest components of this increase were a ~~$22.9~~$26.0 million increase in commercial mortgages and a $16.5 million increase in commercial and industrial ~~loans and a $3.9 million increase in residential loans, partially offset by a $6.9 million decline in consumer loans and a $5.8 million decline in commercial mortgages.~~loans.

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.

	June 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	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	$	5,052		77.8	%	$	4,967		79.2	%	$	7,255		78.6	%	$	5,372		79.0	%
Commercial and industrial		1,537		20.4	%		1,374		18.2	%		2,400		20.4	%		1,571		19.7	%
Consumer		890		1.8	%		1,561		2.6	%		517		1.0	%		619		1.3	%
Total allowance for loan losses	$	7,479		100.0	%	$	7,902		100.0	%	$	10,172		100.0	%	$	7,562		100.0	%

As of March 31, 2018 to $7.5 million as of June 30, 2019, primarily due to net charge-offs of $799 thousand, almost exclusively for a select portfolio of purchased consumer loans, partially offset by provision for loan losses of $376 thousand recorded for the six months ended June 30, 2019.

~~Other real estate owned, net (“OREO”), as of June 30, 2019~~2020, OREO was ~~$3.2~~$1.7 million, consisting of 2215 properties ~~(16~~(11 of which were land lots), compared to ~~$3.6~~$1.9 million of OREO ~~(26~~(18 properties) as of December 31, ~~2018,~~2019, or a ~~$429~~$237 thousand decrease. This decrease was primarily attributable to the sale of six residential properties ($481 thousand carrying amount) in the first half of 2019, partially offset by the addition of two residential properties ($152 thousand carrying amount).

As of ~~June 30, 2019,~~March 31, 2020, total deposits were ~~$875.6~~$964.5 million compared to ~~$842.2~~$910.4 million at December 31, ~~2018,~~2019, a ~~$33.4~~$54.0 million ~~or 8% annualized,~~ increase. Time deposits comprised $43.5 million of this increase, a substantial portion of which was attributable to short-term time deposits sourced from the Promontory Interfinancial Network’s Certificate of Deposit Account Registry Service (“CDARS”). As of March 31, 2020 and December 31, 2019, CDARS time deposits were $47.0 million and $10.5 million, respectively. The ~~increase~~growth in these deposits was primarily ~~due to an increase~~in anticipation of ~~$16.5 million in time deposits~~liquidity for PPP loans and ~~an increase~~other depositor requirements as a result of ~~$14.8 million in savings and interest-bearing demand deposits.~~the COVID-19 pandemic.

Maturities of large denomination time deposits (equal to or greater than $100 thousand) as of ~~June 30, 2019~~March 31, 2020 are presented in the following table.

As of ~~June 30, 2019,~~March 31, 2020, the Company had ~~one~~two fixed rate FHLB ~~advance~~advances totaling of ~~$60.0~~$25.0 million and ~~one~~two variable rate FHLB ~~advance of $10.0~~advances totaling $20.0 million outstanding. As of December 31, ~~2018,~~2019, the Company had three fixed rate FHLB advances totaling ~~$90.0~~$35.0 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.

As of ~~June 30, 2019,~~March 31, 2020, cash and cash equivalents totaled ~~$24.6~~$54.7 million; investment securities maturing in one year or less totaled ~~$4.7 million,~~$11.0 million; and loans maturing in one year or less totaled ~~$214.0~~$108.5 million. This resulted in a liquidity ratio as of ~~June 30, 2019~~March 31, 2020 of ~~22.2%~~14.7% compared to ~~21.5%~~13.0% as of December 31, ~~2018.~~2019. 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~~As of March 31, 2020, the Company ~~has~~had a secured borrowing line with the FHLB of ~~$274.7~~$281.9 million, with ~~$186.7~~$205.9 million available, ~~as of June 30, 2019,~~ and unsecured federal funds lines of credit with various correspondent banks totaling $41.0 million. Federal funds lines of credit are uncommitted and can be cancelled at any time by the lending bank.

As of ~~June 30, 2019,~~March 31, 2020, other than the potential effect on liquidity of the COVID-19 pandemic, 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. Management has and continues to monitor the effects of the COVID-19 pandemic on the Company’s liquidity. For example, management monitors for unusual changes in deposit balances, access to funding sources, amortization of loan balances, and the various liquidity programs offered by the FRB (in response to COVID-19). The Company is participating in the FRB’s PPP Liquidity Facility (“PPPLF”), which allows banks to pledge PPP loans as collateral in exchange for advances. The PPPLF advances are at 100% of the PPP loan value and term, have a fixed cost of 35 basis points, and receive favorable regulatory capital treatment. As of March 31, 2020, management believes the COVID-19 pandemic has not had an adverse effect on the Company’s 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 of 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 income, ~~(loss),~~ net of taxes, was ~~$122.5~~$126.5 million as of ~~June 30, 2019~~March 31, 2020 compared to ~~$118.8~~$126.1 million as of December 31, ~~2018.~~2019. The increase of ~~$3.7 million~~$351 thousand was primarily attributable to share-based compensation expense of $142 thousand, director and executive stock grants of $105 thousand, and stock options exercised, net, ~~income~~ of ~~$3.2 million for~~$81 thousand in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. Accumulated other comprehensive income, ~~(loss),~~ net of taxes, ~~decreased~~increased by ~~$1.4 million~~$866 thousand from December 31, ~~2018~~2019 to ~~June 30, 2019, primarily~~March 31, 2020, due to an increase in unrealized net gains, net of taxes, in the Company’s available-for-sale securities portfolio.

Book value per share of the Company’s common stock, including accumulated other comprehensive income, ~~(loss),~~ net of tax, increased to ~~$9.20~~$9.55 as of ~~June 30, 2019~~March 31, 2020 from ~~$8.90~~$9.51 as of December 31, ~~2018.~~2019.

The Company and the Bank isare subject to minimum regulatory capital ratios as defined by the Federal Reserve. As of ~~June 30, 2019,~~March 31, 2020, the Company and 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 subject to capital rules adopted by federal bank regulators implementing the Basel III regulatory capital reforms adopted by the Basel Committee, and certain changes required by the Dodd-Frank Act. These rules require the Bank to comply with the following minimum capital ratios: (i) a Common Equity Tier 1 ~~Capital~~capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 ~~Capital~~capital ratio of 6.0% of risk-weighted assets; (iii) a ~~Total Risked-based Capital~~total capital ratio of 8.0% of risk-weighted assets; and (iv) a ~~Leverage~~leverage ratio of 4.0% of ~~total~~average adjusted assets. The following additional capital requirements related to the ~~“capital~~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,~~buffer (promulgated by the ~~rules~~Basel III regulatory capital rules) require the Bank to ~~maintain:~~maintain (i) a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a

2.5% ~~capital~~“capital conservation ~~buffer~~buffer” (which is added to the 4.5% Common Equity Tier 1, effectively resulting in a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 ~~Capital~~capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 ~~Capital~~capital ratio of 8.5%), (iii) a minimum ratio of ~~Total Risk-based Capital~~total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum ~~Total Risk-based Capital~~total capital ratio of 10.5%), and (iv) a minimum ~~Leverage~~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~~be subject to constraints on dividends, equity repurchases, and discretionary compensation paid to certain officers, based on the amount of the shortfall. As of March 31, 2020 and December 31, 2019, capital ratios of the Bank were in excess of the regulatory conservation buffer levels.

The following tables present capital ratios for the Bank, minimum capital ratios required with conservation buffer, and ratios defined as “well capitalized” by the Bank’s regulators as of the dates stated.

As of June 30, 2019	Actual Ratio			Minimum Capital Requirement Ratio			Well- Capitalized Ratio
As of March 31, 2020										Actual Ratio			Minimum Capital Requirement Ratio with Conservation Buffer			Minimum to be Well Capitalized
Total risk-based capital		12.82	%		10.50	%		10.00	%		13.29	%		10.50	%		10.00	%
Tier 1 capital		12.00	%		8.50	%		8.00	%		12.24	%		8.50	%		8.00	%
Common equity tier 1		12.00	%		7.00	%		6.50	%		12.24	%		7.00	%		6.50	%
Tier 1 leverage ratio		10.14	%		4.00	%		5.00	%		10.69	%		4.00	%		5.00	%

As of December 31, 2018	Actual Ratio			Minimum Capital Requirement Ratio			Well- Capitalized Ratio
As of December 31, 2019										Actual Ratio			Minimum Capital Requirement Ratio with Conservation Buffer			Minimum to be Well Capitalized
Total risk-based capital		11.68	%		9.875	%		10.00	%		13.07	%		10.50	%		10.00	%
Tier 1 capital		10.80	%		7.875	%		8.00	%		12.26	%		8.50	%		8.00	%
Common equity tier 1		10.80	%		6.375	%		6.50	%		12.26	%		7.00	%		6.50	%
Tier 1 leverage ratio		9.42	%		4.000	%		5.00	%		10.42	%		4.00	%		5.00	%

In the normal course of business, the Company offers various financial products to ~~its~~our customers to meet their credit and liquidity needs. These instruments may involve elements of liquidity, credit, and interest rate risk in excess of the amount recognized in the Company’s 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~~standby-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~~The credit risk of issuing letters of credit ~~which guarantee payment~~is essentially the same as that involved in extending loans to ~~the underlying beneficiary (i.e., third party) if the customer fails to meet its designated financial obligation.~~customers.

The following table presents off balance sheet commitments as of the dates stated.

	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Total loan commitments outstanding	$	156,786	$	160,479	$	153,667	$	164,751
Stand-by letters of credit		3,683		2,848		6,584		6,118

There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s ~~2018~~2019 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 ~~June 30, 2019.~~March 31, 2020.

There was no change to the Company’s internal control over financial reporting during the three months ended ~~June 30, 2019~~March 31, 2020 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~~Other than as set forth below, there have been no material changes to the risk factors disclosed in the ~~2018~~2019 Form 10-K.

The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect the Company’s business, financial condition, and operations; the extent of such impacts are highly uncertain and difficult to predict.

Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which the Company operates, implementing numerous measures to try to contain the virus. These measures, including shelter-in-place orders and business limitations and shutdowns, have significantly contributed to rising unemployment and negatively affected consumer and business spending.

The COVID-19 outbreak has adversely affected and is likely to continue to adversely affect the Company’s employees and operations and the operations of its customers and business partners. In particular, the Company may experience adverse effects due to a number of operational factors impacting the Company or the Company’s customers or business partners, including but not limited to:

The extent to which the pandemic affects the Company’s business, liquidity, financial condition, and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In addition, the rapidly changing and unprecedented nature of COVID-19 heightens the inherent uncertainty of forecasting future economic conditions and their impact on the Bank’s loan portfolio, thereby increasing the risk that the assumptions, judgments, and estimates used to determine the allowance for loan losses and other estimates are incorrect. Further, the Bank’s loan modification program could delay or make it difficult to identify the extent of asset quality deterioration during the short-term deferral period. As a result of these and other conditions, the ultimate impact of the pandemic is highly uncertain and subject to change, and the Company cannot predict the full extent of the effects on the Company’s business, the Company’s operations, or the global economy as a whole. To the extent any of the foregoing risks or other factors that develop as a result of COVID-19 materialize, it could exacerbate the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, or otherwise materially and adversely affect the Company’s business, liquidity, financial condition, and results of operations.

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

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS		43

CONSOLIDATED BALANCE SHEETS AS OF ~~JUNE 30, 2019~~MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, ~~2018~~2019		3

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)		4

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)		5

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)		76

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~SIX~~THREE MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~ (UNAUDITED)		97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		108

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2925

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		4033

ITEM 4. CONTROLS AND PROCEDURES		4133

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		4134

ITEM 1A. RISK FACTORS		4134

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		4134

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		4135

ITEM 4. MINE SAFETY DISCLOSURES		4135

ITEM 5. OTHER INFORMATION		4135

ITEM 6. EXHIBITS		4236

	~~June 30, 2019~~March 31, 2020
Weighted average remaining lease term - operating leases	89 years
Weighted average discount rate - operating leases		~~3.11~~3.11%	%

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


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	☐

	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

	For the Three Months Ended March 31, 2020
	Net Unrealized Gains on Available-for-Sale Securities			Pension and Post-retirement Benefit Plans			Accumulated Other Comprehensive Income, net
Balance as of January 1, 2020	$	437		$	(354	)	$	83
Change in net unrealized holding gain on available-for-sale securities, net of deferred tax expense of $225		845			—			845
Reclassification for previously unrealized net gains recognized in net income, net of tax expense of $5		21			—			21
Balance as of March 31, 2020	$	1,303		$	(354	)	$	949

	For the Three Months Ended March 31, 2019
	Net Unrealized Gains (Losses) on Available-for-Sale 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 on available-for-sale securities, net of deferred tax expense of $214		806			—			806
Balance as of March 31, 2019	$	(446	)	$	(75	)	$	(521	)

	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	%

		Within 3 Months				3-6 Months				6-12 Months				Over 12 Months				Total				Percent of Total Deposits
Time deposits		$	25,984			$	40,701			$	51,991			$	100,765			$	219,441				25.1	%

	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	%

	Three Months Ended March 31, 2020									Twelve Months Ended December 31, 2019
	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	$	45,000	$	50,000	$	41,264		2.27	%	$	45,000	$	100,000	$	76,181		2.74	%


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 ~~June 30, 2019,~~March 31, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (v) Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and (vi) Notes to Consolidated Financial Statements.

	Bay Banks of Virginia, Inc.
	(Registrant)

~~August 8, 2019~~May 11, 2020	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)